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NYXIO TECHNOLOGIES CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations
[August 21, 2014]

NYXIO TECHNOLOGIES CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations


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



Management's Discussion and Analysis of Financial Condition and Results of Operations Company Overview Through our wholly-owned subsidiary, Nyxio Technologies Inc., an Oregon corporation ("Nyxio"), we develop and provide technology for the entertainment and commercial markets within the consumer electronic industry. Since inception, the company's approach to the industry can be best described as disruptive evolution. The general population has evolved to the point where computers and devices that rely on an internal computer for operation have become second nature. Gone are the days when people were intimidated by their electronics.

Consumer electronics continue to evolve and morph into new form factors. Touch cell phones, web tablets and now TV with browsers incorporated have become an accepted and expected part of our society. Nyxio's flagship product, The VioSphere, is the first TV with a fully functional personal computer built in.


Unlike TVs with limited browser capabilities, the VioSphere has no limitations.

Like many of the company's innovative products, it is an entertainment destination. This destination philosophy has become a driving force for product innovation and development, which, we believe, we provide at a reasonable cost. We are determined to become a leading-edge driver and developer of technology across a wide range of vertical markets that include retail, education, B2B, and digital signage. We strive to reduce the overall environmental footprint of end users by consolidating key hardware into more efficient devices.

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

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

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

• The Vuzion - The world's first TV 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.

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.

4 Table of Contents 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.

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.

5 Table of Contents 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.

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 NFLTMstadium, 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 in innovative 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 ourlong term focus.

6 Table of Contents 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 six months ended June 30, 2014 and 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 months ended June 30, 2014 and 2013.

Revenues, net We generated no revenue during the quarter ended June 30, 2014 and the quarter ended June 30, 2016. Our operating revenues during the six months ended June 30, 2014 were $0 compared to $6,065 during the six months ended June 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 costs of sales were $0 for the quarters ended June 30, 2014 and June 30, 2013. Our cost of sales for the six months ended June 30, 2014 was $0, compared to $1,445 for the six months ended June 30, 2013. 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 decreasedue to volume discounts.

Gross Profit Our gross profit was $0 for the quarters ended June 30, 2014 and June 30, 2013.

During the six months ended June 30, 2014 our gross profit was $0, compared to a gross profit for the six months ended June 30, 2013 of $4,620. 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.

Expenses During the quarter ended June 30, 2014 we incurred $1,477,232 in operating expenses, compared to $2,849,091 for the quarter ended June 30, 2013. The decrease in operating expenses for the three months ended June 30, 2014 compared to the same period in 2013 was attributable primarily to a decrease in the value of stock based officer compensation, as well as a decrease in cash officer compensation.

Cash salaries and wages were $62,500 for the quarter ended June 30, 2014, compared to $12,000 for the quarter ended June 30, 2013. Professional fees were $78,819 for the quarter ended June 30, 2014, compared to $25,019 for the quarter ended June 30, 2013. We incurred $68,050 consulting fees for the quarter ended June 30, 2014, compared to consulting fees of $71,000 for the quarter endedJune 30, 2013.

During the quarter ended June 30, 2014, we incurred $3,160 in travel and entertainment expenses, compared to $3,445 in travel and entertainment expenses during the quarter ended June 30, 2013. 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 June 30, 2014, we incurred $2,631 in promotional and marketing expense, compared to $0 in promotions and marketing during the quarter ended June 30, 2013. 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.

7 Table of Contents During the quarter ended June 30, 2014, we incurred $2,610 in depreciation, compared to $2,893 for the quarter ended June 30, 2013. General and administrative expenses were $8,954 for the quarter ended June 30, 2014, compared to $2,525 for the quarter ended June 30, 2013. Stock based officer compensation was valued at $1,250,000 for the quarter ended June 30, 2014, compared to $2,729,167 for the quarter ended June 30, 2013. We incurred $0 in rent expense for the quarter ended June 30, 2014 compared to $3,042 for the three months ended June 30, 2013. Finally, we incurred $2,508 in research and development expenses during the quarter ended June 30, 2014, compared to $0 for the quarter ended June 30, 2013.

