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EX-10.2 - EX10_2 - NYXIO TECHNOLOGIES Corpex10_2.htm
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EX-32.1 - EX32_1 - NYXIO TECHNOLOGIES Corpex32_1.htm
EX-10.6 - EX10_6 - NYXIO TECHNOLOGIES Corpex10_6.htm
EX-10.1 - EX10_1 - NYXIO TECHNOLOGIES Corpex10_1.htm
EX-10.3 - EX10_3 - NYXIO TECHNOLOGIES Corpex10_3.htm
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EX-10.8 - EX10_8 - NYXIO TECHNOLOGIES Corpex10_8.htm
EX-10.7 - EX10_7 - NYXIO TECHNOLOGIES Corpex10_7.htm
EX-31.1 - EX31_1 - NYXIO TECHNOLOGIES Corpex31_1.htm
EX-31.2 - EX31_2 - NYXIO TECHNOLOGIES Corpex31_2.htm

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, 2013
   
[  ] 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

 

 

 

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: 166,723,712 as of November 15, 2013.

 

 

  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 13
2

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our financial statements included in this Form 10-Q are as follows:
 
F-1 Condensed Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012;
F-2 Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012 and period from July 8, 2010 (Inception) to September 30, 2013 (unaudited);
F-3 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012 and period from July 8, 2010 (Inception) to September 30, 2013 (unaudited);
F-4 Notes to Condensed Consolidated Financial Statements (Unaudited).

 

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, 2013 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,
   2013  2012
  (UNAUDITED)   
Current assets:          
Cash  $1,615   $2,658 
Accounts receivable   223    223 
Short-term derivative asset   —      —   
Due from related party   —      27,177 
Total current assets   1,838    30,058 
Fixed assets, net of accumulated depreciation of $25,529 and $19,685, respectively   17,940    26,121 
Total assets  $19,778   $56,179 
Current liabilities          
Accounts payable and accrued expenses  $380,062   $455,684 
Accrued interest   123,477    82,584 
Notes payable   204,130    212,530 
Notes payable - related party   8,458    8,458 
Convertible notes payable, net of discounts of $64,638 and $150,062, respectively   368,435    233,296 
Derivative liability   142,204    264,648 
Total current liabilities   1,226,766    1,257,200 
Shareholders (deficit)          
Series A preferred stock; $0.01 par value; 1,100 shares authorized; no shares          
issued and outstanding at September 30, 2013 and   —      —   
December 31, 2012, respectively          
Series B preferred stock; $0.01 par value; 100 shares authorized;  shares          
100 shares issued and outstanding as of September 30, 2013 and          
December 31, 2012, respectively   1    1 
Common stock; $0.001 par value; 121,212,122 shares authorized;          
66,618,226 and 183,583 shares authorized and issued at September 30, 2013          
and December 31, 2012, respectively   66,618    183 
Common shares sold and unissued, 1,666 at September 30, 2013 and          
December 31, 2012, respectively   2    2 
Additional paid-in capital   19,334,313    6,326,359 
Common stock payable   40,000    —   
Deferred compensation   (8,020,833)   —   
Other comprehensive income (loss)   156,700    (220,695)
(Deficit) accumulated during the development stage   (12,783,789)   (7,306,871)
Total shareholders' (deficit)   (1,206,988)   (1,201,021)
Total liabilities and shareholders' (deficit)  $19,778   $56,179 

F-1

 

Nyxio Technologies Corporation

(a Development Stage Company)

Condensed Consolidated Statements of Operations

(UNAUDITED)

 

  Three Months Ended  Three Months Ended  Nine Months Ended  Nine Months Ended  July 8, 2010
(Inception) to
  September 30,  September 30,  September 30,  September 30,  September 30,
   2013  2012  2013  2012  2013
                          
 Revenue  $—     $17,753   $6,065   $24,701   $85,903 
 Cost of goods sold   —      7,059    1,445    12,447    95,629 
 Gross profit   —      10,694    4,620    12,254    (9,726)
 Operating expenses                         
Consulting services   318,042    88,406    389,042    144,144    4,696,502 
Depreciation   2,637    2,951    8,481    8,852    28,166 
General and administrative   1,438    2,331    9,392    32,065    151,909 
Professional fees   81,438    52,978    108,957    195,991    545,490 
Promotional and marketing   —      4,655    45    37,930    148,296 
Research and development   —      —      —      5,628    30,850 
Rent expense   5,499    14,167    10,153    54,416    155,135 
Salaries and wages   62,500    670    94,987    234,462    815,325 
Officer compensation - stock based   1,250,000    —      3,979,167    —      3,979,167 
Travel and entertainment   947    1,232    4,541    39,749    233,678 
Impairment   —      —      —      —      81,480 
 Total operating expenses   1,722,501    167,390    4,604,765    753,237    10,865,998 
 Net loss from operations   (1,722,501)   (156,696)   (4,600,145)   (740,983)   (10,875,724)
 Other income (expense)                         
 Amortization of debt discounts   (44,070)   (80,502)   (219,116)   (87,174)   (466,103)
 Financing costs   (7,000)   (485,136)   (316,768)   (711,937)   (1,031,875)
 Interest expense   (63,657)   (10,569)   (85,289)   (36,174)   (167,076)
 Interest expense - related party   (439)   (1,669)   (649)   (1,669)   (2,598)
 Other income   —      —      —      1,896    1,896 
 Gain (loss) on derivatives   (171,266)   (83,639)   (254,951)   (12,992)   (298,904)
 Gain (loss) on debt settlement   —      56,595    —      56,595    56,595 
 Total other income (expense)   (286,432)   (604,920)   (876,773)   (791,455)   (1,908,065)
 Net loss  $(2,008,933)  $(761,616)  $(5,476,918)  $(1,532,438)  $(12,783,789)
 Basic and fully diluted loss per common share  $(0.03)  $(13.85)  $(0.15)  $(15.29)     
 Basic and fully diluted - weighted average                         
      common shares outstanding   74,770,313    55,005    35,969,456    100,203      

