DC Brands International (HRDN) 10-Q 2012 Q1 Quarterly report

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________

FORM 10 - Q

_______________________________

x   QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2012

o   TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to  

Commission File Number 000-54031

_____________________________________________________________

DC BRANDS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Colorado	20-1892264
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

9500 W. 49 th Avenue, Suite D-106, Wheat Ridge, CO 80033

(Address of principal executive offices including zip code)

(303) 279 3800

 ( Registrant’s telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x   No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o   No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer o Smaller Reporting Company x

Number of shares outstanding of the issuer’s common stock as of the latest practicable date: 880,906,827 shares of common stock, $.001 par value per share, as of May 15, 2012.

Transitional Small Business Disclosure Format (Check one): Yeso    Nox

DC BRANDS INTERNATIONAL, INC.

		Page
	PART I.—FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Balance Sheets (March 31, 2012 Unaudited)	2
	Consolidated Statements of Operations (Unaudited)	3
	Consolidated Statements of Cash Flows (Unaudited)	4
	Consolidated Statements of Stockholders' Deficit (Unaudited)	5
	Notes to Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Conditions and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	22
Item 4.	Controls and Procedures	22
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	23
SIGNATURE		25

ITEM 1. FINANCIAL STATEMENTS

DC BRANDS INTERNATIONAL, INC.

Consolidated Financial Statements

As of March 31, 2012 and 2011

(Unaudited)

1

DC Brands International, Inc.

Consolidated Balance Sheets

As of March 31, 2012 and December 31, 2011

	March 31,			December 31,
	2012			2011
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	16,256		$	15,939
Accounts receivable		36,272			29,843
Inventory		162,938			161,011
Total current assets		215,466			206,793
Property and equipment, net		23,230			18,390
Total assets	$	238,696		$	225,183
Liabilities
Current liabilities
Accounts payable	$	91,876		$	207,931
Accrued interest payable		1,058,104			863,320
Accrued liabilities		637			637
Related party payable		1,667,583			1,413,569
Short-term notes payable and current portion of long-term debt		3,066,161			3,206,483
Total current liabilities		5,884,361			5,691,940
Long-term debt  to related party		1,650,841			1,650,841
Long-term debt (Net of Unamortized Discount of $1,044,458 as of March 31, 2012 and $1,170,230 as of December 31, 2011)		2,101,101			1,825,829
Total liabilities		9,636,303			9,168,610
Stockholders' deficit
Preferred Stock, $0.001 par value; 25,000,000 shares authorized
Series A Preferred Stock, 100,000 shares authorized; shares issued
and outstanding - 91,111 shares as of March 31, 2012 and December 31, 2011		91			91
Series B Preferred Stock, 2,500 shares authorized; shares issued
and outstanding - 106 shares as of March 31, 2012 and 86 shares as of December 31, 2011		-			-
Common Stock, $0.001 par value;5,000,000,000
shares authorized; shares issued and outstanding
- 484,965,209 as of March 31, 2012 and 199,113,770  as of December 31, 2011		484,965			199,114
Additional paid in capital		79,126,811			78,270,784
Issuances in exchange for promotional consideration		-			-
Accumulated deficit		(89,009,474	)		(87,413,416	)
Total stockholders' deficit		(9,397,607	)		(8,943,427	)
Total liabilities and stockholders' deficit	$	238,696		$	225,183

The accompanying notes are an integral part of these unaudited financial statements.

2

DC Brands International, Inc.

Consolidated Statements of Operations

For the Three Months Ended March 31, 2012 and 2011

(unaudited)

	Three Months Ended March 31,
	2012			2011
Net Revenues	$	65,201		$	128,961
Cost of goods sold		37,572			72,554
Gross margin		27,629			56,407
Operating Expenses
General and administrative (includes share based compensation of $18,000  in 2012  and $827,092 in 2011)		526,680			1,304,707
Sales and marketing (includes share based compensation of $0 in 2012 and $232,219 in 2011)		135,236			430,019
Depreciation and amortization		(4,840	)		21,475
Total operating expenses		657,076			1,756,201
Loss from operations		(629,447	)		(1,699,794	)
Other Expense (Income)
Interest expense		345,831			275,679
Interest expense - warrant liability		-			90,000
Loss on retirement of debt		620,780			1,160,500
Total other expense (income)		966,611			1,526,179
Net Loss	$	(1,596,058	)	$	(3,225,973	)
Weighted average number of common shares outstanding		347,758,510			32,329,090
Basic and diluted net loss per common share	$	(0.00	)	$	(0.10	)

The accompanying notes are an integral part of these unaudited financial statements.

3

DC Brands International, Inc.

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2012 and 2011

(unaudited)

	For Three Months Ended March 31,
	2012			2011
Cash used in operating activities
Net loss	$	(1,596,058	)	$	(3,225,973	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		(4,840	)		21,475
Common stock issued for services		18,000			1,059,311
Debt Issued for services		45,000			-
Reduction of debt for use of facilities		(60,000	)
Loss on retirement of debt		620,780			1,160,500
Amortization of debt discount		133,544			94,860
Changes in operating assets and liabilities:
Accounts receivable		(6,429	)		(15,982	)
Inventory		(1,927	)		78,045
Accounts payable		(116,055	)		(175,710	)
Accrued interest payable		194,788			172,168
Related party payable		254,014			172,907
Warrant liability		-			90,000
Net cash used in operating activities	$	(459,183	)	$	(568,399	)
Cash used in investing activities
Purchase of property and equipment		-			-
Net cash used in investing activities	$	-		$	-
Cash provided by financing activities
Proceeds from notes payable		519,500			580,500
Payment on notes payable		-			(4,806	)
Net cash provided by financing activities	$	459,500		$	575,694
Net increase in cash and cash equivalents	$	317		$	7,295
Cash and cash equivalents
Beginning of period		15,939			23,234
End of period	$	16,256		$	30,529
Supplemental Disclosure of Noncash
Investing and Financing Activities
Common stock issued for retirement of debt and accrued interest	$	1,116,102		$	1,522,500
Discount on common and preferred stock	$	7,776
Notes payable converted to common stock	$	865,322		$	1,479,771
Preferred stock issued as incentive for debt	$	7,776
Common stock issued as incentive for debt				$	192,500
Supplemental Disclosure
Interest paid	$	7,500		$	8,653

The accompanying notes are an integral part of these unaudited financial statements.