During the six months ended June 30, 2014, our total operating expenses were $2,871,557, compared $2,882,264 for the six months ended June 30, 2013.

Other Income and Expense During the quarter ended June 30, 2014, we experienced a loss on the change in the value of a derivative liability in the amount of $270,500, financing costs of $3,240, interest expense of $11,042, interest expense to a related party of $214, amortization of debt discounts in the amount of $1888,047, a gain on settlement of debt in the amount of $1,128, and other income of $1.

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 June 30, 2014 we incurred a net loss of $1,949,146. By comparison, we incurred a net loss of $3,253,582 during the quarter ended June 30, 2013. The decrease in net loss of compared to the same period last year is primarily attributable to a decrease in the value of stock based officer compensation issued during the three months ended June 30, 2014 as comparedto the same quarter last year.

Our net loss for the six months ended June 30, 2014 was $4,007,520, compared to $3,467,985 for the six months ended June 30, 2013.

Since July 8, 2010, the inception date of Nyxio, through June 30, 2014, we have incurred a net loss of $18,555,132. Our greatest challenges which have prohibited us from executing our business plan are as follows: º 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.

º Manufacturing in Asia - Too far away to monitor quality and suppliers without costly travel.

º 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.

8 Table of Contents Liquidity and Capital Resources As of June 30, 2014, we had cash and equivalents on hand of $15,906, accounts receivable of $223, deposits on inventory of $18,833 and a working capital deficit of $1,390,693. We determined that our cash on hand and working capital were not sufficient to meet our current anticipated cash requirements. As such, we evaluated several options to obtain short term financing, as discussed below.

While we hope to see a significant increase in revenue in the second quarter of 2014 as a result on pending product orders, we have continued to rely on funds obtained through the issuance of debt and equity securities throughout 2013. 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.

Coach Capital LLC 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 June 30, 2014, the unpaid principal balance and accrued interest under the Coach Note totaled $149,689.

ICG USA, LLC 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"). As discussed below, ICG has assigned a total of $182,500 in principal to three other entities.

LG Capital Funding, LLC On March 11, 2014, ICG assigned $75,000 in principal to LG Capital Funding, LLC ("LG"). LG issued a "Replacement Note" for the amount of $75,000. The note accrues interest at 8% per annum and matures March 11, 2014. Further, LG Capital may convert all or any amount of the principal at a rate equal to 50% of the lowest closing bid price for the five prior trading days, including the dayof notice.

During March 2014, LG Capital advanced an additional $37,875 to us, subject to the same terms and Maturity date as the Replacement Note.

On June 17, 2014, we issued a Convertible Promissory Note to LG Capital in the amount of $20,000. The note accrues interest at 8% per annum and matures June 17, 2015. Further, LG Capital may convert all or any amount of the principal at a rate equal to 50% of the lowest closing bid price for the five prior trading days, including the day of notice.

During the six months ended June 30, 2014, LG Capital elected to convert $65,000 in principal to common stock. As of June 30, 2014, the unpaid principal balance owed to LG was $15,272 net of discount in the amount of $52,603, with accrued interest of $1,458.

Tide Pool Ventures Corp.

On December 10, 2013, we issued a convertible promissory note to Tide Pool Venture Corp. ("Tide Pool") in the amount of $11,500. The note bears interest at a rate of 9.875% per annum, is unsecured and matures on December 31, 2014. The Note is convertible into common stock in whole or in part at a variable conversion price equal to a 30% discount to the lowest volume weighted average price of the five trading days prior to the conversion date.

On February 20, 2014, ICG assigned $27,500 in principal to Tide Pool. We entered into a new Convertible Promissory Note agreement with Tide Pool. The replacement note bears interest at a rate of 10% per year, and matures on February 20, 2015.

The Note is convertible to our common stock at a price equal to a 50% discount to the average of the lowest three trading prices in the 30 days precedingthe conversion date.