F-2

Nyxio Technologies Corporation

(a Development Stage Company)

Condensed Consolidated Statements of Cash Flows

(UNAUDITED)

 

        July 8, 2010
  Nine Months Ended  Nine Months Ended  (Inception) to
  September 30,  September 30,  September 30,
   2013  2012  2013
                
Cash flows from operating activities:               
Net (loss)  $(5,476,918)  $(1,532,438)  $(12,783,789)
Adjustments to reconcile net (loss) to net               
 cash used by operating activities:               
Depreciation   8,481    8,852    28,166 
Shares and options issued for services   4,486,207    144,007    4,630,214 
Shares issued for financing costs   306,770    711,817    1,017,651 
Amortization of beneficial conversion   219,116    87,174    466,103 
Penalty interest on default of convertible debt   51,550         51,550 
(Gain) loss on derivatives   254,951    12,992    298,904 
(Gain) on settlement of debt   —      (56,595)   (56,595)
Non-cash services provided by related party   —      —      38,875 
Warrants issued per merger - related party   —      —      3,967,500 
Impairment of operating assets   —      —      81,480 
Decrease (increase) in assets:               
Accounts receivable   —      (13,117)   (223)
Inventory   —      5,732    (73,593)
Prepaid expenses   —      2,736    742 
Other assets   —      (661)   2,965 
Increase (decrease) in liabilities:               
Accounts payable and accrued expenses   (68,112)   25,277    385,923 
Accrued interest   43,785    37,712    131,195 
Net cash used in operating activities   (173,170)   (566,512)   (1,810,932)
Cash flows from investing activities:               
Change in due from related party, net   27,177    466    15,563 
Purchase of fixed assets   (300)   —      (33,244)
Net cash provided by (used in) in investing activities   26,877    466    (17,681)
Cash flows from financing activities:               
Cash contributed by related party   —      —      5,984 
Cash acquired through merger   —      —      45 
Proceeds from notes payable   —      —      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)   (26,800)
Proceeds from convertible debt   145,250    385,500    570,750 
Proceeds from the sale of common stock   —      175,000    1,162,500 
Net cash provided by financing activities   145,250    571,000    1,830,228 
Net increase (decrease) in cash   (1,043)   4,954    1,615 
Cash, beginning of period   2,658    1,341    —   
Cash, end of period  $1,615    6,295   $1,615 
              —   
Supplemental disclosure of cash flow information:               
Cash paid for income taxes  $—     $—     $—   
Cash paid for interest  $—     $—     $167 

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, 2013, and the results of its operations and cash flows for the three months and nine months ended September 30, 2013 and 2012. 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, 2012 filed with the Commission on April 22, 2013.

 

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, 2013 and for the 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, 2013 and December 31, 2012, 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, 2013 and December 31, 2012, respectively, there was no finished goods inventory.

 

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, 2013 or 2012. Depreciation expense for the nine months ended September 30, 2013, and 2012 and for the period from July 8, 2010 (inception) to September 30, 2013, was $8,481, $8,852 and $28,166, respectively.

 

F-4

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, 2013 and 2012, 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, 2013 and December 31, 2012 the Company had 10,090 and 10,090 zero potential common shares that have been excluded from the computation of diluted net loss per share.

 

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.

 

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, 2013 and 2012 due to their short-term nature.

 

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, 2013, and the year ended December 31, 2012, 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.

 

F-5

Advertising

The Company expenses advertising costs as incurred. The Company’s advertising expenses were $45 and $37,930 during the nine months ended September 30, 2013 and 2012, respectively, and $148,296 for the period from July 8, 2010 through September 30, 2013.

 

Research and development

Research and development costs are expensed as incurred. During the nine months ended September 30, 2013 and 2012 and for the period from July 8, 2010 (inception) to September 30, 2013, research and development costs were $0, $5,628 and $30,850, respectively.

 

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, 2013, 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, 2013 and 2012, and the period from July 8, 2010 (inception) to September 30, 2013, the Company recorded share-based compensation of $4,486,207, $71,507, and $8,597,714, respectively.

 

F-6

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.

 

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, 2013 the Company had accumulated losses of $12,783,789 and a working capital deficit of $1,224,928. 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,
   2013  2012
Trade accounts receivable  $223   $223 
Due from related party   —      27,177 
Less: Allowance for doubtful accounts   —      —   
   $223   $27,400 

 

As of September 30, 2013 and December 31, 2012, respectively, the Company had not established an allowance for doubtful accounts.

