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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended September 30, 2012
 
[  ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from __________ to__________
 
Commission File Number: 333-137160

 

image001

 

NYXIO TECHNOLOGIES CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada 98-0501477
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

 

2156 NE Broadway, Portland, Oregon 97232
(Address of principal executive offices)

 

855-436-6996
(Registrant’s telephone number)

 

_________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

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 [X] Yes [] No

 

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). [X] Yes [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

[ ] Large accelerated filer [ ] Accelerated filer
[ ] Non-accelerated filer [X] 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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 65,440,690 as of October 15, 2012.

1

 

TABLE OF CONTENTS  
  Page
 
PART I – FINANCIAL INFORMATION
 
Item 1: Financial Statements 3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
Item 3: Quantitative and Qualitative Disclosures About Market Risk 12
Item 4: Controls and Procedures 12
 
PART II – OTHER INFORMATION
 
Item 1: Legal Proceedings 13
Item 1A: Risk Factors 13
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 13
Item 3: Defaults Upon Senior Securities 13
Item 4: Mine Safety Disclosures 13
Item 5: Other Information 13
Item 6: Exhibits 14
2

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our financial statements included in this Form 10-Q are as follows:

 

F-1 Balance Sheets as of September 30, 2012 (unaudited) and December 31, 2011;
F-2 Statements of Operations for the three and nine months ended September 30, 2012 and 2011 and period from July 8, 2010 (Inception) to September 30, 2012 (unaudited);
F-3 Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 and period from July 8, 2010 (Inception) to September 30, 2012 (unaudited);
F-4 Notes to Financial Statements.

 

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2012 are not necessarily indicative of the results that can be expected for the full year.

3

Nyxio Technologies Corporation
(a Development Stage Company)
Condensed Consolidated Balance Sheets
       
   September 30,  December 31,
   2012  2011
   (Unaudited)   
Assets      
Current assets:          
Cash  $6,295   $1,341 
Accounts receivable   4,924    386 
Employee receivables   8,579    —   
Inventory   148,724    154,456 
Prepaid expenses   16,500    19,236 
Due from related party   22,372    22,838 
Total current assets   207,394    198,257 
           
Fixed assets, net of accumulated depreciation of $16,734 and $7,882, respectively   29,072    37,924 
           
Other assets:          
Deposits   4,836    4,175 
Total other assets   4,836    4,175 
           
Total assets  $241,302   $240,356 
           
Liabilities and stockholders’ (deficit)          
Current liabilities:          
Accounts payable and accrued expenses  $197,748   $172,473 
Accrued interest   69,485    34,912 
Notes payable   212,530    294,125 
Notes payable – related party   21,258    11,012 
Convertible notes payable, net of discounts of $269,875 and $0, respectively   104,018    —   
Derivative liability   443,671    —   
Total current liabilities   1,048,710    512,522 
           
Total liabilities   1,048,710    512,522 
           
Stockholders’ (deficit)          
Preferred stock; $0.001 par value; 1,500 shares authorized; no shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively   —      —   
Common stock’ $0.001 par value; 121,212,122 shares authorized; 65,440,690 and 37,500,000 authorized and issued at September 30, 2012 and December 31, 2011, respectively   65,441    37,500 
Common stock authorized and unissued; 750,000 and 3,655,000 at September 30, 2012 and December 31, 2012, respectively   750    3,655 
Additional paid-in capital   6,185,392    4,782,555 
Other comprehensive income (loss)   (430,679)   —   
(Deficit) accumulated during the development stage   (6,628,312)   (5,095,876)
Total stockholders’ (deficit)   (807,408)   (272,166)
           
Total liabilities and stockholders’ (deficit)  $241,302   $240,356 

 

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

F-1

Nyxio Technologies Corporation

(a Development Stage Company)

Condensed Consolidated Statements of Operations

(Unaudited)

 

              July 8, 2010
  Three Months Ended   Nine Months Ended   (Inception) to
  September 30,   September 30,  September 30,
   2012  2011  2012  2011  2012
Revenue  $17,753   $3,248   $24,701   $6,586   $46,089 
Cost of goods sold   7,059    2,167    12,447    4,350    26,768 
Gross profit   10,694    1,081    12,254    2,236    19,321 
Operating expenses                         
Consulting fees   88,406    4,040,885    144,144    4,059,115    4,306,572 
Depreciation   2,951    1,380    8,852    3,151    16,734 
General and administrative   2,331    35,767    32,065    56,007    140,878 
Professional fees   52,978    63,717    195,991    139,400    387,477 
Promotional expense   4,655    40,039    37,930    51,184    148,606 
Research and development   —      —      5,628    —      30,751 
Rent expense   14,167    24,195    54,416    42,016    120,488 
Salaries and wages   670    55,159    234,462    76,018    451,805 
Travel   1,232    84,269    39,749    117,343    217,546 
Total expenses   167,390    4,345,411    753,237    4,544,234    5,820,857 
Net (loss) from operations   (156,696)   (4,344,330)   (740,983)   (4,541,998)   (5,801,536)
Other income (expense)                         
Amortization of discounts   (80,502)   —      (87,174)   —      (87,174)
Financing costs   (485,136)   —      (711,937)   —      (711,937)
Interest expense   (10,569)   (8,394)   (36,174)   (19,105)   (71,495)
Interest expense - related party   (1,669)   —      (1,669)   —      (1,669)
Other income   —      —      1,896    —      1,896 
Gain (loss) on derivatives   (83,639)   —      (12,992)   —      (12,992)
Gain (loss) on debt settlement   56,595    —      56,595    —      56,595 
Total other   (604,920)   (8,394)   (791,455)   (19,105)   (826,776)
Net (loss)  $(761,616)  $(4,352,724)  $(1,532,438)  $(4,561,103)  $(6,628,312)
Basic and fully diluted - (loss) per common share  $(0.01)  $(0.18)  $(0.03)  $(0.17)     
Basic and fully diluted - Weighted average common Shares outstanding   51,648,765    24,752,431    45,091,524    27,260,431      

 

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


F-2
Nyxio Technologies Corporation
(a Development Stage Company)
Condensed Consolidated Statements of Cash Flows
 
         July 8, 2010
   Nine Months Ended  (Inception) to
   September 30  September 30
   2012  2012  2012
          
Cash flows from operating activities:               
Net (loss)  $(1,532,438)  $(4,561,103)  $(6,628,312)
Adjustment to reconcile net (loss) to net cash used by operating activities:               
Depreciation   8,852    3,151    16,734 
Shares and options issued for services   144,007    —      144,007 
Shares issued for financing and interest   711,817    —      711,817 
Amortization of beneficial conversion   87,174    —      87,174 
(Gain) loss on derivatives   12,992    —      12,992 
(Gain) on settlement of debt   (56,595)   —      (56,595)
Non-cash service provided by related party   —      10,375    38,875 
Warrants issued per merger – related party   —      3,967,500    3,967,500 
Decrease (increase) in operating assets:               
Accounts and other receivable   (13,117)   (5,448)   (13,503)
Inventory   5,732    (30,649)   (140,837)
Prepaid expense   2,736    (55,783)   (15,758)
Other assets   (661)   (1,210)   (1,871)
Increase (decrease) in operating liabilities:               
Accounts payable and accrued expenses   25,277    109,653    196,098 
Accrued interest   37,712    16,228    69,949 
Net cash (used) by operating activities:   (566,512)   (547,286)   (1,611,730)
                
