S-1/A 1 cybg_s1a.htm FORM S-1/A cybg_s1a.htm

As filed with the Securities and Exchange Commission on September 24, 2015

 

Registration Statement No. 333-204176

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM S-1/A

 

REGISTRATION STATEMENT UNDER

THE SECURITIES ACT OF 1933

 

Cybergy Holdings, Inc.

(Exact name of Registrant as specified in its charter)

 

Nevada

7380

98- 0371433

(State or other jurisdiction

of incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

 Identification No.)

 

10333 E Dry Creek Rd, Suite 200

Englewood, CO. 80112

(303) 586-3232

(Address and telephone number of principal executive offices)

 

Mark Gray

10333 E Dry Creek Rd, Suite 200

Englewood, CO. 80112

(303) 586-3232

(Name, address and telephone number of agent for service)

 

Copies to:

 

Andrea Cataneo, Esq.

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, New York 10006

(212) 930-9700

(212) 930-9725 (fax)

 

Approximate Date of Proposed Sale to the Public: As soon as practicable after the effective date of this registration statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

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

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

(Do not check if a smaller reporting company)

 

 

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of

securities to be registered

 

Amount to be Registered

 

 

Proposed maximum offering price per share

 

 

Proposed maximum aggregate offering price

 

 

Amount of registration fee

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock underlying Convertible Debentures (1)

 

 

86,009,600

 

 

$ 0.04389

(6)

 

$ 3,774,961

 

 

$ 438.65

 

Common stock, underlying Series C Preferred Stock (2)

 

 

113,462,990

 

 

$ 0. 133

(7)

 

$ 15,090,578

 

 

$ 1,753.53

 

Common stock, underlying Series C Preferred Stock (3)

 

 

13,985,400

 

 

$ 0.133

(7)

 

$ 1,860,058

 

 

$ 216.14

 

Common stock (4)

 

 

8,164,356

 

 

$ 0. 133

(7)

 

$ 1,085,859

 

 

$ 126.18

 

Common stock underlying warrants (5)

 

 

6,562,020

 

 

$ 0.0218

(6)

 

$ 143,052

 

 

$ 16.62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

 

228,184,366

 

 

 

 

 

 

21,954,509

 

 

$ 2,551.11

(8) 

__________

(1)

The registrant and its subsidiaries have issued $3,525,000 of Convertible Debentures. The debentures are convertible at a holder’s option at any time prior to maturity into shares of the registrant’s Series C Preferred Stock at a price of $0.4389 per Series C preferred share (or the equivalent of $0.04389 per share of the registrant’s Common Stock).

(2)

Represents additional shares issued in conjunction with the Convertible Debentures and founding shareholders of Cybergy Partners, Inc.

(3)

Represent shares issued to a merger and acquisition consultant.

(4)

Represents restricted common stock of former MKDH shareholders with piggy-back registration rights.

(5)

Warrants issued in conjunction with the Convertible Debentures to the lead placement agent and financial advisor.

(6)

These offering prices have been estimated solely for the purpose of computing the dollar value of the warrants and the Convertible Debentures in accordance with Rule 457(g) of the Securities Act on the basis of the exercise price of the warrants and conversion price of the Convertible Debentures, respectively.

(7)

These offering prices been estimated solely for the purpose of computing the dollar value of the Series C Preferred Stock and the common stock in accordance with Rule 457(c) of the Securities Act on the basis of the average of the high and low prices of the common stock of the Company as reported on the OTCQB on September 15, 2015.

 

 

(8)

Previously paid

 

This Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the commission, acting pursuant to said Section 8(a), may determine.

 

 
2
 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED SEPTEMBER 24 , 2015

 

Prospectus

Shares of Common Stock

Cybergy Holdings, Inc.

 

This prospectus relates to the sale by the selling stockholders identified herein of up to 228,184,366  shares of common stock of Cybergy Holdings, Inc., consisting of 86,009,600  shares of common stock underlying Convertible Debentures, 113,462,990 shares underlying Series C Preferred Stock, 13,985,400 shares issued to a merger and acquisition consultant, 8,164,356 shares of currently restricted common stock, and 6,562,020 shares of common stock issuable upon the exercise of warrants.

 

There are no underwriting arrangements to sell the shares of common stock that are being offered by the selling stockholders hereunder. The prices at which the selling stockholders may sell shares will be determined by the prevailing market price for the shares or in privately negotiated transactions. We will not receive any proceeds from the sale of these shares by the selling stockholders. All expenses of registration incurred in connection with this offering are being borne by us, but all selling and other expenses incurred by the selling stockholders will be borne by the selling stockholders.

 

Our common stock is quoted on the OTCQB. On January 21, 2015, our symbol changed to “CYBG”. On September 15, 2015, the last reported sale price of our common stock was $0.133 per share. Prior to January 21, 2015, our common stock was quoted under the symbol “MKHD”. 

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

Investing in our common stock is highly speculative and involves a high degree of risk. You should carefully consider the risks and uncertainties described under the heading “Risk Factors” beginning on page 9 of this prospectus before making a decision to purchase our common stock.

 

The Date of this prospectus is

 

 
3
 

  

ADDITIONAL INFORMATION

 

You should rely only on the information contained or incorporated by reference in this prospectus and in any accompanying prospectus supplement. No one has been authorized to provide you with different information. The shares are not being offered in any jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of such documents.

 

TABLE OF CONTENTS

 

Page No.

PROSPECTUS SUMMARY

5

WHERE YOU CAN FIND MORE INFORMATION

9

RISK FACTORS

9

USE OF PROCEEDS

30

MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

30

CAPITALIZATION

31

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

32

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

46

OUR BUSINESS

46

MANAGEMENT

57

EXECUTIVE COMPENSATION

60

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

64

SELLING STOCKHOLDERS

65

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

71

DESCRIPTION OF SECURITIES

72

PLAN OF DISTRIBUTION

75

LEGAL MATTERS

77

EXPERTS

77

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

77

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

77

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

 

 
4
 

  

PROSPECTUS SUMMARY

 

The following summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that may be important to you. You should read this entire prospectus carefully, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical financial statements and related notes included elsewhere in this prospectus. In this prospectus, unless otherwise noted, the terms “Cybergy,” “the Company”, ”we,” “us,” and “our” refer to Cybergy Holdings, Inc., and its subsidiaries.

 

The Company

 

Overview

 

Cybergy Holdings, Inc. (the “Company”), a Nevada corporation, is a holding company for our wholly-owned subsidiary, Cybergy Partners, Inc. (“Partners”), a Delaware corporation. Partners is an operationalfocused company, committed to building a premier, full spectrum, advisory services and products provider for the federal and state governments, and commercial clients. We currently deliver innovative, technologyenabled products and services in clean energy, smart grid, energy resilience, cybersecurity, and business growth services.

 

Our subsidiary, Cybergy Partners, Inc., through its three wholly-owned subsidiaries, New West Technologies (“New West”), Cybergy Labs, and Primetrix, as well as its 51% owned joint venture, New WestEnergetics Joint Venture, LLC, provides critical infrastructure services primarily to U.S. Federal Government agencies, state governments and tier one commercial clients.

 

New West-Energetics Joint Venture, LLC, formerly EnergyWorks Joint Venture, LLC (the “JV”), was organized in the State of Maryland in 2006. The JV was created by its members to bid on a specific procurement with the U.S. Department of Energy for technical, engineering, analytical, and management support services and was approved to do so by the U.S. Small Business Administration. New West owns 51% of the JV.

 

New West specializes in management systems, strategic planning, engineering and analysis of clean energy, smart grid, advanced transportation and environmental technologies, markets, and policies for federal agencies such as the Department of Energy, the Department of Transportation and the Department of Defense (Navy and Air Force). They also provide similar services for various other federal agencies, national laboratories (such as Oak Ridge National Laboratory, and the National Renewable Energy Laboratory), state agencies and private companies.

 

Cybergy Labs specializes in innovative solutions to critical infrastructure challenges, and is a technology accelerator with experience in business development and grant proposal preparation in “Tech to Market” programs for the U.S. Federal Government and the commercial sector. One example of technology developed by Cybergy Labs for the enterprise software market is SmartFile. The patent-pending SmartFile technology, with more than 37,000 beta-users, connects digital documents to the internet, including all types of Microsoft Office and Adobe PDF files. This innovation is designed to take an organization’s security a level deeper into documents and files themselves and provides real-time reporting when documents are opened or viewed, printed, saved or shared with others. Further, it provides real-time reports to alerts when sensitive files have been leaked or when unauthorized users (hackers) gain access and open documents. Cybergy Labs plans to release the first commercial version of SmartFile in 2015.

 

Primetrix provides contracting, compliance and growth services, often referred to as “shared services”. Primetrix assists with our Merger and Acquisition (“M&A”) integration process and provides five essential service offerings, including:

 

·

Bid & Proposal for government contractors;

·

Compliance related to corporate and contract operations throughout an engagement’s lifecycle;

·

HR, compliance, ERISA and recruiting;

·

IT support services including security; and

·

Accounting services.

 

 
5
 

  

Corporate Information and Recent Developments

 

The Company was incorporated as Auror Capital Corp. under the laws of the State of Nevada in March 2006. In January 2010, the Company changed its name to Mount Knowledge Holdings, Inc. (“MKHD”). Pursuant to the Merger Agreement described below, the Company changed its name to Cybergy Holdings, Inc.

 

On October 3, 2014, MKHD finalized the Agreement and Plan of Merger (the “Merger Agreement”) with MK Merger Acquisition Sub, Inc., a wholly-owned subsidiary of MKHD (“Merger Sub”), Access Alternative Group S.A., and Cybergy Partners, Inc. providing for the merger of Merger Sub with and into Partners (the “Merger”), with Partners surviving the Merger as a wholly-owned subsidiary of Cybergy. Pursuant to the Merger Agreement, the shareholders of Partners and MKHD exchanged shares in the respective companies for 88% and 12% ownership, respectively, of the surviving company. All shares have been adjusted to reflect the post-merger, post reverse spilt share amounts.

