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EX-31.1 - EXHIBIT 31.1 - SILVERGRAPH INTERNATIONAL INCex31_1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

T
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File No. 000-30951

SILVERGRAPH INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
67-0695367
(I.R.S. Employer Identification No.)
1875 Century Park East, Ste. 1460
Los Angeles, CA
(Address of principal executive offices)
90067-0000
(Zip Code)
(562) 693-3737
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 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.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company x

(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes x No o.

Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes o No o

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  The number of shares outstanding of the registrant’s common stock as of May 10, 2013 was 2,970,954, including a total of 1,703,586 shares issuable under contractual commitments.
 


 
1

 

SILVERGRAPH INTERNATIONAL, INC.


TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
3
ITEM 1
Financial Statements
4
ITEM 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
13
ITEM 3
Quantitative and Qualitative Disclosures About Market Risk
15
ITEM 4
Controls and Procedures
15
PART II – OTHER INFORMATION
16
ITEM 1
Legal Proceedings
16
ITEM 1A
Risk Factors
16
ITEM 2
Unregistered Sales of Equity Securities and Use of Proceeds
16
ITEM 3
Defaults Upon Senior Securities
16
ITEM 4
Mine Safety Disclosures
16
ITEM 5
Other Information
17
ITEM 6
Exhibits
17

 
 

 
 
 
2

 

PART I – FINANCIAL INFORMATION

This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
 
 
 
 
 
 
 
3

 

ITEM 1 Financial Statements

SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

   
March 31,
2013
   
December 31,
2012
 
   
(Unaudited)
       
ASSETS
           
Current assets:
           
     Cash and cash equivalents
  $ 12,173     $ 2,377  
  
               
     Total assets
  $ 12,173     $ 2,377  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
Current liabilities:
               
     Accounts payable
  $ 12,884     $ 9,884  
     Total current liabilities
    12,884       9,884  
                 
     Convertible promissory note and accrued interest
    360,245       354,045  
     Promissory note and accrued interest
    48,500       35,500  
                 
     Total liabilities
    421,629       399,429  
                 
Commitments and contingencies
               
                 
Stockholders' Deficit
               
     Common Stock, $0.001 par value, 100,000,000 shares authorized: 1,267,368
     shares issued and outstanding
    1,267       1,267  
     Additional paid-in capital
    6,189,385       6,189,385  
     Common shares issuable (1,703,586 shares)
    228,543       228,543  
     Accumulated deficit
    (6,828,651 )     (6,816,247 )
     Total stockholders' deficit
    (409,456 )     (397,052 )
                 
     Total liabilities and stockholders’ deficit
  $ 12,173     $ 2,377  
 
The accompanying notes are an integral part of these condensed consolidated financial statements
 
 
4

 
 
SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(UNAUDITED)

   
Three Months
Ended
March 31, 2013
   
Three Months
Ended
 March 31, 2012
 
   
(Unaudited)
   
(Unaudited)
 
             
Revenues
  $ -     $ -  
                 
Cost of sales
    -       -  
                 
Gross profit
    -       -  
                 
Operating expenses
    5,704       6,608  
                 
Operating loss
    (5,704 )     (6,608 )
                 
Interest expense - net
    (6,700 )     (4,000 )
Net loss
  $ (12,404 )   $ (10,608 )
                 
Net loss per share, basic and
fully diluted
  $ (0.00 )   $ (0.00 )
                 
Weighted average shares
outstanding, basic and fully
diluted
    2,970,954       2,970,954  

The accompanying notes are an integral part of these condensed consolidated financial statements

 
5

 

SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
THREE MONTHS ENDED MARCH 31, 2013
(UNAUDITED)



                                     
               
Additional
   
Common
             
   
Common
   
Stock
   
Paid-in
   
Shares
   
Accumulated
       
   
Shares
   
Amount
   
Capital
   
Issuable
   
Deficit
   
Total
 
Balance, January 1, 2013
    1,267,368     $ 1,267     $ 6,189,385     $ 228,543     $ (6,816,247 )   $ (397,052 )
                                                 
Net loss
    --       --       --       --       (12,404 )     (12,404 )
                                                 