Cash flows from investing activities:               
Payments on due from related party, net   466    (13,517)   (6,809)
Purchase of fixed assets   —      (21,690)   (32,944)
Net cash (used) in investing activities:   466    (35,207)   (39,753)
                
Cash flows from financing activities:               
Cash contributed by related party   —      —      5,984 
Cash acquired through merger   —      45    45 
Proceeds from notes payable   —      30,011    83,991 
Payments on notes payable   —      —      (1,500)
Proceeds from notes payable – related party   24,500    —      35,258 
Payments on notes payable – related party   (14,000)   —      (14,000)
Proceeds from convertible debt   385,500    —      385,500 
Proceeds from the sale of common stock   175,000    627,500    1,162,500 
Net cash provided by financing activities:   571,000    657,556    1,657,778 
                
Net increase in cash               
Cash, beginning of period   4,954    75,063    6,295 
Cash, end of period   1,341    2,626    —   
   $6,295   $77,689   $6,295 
Supplemental disclosures of cash flow information:               
Cash paid for income taxes  $—     $—     $—   
Cash paid for interest  $—     $—     $167 

 

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

F-3

Nyxio Technologies Corporation

(a Development Stage Company)

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE 1 – Significant Accounting Policies and Procedures

 

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of September 30, 2012, and the results of its operations and cash flows for the three and nine months ended September 30, 2012 and 2011. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission (“the Commission”). The Company believes that the disclosures in the unaudited condensed consolidated financial statements are adequate to ensure the information presented is not misleading. However, the unaudited condensed consolidated financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 21, 2011 filed with the Commission on April 16, 2012.

 

The accompanying consolidated financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America.

 

Principles of Consolidation

The financial statements as of September 30, 2012 and for the three and nine months then ended include Nyxio Technologies Corporation (“NTC”) and its wholly owned subsidiary, Nyxio Technologies, Inc. (“NTI”). All significant inter-company transactions and balances have been eliminated. NTC and its subsidiary are collectively referred to herein as the “Company”.

 

Basis of presentation

The Company is in the development stage in accordance with Accounting Standards Codification (“ASC”) Topic No. 915.

 

Cash and cash equivalents

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At September 30, 2012 and December 31, 2011, the Company had no cash equivalents.

 

Accounts receivable

Accounts receivable is reported at the customers’ outstanding balances less any allowance for doubtful accounts. Interest is not accrued on overdue accounts receivable.

 

An allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and information collected from individual customers. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired.

 

Inventory

Inventories are stated at the lower of cost or market. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. Market is determined based on net realizable value. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. As of September 30, 2012 and December 31, 2011, finished goods inventory was $148,724 and $154,456, respectively.

F-4

Fixed Assets

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows:

 

Equipment 3-5 years
Furniture 7 years

 

The Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors. Based on this assessment there were no impairments needed as of September 30, 2012 or 2011. Depreciation expense for the nine months ended September 30, 2012, and 2011 and for the period from July 8, 2010 (inception) to September 30, 2012, was $8,852, $3,151 and $16,734, respectively.

 

Revenue recognition

The Company recognizes revenue in accordance with ASC subtopic 605-10 (formerly SEC Staff Accounting Bulletin No. 104 and 13A, “Revenue Recognition”) net of expected cancellations and allowances. As of September 30, 2012 and 2011, the Company evaluated evidence of cancellation in order to make a reliable estimate and determined there were no material cancellations during the years and therefore no allowances has been made.

 

The Company's revenues, which do not require any significant production, modification or customization for the Company's targeted customers and do not have multiple elements, are recognized when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii) the Company's fee is fixed and determinable; and (iv) collectability is probable.

 

Substantially all of the Company's revenues are derived from the sales of Smart TV and Tablet PC technology and products. The Company's clients are charged for these products on a per transaction basis. Pricing varies depending on the product sold.  Revenue is recognized in the period in which the products are sold.

 

Loss per share

The Company reports earnings (loss) per share in accordance with ASC Topic 260-10, "Earnings per Share." Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed exercise or conversion of stock options, warrants, and debt to purchase common shares, would have an anti-dilutive effect. At September 30, 2012 and 2011 the Company had 1,242,916 and -0- potential common shares related to options and vested warrants and 28,247,257 and no shares underlying convertible debt, that have been excluded from the computation of diluted net loss per share.

F-5

Income taxes

The Company follows ASC subtopic 740-10 for recording the provision for income taxes. ASC 740-10 requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.

 

Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. See Note 8 for further details.

 

Fair Value of Financial Instruments

The Company has financial instruments whereby the fair value of the financial instruments could be different from that recorded on a historical basis in the accompanying balance sheets. The Company's financial instruments consist of cash, receivables, accounts payable, accrued liabilities, and notes payable. The carrying amounts of the Company's financial instruments approximate their fair values as of September 30, 2012 and 2011 due to their short-term nature. See Note 9 for further details.

 

Long-lived assets

The Company accounts for its long-lived assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost or carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and its fair value or disposable value. For the nine months ended September 30, 2011, and the year ended December 31, 2011, the Company determined that none of its long-term assets were impaired.

 

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affects the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Advertising

The Company expenses advertising costs as incurred. The Company’s advertising expenses totaled $4,655 and $40,039 for the three months ended September 30, 2012 and 2011 and $37,930 and $51,184, respectively for the nine month period ended September 30, 2012. For the period from July 8, 2010 (inception) to September 30, 2012, the Company has incurred a total of $148,606.

 

Research and development

Research and development costs are expensed as incurred. During the nine months ended September 30, 2012 and 2011 and for the period from July 8, 2010 (inception) to September 30, 2012, research and development costs were $5,628, $0 and $30,751, respectively.

F-6

Concentration of Business and Credit Risk

The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. The Company’s financial instruments that are exposed to concentration of credit risks consist primarily of cash. The Company maintains its cash in bank accounts which, may at times, exceed federally-insured limits.

 

Financial instruments which potentially subject the Company to concentrations of business risk consist principally of availability of suppliers. As of September 30, 2012, the Company was dependent on approximately two vendors for 85% of product supply.

 

Share-Based Compensation

The Company accounts for stock-based payments to employees in accordance with ASC 718, “Stock Compensation” (“ASC 718”). Stock-based payments to employees include grants of stock, grants of stock options and issuance of warrants that are recognized in the consolidated statement of operations based on their fair values at the date of grant.

 

The Company accounts for stock-based payments to non-employees in accordance with ASC 718 and Topic 505-50, “Equity-Based Payments to Non-Employees.” Stock-based payments to non-employees include grants of stock, grants of stock options and issuances of warrants that are recognized in the consolidated statement of operations based on the value of the vested portion of the award over the requisite service period as measured at its then-current fair value as of each financial reporting date.

 

The Company calculates the fair value of option grants and warrant issuances utilizing the Black-Scholes pricing model. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. ASC 718 requires forfeitures to be estimated at the time stock options are granted and warrants are issued to employees and non-employees, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock option or warrant. The Company estimates forfeiture rates for all unvested awards when calculating the expense for the period. In estimating the forfeiture rate, the Company monitors both stock option and warrant exercises as well as employee termination patterns.

 

The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight-line basis over the requisite service period of the award.

 

For the nine months ended September 30, 2012 and 2011, and the period from July 8, 2010 (inception) to September 30, 2012, the Company recorded share-based compensation of $144,007, $-0- and $4,111,507, respectively.