 

The Merger of Partners and MKHD resulted in the owners and management of Partners obtaining actual and effective voting and operating control of the combined company. The Merger was treated as a public shell reverse acquisition and therefore treated as a capital transaction in substance, rather than a business combination. The historical financial statements of MKHD before the Merger were replaced with the historical financial statements of Partners before the Merger. As a result of the Merger, Cybergy acquired the business of Partners, and has continued the existing business operations of Partners.

 

Partners (previously Civergy, Inc.) was formed in 2013 to facilitate the acquisitions of New West and Cybergy Labs (“Labs”).

 

Effective January 1, 2014, Partners entered into an Equity Purchase Agreement (the “EPA”) with the Member of New West. Under the EPA, Partners purchased all the assets, liabilities, and equity of New West for a purchase price of approximately $7.4 million, as adjusted based on certain earnout provisions in 2014 and 2015. See Note Q on Page F-44 in the Notes to Consolidated Financial Statements.

 

Additionally, Partners and Labs entered into a Share Exchange Agreement effective January 1, 2014, whereby Labs transferred all assets, liabilities and equity to Partners in exchange for 4,851,258 shares of Series C preferred stock.

 

New West was a limited liability company formed in the State of Colorado in January 1998 as Heritage Technologies, LLC and was reorganized as New West Technologies, LLC in the State of Colorado in September 2004. New West provides technical, management, and analytical solutions in the areas of advanced transportation technology , engineering systems , environmental analysis , policy, regulatory and outreach support , program planning and evaluation , renewable energy systems , systems analysis and deployment , and Tribal development.

 

New WestEnergetics Joint Venture, LLC, formerly EnergyWorks Joint Venture, LLC (the “JV”), was organized in the State of Maryland in 2006. The JV was created by its members to bid on a specific procurement with the U.S. Department of Energy for technical, engineering, analytical, and management support services and was approved to do so by the U.S. Small Business Administration. New West owns 51% of the JV.

 

During 2013, NWBSS, LLC (“NWBSS”) was formed as a limited liability company in the State of Colorado and was a wholly-owned subsidiary of New West. NWBSS did not have activity during 2013. NWBSS was spun out as a wholly-owned subsidiary of Partners in September 2014 and changed its name to Primetrix. Primetrix is a business services provider designed to give organizations the edge they need when facing the demands of a dynamic and complex government contracting environment. Primetrix offers the opportunity for small and mediumsized businesses to leverage efficiencies of scale in back office support, streamlining operations, ensuring compliance with federal government regulations and guidelines, and providing the knowledge they need to make the best decisions for the health of their brands.

 

Formed in 2011, Labs (formerly BION Enterprises, LLC) was created as a midtier SoftwareasaService (SaaS) firm, focused on four primary areas: intellectual property protection, business intelligence, workflow management, and fighting fraud. Lab’s flagship product, SmartFile, is a document tracking software – monitoring human interaction with their digital documents. In 2014, Labs expanded its scope to including other technologies focused on critical infrastructure solutions.

 

 
6
 

 

Cybergy’s post-merger authorized capital stock consists of 3,000,000,000 shares of common stock, $0.0001 par value per share and 300,000,000 shares of preferred stock, par value $0.0001 per share, consisting of 1,000 shares of Series B Convertible preferred stock and 250,000,000 shares of Series C Convertible preferred stock (“Series C preferred stock”). Each share of the Series C preferred stock is convertible into 10 shares of our common stock. Prior to the consummation of the transactions contemplated by the Merger Agreement, there were 20,420,229 shares of MKHD common stock issued and outstanding and 242,172,355 of MKHD Series A preferred stock, which were converted into Series C preferred stock, and the Series A preferred shares were cancelled. Certain of the shareholders had piggyback registration rights granted to them in a Securities Purchase Agreement, dated February 1, 2012. Prior to the Merger, Partners had 3,256,444 shares of common stock and 10,000 shares of Series A preferred stock outstanding. The Series A preferred stock were cancelled prior to the merger.

 

At the Effective Date of the Merger:

 

·

Each issued and outstanding share of the MKHD common stock remained issued and outstanding;

·

Each issued and outstanding share of MKHD’s Series A preferred stock was converted into 0.2 shares of Series C preferred stock and all shares of the Series A preferred stock were cancelled.

·

Each issued and outstanding share of Partners common stock, par value $0.0001 per share (the “Company common stock”), issued and outstanding immediately prior to the Effective Time was converted automatically into 14.20 shares of the Series C preferred stock (the “Merger Consideration”), subject to dilution based upon the final amount of convertible debentures issued in conjunction with the Merger. After adjustment for the issuance of the convertible debentures, the final conversion ratio was approximately 12.13.

 

All convertible debentures issued by Partners were amended, by their terms, and are convertible into Series C preferred stock. Cybergy also issued 1,000 shares of Series B preferred stock to one of the Company’s officers and director.

 

On December 5, 2014, Cybergy declared a reverse 1:10 split of its common stock which was effective December 22, 2014. All convertible amounts in any debt, preferred stock, or warrant instruments were automatically adjusted.

 

On September 18, 2015, the Company filed with the State of Nevada an amendment of its Certificate of Designation for its Series C preferred stock approved by its Board of Directors and the holders of the majority of the shares of Series C preferred stock. Until the first anniversary of the effectiveness of this Registration Statement on Form S-1, the holders of the Company’s Convertible Preferred Stock will not directly or indirectly, convert, offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of, or announce the intention to otherwise dispose of, any shares of the Company’s convertible preferred stock.

    

Senior secured convertible debt

 

In conjunction with the EPA, Partners issued $1,000,000 of Senior Secured Convertible Debentures (“EPA notes”). In connection with the Merger, Partners issued $2,525,000 of Senior Secured Convertible Debentures in September and October 2014 (the “follow-on notes”). The debentures are convertible at a holder’s option at any time prior to maturity into shares of the Company’s Series C preferred stock. Each $100,000 of face value is convertible into 227,840 shares of Series C preferred stock at $0.4389 per preferred share; or the equivalent of $0.04389 per share of Cybergy’s common stock. Additionally, for each $100,000 of face value, the holder received 227,840 shares of Series C preferred stock (“Additional Shares”) for no additional consideration.

 

In conjunction with the issuance of the EPA notes, Civergy Partners, Inc. agreed to file a registration statement on or before June 1, 2014. As a result of the delayed filing of a Form S-1, the holder of the EPA notes received 20,000 shares of Civergy Partners common stock in July 2014 in lieu of the penalty interest due, which converted to 256,000 shares of Cybergy Series C preferred stock in conjunction with the Merger. As of September 15, 2015, we have repaid $500,000 of the EPA notes. In conjunction with the payoff, the holder has returned the 128,000 shares to the Company under the amended repayment agreement.

  

In a transaction, dated September 18, 2015, the Company sold an additional $500,000 of Senior Secured Convertible Notes to an investor. In connection with the sale of the Note, in lieu of Additional Shares of Series C preferred stock, the Company issued the investor 1,139,200 shares of the Company’s common stock and warrants to purchase 22,784,000 shares of the Company’s common stock at $0.10 per share before the fifth anniversary of the issuance of the Warrants.  

  

Pursuant to a registration rights agreement, we were required to file a registration statement for the resale of the common stock issuable upon conversion of the convertible debentures, Additional Shares, and exercise of the warrants by December 3, 2014. Because we failed to file by that date, we were subject to a monthly penalty, equal to 1.0% of the aggregate purchase price of the convertible debentures (not to exceed 20%) until we filed the registration statement. As a result of our failure to file by the required date, the convertible debt holders are due a 6% fee.

 

 
7
 

 

Outstanding and fully diluted shares

 

The following table reflects our outstanding securities, assuming conversion of the debentures, exercise of warrants and issued stock options, and pro-forma effect of the Member settlement, reflected in common shares, as if outstanding at September 15 , 2015:

 

 

 

Current

Fully diluted

 

 

Pro-forma adjustment for Member settlement (1)

 

 

Fully Diluted
Pro-forma

 

 

Common Stock Registered with this Registration Statement
(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares of Cybergy free trading/registered

 

 

5,744,539

 

 

 

-

 

 

 

5,744,539

 

 

 

-

 

Common shares of Cybergy restricted

 

 

16,145,264

 

 

 

-

 

 

 

16,145,264

 

 

 

8,164,356

 

Shares issuable upon conversion of convertible debentures

 

 

86,009,600

 

 

 

-

 

 

 

86,009,600

 

 

 

86,009,600

 

Series C preferred stock

 

 

535,176,316

 

 

 

(133,226,866 )

 

 

401,949,450

 

 

 

127,448,390

 

Warrants for Series C preferred stock

 

 

6,562,020

 

 

 

-

 

 

 

6,562,020

 

 

 

6,562,020

 

Warrants for common stock

 

 

22,985,755

 

 

 

-

 

 

 

22,985,755

 

 

 

-

 

Vested and unvested common stock option grants

 

 

14,850,506

 

 

 

-

 

 

 

14,850,506

 

 

 

-

 

 

 

 

687,474,000

 

 

 

(133,266,866 )

 

 

554,247,134

 

 

 

228,184,366

 

____________

(1) On May 8, 2015, the Company and the Member settled the litigation initiated in September 2014. Under the terms of the agreement, the Company has agreed to establish an ESOP for its employees before December 1, 2015. The ESOP will purchase from the Member that amount of Cybergy stock equal to a current market value of $2,565,000. After the repurchase, the remainder of the Cybergy stock owned by the Member will be canceled. The Member currently owns 15,451,258 shares of our Series C preferred stock, convertible into 154,512,580 shares of common stock which represents 23.9% of our fully diluted common shares. For example, using a share value of $0.133 , the closing price of September 15 , 2015 to approximate market value, we would cancel 135,226,866 shares of common equivalents or approximately 20.9 % of our fully diluted common shares. 

 

(2)  Subject to selling Restrictions.