Balance, March 31, 2013
    1,267,368     $ 1,267     $ 6,189,385     $ 228,543     $ (6,828,651 )   $ (409,456 )



 

 
The accompanying notes are an integral part of these condensed consolidated financial statements
 
 
6

 

SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Three Months ended March 31,
 
   
2013
   
2012
 
   
(Unaudited)
   
(Unaudited)
 
Operating activities:
           
   Net loss
  $ (12,404 )   $ (10,608 )
   Adjustment to reconcile net loss to net cash used in
operating activities:
               
        Changes in operating assets and liabilities:
               
         Accounts payable and accrued expenses
    3,000        1,500  
        Accrued interest on debt
    6,700       4,000  
           Net cash used in operating activities
    (2,704 )     (5,108 )
                 
Financing activities:
               
    Proceeds from issuance of convertible notes
    -       1,541  
    Proceeds from issuance of promissory notes
    12,500       13,000  
          Net cash provided by financing activities
    12,500       14,541  
                 
Change in cash and cash equivalents
    9,796       9,433  
Cash and cash equivalents, beginning of period
    2,377       4,581  
Cash and cash equivalents, end of period
  $ 12,173     $ 14,014  
                 
Supplemental cash flow information:
               
    Cash paid for interest
  $ -     $ -  
    Cash paid for income taxes
  $ -     $ -  
 
The accompanying notes are an integral part of these condensed consolidated financial statements
 
 
7

 
SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2013 AND 2012
(UNAUDITED)

NOTE 1—THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
 
Nature of Operations
 
Through 2009, Silvergraph International, Inc. ("Silvergraph" or the “Company”) was a designer, manufacturer, marketer and branded retailer of fine-art reproductions, art-based home decorative accessories, collectibles and gift products. In 2007, we experienced significant challenges due to the unexpected contraction of our business with our largest client which caused us in 2008 to evaluate various strategies to best enhance value for our shareholders including the sale to or merger with a larger art or printing organization that would benefit from our technology. In the second half of 2008, we began to wind down our subsidiary New Era Studios, Inc. (“New Era”), and to sell its assets, to pay down its debts and to provide working capital for the Company. We also raised approximately $231,000 in interim bridge capital to support our operations and took steps to significantly lower our cost of operations. We are continuing to pursue and evaluate strategies to enhance shareholder value including the merger with a private company in industries outside the art and printing industries. We continue to take steps to lower our operating costs and help fund our working capital needs. However, we cannot guarantee that these actions will ensure our continued operations.
 
Basis of Presentation

The condensed consolidated financial statements included herein are unaudited; such financial statements contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the consolidated financial position of Silvergraph International, Inc. at March 31, 2013, the condensed consolidated results of operations for the three months ended March 31, 2013 and 2012, and cash flows for the three months ended March 31, 2013 and 2012, respectively. Comprehensive income is equivalent to net income for the three months ended March 31, 2013 and 2012, respectively.

Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end and could be materially different than at year-end.  The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for the full fiscal year.  The accompanying unaudited condensed consolidated financial statements do not include footnotes and certain financial presentations normally required under generally accepted accounting principles. Therefore, these financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2012, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 12, 2013.
 
Basis of Consolidation
 
The condensed consolidated financial statements include the accounts of Silvergraph and our wholly-owned subsidiary. All intercompany balances and transactions have been eliminated.
 
Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used in the accounting for potential liabilities and valuing equity instruments. Actual results could differ from those estimates.
 
 
8

 
Going Concern

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has not generated any revenues from operations since 2009, suffered recurring losses from its operations since its inception, finances its working capital requirements through sale of its convertible notes and equity security for cash, and has an accumulated deficit of $6,828,651 and a working capital deficiency of $711 at March 31, 2013.  The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence. The recovery of the Company’s assets is dependent upon continued operations of the Company.  In addition, the Company's recovery is dependent upon future events, the outcome of which is undetermined. The Company intends to continue to attempt to raise additional capital, but there can be no certainty that such efforts will be successful.

Primarily as a result of our recurring losses and our lack of liquidity, we have received a report from our independent registered public accounting firm for our financial statements for the year ended December 31, 2012 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern.