4

DC Brands International, Inc.

Consolidated Statement of Stockholders’ Deficit

For the Three Months Ended March 31, 2012

	Series A Preferred Stock				Series B Preferred Stock				Common Stock				Additional Paid in		Accumulated			Total Stockholders'
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Deficit
Balance, Dec 31, 2011		91,111	$	91		86	$	-		199,113,770	$	199,114	$	78,270,784	$	(87,413,416	)	$	(8,943,427	)
Preferred Stock issued with Debt						20								7,776					7,776
Common stock issued in exchange for services										6,000,000		6,000		12,000					18,000
Common stock issued in exchange for retirement of debt										279,851,439		279,851		836,251		(1,596,058	)		(479,956	)
Balance, March 31, 2012		91,111	$	91		106	$	-		484,965,209	$	484,965	$	79,126,811	$	(89,009,474	)	$	(9,397,607	)

The accompanying notes are an integral part of these unaudited financial statements.

5

1.   Business and Significant Accounting Policies

The Company

DC Brands International, Inc. (“DC Brands” or the “Company”) was incorporated under the laws of Colorado in 1998 as Telemerge Holding Corp. and changed its name to DC Brands International, Inc. in 2004.  DC Brands specializes in the manufacture, marketing and distribution of health related products that utilize natural botanicals, vitamins, minerals and supplements and are aimed at maximizing the full potential of the body.    The Company’s current focus is on the sale of products under its H.A.R.D. Nutrition label.  The Company currently has two distinct types of products sold under its H.A.R.D. Nutrition logo; Functional Water Systems and nutritional supplements.  The Company’s products are sold to consumers, primarily through retail outlet distribution.  The Company’s products were distributed principally in the state of Colorado during 2011 and 2010.

Financial Condition

The Company has incurred significant losses and negative cash flows since its inception.   In addition, the Company had negative working capital (current assets less current liabilities) at March 31, 2012.  The Company’s ability to continue as a going concern is contingent upon its ability to secure additional financing.  There can be no assurance given that it will be successful in its efforts to raise capital or if successful that they were be on terms that are favorable.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Basis of Presentation

These statements reflect all normal recurring adjustments, which, in the opinion of management, are necessary for the fair presentation of financial position, results of operations and cash flows for the periods presented.   The accompanying financial statements should be read in conjunction with DC Brands’ consolidated financial statements contained in the Company’s Annual Report on Form 10K for the years ended December 31, 2010 and 2011 filed with the Securities and Excahnege Commission on March 30, 2012, which includes all disclosures required by accounting principles generally accepted in the United States of America, or GAAP. The results of operations for the periods ended March 31, 2012 and 2011 are not necessarily indicative of expected operating results for the full year.

Principles of Consolidation

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries DC Nutrition, Inc. and DC Brands, LLC (inactive).  All material intercompany transactions and balances have been eliminated.

6

Credit Risk and Customer Concentrations

Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly effected by changes in economic or other conditions.  Financial instruments potentially subjecting the Company to concentrations of credit risk consist principally of accounts receivable.

As of March 31, 2012, one customer represented 53% and a second customer represented 13% of the Company’s accounts receivable.  Both customers are wholesale distributors, who provided product to the Company’s single largest retail grocery outlet, which represented 52% of the Company’s revenue volume during the three months ended March 31, 2012. Another customer represented 28% of the Company’s accounts receivable who is a wholesale distributor to the company’s second largest retail grocery outlet who services the military market.

Recent Accounting Pronouncements

During the period ended March 31, 2012, there were no new accounting pronouncements issued by the FASB. The most recent pronouncement issued was Accounting Standards Update No. 2011-12—Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.  Each of these pronouncements, as applicable, has been or will be adopted by the Company.  Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.

2.   Inventory

Inventory consisted of the following:

	March 31,		December 31,
	2012		2011
Finished goods	$	56,181	$	68,173
Work in process		33,259		47,365
Raw materials		73,498		45,473
		162,938		161,011
Allowance for obsolescence		-		-
	$	162,938	$	161,011

7

3.   Property and Equipment

Property and equipment consisted of the following:

	March 31,			December 31,
	2012			2011
Leasehold improvements	$	14,004		$	14,004
Office furniture and fixtures		31,521			31,521
Vehicles		226,843			226,843
Warehouse equipment		103,134			103,134
Computer equipment		75,170			75,170
		450,672			450,672
Accumulated depreciation		(427,442	)		(432,282	)
	$	23,230		$	18,390

Accumulated depreciation was adjusted in the 1st quarter of 2012 to correct some over amortization of some assets.

4.   Commitments and Contingencies

The Company leases office and warehouse space under a non-cancellable operating lease expiring in April 2013.  Future minimum lease payments under the lease are as follows:

Years Ending December 31,
Remaining 9 months of 2012	$	155,124
2013	$	69,260

Minimum salary commitments under contracts with the Company’s CEO and Executive Vice-President are as follows:

Years Ending December 31,
Remaining 9 months of 2012	$	722,109
2013	$	1,007,031
2014	$	750,000

8

5.   Notes Payable

A summary of notes payable as of March 31, 2012 is as follows:

	Current		Long Term			Total
1 Note payable, originated in 2004, due in 2006,	$	538,890	$	-		$	538,890
6% interest rate, secured by assets of
DC Brands, LLC, a wholly owned subsidiary
1 Note payable originated in 2007, due in 2007,		10,000		-			10,000
36% interest, unsecured
1 Note payable originated in 2007, due in 2008,		14,266		-			14,266
24% interest, unsecured
7 Notes payable, originated in 2008,		462,874		-			462,874
due at various dates from July to August
2010, 15% interest, unsecured
6 Notes payable, originated in 2010, due		145,931		637,017			782,948
January 1, 2015, 10.25% interest, unsecured
3 Notes payable, originated in 2010, due		592,933		-			592,933
July 1, 2013, callable by Noteholders after
January 1, 2012,   6% interest, unsecured
1 Note payable, originated in 2010, due		-		333,209			333,209
July 1, 2013, 16% interest, unsecured
12 Notes payable, originated in 2010 and 2011, due		-		1,078,333			1,078,333
due at various dates from July 2013 to March 2014,
16% interest, unsecured
1 Note payable, originated in 2011, due		94,767		-			94,767
Dec 31, 2013, 4% interest, unsecured
7 Notes payable, originated in 2011 &2012, due to be		750,000		575,000			1,325,000
repaid from a portion of gross sales beginning in
Feb 2012, 12% interest, unsecured
2 Notes payable, originated in 2011, due		85,500		-			85,500
Aug & Sept, 2012, 8% interest, unsecured
1 Note payable, originated in 2011, due				522,000			522,000
Dec 31, 2015, 10.25% interest, unsecured
2 Notes payable, originated in 2011 & 2012, due in 2012		105,000		-			105,000
4% interest and a 15% redemption premium
1 Note payable, originated in 2011, due in 2012		266,000		-			266,000
6% interest
		3,066,161		3,145,559			6,211,720
Unamortized discount		-		(1,044,458	)		(1,044,458	)
	$	3,066,161	$	2,101,101		$	5,167,262
Related party notes
2 Notes payable, originated in 2010, callable	$	-	$	1,650,841		$	1,650,841
with 366 day notice, 10% interest, unsecured