 

The Offering

 

Common Stock Offered

 

228,184,366 shares, all of which are being offered by the selling stockholders or held by the Company.

 

 

Common Stock Outstanding

 

21,889,803 shares of common stock as of September 15 , 2015. Does not include shares issuable upon the conversion of the convertible debentures, Series C preferred stock, the exercise of the warrants, or shares which vest under the 2014 Stock Option Plan.

  

Common Stock to be Outstanding

Immediately after the Offering

 

21,889,803 plus 220,020,010 shares assuming the full conversion of the convertible debentures, conversion of the Series C preferred stock, and full exercise of the warrants , as noted in the table above for a total of 241,909,813 shares.

 

 

 

Use of Proceeds

 

The selling stockholders will receive all of the proceeds from the sale of their shares offered by them under this prospectus. We will receive any proceeds from the sale of the shares owned by us. If the debentures are converted in full, our outstanding debt will be reduced by $3,525,000 and if the warrants are exercised in full for cash we will receive approximately $143,000 upon such exercise.

 

 

 

Dividend Policy

 

We have never declared any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in financing the growth of our business and do not anticipate paying any cash dividends for the foreseeable future. See “Dividend Policy”.

 

 

 

Risk Factors

 

You should carefully consider the information set forth in this prospectus and, in particular, the specific factors set forth in the “Risk Factors” section beginning on page  9 of this prospectus before deciding whether or not to invest in our common stock.

 

 

8
 

  

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed a registration statement on Form S-1 with the SEC registering under the Securities Act the common stock being offered under this prospectus. This prospectus, which is a part of such registration statement, does not include all of the information contained in the registration statement and its exhibits. For further information regarding us, the Selling Stockholders and our common stock, you should consult the registration statement and its exhibits.

 

Statements contained in this prospectus concerning the provisions of any documents are summaries of those documents and are not necessarily complete, and we refer you to the documents filed with the SEC for more information. The registration statement and any of its amendments, including exhibits filed as a part of the registration statement or an amendment to the registration statement, are available for inspection and copying as described below.

 

AVAILABLE INFORMATION

 

We file electronically with the SEC our Annual Reports on Form 10-K, quarterly interim reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Our website address is https://www.cybergypartners.com. The information included on our website is not included as a part of, or incorporated by reference into, this prospectus or the registration statement on Form S-1 of which it is part. We will make available through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we have filed or furnished such material to the SEC. You may read and copy any materials we file with the SEC at the SEC’s public reference room at 100 F Street, NW, Washington, DC 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Furthermore, we will provide electronic or paper copies of filings free of charge upon written request to our chief financial officer or investor relations representative. If you do not have Internet access, requests for copies of such documents should be directed to Mr. Bill Gregorak, our Chief Financial Officer, at 10333 E. Dry Creek Rd., Suite 200, Englewood, CO 80112; Tel: (720) 763-9299.

 

RISK FACTORS

 

There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals, including those described below. You should carefully consider risks described below and the other information included in this Form S-1, including our financial statements and related notes. Our business, financial condition and results of operations could be harmed by any of the following risks. However, the risks and uncertainties described below are not the only ones we face. If any of the events or circumstances described below were to occur, our business, financial condition and results of operations could be materially adversely affected. As a result, the trading price of our common stock could decline, and investors could lose part or all of their investment.

 

Investing in our common stock involves a high degree of risk. Prospective investors should carefully consider the risks described below, together with all of the other information included or referred to in this prospectus, before purchasing shares of our common stock. There are numerous and varied risks that may prevent us from achieving our goals. If any of these risks actually occurs, our business, financial condition or results of operations may be materially adversely affected. In such case, the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment.

 

 
9
 

  

Risks Related to Our Operations

 

We have a history of operating losses, do not expect to be profitable in the near future and our independent auditors have expressed substantial doubt about our ability to continue as a going concern.

 

In 2014 and 2015, the Company had negative cash flow from operations due to declining gross margin, increased personnel costs as well as M&A costs related to the acquisition and merger. The decline in gross margin was due primarily to the delay on the transition from our JV contract to the follow-on Mission Oriented Technical Support (“MOTS”) contract issued by the Department of Energy (“DOE”) Office of Energy Efficiency and Renewable Energy (EERE) contract with the Department of Energy. Operating cash flow in 2015 remains negative due to the continued delay in the transition to the follow-on contract. We expect to incur additional operating losses for the year ending December 2015.

 

These circumstances raise substantial doubt about our ability to continue as a going concern, as described in the explanatory paragraph to our independent auditors’ report on our financial statements for the year ended December 2014, which is included elsewhere in this Form S-1. Although our financial statements raise substantial doubt about our ability to continue as a going concern, they do not reflect any adjustments that might result if we are unable to continue our business. Our financial statements contain additional note disclosures describing the circumstances that lead to the modification in the independent auditors' report.

  

We will need additional capital to conduct our operations and develop our products and such additional funds may not be available on acceptable terms or at all.

 

We need to obtain significant additional capital resources in order to develop products and fund operations and growth. If financing is not sufficient and additional financing is not available or available only on terms that are detrimental to the long- term survival of the Company, it could have a major adverse effect on our ability to continue to function as a going concern. The timing and degree of any future financing requirements will depend on the accuracy of the assumptions underlying our estimates for operating cash needs in 2015.

 

In addition, we cannot be sure that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or to our stockholders. Having insufficient funds may require us to delay, scale back, or eliminate some or all of our development programs or relinquish rights to our technology on less favorable terms than we would otherwise choose. Failure to obtain adequate financing could eventually adversely affect our ability to operate as a going concern. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business.

 

If sufficient capital is not available, we may be required to delay, reduce the scope of or eliminate one or more of our product development and growth initiatives, reduce SG&A, or attempt to renegotiate our debt, any of which could have a material adverse effect on our financial condition or business prospects.

 

Our profitability will be adversely impacted if we are unable to maintain our pricing and utilization rates as well as control our costs.

 

Our profitability derives from and is impacted by three primary factors: (i) the prices for our services; (ii) our professionals’ utilization or billable time; and (iii) our costs. To achieve our desired level of profitability, our utilization must remain at an appropriate rate, and we must contain our costs. Should we reduce our prices in the future as a result of pricing pressures, or should we be unable to achieve our target utilization rates and costs, our profitability could be adversely impacted.

 

We have significant fixed operating costs, which may be difficult to adjust in response to unanticipated fluctuations in revenues.

 

A high percentage of our operating expenses, particularly salary expense, rent, depreciation expense and amortization of purchased intangible assets, are fixed in advance of any particular quarter. As a result, an unanticipated decrease in the number or average size of, or an unanticipated delay in the scheduling for, our contracts may cause significant variations in operating results in any particular quarter and could have a material adverse effect on financial results for that quarter.

 

An unanticipated termination or decrease in size or scope of a major contract or a client’s decision to put a contract on hold could require us to maintain underutilized employees and could have a material adverse effect on our business, financial condition and results of operations.

 

 
10
 

  

We may not be able to recognize revenue in the period in which our services are performed, which may contribute to fluctuations in our revenue and margins.

 

We provide our services primarily under timeandmaterials contracts. All revenue is recognized pursuant to generally accepted accounting principles. These principles require us to recognize revenue once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable and collectability is reasonably assured. If we perform our services prior to the period in which we are able to recognize the associated revenue, our revenue and margins may fluctuate from quarter to quarter.

 

We compete primarily for government contracts against many companies that are larger, better capitalized and better known than us. If we are unable to compete effectively, our business and prospects will be adversely affected.

 

Our businesses operate in highly competitive markets. Many of our competitors are larger, better financed and better known companies who may compete more effectively than we can. In order to remain competitive, we must keep our capabilities technically advanced and compete on price and on value added to our customers. Our ability to compete may be adversely affected by limits on our capital resources and our ability to invest in maintaining and expanding our market share. Consolidation in the industries in which we operate and government budget cuts have led to pressure being placed on the margins we may earn on any contracts we win. In addition, should the market move toward requiring contractors to provide upfront financing for contracts they are awarded, we may need to compete more heavily on the basis of our financial strength, which may limit the contracts we can service at any one time.

 

We depend on a limited number of clients for a significant portion of our business.

 

For the six months ended July 3, 2015 approximately 94% and 86% of our consolidated revenues, and 78% and 63% of Partners revenues, were due to our contract with the Department of Energy. For the three months ended July 3, 2015 approximately 91% and 83% of our consolidated revenues and 72% and 57% of Partners revenues, were due to our contract with the Department of Energy. The loss of business from the Department of Energy would significantly and negatively affect our business operations.

  

We have, and may in the future, conduct a portion of our operations through joint venture entities, over which we may have limited control.

 

As with most joint venture arrangements, differences in views among the joint venture participants may result in delayed decisions or disputes. We also cannot control the actions of our joint venture partners, and we typically have joint and several liabilities with our joint venture partners under the applicable contracts for joint venture projects. These factors could potentially adversely impact the business and operations of a joint venture and, in turn, our business and operations.

 

Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations.

 

Our effective tax rate could be adversely impacted by several factors, some of which are outside our control, including:

 

·

our ability to accurately value certain assets, including identifiable intangibles and intellectual property;

·

changes in tax laws and the interpretation of those tax laws;

·

changes to our assessments about the realizability of our deferred tax assets which are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies and our internal structure, and the economic environment in which we do business;

·

the outcome of future tax audits and examinations; and

·

changes in generally accepted accounting principles that affect the accounting for taxes.

 

We may not receive the full amounts estimated under the contracts in our total backlog, which could reduce our sales in future periods below the levels anticipated and which makes backlog an uncertain indicator of future operating results.

 

Contracts or orders may be cancelled and scope adjustments may occur, and we may not realize the full amounts of revenues that we may anticipate from our backlog. There can be no assurance that the projects underlying the contracts and purchase orders will be placed or completed or that amounts included in our backlog ultimately will be billed and collected. Additionally, the timing of receipt of revenues, if any, on contracts included in our backlog could change. The failure to realize amounts reflected in our backlog could materially adversely affect our business, financial condition and results of operations in future periods.