Also on February 20, 2014, we issued a new convertible promissory note to Tide Pool in the amount of $22,250. The Note bears interest at a rate of 10% per year, and matures on February 20, 2015. The Note is convertible to our common stock at a price equal to a 45% discount to the average of the lowest three trading prices in the 30 days preceding the conversion date.

9 Table of Contents In April of 2014, ICG assigned $60,000 in principal to Tide Pool. We entered into a new Convertible Promissory Note with Tide Pool. The replacement note bears interest at a rate of 10% per year, and matures on February 20, 2015. The Note is convertible to our common stock at a price equal to a 50% discount to the average of the lowest three trading prices in the 30 days preceding the conversion date.

On April 1, 2014, we issued a new convertible promissory note to Tide Pool in the amount of $42,500. The Note bears interest at a rate of 10% per year, and matures on April 1, 2015. The Note is convertible to our common stock at a price equal to a 45% discount to the average of the lowest three trading prices in the 30 days preceding the conversion date.

During the six months ended June 30, 2014, Tide Pool elected to convert $56,500 in principal into common stock. As of June 30, 2014, the unpaid principal balance owed to Tide Pool was $32,142, net of discount of $74,838, with accrued interest of $3,317.

WHC Capital, LLC, Series Bravo On February 5, 2014, ICG assigned $20,000 in principal to WHC Capital, LLC, Series Bravo ("WHC"). We entered into a new Convertible Promissory Note agreement with WHC. The replacement note bears interest at a rate of 6% per year, and matures on February 5, 2015. The Note is convertible to our common stock at a price equal to a 40% discount to the average of the lowest three trading prices in the 30 days preceding the conversion date.

On February 7, 2014, we issued a new convertible promissory note to WHC in the amount of $10,000. The Note bears interest at a rate of 10% per year, and matures on February 20, 2015. The Note is convertible to our common stock at a price equal to a 40% discount to the average of the lowest three trading prices in the 30 days preceding the conversion date.

On May 8, 2014, we issued a new convertible promissory note to WHC in the amount of $20,000. The Note bears interest at a rate of 10% per year, and matures on May 8, 2015. The Note is convertible to our common stock at a price equal to a 40% discount to the average of the lowest three trading prices in the 30 days preceding the conversion date.

On June 16, 2014, we issued a new convertible promissory note to WHC in the amount of $20,000. The Note bears interest at a rate of 10% per year, and matures on June 16, 2015. The Note is convertible to our common stock at a price equal to a 40% discount to the average of the lowest three trading prices in the 30 days preceding the conversion date.

During the six months ended June 30, 2014, WHC elected to convert $37,404 in principal into common stock. As of June 30, 2015, the unpaid principal balance owed to WHC was $2,596, net of discount of $30,000, with accrued interest of $572.

JMJ Financial 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. An additional $5,400 was advanced during April of 2013.

The Note included a 10% original issue discount and is due in 1 year. The Note would not bear interest if paid in full within 90 days. Thereafter, a one-time interest charge of 5% was to be applied to the principal sum. The Note was 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 June 30, 2014, this Note has been fullyconverted to common stock.