To continue our operations and to grow our current operations and to make acquisitions, if any, under our current business model during the next twelve months, we will need to secure additional working capital, by way of equity or debt financing, or otherwise.  After this twelve month period, we may need additional financing for working capital, and in the case of acquisitions for payment of seller notes and future earned cash to sellers of acquired companies. There can be no assurance that we will be able to secure sufficient financing or on terms acceptable to us. If adequate funds are not available on acceptable terms, we would need to delay, limit or eliminate some or all of our proposed operations, and we may be unable to successfully promote our products or develop new or enhanced products or prosecute acquisitions, any of which could lower our revenues and net income, if we achieve profitability in the future.  If we raise additional funds through the issuance of convertible debt or equity securities, the percentage ownership of our current stockholders is likely to be diluted, unless some of our current stockholders were to invest in subsequent convertible debt or equity financings, and some of the newly issued securities may also have rights superior to those of the common stock.  Additionally, if we issue or incur debt to raise funds, we may be subject to limitations on our operations.

Loss per share

Diluted earnings per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.  In computing diluted earnings per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase common stock at the average market price during the period.  Options and warrants will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants.  As the Company had a net loss in the three months ended March 31, 2013 and 2012, respectively, basic and diluted loss per share are the same.  At March 31, 2013 and 2012, potentially dilutive securities consisted of outstanding common stock purchase warrants to acquire an aggregate of 200,000 and 200,000 common shares, respectively and shares of common stock issuable upon conversion of convertible promissory note of 90,061,250 and 7,057,000 common shares respectively.

Recently Issued Accounting Guidance:

Recent accounting pronouncements did not or are not believed to have a material impact on the Company’s present or future condensed consolidated financial statements.

NOTE 2—CONVERTIBLE PROMISSORY NOTE

 In February 2008 the Company issued 7% convertible promissory notes (the “Former Notes”) in the aggregate principal amount of $150,000 pursuant to a subscription agreement, dated January 25, 2008, as amended, between Silvergraph and certain accredited investors. Subsequent to its issuance, the Former Notes were amended and as a result of these amendments, the Company received additional proceeds of approximately $112,000 and agreed to issue a total of 1,627,986 shares of common stock to these note holders with a fair value at $152,953 (see Note 4).  
 
 
9

 

In August 2012, the Company and all the existing note holders agreed to consolidate the Former Notes which at that time had an aggregate principal balance and accrued interest of $350,600.  As a result, the Former Notes were cancelled and the Company issued a new note (the “Consolidated Note”) amounting to $350,600.  The Company considered the cancellation of the Former Notes as an extinguishment for accounting purposes.  There were no change in the cash flow or fair value of the Former Notes when compared to the cash flow and fair value of the new Consolidated Note and there was no unamortized note discount on the Former Notes.  Accordingly, there was no gain or loss upon extinguishment of the Former Notes.
  
The Consolidated Note is secured by all of the Company’s assets, bears interest at a rate of 7% per annum and mature on December 31, 2012.  The Consolidated Note is convertible at a rate of $0.004 per share or 87,649,883 shares of common stock.  As the trading price of the Company’s common stock was $0.20 per share on the date of issuance, the Company recognized a beneficial conversion feature of $350,600, the face value of the Consolidated Note.  The beneficial conversion feature was recorded as a valuation discount and was amortized in full to interest expense over the original maturity date of the note of December 31, 2012.  At the beginning of the period, the balance of the Consolidated Note and accrued interest amounted to $354,045.
  
In March 2013, the Consolidated Note was amended and the maturity date was changed to December 31, 2014.  In consideration for the change in the maturity date, the Company agreed to increase the principal balance by an aggregate of $250 which was recognized as part of interest expense.  All other existing terms and provisions of the Consolidated Note did not change.

During the period ended March 31, 2013, the Company recognized interest expense of $5,950. As of March 31, 2013, total outstanding balance of the Consolidated Note amounted to $350,850 and accrued interest was $9,395 for a total of $360,245.

NOTE 3 – PROMISSORY NOTE
  
On April 26, 2012, the Company issued its unsecured Promissory Note (the “Note”) to private investors (“Investors”) for which it had received $45,500 as of March 31, 2013.  The Note is unsecured, due on April 26, 2014 and has an interest rate of 5% per annum where interest accrues and is payable in cash upon maturity.  At the beginning of the period, the balance of the Promissory Note and accrued interest amounted to $35,500.
  