 

 
11
 

  

We may be liable for civil or criminal penalties under a variety of complex laws and regulations, and changes in governmental regulations could adversely affect our business and financial condition.

 

Our businesses must comply with and are affected by various government regulations that impact our operating costs, profit margins and our internal organization and operation of our businesses. These regulations affect how we do business and, in some instances, impose added costs. Any changes in applicable laws could adversely affect our business and financial condition. Any material failure to comply with applicable laws could result in contract termination, price or fee reductions or suspension or debarment from contracting. The more significant regulations include:

 

·

the Federal Acquisition Regulations (FAR) and all department and agency supplements, which comprehensively regulate the formation, administration and performance of U.S. government contracts;

·

the Truth in Negotiations Act and implementing regulations, which require certification and disclosure of all cost and pricing data in connection with contract negotiations;

·

laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data;

·

regulations of most state and regional agencies and foreign governments similar to those described above;

·

the trade sanctions laws and regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control;

·

the SarbanesOxley Act of 2002 and the DoddFrank Wall Street Reform and Protection Act;

·

healthcare reform laws and regulations, including those enacted under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010;

·

tax laws and regulations in the U.S.;

·

the civil False Claims Act, which provides for substantial civil penalties for violations, including for submission of a false or fraudulent claim to the U.S. government for payment or approval;

·

the Procurement Integrity Act, which requires evaluation of ethical conflicts surrounding procurement activity and establishing certain employment restrictions for individuals who participate in the procurement process; and

·

the Small Business Act and the Small Business Administration size status regulations, which regulate eligibility for performance of government contracts which are set aside for, or a preference is given in the evaluation process if awarded to, specific types of contractors such as small businesses and minority owned businesses.

 

The FAR and many of our U.S. government contracts contain organizational conflicts of interest clauses that may limit our ability to compete for or perform certain other contracts. Organizational conflicts of interest arise when we engage in activities that provide us with an unfair competitive advantage. A conflict of interest issue that precludes our competition for or performance on a significant program or contract could harm our prospects and negative publicity about a conflict of interest issue could damage our reputation.

 

In addition, the U.S. government may revise existing contract rules and regulations or adopt new contract rules and regulations at any time and may also face restrictions or pressure regarding the type and amount of services it may obtain from private contractors. For instance, Congressional legislation and initiatives dealing with procurement reform, and shifts in the buying practices of U.S. government agencies resulting from those proposals, could have adverse effects on government contractors, including us. Any of these changes could impair our ability to obtain new contracts or renew contracts under which we currently perform when those contracts are eligible for recompetition. Any new contracting methods could be costly or administratively difficult for us to implement, which would adversely affect our business, results of operations and financial condition.

 

 
12
 

 

Our failure to identify, attract and retain qualified technical and management personnel could adversely affect our existing businesses, financial condition and results of operations.

 

We may not be able to identify, attract or retain qualified technical personnel, including engineers, computer programmers and personnel with security clearances required for classified work, or management personnel to supervise such activities that are necessary for maintaining and growing our existing businesses, which could adversely affect our financial condition and results of operations. The technically complex nature of our operations results in difficulties finding qualified staff. Obtaining and maintaining security clearances for employees involves a lengthy process, and it is difficult to identify, recruit and retain employees who already hold security clearances. If our cleared employees lose or are unable to timely obtain security clearances or we lose a facility clearance, our U.S. government customers may terminate the contract or decide not to renew it upon its expiration. As a result, to the extent we cannot obtain or maintain the required security clearances for a particular contract, or we fail to obtain them on a timely basis, we may not generate the sales anticipated from the contract, which could harm our operating results. To the extent we are not able to obtain facility security clearances or engage employees with the required security clearances for a particular contract, we will be unable to perform that contract and we may not be able to compete for or win new awards for similar work.

 

Our business could be negatively affected by cyber or other security threats or other disruptions.

 

As a U.S. government contractor, we face cyber threats, threats to the physical security of our facilities and employees, including senior executives, and terrorist acts, as well as the potential for business disruptions associated with information technology failures, damaging weather or other acts of nature, and pandemics or other public health crises, which may adversely affect our business.

 

Although we work cooperatively with our customers and our suppliers, subcontractors, and joint venture partners to seek to minimize the impacts of cyber threats, other security threats or business disruptions, we must rely on the safeguards put in place by those entities.

 

The costs related to cyber or other security threats or disruptions may not be fully mitigated by insurance or other means. Occurrence of any of these events could adversely affect our internal operations, the services we provide to customers, loss of competitive advantages derived from our research and development (R&D) efforts, early obsolescence of our products and services, our future financial results, our reputation or our stock price. The occurrence of any of these events could also result in civil or criminal liabilities.

 

We may incur significant costs in protecting our intellectual property which could adversely affect our profit margins. Our inability to obtain, maintain and enforce our patents and other proprietary rights could adversely affect our businesses’ prospects and competitive positions.

 

We seek to protect our proprietary technology and inventions through patents and other proprietary right protection, and also rely on trademark laws to protect our brand. However, we may fail to obtain the intellectual property rights necessary to provide us with a competitive advantage, and any of our owned or licensed intellectual property rights could be challenged, invalidated, circumvented, infringed or misappropriated. We may also fail to apply for or obtain intellectual property protection in important foreign countries, and the laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States. If we are unable to obtain or maintain these protections, we may not be able to prevent third parties from using our technology and inventions, which could adversely affect our business. We may incur significant expense in obtaining, maintaining, defending and enforcing our intellectual property rights. We may fail to take the actions necessary to enforce our intellectual property rights and even if we attempt to enforce such rights we may ultimately be unsuccessful, and such efforts may result in our intellectual property rights being challenged, limited in scope, or declared invalid or unenforceable.

 

We also rely on trade secrets, proprietary knowhow and continuing technological innovation to remain competitive. We have taken measures to protect our trade secrets and knowhow, including seeking to enter into confidentiality agreements with our employees, consultants and advisors, but the measures we have taken may not be sufficient. For example, confidentiality agreements may not provide adequate protection or may be breached. We generally control and limit access to our product documentation and other proprietary information, but other parties may independently develop our knowhow or otherwise obtain access to our technology, which could adversely affect our businesses’ prospects and competitive position.

 

 
13
 

  

Assertions by third parties that we violate their intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.

 

Third parties may claim that we, our customers, licensees or parties indemnified by us are infringing upon or otherwise violating their intellectual property rights. Such claims may be made by competitors seeking to obtain a competitive advantage or by other parties. Any claims that we violate a third party’s intellectual property rights can be time consuming and costly to defend and distract management’s attention and resources, even if the claims are without merit. Such claims may also require us to redesign affected products and services, enter into costly settlement or license agreements or pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or providing the affected products and services. Even if we have an agreement to indemnify us against such costs, the indemnifying party may be unable to uphold its contractual obligations. If we cannot or do not license the infringed technology on favorable terms or cannot or do not substitute similar technology from another source, our revenue and earnings could be adversely impacted.

 

If we do not successfully implement our new organizational and operational strategies, our financial condition and results of operations could be adversely affected.

 

We have discussed certain operational initiatives and direction in this Form S-1. The design of these organizational and operational strategies is based on certain assumptions regarding our business, markets, cost structures and customers. If our assumptions are incorrect, we may be unable to fully implement our new strategies and, even if fully implemented, our new strategies may not yield the benefits that we expect. If we are not able to effectively manage our new strategies, instead of resulting in growth for and enhanced value to us, our new strategies may cause us to experience operational issues and expose us to operational risks, each of which could have material adverse effects on our reputation, business, financial condition and results of operations. In addition, these new strategies have resulted, and could in the future result in, the loss of key employees. The loss of the services of key personnel and the failure to hire suitable replacements could have a material adverse effect on our ability to implement the new strategies, financial condition and results of operations.

 

Continued pricing pressures may reduce our revenues.

 

We market our service offerings to the federal and state governments, as well as large and mediumsized organizations. Generally, the pricing for the projects depends on the type of contract:

 

·

Time and Material Contracts — Contract payments are based on the number of consultant hours worked on the project, usually subject to a fixed contract amount.

·

Annual Maintenance Contracts (fixed time frame) — Contracts with no stated deliverables and having a designated workforce, the pricing is based on fixed periodic payments.

·

Fixed Price Contracts — Contracts based upon deliverables and/or achievement of project milestones, pricing is based on a fixed price.

·

Transaction Price Based Contracts — Contracts payments are on per transaction basis.

 

The intense competition and the changes in the general economic and business conditions can put pressure on us to change our prices. If our competitors offer deep discounts on certain services or provide services that the marketplace considers more valuable, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect results of operations, financial condition and cash flows.

 

Any broad-based change to our prices and pricing policies could cause revenues to decline or be delayed as our sales force implements and our customers adjust to the new pricing policies. Some of our competitors may bundle software products and services for promotional purposes or as a long-term pricing strategy or provide guarantees of prices and product implementations. These practices could, over time, significantly constrain the prices that we can charge for certain services. If we do not adapt our pricing models to reflect changes in customer use of our services or changes in customer demand, our revenues and cash flows could decrease.

 

Failure to maintain credit worthiness could adversely affect our liquidity, capital position, borrowing costs and access to capital markets.

 

We depend on capital markets to fund our business and as a source of liquidity. Our borrowing costs and our access to the debt capital markets depend significantly on our credit worthiness. Credit worthiness is determined by third party creditors and rating agencies, based on an evaluation of a number of factors, including our financial strength. Creditors and/or rating agencies may downgrade our credit worthiness or make negative implications about our business at any time. Credit worthiness and prospective credit ratings are also important for our competition in certain markets and when seeking to engage in longer-term transactions. A reduction in our credit worthiness or prospective credit ratings could increase our borrowing costs and limit our access to the capital markets. This, in turn, could reduce our earnings and adversely affect our liquidity. There can also be no assurance that we will be able to maintain our current credit worthiness or prospective credit ratings, and any actual or anticipated changes or downgrades in our credit worthiness or prospective credit ratings may further have a negative impact on our liquidity, capital position and access to capital markets.