9

A summary of notes payable as of December 31, 2011 is as follows:

	Current		Long Term			Total
1 Note payable, originated in 2004, due in 2006,	$	538,890	$	-		$	538,890
6% interest rate, secured by assets of
DC Brands, LLC, a wholly owned subsidiary
1 Note payable originated in 2007, due in 2007,		10,000		-			10,000
36% interest, unsecured
1 Note payable originated in 2007, due in 2008,		14,266		-			14,266
24% interest, unsecured
7 Notes payable, originated in 2008,		462,873		-			462,873
due at various dates from July to August
2010, 15% interest, unsecured
6 Notes payable, originated in 2010, due		271,254		1,007,017			1,278,271
January 1, 2015, 10.25% interest, unsecured
3 Notes payable, originated in 2010, due		592,933		-			592,933
July 1, 2013, callable by Noteholders after
January 1, 2012,   6% interest, unsecured
1 Note payable, originated in 2010, due		-		333,209			333,209
July 1, 2013, 16% interest, unsecured
12 Notes payable, originated in 2010 and 2011, due		-		1,078,333			1,078,333
due at various dates from July 2013 to March 2014,
16% interest, unsecured
1 Note payable, originated in 2011, due		94,767		-			94,767
Dec 31, 2013, 4% interest, unsecured
6 Notes payable, originated in 2011, due to be		750,000		325,000			1,075,000
repaid from a portion of gross sales beginning in
Feb 2012, 12% interest, unsecured
2 Notes payable, originated in 2011, due		85,500		-			85,500
Aug & Sept, 2012, 8% interest, unsecured
1 Note payable, originated in 2011, due				252,500			252,500
Dec 31, 2015, 10.25% interest, unsecured
1 Note payable, originated in 2011, due in 2012		60,000		-			60,000
4% interest and a 15% redemption premium
1 Note payable, originated in 2011, due in 2012		326,000		-			326,000
6% interest
		3,206,484		2,996,059			6,202,541
Unamortized discount		-		(1,170,230	)		(1,170,230	)
	$	3,206,484	$	1,825,829		$	5,032,311
Related party notes
2 Notes payable, originated in 2010, callable	$	-	$	1,650,841		$	1,650,841
with 366 day notice, 10% interest, unsecured

10

As of March 31, 2012 and December 31, 2011, thirteen notes payable totaling $1,618,963 and ten notes payable totaling $1,026,030, respectively, were past due.  There are no default penalties or fees that may be sanctioned against the Company for not paying the notes upon maturity.  The Company intends to restructure these notes into long-term debt or equity.

The Company settled notes payable and accrued interest payable totaling $495,318 and $362,000 during the three months ended March 31, 2012 and 2011, respectively by issuing 279,851,439 and 2,325,000 shares of common stock during the three months ended March 31, 2012 and 2011, respectively.  The Company valued the shares based upon the closing share price at each retirement date and recorded a loss on retirement of debt of $620,780 during the three months ended March 31, 2012, and a loss on retirement of debt of $1,160,500 during the three months ended March 31, 2011.

Transactions involving notes payable subsequent to March 31, 2012 are set forth in Note 10. Subsequent Events.

6.   Income Taxes

The Company has not filed tax returns since its inception.  The Company is in the process of preparing past tax returns and does not believe that it will be exposed to any risk of penalty or forfeiture of NOLs.

At March 31, 2012 and December 31, 2011, the Company provided a full valuation allowance against any calculated deferred tax asset based on the weight of available evidence, both positive and negative, including the Company’s history of losses, which indicate that it is more likely than not that such benefits will not be realized.

7.   Stockholders’ Equity

Issuances of Common Stock

The Company issued common stock during the three months ended March 31, 2012 as set forth below.  The common stock was valued at the fair market value at the date the Company became obligated to issue the shares.

The Company issued 6,000,000 shares of common stock during the three months ended March 31, 2012 related to services provided by vendors.  The shares were valued at a price of $0.003 per share and were collectively valued at $18,000.

11

The Company issued 279,851,439 shares of common stock during the three months ended March 31, 2012 in order to pay off or pay down notes payable and accrued interest.  The shares were valued at prices ranging from $0.01 to $0.001 per share. The shares were collectively valued at $1,116,102.

Series A Preferred Stock

The Series A Preferred Stock votes together with the common stock as a single class and the holders of the Series A Preferred Stock are entitled to such number of votes as shall equal 51.25% of the number of votes that may be cast by the outstanding shares of common stock.  The Series A Preferred Stock is not convertible into common stock and does not carry any redemption features.

Series B Preferred Stock

The company issued 20 shares of Series B preferred stock in the first 3 months of 2012. These shares were issued in conjunction with the issuance of $250,000 of debt. This brings the total shares of Series B preferred shares outstanding to 106.  These 106 shares of Series B preferred can be converted into 7.95% of the common stock of the Company. As of 3/31/2012 the Company would need to issue 41,884,554 of common shares if all of the Series B preferred was converted.