During the period ended March 31, 2013, the Company received additional proceeds of $12,500 from existing note holders and recognized interest expense of $500.  As of March 31, 2013, the amount due under the promissory note totaled $48,500 including accrued interest of $3,000.

NOTE 4 – EQUITY                                           

Common Shares to be issued

The Company entered into consulting agreement with a consultant that was effective January 10, 2008.  For a term of one year, the consultant will provide consulting services in connection with management consulting, corporate finance and shareholder communications and will use it best efforts to introduce the Company to various members of the financial community.  As part of the consultant’s compensation, the Company agreed to issue 12,121 shares of our common stock to the consultant upon the close of a business combination with a private company.  

As the Company has not yet completed any business combination with a private company, the Company has not accounted for the 12,121 shares of common stock.  These shares are restricted and have “piggy back” registration rights.  In the event that the consultant introduces the Company to an institution or individual that provides funding to the Company, then the Company will pay five percent of the total amount of the net transaction to the consultant.
 
 
10

 

Common shares issuable

Pursuant to the 7th and up to the 13th amendments of the Company’s convertible promissory notes from May 2009 up to December 2011, the Company granted these note holders a total of 1,627,986 shares of common stock. The shares were issued to the note holders concurrent to the receipt of proceeds pursuant to the amended convertible notes (see Note 2).  The Company accounted these shares at fair value and was recorded as part of interest expense at the respective date of grant.  As of March 31, 2013, the Company has not yet issued these shares to the respective note holders.  The Company expects to issue these shares in 2013.
  
On April 1, 2011, the Company entered into an Acknowledgment and Release with Beach Freeman Lim & Cleland, a California limited liability partnership (“Beach”), under which the Company agreed to issue Beach 75,600 shares of common stock in exchange for Beach agreeing to accept the shares in full satisfaction of any and all amounts owe Beach amounting to $75,590.  The Company accounted these shares at fair value upon issuance in April 2011.  The Company expects to issue these shares in 2013.
 
Warrants Outstanding

A summary of warrant activity and changes for the three months ended March 31, 2013 is presented below:
 
Warrants
 
Shares
   
Weighted-
Average
Exercise
Price
   
Weighted-
Average
Remaining
Contractual
Term
(Years)
 
Outstanding and exercisable at December 31, 2012
    200,000     $ 0.50       2.0  
     Granted
    -                  
     Expired
    -               -  
Outstanding at March 31, 2013
    200,000     $ 0.50       1.8  
 
Additional information regarding warrants outstanding as of March 31, 2013 is as follows:
 
Exercise Price
 
Number
Outstanding
 
Weighted
Average
Remaining
Contractual
Life (Years)
 
Number
Exercisable
 
Intrinsic
Value of
Warrants at
March 31,
2013
$ 0.50
    200,000  
1.8
    200,000  
-

Convertible Promissory Notes

As of March 31, 2013 and December 31, 2012, potential shares of common stock to be issued totaled 90,061,250 and 87,649,883 respectively pursuant to the terms of the Company’s outstanding convertible notes (see Note 2).
  
NOTE 5 – COMMITMENTS AND CONTINGENCIES

From time to time, the Company is involved in various legal proceedings arising from the normal course of its business activities. Any adverse outcome from these matters is currently not expected to have a material adverse impact on the results of operations, cash flows or financial position of the Company, either individually or in the aggregate.
 
 
11

 

NOTE 6 – RELATED PARTY TRANSACTIONS

The Company’s office facility has been provided without charge by Mr. James Simpson, Chief Executive Officer. Such cost was not material to the financial statements and accordingly, have not been reflected therein.

In view of the Company’s limited operations and resources, Mr. Simpson did not receive any compensation from the Company for the periods ended March 31, 2013 and 2012.
 