 

 
14
 

  

Our ability to generate cash depends on many factors beyond our control, and we may not be able to generate the cash required to service our debt.

 

Our ability to make payments on and/or refinance or convert our indebtedness and to fund our operations will depend on our ability to generate cash in the future. Our historical financial results have been, and our future financial results are expected to be, subject to substantial fluctuations, and will depend upon general economic conditions and financial, competitive, legislative, regulatory and other factors that are beyond our control. If we are unable to meet our debt service obligations or fund our other liquidity needs, we may need to refinance all or a portion of our debt, before maturity, seek additional equity capital, reduce or delay scheduled expansions and capital expenditures or sell material assets or operations. We cannot assure you that we will be able to pay our debt or refinance it on commercially reasonable terms, or at all, or to fund our liquidity needs.

 

We currently have amounts due under our Revolving Credit Facility, Acquisition Notes, and Convertible Debentures outstanding, as more fully discussed in Notes B and C in the Notes to Unaudited Consolidated Condensed Financial Statements beginning on page F-6 in Notes G and I in the Notes to Consolidated Financial Statements beginning on page F-22 of this Form S-1.

 

If for any reason we are unable to meet our debt service obligations, we would be in default under the terms of the agreements governing our outstanding debt. If such a default were to occur, the lenders under the Revolving Credit Facility, Acquisition Notes, and Convertible Debentures could elect to declare all amounts outstanding under the respective agreements, as applicable, immediately due and payable, and such lenders would not be obligated to continue to advance funds under the agreements, as applicable.

 

We have breached certain covenants under our Revolving Credit Facility in recent periods and were required to obtain waivers from the lender. At June 30, 2015, the Company was in technical default of the tangible net worth requirement under our revolving line of credit agreement. The bank provided a waiver and continues to fund under the Revolving Credit Facility. The Company expects to be in technical default as of September 30, 2015.

 

We have not paid the interest due on $2,925,000 of our convertible debentures which was due in March, April and June 2015. To date, no holder has demanded an accelerated payment.

 

If the amounts outstanding are accelerated, we cannot assure you that our assets will be sufficient to repay in full the money owed to the banks or to our convertible debt holders.

 

Substantially all of our assets are pledged as collateral under our loan agreements.

 

If for any reason we are unable to cure or obtain waivers related to the default provisions of our loan agreements, the lenders under the Revolving Credit Facility, Acquisition Notes, and Convertible Debentures could elect to declare all amounts outstanding under the respective agreements, as applicable, immediately due and payable, and such lenders would not be obligated to continue to advance funds under the agreements, as applicable. If the amounts outstanding are accelerated, we cannot assure you that our assets will be sufficient to repay in full the money owed to the banks or to our debt holders.

 

Our development contracts may be difficult for us to comply with and may expose us to third-party claims for damages.

 

We are often party to government and commercial contracts involving the development of new products and systems. These contracts typically contain strict performance obligations and project milestones. We cannot assure you we will comply with these performance obligations or meet these project milestones in the future. If we are unable to comply with these performance obligations or meet these milestones, our customers may terminate these contracts and, under some circumstances, recover damages or other penalties from us. If other parties elect to terminate their contracts or seek damages from us, it could materially harm our business and negatively impact our stock price.

 

 
15
 

  

Failure to perform by our subcontractors could materially and adversely affect our contract performance and our ability to obtain future business.

 

Our performance of contracts often involves subcontractors, upon which we rely to complete delivery of products or services to our customers. We may have disputes with subcontractors. A failure by a subcontractor to satisfactorily deliver products or services can adversely affect our ability to perform our obligations as a prime contractor. Any subcontractor performance deficiencies could result in the customer terminating our contract for default, which could expose us to liability for excess costs of reprocurement by the customer and have a material adverse effect on our ability to compete for other contracts.

 

Our future success will depend on our ability to develop new products, systems and services that achieve market acceptance in our current and future markets.

 

Our business is characterized by rapidly changing technologies and evolving industry standards. Accordingly, our performance depends on a number of factors, including our ability to:

 

·

identify emerging technological trends in our current and target markets;

·

develop and maintain competitive products, systems and services;

·

enhance our offerings by adding technological innovations that differentiate our products, systems and services from those of our competitors; and

·

develop, manufacture and bring to market cost effective offerings quickly.

 

We believe that, in order to remain competitive in the future, we will need to continue to develop new products, systems and services, which will require the investment of significant financial resources. The need to make these expenditures could divert our attention and resources from other projects, and we cannot be sure that these expenditures ultimately will lead to the timely development of new products, systems or services. We may also experience delays in completing development and introducing certain new products, systems or services in the future due to their design complexity. Any delays could result in increased costs of development or redirect resources from other projects. In addition, we cannot provide assurances that the markets for our products, systems or services will develop as we currently anticipate, which could significantly reduce our revenue and harm our business. Furthermore, we cannot be sure that our competitors will not develop competing products, systems or services that gain market acceptance in advance of ours, or that cause our existing products, systems or services to become noncompetitive or obsolete, which could adversely affect our results of operations.

 

If we deliver products or systems with defects, our reputation will be harmed, revenue from, and market acceptance of, our products and systems will decrease and we could expend significant capital and resources as a result of such defects.

 

Our products and systems are complex and frequently operate in high-performance, challenging environments. Notwithstanding our internal quality controls, our products and systems may sometimes contain errors, defects and bugs when introduced. If we deliver products or systems with errors, defects or bugs, our reputation and the market acceptance and sales of our products and systems would be harmed. Further, if our products or systems contain errors, defects or bugs, we may be required to expend significant capital and resources to alleviate such problems and incur significant costs for product recalls and inventory write-offs. Defects could also lead to product liability lawsuits against us or against our customers, and could also damage our reputation.

   

We face certain significant risk exposures and potential liabilities that may not be covered adequately by insurance or indemnity.

 

We are exposed to liabilities that are unique to the products and services we provide. A portion of our business relates to designing, developing, manufacturing, operating and maintaining advanced systems and products. New technologies associated with these systems and products may be untested or unproven. While in some circumstances we may receive indemnification from the U.S. government, and we maintain insurance for certain risks, the amount of our insurance or indemnity may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs from an accident or incident. It also is not possible for us to obtain insurance to protect against all operational risks and liabilities. Substantial claims resulting from an incident in excess of the indemnification we receive and our insurance coverage would harm our financial condition, results of operations and cash flows. Moreover, any accident or incident for which we are liable, even if fully insured, could negatively affect our standing with our customers and the public, thereby making it more difficult for us to compete effectively, and could significantly impact the cost and availability of adequate insurance in the future.

 

 
16
 

 

We may acquire other companies, which could increase our costs or liabilities or be disruptive to our business.

 

Part of our strategy involves the acquisition of other companies. We cannot assure you that we will be able to integrate acquired companies successfully without substantial expense, delay or operational or financial problems. Such expenses, delays or operational or financial problems may include the following:

 

·

we may need to divert management resources to integration, which may adversely affect our ability to pursue other more profitable activities;

·

integration may be difficult as a result of the necessity of coordinating geographically separated organizations, integrating personnel with disparate business backgrounds and combining different corporate cultures;

·

we may not be able to eliminate redundant costs anticipated at the time we select acquisition candidates; and

·

one or more of our acquisition candidates may have unexpected liabilities, fraud risk, or adverse operating issues that we fail to discover through our due diligence procedures prior to the acquisition.

 

As a result, the integration of acquired businesses may be costly and may adversely impact our results of operations and financial condition.

 

Changes in future business or other market conditions could cause business investments and/or recorded goodwill or other long- term assets to become impaired, resulting in substantial losses and write-downs that would reduce our results of operations.

 

The investments we hope to make are made upon careful analysis and due diligence procedures designed to achieve a desired return or strategic objective. These procedures often involve certain assumptions and judgment in determining acquisition price. After acquisition, unforeseen issues could arise which adversely affect the anticipated returns or which are otherwise not recoverable as an adjustment to the purchase price. Even after careful integration efforts, actual operating results may vary significantly from initial estimates. We evaluate our recorded goodwill balances for potential impairment annually or when circumstances indicate that the carrying value may not be recoverable. Any impairment that might be necessary in the future is measured by comparing the implied fair value of goodwill to its carrying value, and any impairment determined is recorded in the current period. Any future impairment could result in substantial losses and write- downs that would reduce our results of operations.

 

Our employees may engage in misconduct or other improper activities, which could harm our business, financial condition and results of operations.

 

We are exposed to the risk of employee fraud or other misconduct. Employee misconduct could include intentionally failing to comply with U.S. government procurement regulations, engaging in unauthorized activities, attempting to obtain reimbursement for improper expenses, or submitting falsified time records, which could result in legal proceedings against us, lost contracts or reduced revenues. Employee misconduct could also involve improper use of our customers’ sensitive or classified information, which could result in regulatory sanctions against us and serious harm to our reputation.

 

It is not always possible to deter employee misconduct, and the precautions we take to prevent and detect this activity may not be effective in controlling unknown or unmanaged risks or losses, which could harm our business, financial condition and results of operations. In addition, alleged or actual employee misconduct could result in investigations or prosecutions of employees engaged in the subject activities, which could result in unanticipated consequences or expenses and management distraction for us regardless of whether we are alleged to have any responsibility.

 

 
17
 

  

The obligations associated with being a public company require significant resources and management attention, which may divert from our business operations.

 

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and The SarbanesOxley Act of 2002, or the SarbanesOxley Act. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition, proxy statement, and other information. The SarbanesOxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting. Our Chief Executive Officer and Chief Financial Officer need to certify that our disclosure controls and procedures are effective in ensuring that material information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. We may need to hire additional financial reporting, internal controls and other financial personnel in order to develop and implement appropriate internal controls and reporting procedures. As a result, we will incur significant legal, accounting and other expenses. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our growth strategy, which could prevent us from improving our business, results of operations and financial condition. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. In addition, we cannot predict or estimate the amount of additional costs we may incur in order to comply with these requirements. We anticipate that these costs will materially increase our selling, general and administrative expenses.