 

Recent accounting pronouncements

 

Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements

 

International Financial Reporting Standards:

 

In November 2008, the Securities and Exchange Commission (“SEC”) issued for comment a proposed roadmap regarding potential use of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Under the proposed roadmap, the Company would be required to prepare financial statements in accordance with IFRS in fiscal year 2014, including comparative information also prepared under IFRS for fiscal 2013 and 2012. The Company is currently assessing the potential impact of IFRS on its financial statements and will continue to follow the proposed roadmap for future developments.

F-7

Year-end

The Company has adopted December 31, as its fiscal year end.

 

NOTE 2 - Going concern

 

These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. The Company has not yet achieved profitable operations and since its inception (July 8, 2010) through September 30, 2012 the Company had accumulated losses of $6,628,312 and a working capital deficit of $841,316. Management expects to incur further losses in the development of its business, all of which raises substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.

 

The Company expects to continue to incur substantial losses as it executes its business plan and does not expect to attain profitability in the near future. Since its inception, the Company has funded operations through short-term borrowings and equity investments in order to meet its strategic objectives. The Company's future operations are dependent upon external funding and its ability to execute its business plan, realize sales and control expenses. Management believes that sufficient funding will be available from additional borrowings and private placements to meet its business objectives, including anticipated cash needs for working capital, for a reasonable period of time. However, there can be no assurance that the Company will be able to obtain sufficient funds to continue the development of its business operation, or if obtained, upon terms favorable to the Company.

 

NOTE 3 - Accounts receivable

 

Accounts receivable consist of the following:

 

   September 30,  December 31,
   2012  2011
Trade accounts receivable  $4,924   $386 
Employee receivables   8,579    —   
Due from related party   22,372    22,838 
Less: Allowance for doubtful accounts   —      —   
   $35,875   $23,224 

 

As of September 30, 2012 and December 31, 2011, respectively, the Company had not established an allowance for doubtful accounts.

F-8

NOTE 4 - Property and equipment

 

The following is a summary of property and equipment:

 

   September 30,  December 31,
   2012  2011
Furniture and fixtures  $11,612   $11,612 
Software   11,945    11,945 
Computers and equipment   22,249    22,249 
Less: accumulated depreciation   16,734    7,882 
   $29,072   $37,924 

 

Depreciation for the nine months ended September 30, 2012 and 2011 and for the period from July 8, 2010 (inception) to September 30, 2012 was $8,852, $3,151 and $16,734, respectively.

 

NOTE 5 - Related party transactions

 

Related party receivable

At the Company’s inception (July 8, 2010) the sole officer and shareholder contributed all the assets and liabilities distributed to him from his former limited liability company which was dissolved on July 2, 2010. At the date of contribution, the fair value of the liabilities contributed exceeded that of the assets by $54,438, which has been recorded as a related party receivable. The contributed assets and liabilities, including the amount due from the related party are as follows:

 

Assets:        
    Cash   $5,984
    Inventory   7,877
    Fixed assets, at fair value   12,863
    Due from related party   54,438
    Deposits held   2,965
    Total assets contributed   $84,127
      
Liabilities:     
    Accrued liabilities   $500
    Note payable   83,627
    Total liabilities contributed   $84,127

 

On July 8, 2010 (inception) the Company issued 100 shares of its common stock to its sole officer as founder’s shares in exchange for cash of $100. During the period from inception (July 8, 2010) and December 31, 2010, the Company’s sole officer donated his services valued at $28,500 which was recorded as a reduction on the amount due from him. In addition, the officer made cash payments totaling $5,400 as further reductions in his related party receivable due to the Company.

 

During the year ended December 31, 2011, the aforementioned officer donated additional services valued at $10,375 which has been recorded as a reduction in the officers’ receivable balance. Additionally, the Company advanced $14,516 to the officer for personal expenses and received repayment in the amount of $1,841.

 

During the nine months ended September 30, 2012, the Company advanced an additional $331 and repaid $806.

 

As of September 30, 2012 and December 31, 2011, the amounts due from the officer totaled $22,372 and $22,838, respectively.

F-9

Merger warrants

In connection with the Company July 5, 2011 merger activities, the Company issued a warrant to purchase up to 37,500,000 shares of the Company’s common stock at an exercise price of $0.01 per share to its chief executive officer and majority shareholder. The warrant has a term of twenty-four months expiring on July 1, 2013 and is subject to performance conditions. The performance conditions allow for the warrant to be exercisable in four increments of 9,375,000 for each $1,000,000 of cumulative realized revenue over the twenty-four month term. As of September 30, 2012, performance conditions have not been met therefore; no portion of the warrant is exercisable. On the date of grant, the estimated fair value of each warrant using the Black-Scholes model is $0.42 per share utilizing a strike price of $0.01, volatility of 177%, and a risk-free rate of 4.40%. The Company estimated the number of shares that would become exercisable throughout the twenty-four month term based on historical activity and pro forma projections to be 9,375,000 resulting in an estimated fair value of $3,967,500 which has been recorded as compensation in the previous year.

 

Employment/Consulting commitments

One June 1, 2011, the Company entered into an Employment Agreement with its chief executive officer. The initial term of the agreement covers a three-year period commencing on June 1, 2011 and required annual compensation payment of $24,000. On January 1, 2012, the original agreement was amended to provide for an increase in annual compensation from the original $24,000 to $48,000 per year.

 

On June 1, 2011, the Company issued a Consulting Agreement to its chief financial officer. Pursuant to the agreement, annual consulting fees of $24,000 will be paid per annum for the term of the agreement which was to expire on March 1, 2014. In September 2011, the Company replaced the consulting agreement with an offer of employment with annual compensation of $30,041. Employment is considered “at-will” and therefore can be terminated at any time by either party.

 

Note payable to a related party

During the year ended December 31, 2011, the Company’s chief financial officer paid certain liabilities totaling $10,578 on behalf of the Company. In October 2011, the Company issued a promissory note for the value of the payment which bears interest at a rate of 8% per annum and matures on September 30, 2012. On January 12, 2012, this same officer provided an additional $20,000 under the same terms, to the Company for operating expenses. As of September 30, 2012 the Company made principal payments of $14,000. The balance of these notes was $21,258 and accrued interest totaled $1,828.

 

NOTE 6 - Notes payable

 

Chamisa Technology, LLC

On July 8, 2010, the Company’s chief executive officer and majority shareholder contributed a note payable in the amount of $83,627 which originated from his previously dissolved limited liability company. The note balance represented cash advances of $81,595 and previously accrued interest of $2,032. During the period from inception (July 8, 2010) through December 31, 2010, the Company received additional advances of $64,491 and $18,000 during the year ended December 31, 2011. No formal agreement pertaining to the advances had previously been documented, however pursuant to a verbal agreement between the parties, the balance was due on demand and bears interest at a rate of 12% per annum. March 5, 2012, the Company formalized and acknowledged its liability to Chamisa Technology, LLC in the form of a promissory note. The promissory note is unsecured bears interest at a rate of 12% per annum, and matures on August 31, 2012. Pursuant to the new promissory note, the Company is required to make monthly principal and interest payments through maturity. As of September 30, 2012, the note is in default.

F-10

On April 21, 2012, Chamisa Technology, LLC assigned $81,595 of the note to an individual who further assigned portions of the debt to various entities. During the nine months ended September 30, 2012, the original assignee agreed to forgive $56,595 of the debt in exchange for immediate conversion rights at a conversion rate of $0.001. During the period ended September 30, 2012, the Company authorized the issuance of 19,936,340 shares of common stock for the conversion of $25,000 in principal and $936 of accrued interest. The fair value of the shares issued totaled $737,873 based on the market price of the common stock on the date of conversion. The difference in the fair value of the shares issued and the principal amount of debt and accrued interest converted totaled $711,937 and has been recorded as a financing costs.