 

F-7

NOTE 4 - Property and equipment

The following is a summary of property and equipment:

  September 30,  December 31,
   2013  2012
Furniture and fixtures  $11,912   $11,612 
Software   11,945    11,945 
Computers and equipment   22,249    22,249 
Less: accumulated depreciation   (28,166)   (19,685)
   $17,940   $26,121 

 

Depreciation for the nine months ended September 30, 2013 and 2012 and for the period from July 8, 2010 (inception) to September 30, 2013 was $8,481, $8,852 and $28,166, 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 nine months ended September 30, 2013, the president and CEO donated additional services valued at $86,500, of which $41,498 has been recorded as a reduction in the officers’ receivable balance and $45,002 was recorded as accrued wages.

 

As of September 30, 2013 and December 31, 2012, the amounts due from the officer totaled $0 and $27,177, respectively.

 

F-8

Merger warrants

In connection with the Company July 5, 2011 merger activities, the Company issued a warrant to purchase up to 83,333 (post-split) 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 20,833 (post-split) shares for each $1,000,000 of cumulative realized revenue over the twenty-four month term. As of September 30, 2013, 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 $189 per share utilizing a strike price of $4.50, 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 20,833 (post-split) shares resulting in an estimated fair value of $3,967,500 which has been recorded as a consulting expense in the during 2011.

 

Employment/Consulting commitments

On 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 July 18, 2013, the Company and its CEO entered into an Amended and Restated Employment agreement which increased the CEO’s annual salary to $250,000 per annum, payable bimonthly effective July 1, 2013.

 

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.

 

During May 2013, the board of directors approved the issuance of 50,000,000 to the Company’s president and CEO. The shares were valued at $10,000,000, and vest over the period of two years. The Company amortized $1,979,167 for the nine months ended September 30, 2013. Additionally, as board of directors approved the issuance of 10,000,000 shares to the Company’s president and CEO. The shares were valued at $2,000,000 and expensed for the nine months ended September 30, 2013. During September 30, 2013, the CEO returned a net 40,000,000 shares in order to provide additional authorized shares to the Company. The Company is expected to reissue the shares at a future date and has accordingly recorded a common stock payable of $40,000 for the par value of the shares.

 

During June 2013, the Company’s CFO resigned. On June 12, 2013, this former CFO entered into a Business Consulting Agreement to provide consulting services at a rate of $10,000 per month, payable in bi-monthly installment of $5,000 on the 15th and last day of the month. During June 2013 the Company issued 59,524 shares of common stock for the first bi-monthly payment and accrued the second bi-monthly payment. In addition, all prior payroll liabilities owing from the Company to this individual were released in exchange for 1,961,803 shares of the Company’s common stock. The stock was valued at $78,472 and satisfied $7,510 in accrued wages. The remaining value of $70,962 was recorded as additional compensation costs for the nine months ended September 30, 2013.

 

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, 2013 and December 31, 2012 the note totaled $8,458 and $8,458, respectively.

 

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, 2013, the note is in default.

 

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 year ended December 31, 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 December 31, 2012, the Company authorized the issuance of 98 (post-split) 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.

F-9

 

On May 1, 2013, Chamisa Technology, LLC assigned the outstanding note to above individual who further assigned portions of the debt to various entities. During the nine months ended September 30, 2013, the Company authorized the issuance of 8,400,000 shares of common stock for the conversion of $8,400 in principal. The fair value of the shares issued totaled $315,170 based on the market price of the common stock on the various dates of conversion. The difference in the fair value of the shares issued and the principal amount of debt and accrued interest converted totaled $306,770 and has been recorded as a financing costs.

 

As of September 30, 2013 and December 31, 2012, the unpaid principal balance together with accrued interest totaled $130,773 and $131,220, 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, 2013 and December 31, 2012, the unpaid principal balance together with accrued interest totaled $138,916 and $128,919, 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 is due on demand. The note is convertible into shares of the Company’s common stock beginning year 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 recorded 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. During the year ended December 31, 2012, ICG elected to convert $32,743 in principal. Pursuant to the conversion rate calculation in the Agreement, the Company issued 13,634 (post-split) shares at an average conversion rate of $2.40 and recognized a loss on the derivative in the amount of $23,340.

 

As of the September 30, 2013, the Company fair valued the derivative liability at $15,205 and recorded a comprehensive income of $0 representing the change in fair value. As of September 30, 2013, the unpaid principal balance was $167,257 net of discount in the amount of $0. Accrued interest totaled $21,178.

 

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 December 31, 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. During the year ended December 31, 2012, JMJ elected to convert $7,735 in principal. Pursuant to the conversion rate calculation in the Agreement, the Company issued 11,666 (post-split) shares at an average conversion rate of $1.51 and recognized a loss on the derivative in the amount of $7,665.

 

During January and February 2013, JMJ elected to convert $5,842 in principal. Pursuant to the conversion rate calculation in the Agreement, the Company issued 16,022 (post split) shares at an average conversion rate of $0.37 and recognized a loss on the derivative in the amount of $5,689.

 

During April 2013, JMJ advanced an additional $5,400 to the Company.

 

During June 2013, JMJ elected to convert $10,660 in principal. Pursuant to the conversion rate calculation in the Agreement, the Company issued 200,000 shares at a conversion rate of $0.053 and recognized a loss on the derivative in the amount of $8,340.

 

During July 2013, JMJ elected to convert $6,500 in principal. Pursuant to the conversion rate calculation in the Agreement, the Company issued 325,000 shares at a conversion rate of $0.02 and recognized a loss on the derivative in the amount of $5,850.