 

Section 404 of the SarbanesOxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting. In connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies. If we are unable to comply with the internal controls requirements of the SarbanesOxley Act of 2002, then we may not be able to obtain the certifications required by that act, which may preclude us from keeping our filings with the SEC current, and interfere with the ability of investors to trade our securities and our shares to continue to be quoted on the OTCQB or our ability to list our shares on any national securities exchange.

 

If we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately or prevent fraud. Any inability to report and file our financial results accurately, or on a timely basis, could harm our reputation and adversely impact the trading price of our common stock.

 

Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. With each prospective acquisition we may make we will conduct whatever due diligence is necessary or prudent to assure us that the acquisition target can comply with the internal controls requirements of the SarbanesOxley Act. Notwithstanding our diligence, certain internal controls deficiencies may not be detected. As a result, any internal control deficiencies may adversely affect our financial condition, results of operations and access to capital. We have not performed an in-depth analysis to determine if historical undiscovered failures of internal controls exist, and may in the future discover areas of our internal controls that need improvement.

 

Public company compliance may make it more difficult to attract and retain officers and directors.

 

The SarbanesOxley Act and rules implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, these rules and regulations increase our compliance costs and make certain activities more time consuming and costly. As a public company, these rules and regulations may make it more difficult and expensive for us to maintain our director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers, and to maintain insurance at reasonable rates, or at all.

 

The failure to successfully, and on a timely basis, implement certain financial system changes to improve operating efficiency and enhance our reporting controls could harm our business.

 

We have implemented and continue to install several upgrades and enhancements to our financial systems. We expect these initiatives to enable us to achieve greater operating and financial reporting efficiencies and also enhance our existing control environment through increased levels of automation of certain processes. Failure to successfully execute these initiatives in a timely, effective and efficient manner could result in the disruption of our operations, the inability to comply with our obligations under the SarbanesOxley Act of 2002, significant deficiencies or a material weakness, and/or the inability to report our financial results in a timely and accurate manner.

 

 
18
 

  

We may incur noncash charges to our operations as a result of current and future financing transactions.

 

Under current accounting rules, we incur noncash charges including, but not limited to amortization of debt discount and issuance costs, depreciation and amortization, derivative fair value adjustments and changes in deferred tax accounts. We expect to incur additional noncash charges to future operations beyond the stated contractual interest payments required under our current and potential future financing arrangements. While such charges are generally noncash, they impact our results of operations and earnings per share and may be material in future periods.

 

The Company has net operating loss carryforwards that may not be available to reduce future taxable income.

 

As of July 3, 2015, the Company has estimated state and federal net operating loss carry forwards of approximately $17,600,000 expiring in 2033 through 2035. Under the Internal Revenue Code (“IRC”) Section 382, annual use of our net operating loss carryforwards to offset taxable income may be limited based on cumulative changes in ownership. We have not completed an analysis to determine whether any such limitations have been triggered as of June 2015. We have considered whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results, and as a result, have recorded a valuation allowance against net deferred tax assets to offset future tax benefits that may not be realized.

 

The Company has derivative liabilities that are valued based upon the closing price of our stock at each measurement date. Volatility of our stock price could cause net income or loss to vary significantly from quarter to quarter.

 

The Company utilizes a valuation methodology that embodies all of the assumptions that market participants would likely consider in negotiating the transfer of the underlying securities. The model utilizes interest rates, stock prices, contractually remaining term of the underlying financial instruments and volatility factors. The Company believes these estimates and assumptions are reliable. However, these estimates and assumptions may change in the future based on actual experience as well as market conditions. The calculation of the derivative liability may result in significant swings in our noncash earnings or losses for a period and could have an impact on the price of our stock.

 

The Company issued a Put Option to the selling Member of New West which, if exercised, would have a significant cash impact to the Company in 2018.

 

The Member has the right commencing on January 1, 2018 to cause the Company to purchase all of the shares issued to Member under the EPA for an aggregate purchase price equal to the greater of:

 

a)

the mutually agreed fair market value of the shares at the time of such exercise, or

 

 

 

b)

in the absence of an agreement as to fair market value per a), then five (5) times the Adjusted EBITDA (as defined in the EPA) for the calendar year immediately prior to the date of the Put Option.

 

On May 8, 2015, the Company and the Member settled the litigation initiated in September 2014. Under the terms of the agreement, the Company has agreed to establish an ESOP for its employees before December 1, 2015. The ESOP will purchase from the Member that amount of Cybergy stock equal to a current market value of $2,565,000. After the repurchase, the remainder of the Cybergy stock owned by the Member will be canceled. The Member currently owns 15,451,258 shares of our Series C preferred stock, convertible into 154,512,580 shares of common stock which represents 23.9% of our fully diluted common shares. For example, using $0.133 the closing price of September 15, 2015 to approximate current market value, we would cancel approximately 135,226,866 shares of common equivalents or approximately 20.9% of our fully diluted common shares. 

 

Should the Company fail to establish the ESOP and close the settlement, the Put option could be reinstated by the Member, which may result in a significant t cash requirement in 2018.

 

 
19
 

   

As of June 30, 2015, we ceased billing through the JV and began to wind down the operations of the JV. This will reduce our consolidated revenues significantly.

 

In 2014, approximately 89% of our revenues were generated through the JV. The JV was formed in 2006 to allow New West to participate in the small disadvantaged minority owned business program regulated by the U.S. Small Business Administration that awards government contracting opportunities. In 2008, the JV was awarded a five-year contract with the Department of Energy and in December 2013, the contract work was extended for another six months. In mid-2014, the contract was extended another six months pending the award of a follow-on contract. In September 2014, the follow-on contract was awarded to Allegheny Science & Technology (“AST”), the primary contractor. This technical support contract is the successor to the work performed through the JV and provides professional and engineering services across EERE’s five offices for three years: Energy Efficiency, Renewable Power, Strategic Programs, Transportation and Business Operations. The contract has a total contract value of up to $85 million, the maximum amount as designated by the contracting officer with the DoE. New West is expected to receive approximately 25% based upon the teaming agreement with AST. The final allocation of work could change based upon the specific task orders issued, the qualifications of consultants required, and funding level of such task orders. Since the new contract was awarded in September 2014, it has been under protest with the General Accounting Office (“GAO”) under allowable procedures. In December 2014, we received an additional 6 month extension to the existing contract through June 2015. On February 23, 2015 the GAO announced that it denied the protest. The new contract is now active and we are working to terminate the JV. The impact on our consolidated revenues after the transition to the follow-on contract will be significant as we will no longer include the operations of the JV.

  

Risks Relating to Our Business and Industry

 

We depend on government contracts for substantially all of our revenues and the loss of government contracts or a delay or decline in funding of existing or future government contracts could decrease our backlog or adversely affect our revenues and cash flows and our ability to fund our growth.

 

Our revenues from contracts, directly or indirectly, with U.S. federal, state, and local governmental agencies represent over 90% of our total revenues. Although these various government agencies are subject to common budgetary pressures and other factors, many of our various government customers exercise independent purchasing decisions. As a result of the concentration of business with governmental agencies, we are vulnerable to adverse changes in our revenues, income and cash flows if a significant number of our government contracts, subcontracts or prospects are delayed or canceled for budgetary or other reasons.

 

Government spending priorities and terms may change in a manner adverse to our businesses.

 

At times, our businesses have been adversely affected by significant changes in U.S. government spending during periods of declining budgets. A significant decline in overall spending, the decision not to exercise options to renew contracts, or the loss of or substantial decline in spending on a large program in which we participate could materially adversely affect our business, prospects, financial condition or results of operations. For example, the U.S. defense and national security budgets in general, and spending in specific agencies with which we work, such as those that are a part of the Department of Defense (“DoD”), have declined from time to time for extended periods, resulting in program delays, program cancellations and a slowing of new program starts. Future levels of expenditures and authorizations by the U.S. government may decrease, remain constant or shift to programs in areas where we do not currently provide products or services, thereby reducing the chances that we will be awarded new contracts.

 

Even though our contract periods of performance for a program may exceed one year, Congress must usually approve funds for a given program each fiscal year and may significantly reduce funding of a program in a particular year. Significant reductions in these appropriations or the amount of new defense contracts awarded may affect our ability to complete contracts, obtain new work and grow our business. Congress does not always enact spending bills by the beginning of the new fiscal year. Such delays leave the affected agency underfunded which delays their ability to contract. Future delays and uncertainties in funding could impose additional business risks on us.

 

 
20
 

  

Failure to raise the national debt limit may cause the federal government to be unable to pay funds due to us.

 

Congress and the executive branch may reach an impasse on increasing the national debt limit which would restrict the federal government’s ability to pay contractors for prior work. A failure to receive such payments for an extended period of time could result in substantial layoffs of our employees, drawdowns of our credit lines and our inability to pay debts when due.

 

A deadlock in the U.S. Congress over budgets and spending could cause another partial shutdown of the U.S. Federal Government which could result in a termination or suspension of some or all of our contracts with the U.S. Federal Government.

 

Congress may fail to pass a budget or continuing resolutions which could result in a partial shutdown of the U.S. Federal Government and cause the termination or suspension of our contracts with the federal government. We would be required to furlough affected employees for an indefinite time. It is uncertain in such a circumstance if we would be compensated or reimbursed for any loss of revenue during such a shutdown.

 

The Budget Control Act of 2011 could significantly reduce U.S. Federal Government spending for the services we provide.

 

Under the Budget Control Act of 2011, an automatic sequestration process, or across-the- board budget cuts, was triggered when the Joint Select Committee on Deficit Reduction, a committee of twelve members of Congress, failed to agree on a deficit reduction plan for the U.S. federal budget. The sequestration began on March 1, 2013. Absent additional legislative or other remedial action, the sequestration requires $1.2 trillion in reduced U.S. Federal Government spending over a ten-year period. A significant reduction in federal government spending could reduce demand for our services, cancel or delay federal projects, and result in the closure of federal facilities, and significant personnel reductions, which could have a material adverse effect on our results of operations and financial condition.