10 Table of Contents Asher Enterprises, Inc.

In addition, we have received debt financing from Asher Enterprises, Inc. under a series of Convertible Promissory Notes. The notes issued to Asher Enterprises, Inc., were as follows: Shares issued upon Amount Issue date Due date conversion Conversion date(s) Principal amount June 6, $ 63,000 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 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- July 10, $ 37,500 2012 April 12, 2013 Variable n/a $ 37,500 18,750 04 /12/13 18,750 1,229,500 7 /19/13 (15,000 ) 1,153,896 7 /31/13 (12,000 ) 6,545,455 7 /19/13 (7,200 ) 6,545,455 10 /1/13 (7,200 ) 8,505,747 10 /7/13 (7,400 ) 8,045,977 10 /14/13 (7,000 ) 4,367,089 10 /21/13 (450 ) $ -0- November, $ 40,000 13, 2012 August 15, 2013 Variable n/a $ 40,000 20,000 8 /24/13 20,000 4,166,667 10 /21/13 (3,000 ) 7,941,176 10 /28/13 (5,400 ) 8,545,455 11 /1/13 (4,700 ) 8,540,000 11 /6/13 (4,270 ) 8,542,857 11 /11/13 (2,990 ) 4,571,429 11 /11/13 (1,600 ) 16,612,903 11 /22/13 (5,150 ) 16,642,857 11 /26/13 (4,660 ) 16,551,724 12 /2/13 (4,800 ) 16,551,724 12 /5/13 (4,800 ) 16,653,846 12 /16/13 (4,330 ) 16,625,000 12 /18/13 (3,990 ) 16,625,000 12 /23/13 (3,990 ) 16,653,846 12 /30/13 (4,330 ) 9,702,703 1 /2/14 (1,990 ) $ -0- 11 Table of Contents January 31, $ 37,500 2013 November 1, 2013 Variable n/a $ 37,500 18,750 10 /31/13 18,750 16,486,486 1 /7/14 (6,100 ) 16,451,613 1 /13/14 (5,100 ) 16,655,172 1 /15/14 (4,830 ) 16,538,462 1 /22/14 (4,300 ) 16,538,462 1 /28/14 (4,300 ) 16,650,000 2 /4/14 (3,330 ) 16,650,000 2 /6/14 (3,330 ) 16,650,000 2 /10/14 (3,330 ) 16,650,000 2 /14/14 (3,330 ) 51,290,323 2 /20/14 (15,900 ) 12,580,645 2 /24/14 (2,400 ) $ -0- April 11, $ 41,500 2013 January 16, 2014 Variable n/a $ 41,500 54,032,258 2 /24/14 (16,750 ) 80,030,303 (24,750 ) $ -0- June 27, $ 22,500 2013 March 31, 2014 Variable n/a $ 22,500 80,689,655 (22,500 ) -0- August 20, $ 15,750 2013 May 20, 2014 Variable n/a $ 15,750 81,900,000 (15,750 ) -0- September, $ 10,000 20, 2013 June 20, 2014 Variable n/a $ 10,000 74,285,714 (10,000 ) -0- October 25, $ 2,500 2013 July 18, 2014 Variable n/a $ 2,500 18,571,429 (2,500 ) -0- November $ 22,500 11, 2013 August 13, 2014 Variable n/a $ 22,500 175,000,000 (21,000 ) 26,666,667 (1,500 ) -0- 12 Table of Contents Shares issued upon Conversion Amount Issue date Due date conversion date(s) Principal amount June 6, $ 63,000 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 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- July 10, $ 37,500 2012 April 12, 2013 Variable n/a $ 37,500 18,750 04 /12/13 18,750 1,229,500 7 /19/13 (15,000 ) 1,153,896 7 /31/13 (12,000 ) 6,545,455 7 /19/13 (7,200 ) 6,545,455 10 /1/13 (7,200 ) 8,505,747 10 /7/13 (7,400 ) 8,045,977 10 /14/13 (7,000 ) 4,367,089 10 /21/13 (450 ) $ -0- November, $ 40,000 13, 2012 August 15, 2013 Variable n/a $ 40,000 20,000 8 /24/13 20,000 4,166,667 10 /21/13 (3,000 ) 7,941,176 10 /28/13 (5,400 ) 8,545,455 11 /1/13 (4,700 ) 8,540,000 11 /6/13 (4,270 ) 8,542,857 11 /11/13 (2,990 ) 4,571,429 11 /11/13 (1,600 ) 16,612,903 11 /22/13 (5,150 ) 16,642,857 11 /26/13 (4,660 ) 16,551,724 12 /2/13 (4,800 ) 16,551,724 12 /5/13 (4,800 ) 16,653,846 12 /16/13 (4,330 ) 16,625,000 12 /18/13 (3,990 ) 16,625,000 12 /23/13 (3,990 ) 16,653,846 12 /30/13 (4,330 ) 9,702,703 1 /2/14 (1,990 ) $ -0- 13 Table of Contents January 31, $ 37,500 2013 November 1, 2013 Variable n/a $ 37,500 18,750 10 /31/13 18,750 16,486,486 1 /7/14 (6,100 ) 16,451,613 1 /13/14 (5,100 ) 16,655,172 1 /15/14 (4,830 ) 16,538,462 1 /22/14 (4,300 ) 16,538,462 1 /28/14 (4,300 ) 16,650,000 2 /4/14 (3,330 ) 16,650,000 2 /6/14 (3,330 ) 16,650,000 2 /10/14 (3,330 ) 16,650,000 2 /14/14 (3,330 ) 51,290,323 2 /20/14 (15,900 ) 12,580,645 2 /24/14 (2,400 ) $ -0- April 11, $ 41,500 2013 January 16, 2014 Variable n/a $ 41,500 54,032,258 2 /24/14 (16,750 ) 80,030,303 (24,750 ) $ -0- June 27, $ 22,500 2013 March 31, 2014 Variable n/a $ 22,500 80,689,655 (22,500 ) -0- August 20, $ 15,750 2013 May 20, 2014 Variable n/a $ 15,750 81,900,000 (15,750 ) -0- September, $ 10,000 20, 2013 June 20, 2014 Variable n/a $ 10,000 74,285,714 (10,000 ) -0- October 25, $ 2,500 2013 July 18, 2014 Variable n/a $ 2,500 18,571,429 (2,500 ) -0- November $ 22,500 11, 2013 August 13, 2014 Variable n/a $ 22,500 175,000,000 (21,000 ) 26,666,667 (1,500 ) -0- All Notes issued to Asher Enterprises, Inc. bore 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" was defined as the average of the 3 lowest closing prices for our common stock on the 10 trading days immediately preceding the conversion date. The number of shares issuable upon conversion of the Notes is limited so that the holder's total beneficial ownership of our common stock may not exceed 4.99% of the total issued and outstanding shares. This condition may be waived at the option of the holder upon not less than 61 days-notice.