 

During August 2013, JMJ elected to convert $13,000 in principal. Pursuant to the conversion rate calculation in the Agreement, the Company issued 2,600,000 shares at a conversion rate ranging from $0.003 to $0.01 and recognized a gain on the derivative in the amount of $650.

 

As of the September 30, 2013, the Company fair valued the derivative liability at $4,162 and recorded a comprehensive income of $15,302 representing the change in fair value. As of September 30, 2013, the unpaid principal balance was $13,599 net of discount in the amount of $3,056. Accrued interest totaled $1,373.

F-10

Asher Enterprises

During the year ended December 31, 2012, the Company issued three Convertible Promissory Notes to Asher Enterprises, Inc. (“Asher”) in the amount of $63,000, $37,500 and $40,000, respectively. The notes bears interest at a rate of 8% per annum, are unsecured and mature on March 8, April 12, 2013 and August 13, 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 $117,779 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. During the year ended December 31, 2012, Asher elected to convert $5,700 in principal. Pursuant to the conversion rate calculation in the Agreement, the Company issued 14,305 (post-split) shares at an average conversion rate of $2.51 and recognized a loss on the derivative in the amount of $25. During the nine months ended September 30, 2013, the Company incurred $51,550 in penalty interest on these notes due to default. The penalty interest was added to the principal of these notes.

 

During the nine months ended September 30, 2013, the Company issued five Convertible Promissory Notes to Asher totaling $127,250. The notes bears interest at a rate of 8% per annum, are unsecured and mature on from November 1, 2013 through June 20, 2014. The notes are convertible into common stock in whole or in part at a variable conversion price equal to a 45% discount to the 10-day average trading price prior to the conversion date. The Company recorded discounts in the amount of $110,932 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 note.

 

During January and March 2013, the Company elected to convert $31,700 in principal. Pursuant to the conversion rate calculation in the Agreement, the Company issued 78,654 (post-split) shares at a conversion rate ranging from $0.36 to $0.44 and recognized a loss on the derivative in the amount of $40,724.

 

During April and May 2013, the Company elected to convert $13,000 in principal. Pursuant to the conversion rate calculation in the Agreement, the Company issued 201,842 shares at a conversion rate ranging from $0.06 to $0.11 and recognized a loss on the derivative in the amount of $28,933.

 

During July and September 2013, the Company elected to convert $59,600 in principal and $2,520 in accrued interest. Pursuant to the conversion rate calculation in the Agreement, the Company issued 11,331,517 shares at a conversion rate ranging from $0.0011 to $0.0122 and recognized a loss on the derivative in the amount of $142,186.

 

As of the September 30, 2013, the Company fair valued the derivative liability related to these notes at $99,756 and recorded a comprehensive loss of $217,640 representing the change in fair value since June 6, 2012. As of September 30, 2013, the unpaid principal balance was $160,480, net of discount in the amount of $48,820. Accrued interest totaled $13,556.

 

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 matured 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.

 

On May 20, 2013, The Company issued a Convertible Promissory Note to Continental Equities, LLC (“Continental”) in the amount of $13,000. The note bears interest at a rate of 8% per annum, is unsecured and matures on May 31, 2014. 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 $13,000 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 $92,915 resulting from the variable change in conversion rate in relation to the change in market price of the Company’s common stock.

 

During September 2013, the Company elected to convert $12,499 in principal. Pursuant to the conversion rate calculation in the Agreement, the Company issued 8,571,500 shares at a conversion rate ranging from $0.0009 to $0.002 and recognized a loss on the derivative in the amount of $23,880.

 

As of September 30, 2013, the Company fair valued the derivative asset at $38,728 and recorded a comprehensive loss of $22,427 representing the change in fair value. As of September 30, 2013, the principal balance owed to Continental totaled $27,099 net of discount of $8,402. Accrued interest totaled $3,320.

 

F-11

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 December 31, 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. During the nine months ended September 30, 2013, the Company terminated all leases for office space.

 

Consulting agreements

During May 2013, the Company entered into several Business Consulting Agreements with various individua to provide consulting services at a combined total of $20,000 per month, payable in bi-monthly installment of $10,000 on the 15th and last day of the month. During June 2013, the Company issued 357,144 shares of stock to these individuals for the first bi-monthly payment. During July and August 2013, the Company issued an additional 1,727,959 shares for the 2nd and 3rd bi-monthly payments, and accrued the remaining payments.

 

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:

 

   2013  2012
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, 2013 was an increase in valuation of $1,862,152.

 

The Company has a net operating loss carryover of approximately $12,783,789 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.

 

The Company had no material unrecognized income tax assets or liabilities as of September 30, 2013. The Company’s 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, 2013 and 2012, 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. The Company is 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.

 

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.

F-12

 

The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012:

 

  Level I  Level II  Level III  Fair Value
September 30, 2013            
 Notes payable   $            -  $(212,588)  $—     $(212,588)
 Convertible debt, net   -   (368,435)        
 Derivative Liabilities   -   (142,204)   —      (368,435)
     $            -  $(723,227)  $—     $(723,227)
 December 31, 2012                   
 Notes payable   $            -  $(220,998)  $—     $(220,998)
 Convertible debt, net   -   (233,296)   (233,296)     
 Derivative Liabilities   -   (264,648)   —      (264,648)
     $            -  $(710,474)  $—     $(710,474)

  

NOTE 10 – Shareholders’ equity

 

Common stock issuances

During the three months ended March 31, 2013, the Company issued a total of 94,676 (post-split) shares of common stock in connection with the conversion of $37,558 in convertible debt.