Warrants

The Company issued 14,630,000 Warrants exercisable for a maximum of 29,260,000 shares of common stock from March to May 2009 in conjunction with the sale of common stock at $0.05 per Unit, each Unit consisting of a share of common stock and a Warrant which expire between March 5, 2012 and May 29, 2012.  In the event that the average trading price exceeds $0.50 per share over any consecutive 20 day period between the 12th and 24th months following the issue date of the Warrants, the Warrants become null and void.  In the event that the average trading price does not exceed $0.50 per share as set forth above, the Warrant may be exercised by the holder. The Warrant is redeemable into the number of shares that would need to be issued to cause the holder to have achieved an average selling price of $0.50 per share had they sold their shares during the 60 days following the 24th month following this issue date of the Warrants. The warrants are exercisable at an exercise price of $0.00 no additional funds need be provided by the holders in order to exercise the warrants and to obtain the underlying shares once the milestone set forth above that allow for exercise is met. As the Measurement Period has not yet passed, the number of shares of common stock for which the Warrants may be redeemed is not yet determinable. For example if the average trading price of our common stock for the 60 days following the 24th month was $.20 the warrant holder is due $.30 of stock value.  Therefore they would be issued an additional 1 ½ shares of common stock ($.30 due / $.20 average value = 1 ½.)  If the average trading price of our common stock for the 60 days following the 24th month was $.40 the warrant holder is due $.10 of stock value.  Therefore they would be issued an additional 1/4 share of common stock ($.10 due / $.40 average value = 1/4.)   If the average trading price of our common stock for the 60 days following the 24th month was $.10 the warrant holder is due $.40 of stock value.  Therefore, because of the two share maximum, they would be issued an additional 2 share of common stock ($.40 due / $.10 average value = 4 reduced to 2 because of maximum.)

12

The Company issued 14,750,000 Warrants exercisable for a maximum of 29,500,000 shares of common stock from August to December 2009 in conjunction with the sale of common stock at $0.05 per Unit, each Unit consisting of a share of common stock and a Warrant which expire between November 15, 2010 and March 15, 2011.  In the event that the average trading price exceeds $0.15 per share in the three-month period between the 12th and 15th months following the issue date of the Warrants (the “Measurement Period”), the Warrants may be redeemed by the Company at a nominal amount.  In the event that the average trading price does not exceed $0.15 per share during the Measurement Period, the Warrant may be exercised by the holder.  The Warrant is redeemable into the number of shares that would need to be issued to cause the holder to have achieved an average selling price of $0.15 per share had they sold their shares during the Measurement Period. The warrants are exercisable at an exercise price of $0.00 no additional funds need be provided by the holders in order to exercise the warrants and to obtain the underlying shares once the milestone set forth above that allows for exercise is met. As the Measurement Period has not yet passed, the number of shares of common stock for which the Warrants may be redeemed is not yet determinable. For example if the average trading price of our common stock for the three-month period following the 12th month was $.10 the warrant holder is due $.05 of stock value.  Therefore they would be issued an additional  ½ shares of common stock ($.05 due / $.10 average value =  ½.)  If the average trading price of our common stock for the three-month period following the 12th month was $.20 the warrant holder is due no additional stock value.  Therefore no additional shares of stock would need to be issued.  If the average trading price of our common stock for the 60 days following the 24th month was $.03 the warrant holder is due $.12 of stock value.  Therefore, because of the two share maximum, they would be issued an additional 2 share of common stock ($.12 due / $.03 average value = 4 reduced to 2 because of maximum.) 

During 2010 2 million shares were issued in satisfaction of one warrant that reached maturity.  Also during 2010 nine warrants were purchased by the company for $9 because the stock traded above the target rate in excess of the required days during the life of the warrant.  This leaves the total warrants outstanding at 19,230,000 exercisable for a maximum of 38,460,000 shares of common stock. 

The warrant holders will receive restricted shares of common stock upon exercise of their warrants; however following exercise they will be entitled to piggyback registration rights under certain specified circumstances.  In 2011 the Company issued 3,846,000 shares as full settlement of these warrants.

Stock Rights

The Company’s CEO has the right to demand that the Company issue him 1,226,327 shares of common stock.  The right stems from his employment agreement, whereby he was entitled to receive shares, such that his ownership interest would equal 56.25% of outstanding common stock.   The Company recorded compensation expense as these rights were earned, prior to June 2007 when he relinquished the right to earn additional shares.

Equity Line of Credit

Southridge has committed to purchase up to $10 million of our common stock. From time to time during the term of the Equity Line, and at our sole discretion, we may present Southridge with a put notice requiring them to purchase shares of our common stock. The purchase price of the shares will be equal to ninety-two percent (92%) of the average of the two lowest closing bid prices for our common stock (the “Market Price”) during the five (5) trading day period beginning on the trading day immediately following the date Southridge receives our put notice. As a result, our existing shareholders will experience immediate dilution upon the purchase of any of the shares by Southridge. The issue and sale of the shares under the Equity Purchase Agreement may also have an adverse effect on the market price of the common shares. Southridge may resell some, if not all, of the shares that we issue to it under the Equity Purchase Agreement and such sales could cause the market price of the common stock to decline significantly. To the extent of any such decline, any subsequent puts would require us to issue and sell a greater number of shares to Southridge in exchange for each dollar of the put amount. Under these circumstances, our existing shareholders will experience greater dilution.

Transactions involving common stock subsequent to March 31, 2012 are set forth in Note 10. Subsequent Events.

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8.   Share Based Compensation Expense

The Company recognizes expense associated with shares issued for services over the service period.  The shares are valued based upon the fair value of the common stock on the date that the Company becomes obligated to issue the shares.  Expenses associated with shares issued for services are as follows:

	2012		2011
General and administrative	$	18,000	$	827,092
Sales and marketing		-		232,219
	$	18,000	$	1,059,311

9.   Related Party Transactions

The Company had related party payables of $1,667,583 and $1,413,569 at March 31, 2012 and December 31, 2011, respectively consisting primarily of deferred salaries payable and royalties payable to its officers. In June of 2010 $1,650,841 of related party payables were converted into two notes callable with 366 days notice and earning 10% interest. The Company is party to a royalty agreement with two of the Company’s officers whereby the officers are entitled to receive $0.05 per cap for each bottle cap sold. The bottle cap is a specialized cap that contains the vitamin supplements in the Company’s functional water system. The officers collectively deferred $217,421 and $189,135 in salaries and $1,246 and $2,446 in royalties during the three months ended March 31, 2012 and 2011, respectively.  The related party payables are non-interest bearing and due on demand.  We have 1 note payable that originated in 2011 with an aggregate principal balance of $266,000 due in 2012 bearing interest at 6%. This note is from Cut & Dried Productions, LLC a company in which Richard Pearce, the CEO of DC Brands International owns a majority interest. Cut & Dried may also provide advertising and marketing support to DC Brands. The Company has been reimbursed $60,000 during the year by Cut & Dried for the use of office space, personnel and other resources. One of the 12 notes payable with an aggregate principal balance of $1,078,333 originated in 2010 and 2011 with a 36 month maturity bearing interest at 16% is due to Bob Armstrong, the C.F.O. in the amount of $5,000.