 

As of September 30, 2012 and December 31, 2011, the unpaid principal balance together with accrued interest owed to Chamisa totaled $127,360 and $195,142, respectively.

 

Coach Capital LLC

On September 30, 2011, the Company issued a promissory note in the amount of $111,000 to Coach Capital, LLC. The note is unsecured, due on demand and bears interest at a rate of 10% per annum. In the event of default, the interest rate will immediately escalate to 30% per annum. As of September 30, 2012 and December 31, 2011, the unpaid principal balance together with accrued interest totaled $125,749 and $116,669, respectively.

 

ICG USA, LLC

On February 16, 2012, the Company entered into a Securities Purchase Agreement with ICG USA, LLC (“ICG”) and issued a Convertible Promissory Note in the amount of $200,000. The note is unsecure, bears interest at a rate of 6% interest per annum, and matures on February 16, 2013. The note is convertible into shares of our common stock beginning nine months after the date of issuance and was convertible on August 16, 2012. Pursuant to the terms of the Agreement, the note is convertible at a rate equal to a 45% discount to the average of the three lowest closing trade prices in the preceding thirty trading days. On the date the note became convertible; the Company valued the benefit of conversion at $309,631 and record a discount of $200,000 and a derivative liability with a corresponding comprehensive loss in the amount of $109,631. The discount related to the conversion value will be amortized over the remaining term of the note utilizing the interest method of accretion. On August 24, 2012, ICG elected to convert $15,000 in principal. Pursuant to the conversion rate calculation in the Agreement, the Company issued 649,351 shares at a conversion rate of $0.0231 and recognized a loss on the derivative in the amount of $12,922.

 

As of the balance sheet date, the Company fair valued the derivative liability at $245,348 and recorded a comprehensive loss of $135,717 representing the change in fair value. As of September 30, 2012, the unpaid principal balance was $45,245 net of discount in the amount of $139,755. Accrued interest totaled $7,477.

 

JMJ Financial

On May 7, 2012, the Company issued a Convertible Promissory Note to JMJ Financial (“JMJ”) in the amount of $275,000. Pursuant to the terms of the note, a 10% original issue discount is included and is due in one year. The Note does not bear interest if paid in full within 90 days. Thereafter, a one-time interest charge of 5% shall be applied to the principal sum. The Note is convertible to common stock in whole or in part at conversion price equal to the lesser of $0.06 per share or 65% of the lowest trading price in the 25 trading days prior to the conversion. As of September 30, 2012, JMJ has funded $55,000 of the note which includes an original issue discount in the amount of $5,000. The Company has computed the present value of the amount funded at $52,731 as a result of its non-interest bearing terms. Additionally, the Company recorded a discount in the amount of $44,270 in connection with the initial valuation of the beneficial conversion feature of the note to be amortized utilizing the interest method of accretion over the one year term of the note. Further, the Company has recognized a derivative asset resulting from the variable change in conversion rate in relation to the change in market price of the Company’s common stock. As of September 30, 2012, the Company recorded comprehensive loss on the derivative in the amount of $19,462, recorded amortization of the debt discount in the amount of $22,000 in connection with the beneficial conversion feature of the note. As of September 30, 2012, the unpaid principal balance net of discount totaled $31,393. The present value interest amortized during the period ended September 30, 2012 totaled $1,074.

F-11

Asher Enterprises

On June 6, and July 10, 2012, the Company issued two Convertible Promissory Notes to Asher Enterprises, Inc. (“Asher”) in the amount of $63,000 and $37,500, respectively. The notes bears interest at a rate of 8% per annum, are unsecured and mature on March 8, and April 12, 2013. The Notes are convertible into common stock in whole or in part at a variable conversion price equal to a 39% discount to the 10-day average trading price prior to the conversion date. The Company recorded a discount in the amount of $77,779 in connection with the initial valuation of the beneficial conversion feature of the notes to be amortized utilizing the interest method of accretion over the term of the notes. Further, the Company has recognized a derivative liability in the amount of $120,587 resulting from the variable change in conversion rate in relation to the change in market price of the Company’s common stock. As of September 30, 2012, the Company recorded a comprehensive loss on the derivatives in the amount of $32,834, and recorded amortization of the debt discounts in the amount of $36,903 in connection with the beneficial conversion features of the notes. As of September 30, 2012, the principal balance owed to Asher for these two notes totaled $36,903 net of discounts of $63,597.

 

Continental Equities, LLC

On September 20, 2012, The Company issued a Convertible Promissory Note to Continental Equities, LLC (“Continental”) in the amount of $35,000. The note bears interest at a rate of 8% per annum, is unsecured and matures on May 15, 2013. The Note is convertible into common stock in whole or in part at a variable conversion price equal to a 42.5% discount to the lowest three average thirty day trading prices prior to the conversion date. The Company recorded a discount in the amount of $35,000 in connection with the initial valuation of the beneficial conversion feature of the notes to be amortized utilizing the interest method of accretion over the term of the notes. Further, the Company has recognized a derivative liability in the amount of $1,437 resulting from the variable change in conversion rate in relation to the change in market price of the Company’s common stock. As of September 30, 2012, the Company recorded a comprehensive loss on the derivatives in the amount of $41,441, and amortization of the debt discounts in the amount of $1,477 in connection with the beneficial conversion features of the note. As of September 30, 2012, the principal balance owed to Continental totaled $1,477 net of discount of $33,523.

 

NOTE 7 – Commitments

 

Lease agreements

In June 2011, the Company entered into a two-year lease agreement for additional office space commencing July 1, 2011 and expiring September 30, 2013. Pursuant to the terms of the lease agreement, the monthly rate will increase to $4,175 with an additional increase at the anniversary date to $4,300. In addition, the Company has increased its security deposit to $4,836. As of September 30, 2012 and 2011, the Company has recorded rent expense of $54,416 and $42,016, respectively.

F-12

NOTE 8- Income taxes

 

Deferred income tax assets and liabilities are computed annually for differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

 

The effective tax rate on the net loss before income taxes differs from the U.S. statutory rate as follows:

 

   2012  2011
U.S. Statutory rate   34%   34%
Valuation allowance   (34)%   (34)%
Effective tax rate   —      —   

 

The net change in the valuation for the nine months ended September 30, 2012 was an approximate increase in valuation of $521,000.

 

The Company has a net operating loss carryover of approximately $2,630,000 available to offset future income for income tax reporting purposes, which will expire in various years through 2031, if not previously utilized. However, the Company’s ability to use the carryover net operating loss may be substantially limited or eliminated pursuant to Internal Revenue Code Section 382.

 

We had no material unrecognized income tax assets or liabilities as of September 30, 2012. Our policy regarding income tax interest and penalties is to expense those items as general and administrative expense but to identify them for tax purposes. During the nine-months ended September 30, 2012 and 2011, there were no income tax, or related interest and penalty items in the income statement, or as a liability on the balance sheet. We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are subject to U.S. federal or state income tax examination by tax authorities for years beginning at our inception of July 8, 2010 through current. We are not currently involved in any income tax examinations.

F-13

NOTE 9 - Fair value measurement

 

The Company adopted ASC Topic 820-10 at the beginning of 2009 to measure the fair value of certain of its financial assets required to be measured on a recurring basis. The adoption of ASC Topic 820-10 did not impact the Company’s financial condition or results of operations. ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  ASC Topic 820-10 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 on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability. The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:

 

Level I – Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.

 

Level II – Valuations based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

 

Level III – Valuations based on inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability.