 

The federal government’s wide-ranging efficiencies initiative, which targets affordability and cost growth, could have a material effect on the procurement process and may adversely affect our existing contracts and the awards of new contracts.

 

The U.S. government has issued guidance regarding changes to the procurement process that is intended to control cost growth throughout the acquisition cycle by developing a competitive strategy for each program. As a result, we expect to engage in more frequent negotiations and recompetition on a cost or price analysis basis with most competitive bids in which we participate. This initiative is organized into five major areas: affordability and cost growth; productivity and innovation; competition; services acquisition; and processes and bureaucracy. Because this initiative has significantly changed the way the government solicits, negotiates and manages its contracts, this initiative has resulted in a reduction in expenditures for services we provide to the U.S. government. These initiatives may adversely affect our existing contracts and awards of new contracts and our results of operations and cash flows.

 

State and other public employee unions may bring litigation that seeks to limit the ability of public agencies to contract with private firms to perform government employee functions in the area of public improvements. Judicial determinations in favor of these unions could affect our ability to compete for contracts and may have an adverse effect on our revenue and profitability.

 

For more than 20 years, state and other public employee unions have challenged the validity of propositions, legislation, charters and other government regulations that allow public agencies to contract with private firms to provide services in the fields of engineering, design and construction of public improvements that might otherwise be provided by public employees. These challenges could have the effect of eliminating, or severely restricting, the ability of governments to hire private firms for the purpose of designing and constructing public improvements, and otherwise require them to use union employees to perform the services.

 

 
21
 

  

Changes in elected or appointed officials could have a material adverse effect on our ability to retain an existing contract with or obtain additional contracts from a public agency.

 

Since the decision to retain our services is made by individuals, such as elected or appointed officials, our business and financial results or condition could be adversely affected by the results of local, regional, and federal elections. A change in the individuals responsible for selecting consultants for and awarding contracts on behalf of a public agency due to an election could adversely affect our ability to retain an existing contract with or obtain additional contracts from such public agency.

 

Our contracts with government agencies may be terminated or modified prior to completion, which could adversely affect our business.

 

Government contracts typically contain provisions and are subject to laws and regulations that give the government agencies rights and remedies not typically found in commercial contracts, including providing the government agency with the ability to unilaterally:

 

·

terminate our existing contracts;

·

reduce the value of our existing contracts;

·

modify some of the terms and conditions in our existing contracts;

·

permanently prohibit us from doing business with the government or with any specific government agency;

·

control and potentially prohibit the export of our products;

·

cancel or delay existing multiyear contracts and related orders if the necessary funds for contract performance for any subsequent year are not appropriated;

·

decline to exercise an option to extend an existing multiyear contract; and

·

claim rights in technologies and systems invented, developed or produced by us.

 

Most U.S. government agencies and some other agencies with which we contract can terminate their contracts with us for convenience, and in that event we generally may recover only our incurred or committed costs, settlement expenses and profit on the work completed prior to termination. If an agency terminates a contract with us for default, we may be denied any recovery and may be liable for excess costs incurred by the agency in procuring undelivered items from an alternative source. We may receive showcause or cure notices under contracts that, if not addressed to the agency’s satisfaction, could give the agency the right to terminate those contracts for default or to cease procuring our services under those contracts.

 

In the event that any of our contracts were to be terminated or adversely modified, there may be significant adverse effects on our revenues and operating costs that may not be recoverable.

 

 
22
 

  

Failure to retain existing contracts or win new contracts under competitive bidding processes may adversely affect our revenue.

 

We obtain most of our contracts through a competitive bidding process, and substantially all of the business that we expect to seek in the foreseeable future likely will be subject to a competitive bidding process. Competitive bidding presents a number of risks, including:

 

·

the need to compete against companies or teams of companies that may be long-term, entrenched incumbents for a particular contract for which we are competing and that have, as a result, greater domain expertise and better customer relations;

·

the need to compete to retain existing contracts that have in the past been awarded to us on a solesource basis or as to which we have been incumbent for a long time;

·

the award of contracts to providers offering solutions at the “lowest price technically acceptable” which may lower the profit we may generate under a contract awarded or prevent us from submitting a bid for such work due to us deeming such work to be unprofitable;

·

the reduction of margins achievable under any contracts awarded to us;

·

the expense and delay that may arise if our competitors protest or challenge new contract awards;

·

the need to bid on some programs in advance of the completion of their design, which may result in higher research and development expenditures, unforeseen technological difficulties, or increased costs which lower our profitability;

·

the substantial cost and managerial time and effort, including design, development and marketing activities, necessary to prepare bids and proposals for contracts that may not be awarded to us;

·

the need to develop, introduce and implement new and enhanced solutions to our customers’ needs; and

·

the need to locate and contract with teaming partners and subcontractors.

 

We may not be afforded the opportunity in the future to bid on contracts that are held by other companies and are scheduled to expire if the agency decides to extend the existing contract. If we are unable to win particular contracts that are awarded through the competitive bidding process, we may not be able to operate in the market for services that are provided under those contracts for a number of years. If we win a contract, and upon expiration the customer requires further services of the type provided by the contract, there is frequently a competitive rebidding process and there can be no assurance that we will win any particular bid, or that we will be able to replace business lost upon expiration or completion of a contract.

 

As a result of the complexity and scheduling of contracting with government agencies, we occasionally incur costs before receiving contractual funding by the government agency. In some circumstances, we may not be able to recover these costs in whole or in part under subsequent contractual actions.

 

If we are unable to consistently retain existing contracts or win new contract awards, our business, prospects, financial condition and results of operations will be adversely affected.

 

 
23
 

 

Many of our U.S. government customers spend their procurement budgets through multipleaward or indefinite delivery/indefinite quantity (IDIQ) contracts, under which we are required to compete among the awardees for postaward orders. Failure to win postaward orders could affect our ability to increase our sales.

 

The U.S. government can select multiple winners under multipleaward contracts, federal supply schedules and other agency specific IDIQ contracts, as well as award subsequent purchase orders among such multiple winners. This means that there is no guarantee that these IDIQ, multiple award contracts will result in the actual orders equal to the ceiling value under the contract, or result in any actual orders. We are only eligible to compete for work (purchase orders and delivery orders) as an awardee pursuant to governmentwide acquisition contracts already awarded to us. Our failure to compete effectively in this procurement environment could reduce our revenues, which would adversely affect our business, results of operations and financial condition.

 

Our IDIQ contracts are not firm orders for services, and we may generate limited or no revenue from these contracts which could adversely affect our operating performance.

 

Generally, under an IDIQ contract, the government is not obligated to order a minimum of services or supplies from its contractor, irrespective of the total estimated contract value. Furthermore, following an award under a multi award IDIQ program, the customer develops requirements for task orders that are competitively bid against all of the contract awardees. However, many contracts also permit the government customer to direct work to a specific contractor. We may not win new task orders under these contracts for various reasons, including price, past performance and responsiveness, among others, which would have an adverse effect on our operating performance and may result in additional expenses and loss of revenue. There can be no assurance that our existing IDIQ contracts will result in actual revenue during any particular period or at all.

 

The U.S. government’s increased emphasis on awarding contracts to small businesses could preclude us from acting as a prime contractor and increase the number of contracts we receive as a subcontractor to small businesses, which could decrease the amount of our revenues from such contracts. Some of these small businesses may not be financially sound, which could adversely affect our business.

 

There is increased emphasis by the U.S. government on awarding contracts to small businesses which may preclude companies the size of ours from obtaining certain work, other than as a subcontractor to these small businesses. There are inherent risks in contracting with small companies that may not have the capability or financial resources to perform these contracts or administer them correctly. If a small business with which we have a subcontract fails to perform, fails to bill the government properly or fails financially, we may have difficulty receiving timely payments or may incur bad debt write-offs if the small business is unable or unwilling to pay us for work we perform. In addition, being a subcontractor may limit the amount of revenue we could otherwise earn as a prime contractor for such contracts. When we only act as a subcontractor, we may only receive up to 49% of the value of the contract award, and such percentage may be less should the small business partner or partners be able to service a larger piece of the award. Failure to maintain good relationships with small business partners operating in our industries could preclude us from winning work as a subcontractor as part of a large contracting consultation. This could result in significant adverse effects on our revenues, operating costs and cash flows.

 

Government audits of our contracts could result in a material charge to our earnings, have a negative effect on our cash position following an audit adjustment or adversely affect our ability to conduct future business.

 

U.S. government agencies routinely audit and review a contractor’s performance on government contracts, indirect rates and pricing practices, and compliance with applicable contracting and procurement laws, regulations and standards. Based on the results of such audits, the auditing agency is authorized to adjust our unit prices if the auditing agency does not find them to be “fair and reasonable.” The auditing agency is also authorized to require us to refund any excess proceeds we received on a particular item over its final adjusted unit price.

 

The Department of Defense, in particular, also reviews the adequacy of, and compliance with, our internal control systems and policies, including our purchasing, accounting, financial capability, pricing, labor pool, overhead rate and management information systems. Our failure to obtain an “adequate” determination of our various accounting and management internal control systems from the responsible U.S. government agency could significantly and adversely affect our business, including our ability to bid on new contracts and our competitive position in the bidding process. Failure to comply with applicable contracting and procurement laws, regulations and standards could also result in the U.S. government imposing penalties and sanctions against us, including suspension of payments and increased government scrutiny that could delay or adversely affect our ability to invoice and receive timely payment on contracts or perform contracts, or could result in suspension or debarment from competing for contracts with the U.S. government.

 

 
24
 

  

Risks Related to Our Common Stock and Securities

 

There are risks associated with investing in reverse merger companies.

 

Because we became public by means of a “reverse merger,” we may not be able to attract the attention of major brokerage firms.