10.   Subsequent Events

Subsequent to March 31, 2012, the Company issued common stock as follows:

	Shares		Common Stock		Additional Paid in Capital		Amount
For conversion of debt		370,941,610	$	370,942	$	38,205	$	409,147
In exchange for services		25,000,000		25,000		-		25,000
		395,941,610	$	395,942	$	38,205	$	434,147

Effective May 7, 2012 Steven Horgan became the President and COO of DC Brands International.  Richard Pearce retained his CEO position.

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Item 2.  Management’s Discussion and Analysis of Financial Conditions and Results of Operations

This discussion and analysis should be read in conjunction with the accompanying Financial Statements and related notes. Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis we review our estimates and assumptions. Our estimates are based on our historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations. Our critical accounting policies, the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments, are outlined below in ‘‘Critical Accounting Policies,’’ and have not changed significantly.

CAUTIONARY STATEMENT RELATING TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements made in this report may constitute “forward-looking statements on our current expectations and projections about future events”. These forward-looking statements involve known or unknown risks, uncertainties and other factors that may cause the actual results, performance, or achievements of the Registrant to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties. Although we believe that the expectations reflected-in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.   These forward-looking statements are made as of the date of this report, and we assume no obligation to update these forward-looking statements whether as a result of new information, future events, or otherwise, other than as required by law. In light of these assumptions, risks, and uncertainties, the forward-looking events discussed in this report might not occur and actual results and events may vary significantly from those discussed in the forward-looking statements.

General

The following analysis of our consolidated financial condition and results of operations for the three months ended March 31, 2012 should be read in conjunction with the consolidated financial statements, including footnotes, and other information presented elsewhere in this Quarterly Report on Form 10-Q and the risk factors and the financial statements for the year ended December 31, 2011 and the other information set forth in our Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition.

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Overview

We commenced sales of our H.A.R.D. Nutrition Functional Water Systems in August 2009 at King Soopers.From our inception to March 31, 2012, we had incurred an accumulated deficit of $89,009,474.  Our accumulated deficit through March 31, 2012 is primarily attributable to our issuance of stock compensation.

To date, we have met substantially all of our financing needs through private sale of shares of our common stock and other equity securities and loans from investors. We have raised a total of approximately $16,000,000 from our equity and debt financings subsequent to our acquisition of DC Brands, LLC in 2004. In addition, we have an accounts receivable factoring agreement with Liquid Capital Exchange, Inc. (“Liquid Capital”) pursuant to which we have agreed to sell, and Liquid Capital has agreed to purchase, certain of the accounts arising from the sale of our products. Liquid Capital in its sole discretion may advance up to 80% of the face amount of the accounts purchased less an applicable discount fee up to a maximum of $75,000. In order to secure our payment of all our indebtedness and obligations to Liquid Capital, we granted Liquid Capital a security interest and lien upon our accounts and our other assets. In July 2011 we entered into a $10 million equity funding facility with Southridge Partners II, LP, which is subject to various conditions being met prior to our use of the facility. There can be no guarantee that any funds will be derived from the equity line. If our revenue from sales and payments derived from our factoring arrangement and financing from our equity funding facility is not sufficient to meet our ongoing expenses we will need additional financing. 

Results of Operations

Quarter ended March 31, 2012 Compared to quarter ended March 31, 2011

Revenue- During the quarter ended March 31, 2012, we generated revenue of $65,201, a substantial portion of which was attributable to the sale of our H.A.R.D, Nutrition Functional Water System which commenced in August 2009.  This represented a 49% decrease from the prior year.  The decrease was primarily due to a reduction in advertising.  During the same period of 2011, we had revenue of $128,961.  Our gross margin decreased from $56,407 for the quarter ended March 31, 2011 to $27,629 for the quarter ended March 31, 2012. Our cost of goods sold decreased approximately 48% to $37,572 for the quarter ended March 31, 2010 from $72,554 for the quarter ended March 31, 2010.  The decrease in the cost of goods sold was attributable to the decrease in sales.    Sales of our H.A.R.D, Nutrition Functional Water System and H.A.R.D. Nutrition supplements accounted for 88% and 12% respectively of our revenue for the quarter ended March 31, 2012.

Expenses- Our total operating expenses, excluding depreciation and amortization, for the quarter ended March 31, 2012 were $661,916 as compared to $1,734,726 for the quarter ended March 31, 2011. 

General and administrative expenses were $526,680 and $1,304,707 for the quarters ended March 31, 2012 and March 31, 2011, respectively and included salaries, legal, accounting and other professional fees and occupancy related expenses.  Included in general and administrative expenses was stock based compensation expense for services provided by vendors and employees of $18,000 for the quarter ended March 31, 2012. The remaining general and administrative expenses $508,680 for the quarter ended March 31, 2012 included $418,673 for salaries, 57,228 for legal accounting and other professional expenses and -$3,267 (because of facilities use agreement payment of $60,000) for occupancy related expenses. Included in general and administrative expenses was stock based compensation expense for services provided by vendors and employees of $827,092 for the quarter ended March 31, 2011. The remaining general and administrative expenses $477,615 for the quarter ended March 31, 2011 included $267,743 for salaries, 48,615 for legal accounting and other professional expenses and $38,027 for occupancy related expenses.

Sales and marketing consisted of advertising and other promotional expenses. Sales and marketing expenses were $135,236 and $430,019 for the quarters ended March 31, 2012 and March 31, 2011, respectively and included stock based compensation for services provided by vendors and employees of $0 and $232,219 for the quarters ended March 31, 2012 and 2011 respectively.  The sales and marketing expenses of $135,236 for the quarter ended March 31, 2012 included $28,250 for advertising.  The sales and marketing expenses of $197,800 for the quarter ended March 31, 2011 included $0 for advertising.