 

The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011:

 

   Level I  Level II  Level III  Fair Value
September 30, 2012                   
      Notes payable    —      (233,788)   —     (233,788)
      Convertible debt, net    —      (104,018)   —     (104,018)
      Derivative liabilities    —      (443,671)   —     (443,671)
          $—     $(771,477)  $—     $(771,477)
                       
December 31, 2011           
      Notes payable    —      (294,125)   —     (294,125)
          $—     $(294,125)  $—     $(294,125))

 

NOTE 10 – Shareholders’ equity

 

Recapitalization

Effective June 14, 2011, the Company effectuated a 1-for-1.65 reverse stock split together with a corresponding reduction from 200,000,000 to 121,212,122 in the number of authorized shares of the common stock, with a par value of $0.001.

 

Effective November 2, 2009, the Company amended its articles of incorporation to increase its authorized capital to 200,000,000 shares of common stock.

 

On August 10, 2009, the Company reverse split its issued common shares on the basis of one new share for one hundred old shares, and reduced its authorized capital from 600,000,000 to 6,000,000 shares of common stock.

 

On January 16, 2009, the Company forward split its issued common shares on the basis of two and one half new shares for one old share.

F-14

On January 4, 2008, the Company forward split its issued common shares on the basis of four new shares for one old share. The Company increased its authorized share capital from 150 million to 600 million shares.

 

The number of shares referred to in these financial statements has been restated to give retroactive effect on all stock splits.

 

Preferred stock

On March 22, 2012, after receiving approval of a majority of our outstanding common stock, the Company amended its Articles of Incorporation to designate 1,500 shares of blank check preferred stock, and on March 26, 2012, filed a Certificate of Designations of Preferences, Rights and Limitations to authorize the issuance of shares of Series A Preferred Stock.

 

Socius CG II Ltd.

On February 21, 2012, the Company entered into a Securities Purchase Agreement with Socius CG II, Ltd. Pursuant to the terms and subject to the conditions of this agreement, the Company, at its sole discretion, has the ability to demand that Socius purchase up to a total of $5 million of redeemable Series “A” Preferred Stock for a period of two years from the date of closing. As of March 31, 2012, no Series A Preferred Stock has been issued.

 

Common stock issuances

On January 12, 2009, the Company issued 225,000 shares of its common stock to Trussnet Capital Partners (Cayman) Ltd. for all of the issued and outstanding shares of LED Power Group, Inc. pursuant to a merger agreement and underlying assignment agreement. Under the terms of the agreements, the Company has acquired the license to exclusive rights of certain intellectual property in relation to the production of LED products. The shares were valued at fair market on the day of the agreements, being $0.92 per share. Effective August 23, 2010, 225,000 shares that had been issued to Trussnet in connection to the license agreement returned to treasury and cancelled.

 

On September 24, 2009, the Company issued 1,000,000 shares of common stock in exchange for cash proceeds of $10,000 or $0.01 per share.

 

On December 10, 2009, the Company issued an additional 23,904,015 shares of common stock pursuant to conversion of $227,515 in demand notes payable and $11,525 in accrued interest.

 

On April 1, 2011, the Company issued 452,312 shares of common stock pursuant to the conversion of $19,000 in advances, $188,374 in demand notes payable and $16,520 in accrued interest. The Company erroneously issued 29,588 shares of common stock in excess of the 452,312 shares of common stock in relation to the conversion of the debt. These shares were returned to treasury and cancelled on August 5, 2011.

 

During the year ended December 31, 2011, the Company sold 1,975,000 shares of its common stock for cash proceeds totaling $987,500. As of March 31, 2012, the shares are unissued.

 

During the nine-months ended September 30, 2012, the Company sold 1,750,000 shares of its common stock for cash proceeds totaling $175,000.

 

During the nine-months ended September 30, 2012, the Company issued a total of 20,585,690 shares of common stock in connection with the conversion of $40,936 in debt and financing costs of $710,881.

 

During the nine-months ended September 30, 2012, the Company issued 2,700,000 shares for consulting services to two individuals fair valued at $92,500.

F-15

Warrants and options

On March 26, 2012, the shareholders’ of the Company approved the Company’s 2012 Equity Incentive Plan. Pursuant to the plan, on June 15, 2012 the Company granted a total of 2,291,664 options to its senior management team. The option have a term of 10 years, are exercisable at an average weight of $0.09 per share and vest in four increments of 25% each with the first vesting to occur on grant and the remaining to vest over the subsequent three-year period. The company has valued the grant utilizing the Black-Scholes Model and assumptions as follows: risk-free interest rate 2.29%; and volatility 205%. As of September 30, 2012, the Company recorded compensation expense of $51,507 in connection with the grant.

 

NOTE 11 - Subsequent events

 

On October 31, 2012, the Company designated 100 shares of its preferred stock as $0.01 par value Class B Convertible preferred. Holders of Class B Convertible Preferred Stock will participate on an equal basis per-share with holders of common stock in any distribution upon winding up, dissolution, or liquidation. Holders of Class B Convertible Preferred Stock are entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of one million (1,000,000) votes for each share held. Holders of Class B Convertible Preferred Stock are also entitled, at their option, to convert their shares into shares of our common stock on a 1 for 1 basis.

 

On October 31, 2012, the Company issued all 100 shares of Class B preferred to its CEO for services to the Company.

F-16

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

 

Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Company Overview

 

Through our wholly-owned subsidiary, Nyxio Technologies Inc., an Oregon corporation (“Nyxio”), we develop and provide technology for the entertainment and commercial markets within the consumer electronic industry. Since inception, the company’s approach to the industry can be best described as disruptive evolution. The general population has evolved to the point where computers and devices that rely on an internal computer for operation have become second nature. Gone are the days when people were intimidated by their electronics. Consumer electronics continue to evolve and morph into new form factors. Touch cell phones, web tablets and now TV with browsers incorporated have become an accepted and expected part of our society. Nyxio’s flagship product, The VioSphere, is the first TV with a fully functional personal computer built in. Unlike TVs with limited browser capabilities, the VioSphere has no limitations. Like many of the company’s innovative products, it is an entertainment destination. This destination philosophy has become a driving force for product innovation and development, which, we believe, we provide at a reasonable cost.  We are determined to become a leading-edge driver and developer of technology across a wide range of vertical markets that include retail, education, B2B, and digital signage.  We strive to reduce the overall environmental footprint of end users by consolidating key hardware into more efficient devices.

 

Products

 

·The Realm - All in One PC/TV, combining the latest in PC technology with HDTV.

·The Realm Pro - RobRobust all in One PC/TV geared for commercial and digital signage markets.

·Venture MMV - Mobile Media Viewer is a new class of video eyewear offering designer styling in a sleek ergonomic design with unmatched features and performance.

·The Vuzion – The world’s first TV built on an Android OS enabling 400,000 Android applications on a TV for the first time.

 

Sales and Marketing

 

Nyxio Technologies has implemented a sales strategy that has proven to be an effective way to bring product to market. Regional rep firms across the country have been employed to represent Nyxio products to their existing base of dealers. These respected firms leverage relationships they have developed with dealers in their respective territories to add Nyxio products to their stable of product offerings. The firms also offer training, technical and logistics support to the dealers. The firms are compensated on a commission basis so their success is directly tied to the success of the products represented. This symbiotic relationship will allow Nyxio to introduce products nationally in a quick effective yet affordable manner.