 

During the three months ended June 30, 2013, the Company issued a total of 3,401,842 shares of common stock in connection with the conversion of $26,660 in debt. Additionally, the Company recorded finance costs pursuant to these issuances totaling $243,000.

 

During the three months ended September 30, 2013, the Company issued a total of 30,009,620 shares of common stock in connection with the conversion of $99,519 in debt, including accrued interest of $2,520. Additionally, the Company recorded finance costs pursuant to these issuances totaling $63,770.

 

During the nine months ended September 30, 2013, the Company issued 10,966,652 shares of common stock pursuant to consulting services valued at $436,080.

 

During May 2013, the Company issued 60,000,000 shares of common stock to the Company’s president and CEO valued at $12,000,000, of which the Company expensed $2,729,167 for the nine months ended September 30, 2013. Additionally, the CEO temporarily returned 40,000,000 shares to provide additional outstanding shares to the company, which was recorded as a common stock payable totaling $40,000.

 

During June 2013, the Company issued 1,961,803 shares of common stock to the Company’s former CFO in satisfaction of accrued wages totaling $7,510. The remaining value of $70,962 was recorded as compensation for the nine months ended September 30, 2013.

 

Effective March 20, 2013, the Company performed a 1 for 450 reverse split of its common stock.

 

NOTE 11 - Subsequent events

 

Subsequent to September 30, 2013, the Company issued 89,133,200 shares of common stock in connection with the conversion of $64,576 in debt.

 

Subsequent to September 30, 2013, the Company’s President and CEO temporarily returned an additional 10,000,000 shares of common stock.

 

During November 2013, the Company began the process of increasing the authorize shares of common stock to 242,424,244.

 

F-13

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

 

·TheRealm - All in One PC/TV, combining the latest in PC technology with HDTV.
·TheRealm Pro – Robust all in One PC/TV geared for commercial and digital signage markets.
·VentureMMV - Mobile Media Viewer is a new class of video eyewear offering designer styling in a sleek ergonomic design with unmatched features and performance.
·TheVuzion – The world’s first TV with Android OS built in 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. Nyxio is also working with its international distribution partners as we have found that many international markets are very receptive to new technology, especially in the consumer sector.

 

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

 

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 are already into our 4th version of the VioSphere. 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.

 

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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, YouTube 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 and Recent Developments

 

During the latter part of 2012 and the earlier part of 2013, our management analyzed our then current position, financially, and as a whole. We discovered that our business plan and original direction and focus was not being implemented to its full potential and decided to put a plan together to reorganize and redirect our efforts. As has always been our largest challenge, we have not had the type of funding needed to secure the level of executives and support employees needed to move the company to its next stage of growth. We therefore developed a plan to retain key consultants through stock based payments and incentives. This allowed us to contract individuals with the experience we needed to move forward, secure sales, implement marketing strategies, create distribution channels and alliances, and create the partnerships we need to realize sales in our target markets. We also made decisions to engage advisors to introduce the company to healthy investment opportunities. We are pleased to announce major changes have been implemented, and we are on our way to creating a new chapter.

Reorganization and Redirection: Our CEO, Giorgio Johnson, determined that for us to capitalize on market share potential without a substantial investment or any meaningful revenues, we had to be creative to attract top notch talent. We contacted a number of industry professionals and through those contacts, we were able to contract professionals with the experience and relationships we needed to open doors and introduce our products to companies that understood the targeted positioning for our products in the market. Through consulting agreements featuring stock-based compensation which were registered on Form S-8, we were able to bring in a new head of sales, a new head of business development, a new head of operations, and a new product development and marketing manager, all directly from our industry. These experienced professionals assisted in creating a new direction for the company, as well as new relationships. One such relationship was created with a manufacturing representative firm, KMH Associates, Inc., that proved to be one of the most valuable assets we have acquired to date. KHM Associates and its President, Howard Blumberg, introduced our product line to leading retailers and distributors in the consumer electronics market in the US.

Sales and Marketing: We have recently been presented with a number of exciting opportunities at a level never offered to us before. However, we needed to make some changes in order to refocus and redefine our sales and marketing efforts. We therefore made the decision to suspend pushing our entire product line and we focused solely on our flagship product, the VioSphere. Our team readdressed the marketing approach for the product. Since the product was never really a Smart TV, but actually smarter than the common description, the VioSphere has now been coined the first “Genius TV” in the market. In the past, because the smart TV was the only product close enough to compare the VioSphere to, pricing had been a challenge for the product. Since the introduction of new all-in-one (AIO) personal computers by major brands, the market reception to the VioSphere has changed dramatically. This was due, in part, to the hiring of another manufacturing representative in Asia that has assisted us in finding a new manufacturer. The new contract manufacturer enabled Nyxio to lower the cost of the VioSphere, making the price more competitive. The VioSphere is now, in many cases, priced lower than the cost of the all-in-one computers currently in the market, and in larger sizes offering significantly more functionality. Standard sizes in the all-in-one computer range from 22 inches to 26 inches, with pricing ranging from $1,000 to $2,600. Nyxio’s VioSphere sizes range from 26 inches to 65 inches. Pricing for the 32 inch product is actually priced competitively in regard to the smaller screen sizes in the all-in-one PC category. The VioSphere, however, is still a television first, with a personal computer built inside.