Interest expense for the quarter ended March 31 2012 increased 25% to $345,831 from $275,679 for the quarter ended March 31, 2011 In addition, interest expense related to the warrant liability of $0 was recognized during the three months ended March 31, 2012 compared to $90,000 that was recognized during the three months ended March 31, 2011.

Net loss for the quarter ended March 31, 2012 decreased 50% to $1,596,058 as compared to $3,225,973 for the quarter ended March 31, 2011 and was attributable to an decreases in overall spending and a decrease in the loss on the retirement of debt of $620,720 during the three months ended March 31, 2012 in comparison to a loss on retirement of debt of $1,160,500 during the three months ended March 31, 2011.

Liquidity and Capital Resources

Revenues

At March 31, 2012 we had cash and cash equivalents of $16,256 as compared to $15,939 at December 31, 2011.  Our working capital deficit at March 31, 2012 was $5,668,895 and at December 31, 2011 was $5,485,147.   

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For the three months ended March 31, 2012 our cash used in operating activities was $519,183.  Our primary sources and uses of cash from operating activities for the period were losses from operations, loss on retirement of debt, amortization of debt discount and related party payables of $ 587,718.   

Net cash provided by financing activities for the three months ended March 31, 2012 was $519,500.

Current and Future Financing Needs

We have incurred an accumulated deficit of $89,009,474 through March 31, 2012. We have incurred negative cash flow from operations since we started our business. At March 31, 2012, we had short term and long term debt of $6,818,103, which includes related party debt.   We have no commitment for additional funding other than the factoring arrangement and the $10 million equity financing agreement that we have entered into. In addition, we have lease commitments of $155,124 and $69,260 for the remainder of 2012 and 2013.  We also have minimum salary commitments for compensation to our Chief Executive Officer and Executive Vice President in accordance with the terms of their employment agreements that range from $722,109 to $1,007,031. We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our advertising and marketing campaign,  and fees in connection with regulatory compliance and corporate governance. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control.  If our anticipated sales for the next few months do not meet our expectations, our existing resources will not be sufficient to meet our cash flow requirements for the next few months. Furthermore, if our expenses exceed our anticipations, we will need additional funds to implement our business plan. We will not be able to fully establish our business if we do not have adequate working capital and if we do not have adequate working capital we may need to raise additional funds, whether through a stock offering or otherwise.

We also have note payable commitments with respect to various notes payable issued to unaffiliated third parties who are accredited investors. A summary of notes payable as of March 31, 2012 is as follows: At March 31, 2012 we had 46 notes outstanding, of which thirteen notes or 26% of the aggregate principal balance were past due. Three notes in the aggregate principal amount of $563,156 bearing interest at a range from 6% to 36% are past due and to date no demand for payment has been made. Notes in the aggregate principal amount of $462,873 bearing interest at a rate of 15% are owed to 7 investors in our private placements are past due and to date no demand for payment has been made. Notes in the aggregate principal amount of $926,142 owed to four investors with a maturity date of July 1, 2013. These notes bear interest at a range from 6% to 16% per annum. Three of these notes with a total principal amount of $592,933 are callable by holder anytime after January 1, 2012 and were called in 2012.  We are currently negotiating an extension with these note holders. The $5 million revolving note with a principal outstanding balance as of March 31, 2012 of $782,948 bears interest at a rate of 10.25% per annum and matures on January 1, 2015. The revolving note can be converted into shares of common stock at 20% of the closing price of the stock on the day prior to conversion. During the three months ended March 31, 2012, $370,000 was assigned to other lenders of which $140,681 is outstanding principle at the balance sheet date. The conversion rates for these assigned notes range from 50% - 70% of the average closing trade or bid price for the five to ten days prior to conversion; and others have a conversion rate the lower of a set dollar amount or 60 - 65% of the lowest two trade or bid prices for the 5-10 days prior to the conversion date. We have 12 notes payable with an aggregate principal balance of $1,078,333 originated in 2010 and 2011 with a 36 month maturity bearing interest at 16%. We have 7 notes payable with an aggregate principal balance of $1,325,000 originated in 2011 with a 24 month maturity bearing interest at 12%. 102 shares of Series B preferred stock were issued in conjunction with these notes. We have one note payable originated in 2011 that converted a payable overdue to one of our vendors. The note bears interest at 4% and has a maturity of 12/31/13. We have 2 notes payable originated in 2011 with an aggregate principal balance of $85,500 originated in 2011 with a 9 month maturity bearing interest at 8%. These notes are convertible into common stock after 6 months. We have one note payable originated in 2011 with an aggregate principal balance of $522,000 originated in 2011 with a maturity date of December 31, 2015 bearing interest at 4%. We have 2 notes payable originated in 2011and 2012 with an aggregate principal balance of $105,000, bearing 4% interest, which matures in 2012 and carries a 15% redemption premium.

Related Party Notes

We have 1 note receivable originated in 2011 with an aggregate principal balance of $266,000 due in 2012 bearing interest at 6%. This note is from Cut & Dried Productions, LLC a company that Richard Pearce, the CEO of DC Brands International, owns a majority of. One of the 12 notes payable with an aggregate principal balance of $1,078,333 originated in 2010 and 2011 with a 36 month maturity bearing interest at 16% is due to Bob Armstrong, the CFO, in the amount of $5,000.We still have two notes with a principal balance of $1,650,840 that are related party payables owed to Richard Pearce and Jeremy Alcamo. They bear interest at a rate of 10% and are callable with 366 days notice which classifies them as long term debt. Upon the occurrence of: (i) a change in ownership of twenty percent (20%) or more of our outstanding shares of common stock, (ii) our consummation of a debt or equity financing or any combination thereof and our receipt of gross proceeds of Five Million Dollars ($5,000,000) or more from such financing, or (iii) our termination of our employment agreement with Richard Pearce or Jeremy Alcamo Richard Pearce or Jeremy Alcamo at their option shall have the right to immediately seek payment of the entire amount due and payable with interest thereon. 