4

We are implementing a marketing plan for our platform of products. The key areas of the plan include public relations, advertising, website, trade shows, product identity, and social media. We believe that when executed successfully, our marketing plan will result in interest and attention within the Consumer Electronics Industry as well as with the end consumer. We have recently engaged a progressive agency which specializes in branding, advertising and marketing that we believe will be a great asset in this area and aid us in delivering a compelling story to our consumer.

 

Public Relations - Pending the appropriate funding, we hope to accomplish the following goals through our public relations efforts: (i) Create buzz among key target audiences; (ii) Develop national brand recognition; (iii) Drive awareness for current products to support 2012 launches; (iv) Develop relationships with key influencers in the marketplace; (v) Introduce the Company to key analysts; (vi) Drive sales through a strategic public relations program, (vii) Educate our consumers to understand our differentiation and product versatility.

 

Advertising - We will be creative with our advertising and use social media to innovatively create awareness and introduce our product lines. We will also place ads in industry-specific publications in order to introduce our product line to a large population of key companies and individuals within the consumer electronics industry. These companies and individuals represent regional and national electronics distributors as well as custom audio/video installers and retailers. The publications currently being considered for advertising placement include:

 

· CE Pro

· Smarthouse

· GQ

· Electronic House

· First Glimpse

· Connected World

 

We are also be submitting our products for reviews in magazines like Good Housekeeping and GQ, building public awareness. We may use TV commercials as well as obtain a nationally recognized but local Portland personality to endorse and promote our product.

 

Website - We have established a website that is a great source of information to the general population as well as distributors, retailers, and custom audio/video installation companies, all of whom are potential customers for the Company. We have also established the website as a platform for online gaming and as a social media tool. Our goal is for this website to grow as a vital resource for our employees, customers, and for the industry itself.

 

Trade Shows - Trade shows are an effective marketing tool for us. We expect to participate in half a dozen trade shows annually, as well as private distributor sponsored shows. January 2012 represented our debut appearance at the Consumer Electronics Show (CES), a major milestone in our marketing process. The following trade shows serve to cover the identified target markets of electronics distributors, retailers, and the education market.

 

· CES

· CEDIA Expo

· Digital Signage Expo

· Engage

· NAB Show

· InfoComm

 

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Innovative Product Development - Our product development efforts are based on the concept that market penetration is contingent upon continued innovation. We have proven our ability to be innovative with the release of the first VioSphere. This release came a full three years before the market, we believe, determined that connected TV’s and smart TV’s were the next consumer technology wave and a second version has already been released. Continued creativity in development has also been illustrated by our development and release of our Android TV and the Nyxio Venture MMV’s. With continued focus on creative and innovative product development, we strive to become a leader in the consumer electronics industry. We are continuing along the path of technology convergence and reducing the environmental footprint, packing more features and components into easy to use products.

 

Product Identity - Through the design of our products, we aim to distinguish ourselves in the market place and establish a reputation for innovative technology. We believe that this, combined with our unique designs, should give us an advantage over our competitors. Our designs will also serve to create more demand for our entire product line with our goal being that customers will be able to identify a Nyxio product before seeing the Nyxio name on it.

 

Social Media - Social media is also a major focus for our marketing efforts. Our team will focus on maximizing our presence through Facebook, Twitter, digg, UTube and email marketing. By maximizing our exposure through these various social media sites, we strive to effectively brand ourselves to millions of potential customers on a continual basis.

 

Achievements to Date

 

Our management team has spent the past year listening to user feedback and incorporating this feedback into our products. We have forged strong partnerships with our supply chain and our manufacturers, as well as formed a rep and dealer based sales network. We’ve also searched for and selected a progressive public relations and advertising firm and aligned ourselves with investor relations professionals who have the Company’s financial health in heart. Over the past year, Nyxio has implemented its logistics plan by selecting an all in one international logistics expert, and we have contracted an internationally recognized customer service and repair company. To date Nyxio has released a number of innovative products which have been well received by the electronics industry and we recently released the first Android based smart television.

 

Key Objectives

 

Nyxio Technologies has identified three key objectives that will help guide Company growth for the next five years and beyond. These include:

· Continue to determine competitive strategies, organizational management, and divisional structure for the Company’s roadmap for growth.

· Partnerships, in product development, supply chain, and sales, leveraging established expertise to innovate and create something new.

· Multi-channel focus, with targeted solutions for home Consumer Electronics, B2B, Digital Signage, Education, Legal & Courtroom, Museums, etc.

 

Nyxio’s product development efforts are based on the concept that market penetration is contingent upon continued innovation. “Convergence” is our driving philosophy, combining technologies that already exist to make products that are more effective, more powerful, reduce environmental footprints and clutter, and are fun and easy to use. We feel we are well positioned to define the connected and smart TV market, through continued creativity in development and innovative products we are forging our own path as a unique leader in the electronics industry.

 

In this demanding and competitive technology industry, Nyxio has intentionally designed a conservative sales and marketing plan, looking to ensure the achievement of corporate goals along with an solid ROI to investor/partners. Nyxio is looking beyond the short term to a long range revenue stream and profitability with a dominant market share within key niche segments. Our funding goals are to partner with like-minded investors who understand our long term focus.

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Goals

 

Nyxio Technologies has six achievable goals:

 

· Company Growth

· Profitability

· Product Development

· Fast Innovation

· Market Penetration

· Industry Expansion

 

Results of operations for the three and nine months ended September 30, 2012 and 2011, and for the period from July 8, 2010 (date of inception) through September 30, 2012.

 

The discussion that follows is derived from our unaudited interim balance sheets and the unaudited statements of operations and cash flows for the three and nine months ended September 30, 2012 and 2011 and for the period from inception (July 8, 2010) to September 30, 2012.

 

Revenues, net

 

Prior to July 2011, we were a private development stage company with minimal operating revenues and limited access to the capital required for the execution of our business plan. Our operating revenues during the quarter ended September 30, 2012 were $17,753 compared to $3,248 during the quarter ended September 30, 2011. Our operating revenues during the nine months ended September 30, 2012 were $24,701 compared to $6,586 during the nine months ended September 30, 2011. Our inception to date revenues totaled $46,089 as of September 30, 2012.

 

We recognize revenue when delivery has occurred, the sales price is fixed and collectability is reasonably assured. Ownership and title of our products pass to customers upon delivery of the products to customers. We record revenues, net of sales discounts.

 

Cost of Sales

 

Our cost of sales for the quarter ended September 30, 2012 was $7,059, compared to $2,167 for the quarter ended September 30, 2011. Our cost of sales for the nine months ended September 30, 2012 was $12,447, compared to $4,350 for the nine months ended September 30, 2011. Cost of sales includes finished goods, assembly services, and cost to deliver our product. Cost of sales has remained consistent with the previous year comparable period. As we are able to increase our revenues, we expect our cost variables to decrease due to volume discounts.

 

Gross Profit

 

During the quarter ended September 30, 2012 our gross profit was $10,694, compared to a gross profit for the quarter ended September 30, 2011 of $1,081. During the nine months ended September 30, 2012 our gross profit was $12,254, compared to a gross profit for the nine months ended September 30, 2011 of $2,236. Cost of our initial inventory assembly was high due to modifications in assembly techniques and testing, higher than normal freight costs, and higher raw material costs due to low volume purchasing. Freight costs were higher as a result of oversea assembly and a single port of entry. These costs will decrease as we assemble and distribute from strategically located warehouse facilities. We expect gross profits to normalize at 38% in the near-term and 40% in the long-term. Gross profit, as a percentage of sales, will also increase as we have a higher weighting of sales through direct distribution to our end customer.