 
 
 
 
 
 
12

 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the information incorporated by reference herein, contains forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995. These statements may be found throughout this report and the documents incorporated by reference herein. Any statements (including without limitation statements to the effect that the Company or management “estimates,” “expects,” “anticipates,” “plans,” “believes,” “projects,” “continues,” “may,” “will,” “could,” or “would” or statements concerning “potential” or “opportunity” or variations thereof or comparable terminology or the negative thereof) that are not statements of historical fact should be construed as forward-looking statements. The actual results of Silvergraph International, Inc. may vary materially from those expected or anticipated in these forward-looking statements. The information incorporated by reference under the heading “Risk Factors” in this report provides examples of risks, uncertainties and events that could cause our actual results to differ materially from the expectations expressed in our forward-looking statements. Because of these and other factors that may affect Silvergraph International, Inc.’s operating results, past performance should not be considered as an indicator of future performance, and investors should not use historical results to anticipate results or trends in future periods. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers should carefully review the risk factors described in this and other documents that Silvergraph International, Inc. files from time to time with the Securities and Exchange Commission, or SEC, including subsequent Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.
 
How to Obtain Silvergraph International, Inc. SEC Filings

All reports filed by Silvergraph International, Inc. with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov.  In addition, the public may read and copy materials filed by the Company with the SEC at the SEC’s public reference room located at 450 Fifth St., N.W., Washington, D.C. 20549.  

Executive Overview

In 2007, we experienced significant challenges due to the unexpected contraction of our business with our largest client.  In response, we attempted to accelerate the development of our in-house sales channel to home furnishings and accessory retailers.  To that end, in July 2007 we hired art sales, marketing and design company based in Seattle which brought to us an existing client base.  To service and grow the Seattle group’s client base, we needed to raise capital which we were unable to accomplish on terms acceptable to us.  Accordingly, we terminated our contract with the Seattle group in December 2007.   Separately, without sufficient resources we were forced to cease our investment in the development of TxTura.  Given the challenges we were experiencing in developing sales channels and the unexpected contraction of our largest client, in December 2007, the board of directors determined that we should seek to merge with a larger art company with established sales channels which could benefit from our technology.  

In 2008, we evaluated various strategies to best enhance value for our shareholders including the sale to or merger with a larger art or printing organization that would benefit from our technology.   To that end, we entered into discussions with multiple potential targets but were unable to reach definitive agreement with any such target.  Our largest client, Home Interior & Gifts, representing over 47% of our sales in 2007, declared bankruptcy in 2008 and, as a result, we have not expected material future revenue from the customer.  In the second half of 2008, we began to wind down our subsidiary New Era Studios, Inc. (“New Era”), and to sell its assets, to pay down its debts and to provide working capital for the Company.  All sales were arms length and to non-affiliated entities.  We also raised $190,000 in interim bridge capital to support our operations and took steps to significantly lower our cost of operations.   
 
 
13

 

In 2009 and 2010, after deciding to wind down the business of New Era, we were largely inactive except for efforts to sell assets and to seek a possible business combination.

In 2012 we dissolved New Era, however, we are continuing to pursue and evaluate strategies to enhance shareholder value including the merger with a private company in industries outside the art and printing industries.  We continue to take steps to lower our operating costs and manage our working capital needs. However, we cannot guarantee that these actions will ensure our continued existence.

Results of Operations

Three months ended March 31, 2013 and 2012

Revenues and Cost of Sales.  As noted above, we have been relatively inactive since 2009 and, as a result, have had no revenue or cost of sales since before that time, including during the three months ended March 31, 2013 and 2012.

Operating expenses.    Operating expenses consist primarily of professional services such as legal and accounting fees.  Operating expenses were $5,704 and $6,608 for the three months ended March 31, 2013 and 2012, respectively.         

Other expense.    Other expense principally consists of interest expense.  We had other expenses of $6,700 and $4,000 for the three months ended March 31, 2013 and 2012, respectively.  The increase in other expense was due the increased level of debt.

Net Loss.  We had a net loss of $12,404 for the three months ended March 31, 2013, compared to $10,608 for the three months ended March 31, 2012.  The increase in our net loss is primarily a result of an increase in our interest expense offset by a decrease in our legal and accounting expenses during the three months ended March 31, 2013 as compared to the corresponding period in 2012.

Liquidity and Capital Resources

Working capital as of March 31, 2013 was negative $711 as compared to negative working capital of $7,502 as of December 31, 2012.  The cash balance at March 31, 2013 was $12,173 compared to $2,377 at December 31, 2012.