As of June 30, 2014, all notes issued to Asher have been converted in full.

14 Table of Contents Continental Equities, LLC On September 20, 2012, we received additional financing under a Convertible Promissory Note issued to Continental Equities, LLC ("Continental") in the amount of $35,000. The note bears interest at a rate of 8% per annum, is unsecured and matures on May 15, 2013. The Note is convertible into common stock in whole or in part at a variable conversion price equal to a 42.5% discount to the lowest three average thirty day trading prices prior to the conversion date.

In addition, we entered into a Registration Rights Agreement with Continental under which, upon demand of Continental, we must register resale of the common shares issuable upon conversion of the Note on Form S-1. In addition, Continental has "piggy-back" registration rights, which require us to include the re-sale of shares issuable upon conversion of the Note in any registration statement we may file, except for registrations on Forms S-4 or S-8. On May 20, 2013, we issued an additional Convertible Promissory Note to Continental in the amount of $13,000, bearing the same terms. During December of 2013, Tide Pool Ventures Corporation ("Tide Pool") purchased the remaining balance of the notes.

As of June 30, 2014, the Notes have been fully converted to common stock.

Chamisa Technology, LLC 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 December 1, 2013, Chamisa assigned the remaining portion of the Note still owing to Reign Investment Group, LLC. On December 1, 2013, Reign Investment Group, LLC assigned portions of the debt to various entities. During the year ended December 31, 2013, the original assignee agreed to forgive $21,500 of the debt in exchange for immediate conversion rights at a conversion rate of $0.001.

As of December 31, 2013, the Company recognized an interest expense of $43,623 from BCF related to the conversion and gain on settlement of debt of $21,500.

As of June 30, 2014, the unpaid principal balance together with accrued interest totaled $104,782. We are still negotiating additional terms as it relates to this note.

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

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

We anticipate continued and additional marketing, development and production expenses. Accordingly, we expect to continue to use debt and equity financing to fund operations for the next twelve months, as we look to expand our asset base and fund marketing, development and production of our products.

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

Off Balance Sheet Arrangements As of June 30, 2014, there were no off balance sheet arrangements.

15 Table of Contents 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.

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