The changes in pricing and marketing strategy allowed for KMH Associates to change its selling strategy. The VioSphere now has a competitive product in the market, and with better pricing and more options. Due to this, KMH Associates was able to procure our first national distribution contract, with D&H distributing, as well as attain purchase orders from D&H. Due to the contract being considered similar to consignment, and because of the offsets, we were not able to get the orders funded with purchase order loans or funding. We are still in the process of negotiations with D&H, but due to the company’s policy of not reassigning payables, we have been in the process of pursuing alternate funding options to deliver to the client. The purchase orders from D&H are in the excess of $250,000. The pursuit of funding the purchase order has been vigorous, but to date, we have not been able to fund the purchase orders.

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Through the efforts of our new head of sales, we have also received a second contract for distribution with Harco Industries. We are still waiting to receive a purchase order from the company.

Through KMH Associates, we also received a purchase order from a retail store, Adorama. Through Adorama, we were offered our first ever sale/trade with an NFLTM stadium, as well as marketing deals with two NFLTM teams Although we pursued funding to fulfill the deal, we were not able to procure the funding necessary for delivery. We are still in contact with one of the NFLTM teams and, if funding is found, the team is still interested in working with us. Although the marketing deals with the two NFLTM teams were not solidified, Adorama offered us another marketing deal for the 2013/2014 NFLTM season. Associated with the deal are some branding options associated with the New York Giants. TM Through this contract, we were offered radio and print advertising, industry magazine articles, in stadium marketing at MetLifeTM stadium, as well as product commercials in New York City.

We are currently in negotiations with a number of other companies in reference to sales and distribution opportunities.

Product Development: We have been in development of a new product that we have been working on since before becoming a public company. The product is now in final stages. Our new product is our first software driven product, as well as a first of its kind in the industry. Our patent applications for the new product are in the process of being prepared by the law firm of Stites & Harbison. Details of the product will be released once our patent filings have been completed. We have also completed development of a new VioSphere model with a new color and much thinner mold, and a few other additions. Samples of the product have already started shipping. Consumers should be able to see the new VioSphere product in the fourth quarter of this year.

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, 2013 and 2012, and for the period from July 8, 2010 (date of inception) through September 30, 2013.

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, 2013 and 2012 and for the period from inception (July 8, 2010) to September 30, 2013.

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, 2013 were $0 compared to $17,753 during the quarter ended September 30, 2012. Our operating revenues during the nine months ended September 30, 2013 were $6,065 compared to $24,701 during the nine months ended September 30, 2012. Our inception to date revenues totaled $85,903 as of September 30, 2013.

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, 2013 was $0, compared to $7,059 for the quarter ended September 30, 2012. Our cost of sales for the nine months ended September 30, 2013 was $1,445, compared to $12,447 for the nine months ended September 30, 2012. 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, 2013 our gross profit was $0, compared to a gross profit for the quarter ended September 30, 2012 of $10,694. During the nine months ended September 30, 2013 our gross profit was $4,620, compared to a gross profit for the nine months ended September 30, 2012 of $12,254. 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, 2013 we incurred $1,722,502 in operating expenses, compared to $167,390 for the quarter ended September 30, 2012. During the nine months ended September 30, 2013 we incurred $4,604,766 in operating expenses, compared to $753,237 for the nine months ended September 30, 2012. The increase in operating expenses for the three and nine months ended September 30, 2013 compared to the same periods in 2012 was attributable primarily to the value assigned to stock based officer compensation. This item totaled $3,979,167during the nine months ended September 30, 2013 and was $1,250,000 during the quarter ended September 30, 2013.

Cash salaries and wages were $62,500 for the quarter ended September 30, 2013, compared to $670 for the quarter ended September 30, 2012. Cash salaries and wages were $94,987 for the nine months ended September 30, 2013, compared to $234,462 for the nine months ended September 30, 2012. Professional fees were $81,348 for the quarter ended September 30, 2013, compared to $52,978 for the quarter ended September 30, 2012. Professional fees were $108,957 for the nine months ended September 30, 2013, compared to $195,991 for the nine months ended September 30, 2012. We incurred $318,042 consulting fees for the quarter ended September 30, 2013, compared to consulting fees of $88,406 for the quarter ended September 30, 2012. We incurred $389,042 in consulting fees for the nine months ended September 30, 2013, compared to consulting fees of $144,144 for the nine months ended September 30, 2012. We expect professional fees to remain consistent for the remainder of 2013.

During the quarter ended September 30, 2013, we incurred $947 in travel and entertainment expenses, compared to $1,232 in travel and entertainment expenses during the quarter ended September 30, 2012. During the nine months ended September 30, 2013, we incurred $4,541 in travel and entertainment expenses, compared to $39,749 in travel and entertainment expenses during the nine months ended September 30, 2012. This expense is expected to increase during the remainder of the year as we continue our product marketing and business development strategies.

During the quarter ended September 30, 2013 we incurred $0 in promotional and marketing expense, compared to $4,665 in promotions and marketing during the quarter ended September 30, 2012. During the nine months ended September 30, 2013 we incurred $45 in promotional and marketing expense, compared to $37,930 in promotions and marketing during the nine months ended September 30, 2012. 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 remainder of the year.