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A summary of notes payable as of March 31, 2012 is as follows:

	Current		Long Term			Total
1 Note payable, originated in 2004, due in 2006,	$	538,890	$	-		$	538,890
6% interest rate, secured by assets of
DC Brands, LLC, a wholly owned subsidiary
1 Note payable originated in 2007, due in 2007,		10,000		-			10,000
36% interest, unsecured
1 Note payable originated in 2007, due in 2008,		14,266		-			14,266
24% interest, unsecured
7 Notes payable, originated in 2008,		462,874		-			462,874
due at various dates from July to August
2010, 15% interest, unsecured
6 Notes payable, originated in 2010, due		120,256		637,017			757,273
January 1, 2015, 10.25% interest, unsecured
3 Notes payable, originated in 2010, due		592,933		-			592,933
July 1, 2013, callable by Noteholders after
January 1, 2012,   6% interest, unsecured
1 Note payable, originated in 2010, due		-		333,209			333,209
July 1, 2013, 16% interest, unsecured
12 Notes payable, originated in 2010 and 2011, due		-		1,078,333			1,078,333
due at various dates from July 2013 to March 2014,
16% interest, unsecured
1 Note payable, originated in 2011, due		94,767		-			94,767
Dec 31, 2013, 4% interest, unsecured
7 Notes payable, originated in 2011 &2012, due to be		750,000		575,000			1,325,000
repaid from a portion of gross sales beginning in
Feb 2012, 12% interest, unsecured
2 Notes payable, originated in 2011, due		85,500		-			85,500
Aug & Sept, 2012, 8% interest, unsecured
1 Note payable, originated in 2011, due				522,000			522,000
Dec 31, 2015, 10.25% interest, unsecured
2 Notes payable, originated in 2011 & 2012, due in 2012		105,000		-			105,000
4% interest and a 15% redemption premium
1 Note payable, originated in 2011, due in 2012		266,000		-			266,000
6% interest
		3,040,486		3,145,559			6,186,045
Unamortized discount		-		(1,044,458	)		(1,044,458	)
	$	3,040,486	$	2,101,101		$	5,141,587
Related party notes
2 Notes payable, originated in 2010, callable		-		1,650,841			1,650,841
with 366 day notice, 10% interest, unsecured

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OUR PLAN OF OPERATIONS

OPERATING MODEL AND REPORTING STRUCTURE

DC BRANDS INTERNATIONAL, INC.

We, together with our wholly owned subsidiary, DC Nutrition, Inc., specialize in the manufacture, marketing and distribution of health related products that utilize natural botanicals, vitamins, minerals and supplements and are aimed at maximizing the full potential of the body.    Our current focus is on the sale of our products under our H.A.R.D Nutrition label.  To date, a substantial portion of our revenue has been derived from the sale of our products under this label. We currently have two distinct types of product that are sold under our H.A.R.D. Nutrition logo; our Functional Water Systems and nutritional supplements.  The Functional Water Systems and nutritional supplements can each be further categorized into four sub product lines; each line tailored to different health and daily needs: our performance, strength and training line, our wellness and beauty line, our weight loss and diet line and our energy line. Our H.A.R.D. Nutrition Functional Water Systems provide consumers with the convenience of the unique combination of nutraceutical supplements with a functional beverage.  All of the products sold under our H.A.R.D. Nutrition Functional Water Systems are sold in a bottle which combines in one container water, which is lightly flavored, with vitamins stored in our patented, licensed flip top compartment on the top of the bottle.  The water provides the hydration and catalyst needed for absorption of the specially formulated nutraceutical capsules contained in the bottle’s flip top cap compartment.  During the quarter ended March 31, 2012, we derived $57,231 representing 88% of our revenue from sales of our Functional Water Systems.  During the year ended December 31, 2011, we derived $271,255, representing 83% of our revenue from sales of our Functional Water Systems.

The other products sold under our H.A.R.D. Nutrition label are traditional supplements “not in the cap on top of the Water Systems” which are made from a mixture of herbs and have been formulated to help maintain good health by providing the supplements that we believe are needed by our body but cannot be directly obtained from foods.  Our sale of nutritional supplements has not generated as much revenue as the sale of our Functional Water Systems. During the quarter ended March 31, 2012, we derived $7,970 representing 12% of our revenue from sales of our H.A.R.D. Nutritional Supplement products.  During the year ended December 31, 2011, we derived $57,447, representing 17% of our revenue, from sales of our nutritional supplements.

During 2011 and 1st Qtr 2012, the focus of our marketing has been on our long form infomercial which aired nationally in November 2011. Prior thereto, our marketing focus has been in the Colorado area. We have used various forms of advertising as part of our marketing campaign. Our marketing strategy has included associations with well know public figures in the Colorado area in an effort to capitalize on their notoriety. We have engaged in an aggressive radio marketing campaign in the Colorado area, which included the promotion of our products on the KOA radio station by Dave Logan, a former NFL player and one of the KOA announcers. Our promotional agreement with Mr. Logan terminated in 2011.

We were incorporated in 1998 in Colorado under the name Telamerge Holding Corp. In 2004, we changed our name to DC Brands International, Inc. in connection with our anticipated acquisition of DC Brands, LLC.

We have only recently commenced operations of products that are sports and fitness based nutraceutical supplements under the H.A.R.D. Nutrition label.  In fact, our first functional water sales were made in August of 2009.  Prior to 2006, our main focus was on the manufacture and sale of energy drinks.

Our principal offices are located at 9500 W. 49th Avenue, Suite D-106, Wheat Ridge, Colorado 80033.  Our telephone number is 303-279-3800.  Information about our products can be obtained from our website www.hardnutrition.com. 

Critical Accounting Policies

Management believes that the critical accounting policies and estimates discussed below involve the most complex management judgments due to the sensitivity of the methods and assumptions necessary in determining the related asset, liability, revenue and expense amounts. Specific risks associated with these critical accounting policies are discussed throughout this MD&A, where such policies have a material effect on reported and expected financial results. For a detailed discussion of the application of these and other accounting policies, refer to the individual Notes to the Financial Statements for the period ended March 31, 2012.

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Revenue Recognition

The Company recognizes revenues when products are shipped or services are delivered to customers, pricing is fixed or determinable, and collection is reasonably assured. Net revenues include product sales net of returns and allowances.

Our continued operations in the long term will depend on whether we are able to raise additional funds through various potential sources, such as equity and debt financing. Such additional funds may not become available on acceptable terms and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term.  We will continue to fund operations from cash on hand and through the similar sources of capital previously described. We can give no assurances that any additional capital that we are able to obtain will be sufficient to meet our needs.