Net cash used in operating activities was $2,704 for the three months ended March 31, 2013, as compared to $5,108 for the three months ended March 31, 2012.  During each period presented, we used net cash principally to fund our net losses.

Net cash provided by financing activities was $12,500 for the three months ended March 31, 2013 as compared to $14,541 for the three months ended March 31, 2012.   Net cash provided by financing activities during 2013 and 2012 was related to proceeds received from the issuance of both convertible notes and a promissory note.

We have suffered recurring losses from operations and have an accumulated deficit of approximately $6,828,651 and $6,816,247 at March 31, 2013 and December 31, 2012, respectively.  Primarily as a result of our recurring losses and our lack of liquidity, we have received a report from our independent registered public accounting firm for our financial statements for the year ended December 31, 2012 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern.  To continue our operations and to grow our current operations and to make acquisitions, if any, under our current business model during the next twelve months, we will need to secure additional working capital, by way of equity or debt financing, or otherwise.  After this twelve month period, we may need additional financing for working capital, and in the case of acquisitions for payment of seller notes and future earned cash to sellers of acquired companies. There can be no assurance that we will be able to secure sufficient financing or on terms acceptable to us. If adequate funds are not available on acceptable terms, we would need to delay, limit or eliminate some or all of our proposed operations, and we may be unable to successfully promote our products or develop new or enhanced products or prosecute acquisitions, any of which could lower our revenues and net income, if we achieve profitability in the future.  If we raise additional funds through the issuance of convertible debt or equity securities, the percentage ownership of our current stockholders is likely to be diluted, unless some of our current stockholders were to invest in subsequent convertible debt or equity financings, and some of the newly issued securities may also have rights superior to those of the common stock.  Additionally, if we issue or incur debt to raise funds, we may be subject to limitations on our operations.
 
 
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ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information required by this Item.

ITEM 4 CONTROLS AND PROCEDURES

(a) 
Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2013, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the requisite time periods. While the Company’s disclosure controls and procedures provide reasonable assurance that the appropriate information will be available on a timely basis, this assurance is subject to limitations inherent in any control system, no matter how well designed and administered.

Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

(b) Management Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as amended, as a process designed by, or under the supervision of, our principal executive and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:

 
· 
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and any disposition of our assets;
 
 
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· 
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

 
· 
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2013. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management identified no material weaknesses, and have concluded that, as of March 31, 2013, our disclosure controls and procedures, and our internal control over financial reporting, were effective at the reasonable assurance level.

(c) 
Changes in Internal Controls Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) identified in connection with the evaluation of our internal control performed during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

We are not a party to or otherwise involved in any legal proceedings.

In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.

ITEM 1A RISK FACTORS

As a smaller reporting company, we are not required to provide the information required by this Item.

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We did not have any issuances of our securities during the quarter ended March 31, 2013.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

There have been no events which are required to be reported under this Item.

ITEM 4 MINING SAFETY DISCLOSURES

Not applicable.
 
 
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ITEM 5 OTHER INFORMATION

There is no information required to be reported under this Item.

ITEM 6 EXHIBITS

(a) Exhibits
 
 
3.1 (2)
Amended and Restated Articles of Incorporation of Silvergraph International, Inc.
 
3.2 (1)
Bylaws of Silvergraph International, Inc.
 
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
 
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
 
32.1
Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
32.2
Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
100.INS
XBRL Instance Document
 
100.SCH
XBRL Schema Document
 
100.CAL
XBRL Calculation Linkbase Document
 
100.DEF
XBRL Definition Linkbase Document
 
100.LAB
XBRL Labels Linkbase Document
 
100.PRE
XBRL Presentation Linkbase Document

 
(1) 
Incorporated by reference from our Registration Statement on Form 10-SB filed July 6, 2000.

 
(2) 
Incorporated by reference from our Current Report on Form 8-K filed March 24, 2009.
 
 
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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.
 
 
SILVERGRAPH INTERNATIONAL, INC.    
       
       
By:
/s/ James R. Simpson
   
 
    James R. Simpson
 
Date: May 10, 2013
 
    Chief Executive Officer, Secretary
   
 
    Principal Financial Officer and Director
   


 
 
 
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