Other Income and Expense

During the quarter ended September 30, 2013, we experienced a loss on the change in the value of a derivative liability in the amount of $171,297, financing costs of $7,000, interest expense of $10,646, interest expense to a related party of $439, and amortization of a beneficial conversion discount in the amount of $44,070. During the nine months ended September 30, 2013, we experienced a loss on the change in the value of a derivative liability in the amount of $254,982, financing costs of $316,768, interest expense of $32,278, interest expense to a related party of $648, and amortization of a beneficial conversion discount in the amount of $219,116.

As a result of various financing agreements, 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.

Net Loss

During the quarter ended September 30, 2013 we incurred a net loss of $1,955,954. By comparison, we incurred a net loss of $761,616 during the quarter ended September 30, 2012. During the nine months ended September 30, 2013 we incurred a net loss of $5,423,939. By comparison, we incurred a net loss of $1,532,438 during the nine months ended September 30, 2012. The increase in net loss of compared to the same periods last year is primarily attributable to stock based officer compensation issued during the nine months ended September 30, 2013 and valued at $3,979,167.

 

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Since July 8, 2010, the inception date of Nyxio, through September 30, 2013, we have generated revenue of $85,903 and have incurred a net loss of $12,730,810. 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 aesthetics
·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 as 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, Smith and Associates, Sterling Technology, and at our proprietary web-site.

 

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

 

Liquidity and Capital Resources

 

As of September 30, 2013, we had cash and equivalents on hand of $1,615, and a working capital deficit of $1,152,065. We determined that our cash on hand and working capital were not sufficient to meet our current anticipated cash requirements. As such, we have availed ourselves of several options to obtain short term financing, as discussed below. To date, we have relied upon funds obtained through the issuance of debt and equity securities to sustain our operations. We may enter into further debt and equity agreements to fund operations and inventory requirements if management feels it is required. We anticipate our additional cash requirements to fund cost of goods sold and operations to be roughly $1.7 million dollars, at which point revenues from sales should be sufficient to fund inventory and operational expenses. Our operations to date have been primarily funded through the issuance of debt and equity securities.

 

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. As of September 30, 2013, the unpaid principal balance together with accrued interest totaled $138,916.

 

During the year ended December 31, 2011, we sold 3,456 (post-split) 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. In the fourth quarter of 2011 we sold an additional 4,667 (post-split) shares of our common stock in exchange for cash totaling $210,000 in accordance with our form of Securities Purchase Agreement.

 

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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. . 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. During the year ended December 31, 2012, ICG elected to convert $32,743 in principal. Pursuant to the conversion rate calculation in the Agreement, we issued 13,634 (post-split) shares at an average conversion rate of $2.40 and recognized a loss on the derivative in the amount of $23,340.We have determined that the conversion feature of this note 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 bi-furcated the conversion feature of the note and recorded a derivative liability. As of September 30, 2013 the value of the derivative liability was $15,205. As of September 30, 2013, the unpaid principal and interest was $188,435

 

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. We received $50,000 in initial funding under the JMJ Note. We have determined that the conversion feature of this note 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. JMJ elected to convert $7,735 in principal into 11,666 shares of our common stock during the year ended December 31, 2012. During January and February 2013, JMJ elected to convert $5,842 in principal. Pursuant to the conversion rate calculation in the Agreement, we issued 16,022 (post-split) shares at an average conversion rate of $0.37 and recognized a loss on the derivative in the amount of $5,689. On April 24, 2013, we entered into an amendment of the Note. Under the Amendment, the 10% original issue discount was removed and replaced with a closing fee of 3% and a due diligence fee of 8% for all subsequent advances under the Note. Following the amendment to the JMJ Note, we borrowed an additional $5,400 from JMJ. During June 2013, JMJ elected to convert $10,660 in principal. Pursuant to the conversion rate calculation in the Agreement, we issued 200,000 shares at conversion rate of $0.53 and recognized a loss on the derivative in the amount of $8,340. During July 2013, JMJ elected to convert $6,500 in principal. Pursuant to the conversion rate calculation in the Agreement, we issued 325,000 shares at conversion rate of $0.02 and recognized a loss on the derivative in the amount of $5,850. During August 2013, JMJ elected to convert $13,000 in principal. Pursuant to the conversion rate calculation in the Agreement, we issued 2,600,000 shares at conversion rate ranging from $0.003 to $0.01 and recognized a loss on the derivative in the amount of $650. As of the September 30, 2013, the value of the derivative liability was $4,162 we recorded a comprehensive income of $15,302 representing the change in fair value. As of September 30, 2013, the unpaid principal balance was $13,599 net of discount in the amount of $3,056. Accrued interest totaled $1,373.

 

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In addition, we have received debt financing from Asher Enterprises, Inc. under a series of Convertible Promissory Notes. The notes, both converted and outstanding as of September 30, 2013, are as follows:

 