We have based our estimate on assumptions that may prove to be wrong.  As previously stated, we may need to obtain additional funds in the next couple of months or in greater amounts than we currently anticipate. Potential sources of financing include strategic relationships, public or private sales of our shares or debt and other sources. We may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements.  We do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all.  If we raise funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of our existing stockholders will be diluted.  If we are not able to obtain financing when needed, we may be unable to carry out our business plan.  As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed.

Critical Accounting Policies and Estimates

The preparation of financial statements requires management to utilize estimates and make judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.  These estimates are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances.  The estimates are evaluated by management on an ongoing basis, and the results of these evaluations form a basis for making decisions about the carrying value of assets and liabilities that are not readily apparent from other sources.  Although actual results may differ from these estimates under different assumptions or conditions, management believes that the estimates used in the preparation of our financial statements are reasonable.  Management regularly reviews these estimates and judgments for impairment, valuation and other changes in estimate.  Our critical account estimates are set forth below and have not changed during 2011 or the first quarter of 2012.  There were no changes to any estimates or judgments that had a material impact on the financial presentation.

The critical accounting policies affecting our financial reporting are summarized in Note 1 to the consolidated financial statements included in this filing. Policies involving the most significant judgments and estimates are summarized below.

Accounts Receivable

Our accounts receivable are unsecured, and we are at risk to the extent such amounts become uncollectible. Management continually monitors accounts receivable balances and provides for an allowance for doubtful accounts at the time collection becomes questionable based on payment history or age of the receivable. We sell products generally on net 30 day terms. We do not normally charge financing fees on late payments. Accounts receivable are charged to the allowance for bad debts when we have exhausted all reasonable means of collection.  We did not have an allowance for doubtful accounts at December 31, 2011 or March 31, 2012 as we deemed our accounts receivable all to be collectible.

Our method of determining the allowance for doubtful accounts and estimates used therein are subject to the risk of change if, in the future, our sales volume and type of customers would change.

As of December 31, 2011 and March 31, 2012, there were no past due receivables. 

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Fair Value of Financial Instruments

Effective May 1, 2008, we adopted guidance issued by the Financial Accounting Standards Board ("FASB") on "Fair Value Measurements" for assets and liabilities measured at fair value on a recurring basis. This guidance establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. The adoption of this guidance did not have an impact on our financial position or operating results, but did expand certain disclosures.

The FASB defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, the FASB requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

These inputs are prioritized below:

Level 1:	Observable inputs such as quoted market prices in active markets for identical assets or liabilities.
Level 2:	Observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3:	Unobservable inputs for which there is little or no market data, which require the use of the reporting entity's own assumptions.

We did not have any Level 2 or Level 3 assets or liabilities as of March 31, 2012.

Cash and cash equivalents include money market securities and commercial paper and marketable securities representing certificates of deposits maturing in less than one year that are considered to be highly liquid and easily tradable.  These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within the fair value hierarchy.

In addition, the FASB issued, "The Fair Value Option for Financial Assets and Financial Liabilities," effective for May 1, 2008. This guidance expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. We did not elect the fair value option for any of our qualifying financial instruments, other than those subject to a recent acquisition.

Warrant Liability

The warrant liability is calculated using a Barrier Option Model with MonteCarlo Simulation from Global Derivatives.com.  The current stock price, the stock volatility for the prior three months and the risk free rate (treasury bills) equal to the remaining term of the warrants are the inputs used in this valuation model.  This model specifically addresses the fact that no additional shares of stock will need to be issued if our stock price hits the target (barrier) of $.50 or $.15.  The stock volatility for any quarter is capped at 90% as volatilities greater than this produce an unreasonably low estimation of liability.  This amount is adjusted quarterly based upon the changes in valuation provided by the model.  There were no warrants outstanding as of December 31, 2011 or March 31, 2012.

Equity-Based Compensation

The computation of the expense associated with stock-based compensation requires the use of a valuation model.  The FASB issued accounting guidance requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility, expected option lives, and expected option forfeiture rates, to value equity-based compensation.  We currently use a Black-Scholes option pricing model to calculate the fair value of our stock options.  We primarily use historical data to determine the assumptions to be used in the Black-Scholes model and have no reason to believe that future data is likely to differ materially from historical data. However, changes in the assumptions to reflect future stock price volatility and future stock award exercise experience could result in a change in the assumptions used to value awards in the future and may result in a material change to the fair value calculation of stock-based awards.  This accounting guidance requires the recognition of the fair value of stock compensation in net income.  Although every effort is made to ensure the accuracy of our estimates and assumptions, significant unanticipated changes in those estimates, interpretations and assumptions may result in recording stock option expense that may materially impact our financial statements for each respective reporting period.

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Recently Issued Accounting Standards

During the period ended March 31, 2012, there were no new accounting pronouncements issued by the FASB, the most recent pronouncement issued was Accounting Standards Update No. 2011-12—Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.  Each of these pronouncements, as applicable, has been or will be adopted by the Company.  Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.

Off Balance Sheet Arrangements

There are no off balance sheet arrangements.

Contractual Obligations

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are not effective as of March 31, 2012 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II.   OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

The following information sets forth certain information with respect to all securities which we have sold during the past quarter. We did not pay any commissions in connection with any of these sales.

In January through March 2012 we issued to one individual 6,000,000 shares of our common stock in consideration of services rendered. The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended (the “Act”).  The offering did not involve any general solicitation or advertising by us.  The holder acknowledged the existence of transfer restrictions applicable to the securities sold by us. Certificates representing the securities sold contain a legend stating the restrictions on transfer to which such securities are subject.

In January through March 2012 we issued to eight debtors an aggregate of 279,851,439 shares of our common stock in conjunction with pay down of debt.  These securities were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended (the “Act”) and the safe harbor afforded by Rule 506 of Regulation D under the Act.  The offering did not involve any general solicitation or advertising by us.  Each individual acknowledged the existence of transfer restrictions applicable to the securities sold by us. Certificates representing the securities sold contain a legend stating the restrictions on transfer to which such securities are subject.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mining Safety Disclosures

None.

Item 5.  Other Information

None.

Item 6.  Exhibits

Regulation S-B Number	Exhibit
31.1	Certification of the Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
32.2	Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATE: May 15, 2012	DC BRANDS INTERNATIONAL, INC. (Registrant)
	By:	/s/Richard Pearce
		Richard Pearce President and Chief Executive Officer (Principal Executive Officer)

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