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Expenses

 

During the quarter ended September 30, 2012 we incurred $167,390 of operating expenses, compared to $4,345,411 for the quarter ended September 30, 2011. This decrease in operating expenses for the third quarter of 2012 compared to the same period in 2011 is a direct result of the value attributable to the warrants issued to our CEO in connection with our 2011 merger. Additionally, 2011 expenses were higher than the current year due to the continued implementation of our business plan and regulatory compliance resulting from our July 2011 merger activities.

 

Our highest operating expenses for the three month period are; professional and consulting fees which totaled $141,384 for the quarter ended September 30, 2012, and $340,135 for the nine months ended September 30, 2012. By comparison, we in incurred expense for professional and consulting fees of $4,404,602 and $4,198,515 for three and nine months ended September 30, 2011, respectively. We do expect professional fees to remain stable for the remainder of 2012.

 

During the quarter ended September 30, 2012 we incurred $1,232 in travel including flights, accommodations, meals and automobile. We incurred travel expenses of $39,749 during the nine months ended September 30, 2012. By comparison, we incurred $84,269 and $117,343, during the three and nine months, respectively, ended September 30, 2011. This expense is expected to increase as we continue our product marketing.

 

During the quarter ended September 30, 2012 we incurred $4,655 in promotions and advertising. We incurred $37,930 in promotions and advertising during the nine months ended September 30, 2012. By comparison, we incurred $40,039 and $51,184 in promotions and advertising during the three and nine months ended September 30, 2011, respectively. These costs include demonstration products, advertising, shipping samples to retailers and distributors, and promotion allowances for distributors and tradeshows which includes booth costs, and various other tradeshow costs. We expect this expense to increase over the next twelve months.

 

During the quarter ended September 30, 2012 we incurred $670 in salaries and wages and $234,462 during the nine months ended September 30, 2012. By comparison, we incurred $55,159 and $76,018 during the three and nine months, respectively, ended September 30, 2011. This expense is expected to increase as we take on additional employees in the future.

 

Other Income and Expense

 

During the three months ended September 30, 2012, we experienced a loss on the change in the value of a derivative liability in the amount of $83,639, financing costs of $485,136, interest expense of $10,569, and amortization of a beneficial conversion discount in the amount of $80,502. During the nine months ended September 30, 2012, we experienced a loss on the change in the value of a derivative liability in the amount of $12,992, financing costs of $711,937 interest expense of $36,174, other income of $1,896, and amortization of a beneficial conversion discount in the amount of $87,174.

 

As a result of the new financing agreements entered into during the nine months ended September 30, 2012, we have incurred additional costs which are attributable to the terms of each agreement with respect to their variable conversion rights. Until such time the agreements are satisfied in full, we will continue to incur costs related to the valuation of these terms. Additionally, in connection with a note holders’ offer to forgive $56,595 of principal debt, we agreed to convert the remaining balance of $25,000 at a conversion rate of $0.001 with the difference in market value at the time of conversion being recorded as financing costs in the amount of $711,937. As of September 30, 2012, the principal amount has been fully converted.

 

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Net Loss

 

During the quarter ended September 30, 2012 we incurred a net loss of $761,616. During the nine months ended September 30, 2012, we incurred a net loss of $1,532,438. By comparison, we incurred net losses of $4,352,724 and $4,561,103 during the three and nine months, respectively, ended September 30, 2011. This decrease in net loss compared to last year is due to a non-recurring issuance of warrants to our CEO in connection with our 2011 merger activities.

 

Since July 8, 2010, the inception date of Nyxio, through September 30, 2012, we have generated revenue of $46,089 and have incurred a net loss of $6,628,312. Our greatest challenges which have prohibited us from executing our business plan are as follows:

 

· Lack of adequate funding to obtain a small inventory, establish a healthy PR campaign, recruit a world class management team, and fund future development to enhance current product features and new products to stay ahead of the technology curve.

· Manufacturing in Asia – Too far away to monitor quality and suppliers without costly travel.

· Lack of adequate funding to retain skilled sales team.

 

Our current and future operations are focused on continuing to carry out our business plan through the marketing and continued development of our current products, including the VioSphere, Realm, RealmPro, Venture MMV technology and Vuzion Android TV, and our future products, continued development efforts, and the continued evaluation of potential strategic acquisitions and/or partnerships.

 

Our operations to date have consisted primarily of the following:

 

· Enhancing product features and esthetics

· Negotiations to reduce product cost and enhance quality

· Building a reliable Bill of Material for all products and sourcing from established suppliers

· Work with technology partners such as Avnet, Intel, and AMD, with whom we have collaboration agreements, to develop new CPU list of options and board options. To date we have not entered into any Purchase Orders with these partners.

· Develop new products with alternate revenue streams, such a gaming and cloud commerce

· Develop clear and concise marketing, sales, and specification literature and tools

 

Our efforts are directed at generating revenue through the sales of our current products, which are available for purchase at the following locations: Amazon.com, OrderBorder, Rapid Buyer, Focus, University Book Stores, and at our proprietary web-site.

 

Key factors affecting our results of operations include revenues, cost of revenues, operating expenses and income and taxation.

 

Liquidity and Capital Resources

 

As of September 30, 2012, we had cash and equivalents on hand of $6,295, and a working capital deficit of $841,316. We determined that our cash on hand and working capital were not sufficient to meet our current anticipated cash requirements. As such, we evaluated several options to obtain short term financing and entered into a Securities Purchase Agreement with ICG USA, LLC as discussed below. While we hope to see a significant increase in revenue towards the latter part of the second quarter of 2012, we will continue to rely on funds obtained through the issuance of debt and equity securities throughout 2012. We may enter into further debt and equity agreements to fund operations and inventory requirements if management feels it is required, and we expect to see sharp increases in revenues to fund future operating expenses. We anticipate our additional cash requirements to fund Cost of Goods Sold and operations to be roughly $1.729 million dollars, at which point revenues from sales should be enough to fund inventory and operational expenses. Our operations to date have been primarily funded through the issuance of debt and equity securities.

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Specifically, on September 30, 2011, we entered into a promissory note with Coach Capital LLC in the amount of $111,000 (the “Coach Note”). The Coach Note is unsecured, bears interest at 10% per annum and is due on demand. The holder of the Coach Note may elect to convert all or part of the indebtedness owing under the Coach Note into our securities at such rate as that being offered to investors at the time of conversion. During the year ended December 31, 2011, we sold 1,555,000 shares of our common stock to certain accredited investors in exchange for cash totaling $777,500 in accordance with our form of Securities Purchase Agreement requiring payment equal to $0.50 per share. In the fourth quarter of 2011 we sold an additional 2,100,000 shares of our common stock in exchange for cash totaling $210,000 in accordance with our form of Securities Purchase Agreement requiring payment equal to $0.10 per share.

 

On February 16, 2012, we entered into a Securities Purchase Agreement with and issued a Convertible Promissory Note in the amount of $200,000, at 6% interest per annum, to ICG USA, LLC (the “ICG Note”). The ICG Note is convertible into shares of our common stock beginning nine months after the date of issuance of the ICG Note at the discretion of ICG USA, LLC. The ICG Note is due February 16, 2013.