Amount  Issue date  Due date  Shares issued upon conversion  Conversion date(s)  Principal amount
 $63,000   June 6, 2012  March 8, 2013        $63,000 
            7,246   12/17/12   (3,000)
            7,059   12/31/12   (2,700)
            6,991   01/14/13   (2,800)
            7,029   01/16/13   (3,100)
            7,029   01/18/13   (3,100)
            16,187   03/01/13   (5,900)
            16,187   03/08/13   (5,900)
$12, 800 (1)           03/09/13   12,800 
            25,231   03/15/13   (10,900)
            27,322   04/25/13   (3,000)
            174,520   05/20/13   (10,000)
            1,304,348   7/8/13   (12,000)
            1,304,918   7/19/13   (13,400)
                   $0 
 $37,500   July 10, 2012  April 12, 2013        $37,500 
18,750 (1)         04/12/13   18,750 
                7/19/13   (15,000)
                7/31/13   (12,000)
                7/19/13   (7,200)
                   $22,050 
$40,000   November, 13, 2012  August 15, 2013   Variable   n/a  $40,000 
20,000 (1)                 20,000 
                    60,000 
$37,500   January 31, 2013  November 1, 2013   Variable   n/a  $37,500 
$41,500   April 11, 2013  January 16, 2014   Variable   n/a  $41,500 
$22,500   June 27, 2013  March 31, 2014   Variable   n/a  $22,500 
$2,500   October 16, 2013  July 18, 2014   Variable   n/a  $2,500 
$22,500   November 11, 2013  August 13, 2014   Variable   n/a  $22,500 

 

(1) Amount added to balance under default provisions of Note.

 

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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 55% 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 9.99% 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 bi-furcated the conversion feature and recorded a derivative in connection with these notes. As of the September 30, 2013, the value of the derivative liability was $99,756 and we recorded a comprehensive loss of $197,786 representing the change in fair value. As of September 30, 2013, the unpaid principal balance was $108,930 net of discount in the amount of $48,820. Accrued interest totaled $12,095.

 

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 matured 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.

 

On May 20, 2013, we issued a Convertible Promissory Note to Continental in the amount of $13,000. The note bears interest at a rate of 8% per annum, is unsecured and matures on May 31, 2014. 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.

 

During September 2013, During September 2013, continental converted $12,499 in principal. Pursuant to the conversion rate calculation in the Agreement, we issued 8,571,500 shares at a conversion rate ranging from $0.0009 to $0.002 and recognized a loss on the derivative in the amount of $23,880.

 

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 bi-furcated the conversion feature and recorded a derivative in connection with these notes. As of September 30, 2013, the value of the derivative asset at $38,728 and we recorded a comprehensive loss of $22,427 representing the change in fair value. As of September 30, 2013, the principal balance owed to Continental totaled $27,099 net of discount of $8,402. Accrued interest totaled $3,320.

 

On July 8, 2010, in connection with our reverse acquisition, we assumed a Promissory Note owed by Nyxio Technologies, LLC dated March 15, 2010 and issued to Chamisa Technology, LLC (“Chamisa”). The total principal and interest owing at the time we assumed the Note was $83,627. The Note bore interest at an annual rate of twelve percent (12%). From July of 2010 through December of 2010, additional advances were made under the Note in the principal amount of $64,491. In 2011, additional advances in the amount of $18,000 were made under the Note. On April 20, 2012, a portion of the balance due under the Note in the amount of $81,595 was assigned by Chamisa to Michelle Nelson, leaving total principal and interest due to Chamisa of $120,782. On April 25, 2012, we entered into an amendment of the Note portion purchased by Ms. Nelson. Under this amendment, Ms. Nelson agreed to forgive $56,595 of the principal balance in exchange for conversion rights on the remaining balance of $25,134. In accordance with the amendment, the remaining portion of the obligation was made convertible to common stock at $0.001 per share. Over the course of 2012, Ms. Nelson and various subsequent assignees converted the Nelson portion of the Note into common stock. On May 7, 2013, Chamisa assigned the remaining portion of the Note still owing to Reign Investment Group, LLC. On May 15, 2013, we entered into an Amendment to the remaining portion of the Chamisa Note with Reign. Under the Amendment, Reign agreed to forgive $65,731.34 of the balance of the Note. This remaining balance due under the Note was made convertible to common stock at a price of $0.001 per share. In addition, we agreed to issue Reign 60,000 shares of common stock in connection with the amendment. During the nine months ended September 30, 2013, we authorized the issuance of 8,400,000 shares of common stock for the conversion of $8,400 in principal. The fair value of the shares issued totaled $315,170 based on the market price of the common stock on the various dates of conversion. The difference in the fair value of the shares issued and the principal amount of debt and accrued interest converted totaled $306,770 and has been recorded as a financing costs. As of September 30, 2013, the remaining balance of the Note was $130,773, including principal and interest. 

 

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.

 

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Off Balance Sheet Arrangements

 

As of September 30, 2013, 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.

 

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, 2013. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, Giorgio Johnson. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2013, 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, 2013.

 

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.

 

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.

 

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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, 2012, 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.

 

Item 6. Exhibits

 

Exhibit Number Description of Exhibit
10.1 Convertible Promissory Note issued to Asher Enterprises, Inc., dated October 16, 2013
10.2 Securities Purchase Agreement with Asher Enterprises, Inc., dated October 16, 2013
10.3 Convertible Promissory Note issued to Asher Enterprises, Inc., dated November 11, 2013
10.4 Securities Purchase Agreement with Asher Enterprises, Inc., dated November 11, 2013
10.5 Convertible Promissory Note issued to Continental Equities, LLC, dated May 20, 2013
10.6 Securities Purchase Agreement with Continental Equities, LLC, dated May 20, 2013
10.7 Non-exclusive Distributor Agreement with Harco Industries, Inc.
10.8 Supplemental Vendor Purchase Agreement with D&H Distributing Co.
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 September 30, 2013 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 19, 2013

   
 

By:   /s/ Giorgio Johnson

Giorgio Johnson

Title:    Chief Executive Officer and Chief Financial Officer

 

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