 

Additionally, on February 21, 2012, we entered into a securities purchase agreement (the “Purchase Agreement”) with Socius CG II, Ltd.; a Bermuda exempted company (“Socius”). Under the terms and subject to the conditions of the Purchase Agreement, we have the right, in our sole discretion, over a term of two years from the closing of the Purchase Agreement, to demand through separate tranche notices that Socius purchase up to a total of $5 million of redeemable Series A Preferred Stock. In order to effectuate a future issuance of Series A Preferred Stock, on March 22, 2012, after receiving approval of a majority of our outstanding common stock, we filed an amendment to our Articles of Incorporation to designate 1,500 shares of blank check preferred stock, and on March 26, 2012, we filed a Certificate of Designations of Preferences, Rights and Limitations to authorize the issuance of 1,100 shares of Series A Preferred Stock. In our sole discretion, we have the right to issue to Socius, subject to the terms and conditions of the Purchase Agreement, one or more tranche notices to purchase a certain dollar amount of such Series A Preferred Stock. As of the date of this Quarterly Report, we have not provided Socius with a tranche notice and no Series A Preferred Stock has been issued.

 

On May 7, 2012, we entered into a $275,000 Promissory Note (the “Note”) with JMJ Financial (“JMJ”). Under the Note, we received $50,000 in loan proceeds with JMJ. Additional sums up to a maximum total of $275,000 may be advanced in the sole discretion of JMJ. The Note includes a 10% original issue discount and is due in 1 year. The Note does not bear interest if paid in full within 90 days. Thereafter, a one-time interest charge of 5% shall be applied to the principal sum. The Note is convertible to common stock in whole or in part at conversion price equal to the lesser of $0.06 per share or 65% of the lowest trading price in the 25 trading days prior to the conversion. Although we have received $50,000 in funding under the JMJ Note, we do not currently expect that additional advances will be made to us.

 

In addition, we have received debt financing from Asher Enterprises, Inc. under a series of Convertible Promissory Notes. The notes, both converted and currently outstanding, are as follows:

 

Amount  Issue date  Due date  Shares issued upon conversion  Conversion date(s)  Principal amount outstanding
$63,000   June 6, 2012  March 8, 2013  Variable  n/a  $63,000 
$37,500   July 10, 2012  April 12, 2013  Variable  n/a  $37,500 
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All Notes issued to Asher Enterprises, Inc. bear interest at a rate of 8% per year and are convertible at a conversion price equal to 61% of the Market Price of our common stock on the conversion date.  For purposes of the Notes, “Market Price” is defined as the average of the 3 lowest closing prices for our common stock on the 10 trading days immediately preceding the conversion date.  The number of shares issuable upon conversion of the Notes is limited so that the holder’s total beneficial ownership of our common stock may not exceed 4.99% of the total issued and outstanding shares. This condition may be waived at the option of the holder upon not less than 61 days-notice.

 

We have determined that the conversion feature of these notes is not considered to be solely indexed to our own stock and is therefore not afforded equity treatment. In accordance with ASC 815, we have bifurcated the conversion feature of the notes and recorded a derivative liability. As of September 30, 2012 the value of the derivative liability was $433,671 and we recognized a loss on the derivative of $12,992 for the nine months ended September 30, 2012.

 

On September 20, 2012, we received additional financing under a Convertible Promissory Note issued to Continental Equities, LLC (“Continental”) in the amount of $35,000. The note bears interest at a rate of 8% per annum, is unsecured and matures on May 15, 2013. The Note is convertible into common stock in whole or in part at a variable conversion price equal to a 42.5% discount to the lowest three average thirty day trading prices prior to the conversion date. In addition, we entered into a Registration Rights Agreement with Continental under which, upon demand of Continental, we must register resale of the common shares issuable upon conversion of the Note on Form S-1. In addition, Continental has “piggy-back” registration rights, which require us to include the re-sale of shares issuable upon conversion of the Note in any registration statement we may file, except for registrations on Forms S-4 or S-8.

 

To meet our future objectives, we will need to meet our revenue objectives and/or sell additional equity and debt securities, which could result in dilution to current shareholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

 

Our current cash requirements are significant due to planned development and marketing of our current products, and we anticipate generating losses.  In order to execute on our business strategy, we will require additional working capital, commensurate with the operational needs of our planned marketing, development and production efforts.  Our management believes that we should be able to raise sufficient amounts of working capital through debt or equity offerings, as may be required to meet our short-term obligations.  However, changes in our operating plans, increased expenses, acquisitions, or other events, may cause us to seek additional equity or debt financing in the future.  We anticipate continued and additional marketing, development and production expenses.  Accordingly, we expect to continue to use debt and equity financing to fund operations for the next twelve months, as we look to expand our asset base and fund marketing, development and production of our products.

 

There are no assurances that we will be able to raise the required working capital on terms favorable, or that such working capital will be available on any terms when needed.  Any failure to secure additional financing may force us to modify our business plan.  In addition, we cannot be assured of profitability in the future.

 

Off Balance Sheet Arrangements

 

As of September 30, 2012, there were no off balance sheet arrangements.

 

Going Concern

 

We have negative working capital, have incurred losses since inception, and have not yet received significant revenues from sales of products or services. These factors create substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern.

11

Our ability to continue as a going concern is dependent on generating cash from the sale of our common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans include selling our equity securities and obtaining debt financing to fund our capital requirement and ongoing operations; however, there can be no assurance we will be successful in these efforts.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 4. Controls and Procedures

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2012. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Giorgio Johnson, and Chief Financial Officer, Mirjam Metcalf. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2012, our disclosure controls and procedures are not effective. There have been no changes in our internal controls over financial reporting during the quarter ended September 30, 2012.

 

In performing the above-referenced assessment, our management identified the following material weaknesses:

 

 i)

We have insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.

 

 ii)

We do not have an audit committee or an independent audit committee financial expert. While not being legally obligated to have an audit committee or independent audit committee financial expert, it is the management’s view that to have an audit committee, comprised of independent board members, and an independent audit committee financial expert is an important entity-level control over our financial statements.

 

 iii)

We did not perform an entity level risk assessment to evaluate the implication of relevant risks on financial reporting, including the impact of potential fraud related risks and the risks related to non-routine transactions, if any, on our internal control over financial reporting. Lack of an entity-level risk assessment constituted an internal control design deficiency which resulted in more than a remote likelihood that a material error would not have been prevented or detected, and constituted a material weakness.

 

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

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Limitations on the Effectiveness of Internal Controls

 

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error.   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 by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

 

Item 1A: Risk Factors

 

A smaller reporting company is not required to provide the information required by this Item. Risk factors regarding our current business can be found in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission on April 16, 2012.

 

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

 

None.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

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Item 6. Exhibits

 

Exhibit Number Description of Exhibit
10.1 Convertible Promissory Note issued to Asher Enterprises, Inc., dated June 6, 2012
10.2 Securities Purchase Agreement with Asher Enterprises, Inc., dated June 6, 2012
10.3 Convertible Promissory Note issued to Asher Enterprises, Inc., dated July 10, 2012
10.4 Securities Purchase Agreement with Asher Enterprises, Inc., dated July 10, 2012
10.5 Convertible Promissory Note issued to Continental Equities, LLC, dated September 20, 2012
10.6 Securities Purchase Agreement with Continental Equities, LLC., dated September 20, 2012
10.7 Registration Rights Agreement with Continental Equities, Inc., dated September 20, 2012
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101** The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 formatted in Extensible Business Reporting Language (XBRL).

**Provided herewith

 

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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.

 

Nyxio Technologies Corporation
 
Date:

November 21, 2012

 

   
 

By:       /s/ Giorgio Johnson

             Giorgio Johnson

Title:    Chief Executive Officer

 
Date:

November 21, 2012

 

   
 

By:       /s/ Mirjam Metcalf

             Mirjam Metcalf

Title:    Chief Financial Officer

 

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