 

There is not a long market history for our common stock and the market price of our common stock may fluctuate significantly.

 

There is not a long market history for our common stock, and its market price may fluctuate widely, depending on many factors, some of which may be beyond our control, including:

 

·

changes in federal and state governmental budget levels and procurement priorities;

·

actual or anticipated fluctuations in our operating results due to factors related to our business;

·

wins and losses on contract recompetitions and new business pursuits;

·

success or failure of our business strategy;

·

our quarterly or annual earnings, or those of other companies in our industry;

·

our ability to obtain financing as needed;

·

announcements by us or our competitors of significant acquisitions or dispositions;

·

changes in accounting standards, policies, guidance, interpretations or principles;

·

the number of securities analysts to cover our common stock;

·

changes in earnings estimates by securities analysts or our ability to meet those estimates;

·

the operating and stock price performance of other comparable companies;

·

investor perception of our Company;

·

results from any material litigation or government investigation;

·

the availability of government funding and changes in customer requirements for our products and services;

·

natural or environmental disasters that investors believe may affect us;

·

overall market fluctuations;

·

fluctuations in the budget of federal, state and local governmental entities;

·

changes in laws and regulations affecting our business; and

·

general economic conditions and other external factors.

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

 

 
25
 

  

We do not plan to pay dividends on our common stock and our indebtedness could limit our ability to pay dividends on our common stock in the future. You will not receive any return on your investment in our Company prior to selling your interest in the Company.

 

We currently intend to retain any future earnings for funding growth and, therefore, do not expect to pay any cash dividends in the foreseeable future. The declaration of any future cash dividends and, if declared, the amount of any such dividends will be subject to our financial condition, earnings, capital requirements, financial covenants and other contractual restrictions and to the discretion of our Board of Directors. Additionally, our Revolving Credit Agreement places significant restrictions on our ability to pay dividends. Our Board of Directors may take into account such matters as general business conditions, industry practice, our financial condition and performance, our future prospects, our cash needs and capital investment plans, income tax consequences applicable law and such other factors as our Board of Directors may deem relevant. There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence the payment of dividends.

 

The success of your investment in the Company will likely depend entirely upon any future appreciation. As a result, you will not receive any return on your investment prior to selling your shares in our Company and, for the other reasons discussed in this “Risk Factors” section, you may not receive any return on your investment even when you sell your shares in our Company.

 

Our directors and executive officers beneficially own a significant number of shares of our preferred stock. Their interests may conflict with our outside stockholders, who may be unable to influence management and exercise control over our business.

 

As of September 15 , 2015 our executive officers and directors beneficially own approximately 30.7% of our shares of Series C preferred stock. As a result, our executive officers and directors will have significant influence in electing our directors, amending or preventing amendment to our certificates of incorporation or bylaws, effecting or preventing a merger, sale of assets or other corporate transaction, and influencing the outcome of any other matter submitted to the shareholders for vote. Accordingly, our outside stockholders may be unable to influence management and exercise control over our business.

 

Some provisions of our articles of incorporation and bylaws may deter takeover attempts, which may inhibit a takeover that stockholders consider favorable and limit the opportunity of our stockholders to sell their shares at a favorable price.

 

Under our articles of incorporation, our Board of Directors may issue additional shares of common or preferred stock. This makes it possible for our Board of Directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us by means of a merger, tender offer, proxy contest or otherwise, including a transaction in which our stockholders would receive a premium over the market price for their shares and/or any other transaction that might otherwise be deemed to be in their best interests, and thereby protects the continuity of our management and limits an investor’s opportunity to profit by their investment in the Company. Specifically, if in the due exercise of its fiduciary obligations, the Board of Directors were to determine that a takeover proposal was not in our best interest, shares could be issued by our Board of Directors without stockholder approval in one or more transactions that might prevent or render more difficult or costly the completion of the takeover by:

 

·

diluting the voting or other rights of the proposed acquirer or insurgent stockholder group;

 

·

putting a substantial voting bloc in institutional or other hands that might undertake to support the incumbent Board of Directors; or

 

·

effecting an acquisition that might complicate or preclude the takeover.

 

This statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.

 

 
26
 

  

Our indemnification of our officers and directors may cause us to use corporate resources to the detriment of our stockholders.

 

Our articles of incorporation eliminate the personal liability of our directors for monetary damages arising from a breach of their fiduciary duty as directors to the fullest extent permitted by Nevada law. This limitation does not affect the availability of equitable remedies, such as injunctive relief or rescission. Our certificate of incorporation requires us to indemnify our directors and officers to the fullest extent permitted by Nevada law, including in circumstances in which indemnification is otherwise discretionary under Nevada law.

 

Under Nevada law, we may indemnify our directors or officers or other persons who were, are or are threatened to be made a named defendant or respondent in a proceeding because the person is or was our director, officer, employee or agent, if we determine that the person:

 

·

conducted himself or herself in good faith, reasonably believed, in the case of conduct in his or her official capacity as our director or officer, that his or her conduct was in our best interests, and, in all other cases, that his or her conduct was at least not opposed to our best interests; and

·

in the case of any criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful.

 

These persons may be indemnified against expenses, including attorneys’ fees, judgments, fines, including excise taxes, and amounts paid in settlement, actually and reasonably incurred, by the person in connection with the proceeding. If the person is found liable to the corporation, no indemnification will be made unless the court in which the action was brought determines that the person is fairly and reasonably entitled to indemnity in an amount that the court will establish.

 

Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers or persons controlling us under the above provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

Our shares of common stock are thinly traded, the price may not reflect our value, and there can be no assurance that there will be an active market for our shares of common stock either now or in the future.

 

Our shares of common stock are thinly traded; the common stock that is available to be traded is held by a small number of holders, and the price may not reflect our actual or perceived value. There can be no assurance that there will be an active market for shares of our common stock either now or in the future. The market liquidity will be dependent on the perception of our operating business, among other things. We will take certain steps including utilizing investor awareness campaigns and firms, press releases, road shows and conferences to increase awareness of our business. Any steps that we might take to bring us to the awareness of investors may require that we compensate consultants with cash and/or stock. There can be no assurance that there will be any awareness generated or the results of any efforts will result in any impact on our trading volume. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business, and trading may be at an inflated price relative to the performance of the Company due to, among other things, the availability of sellers of our shares. If an active market should develop, the price may be highly volatile. Because there is currently a low price for our shares of common stock, many brokerage firms or clearing firms are not willing to effect transactions in the securities or accept our shares for deposit in an account. Many lending institutions will not permit the use of low priced shares of common stock as collateral for any loans. Furthermore it may be difficult (1) to obtain accurate quotations, (2) to obtain coverage for significant news events because major wire services generally do not publish press releases about these companies, and (3) to obtain needed capital.

 

 
27
 

  

Our common stock may be deemed a “penny stock,” which would make it more difficult for our investors to sell their shares.

 

Our common stock may be subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on The NASDAQ Stock Market or another national securities exchange and trades at less than $5.00 per share, other than companies that have had average revenues of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the Company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of brokerdealers willing to act as market makers in these securities is limited. If we are subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.

 

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

 

If our stockholders sell substantial amounts of our common stock in the public market either upon : (i) the effectiveness of this registration statement, (ii) the expiration of any statutory holding period under Rule 144, (iii) shares issued upon the conversion of debentures, or (iv) shares issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and, in anticipation of which, the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equityrelated securities in the future at a time and price that we deem reasonable or appropriate.

 

In general, a nonaffiliated person who has held restricted shares for a period of six months, under Rule 144, may sell into the market our common stock all of their shares, subject to the Company being current in its periodic reports filed with the SEC. As of September 15 , 2015, 5,744,539 shares of common stock issued and outstanding were free trading. An affiliate may sell an amount equal to the greater of 1% of the outstanding shares. Such sales may be repeated once every three months, and any of the restricted shares may be sold by a nonaffiliate without any restriction after they have been held one year. The shares registered in this Form S-1 will be freely trading upon effectiveness and the sale of such shares could cause a decline in the market price of our common stock.

 

We and each of our officers, directors and stockholders owning 5% or more of our common stock have agreed, to sign an agreement not to, subject to certain exceptions,  dispose of or hedge any of the shares of our common stock or securities convertible into or exchangeable for shares of our common stock for a period of 180 days following the date of the effectiveness of a Form S-1, without the prior written consent of the holders of a majority of the Series C preferred stock.

 

Your percentage ownership in us may be diluted by future issuances of capital stock, which could reduce your influence over matters on which shareholders vote.

 

Our Board of Directors has the authority, without action or vote of our shareholders, to issue all or any part of our authorized but unissued shares of common stock, including shares issuable upon the exercise of options and the vesting of shares that may be issued in the future under our 2014 Stock Option Plan or shares of our authorized but unissued preferred stock. Issuances of common stock or preferred voting stock could reduce your influence over matters on which our shareholders vote and, in the case of issuances of preferred stock, likely could result in your interest in us being subject to the prior rights of holders of that preferred stock.

 

If securities or industry analysts cease to publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

 

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

 

 
28
 

  

The shares of Series B Preferred Stock are senior obligations, rank prior to our common stock with respect to dividends, distributions and payments upon liquidation and have other terms, such as a put right and a mandatory conversion date, that could negatively impact the value of shares of our common stock.

 

So long as any shares of Series B preferred stock remain outstanding: (i) the holders of shares of Series B preferred stock shall be entitled, voting separately as a single class, to elect three (3) directors of the Company.

 

So long as any shares of Series B preferred stock remain outstanding, the Company shall not, without first obtaining the approval of the holders of at least two thirds of the then outstanding shares of Series B preferred stock voting together as a single class, undertake any action (whether by amendment of the Company’s Certificate of Incorporation or Bylaws or otherwise, and whether in a single transaction or a class of related transactions) that approves or effects any of the following transactions involving the Company or any of its subsidiaries:

 

·

alter or change the rights, preferences or privileges of the shares of Series B preferred stock or create, whether by merger, consolidation, reclassification or otherwise, any new class or class of shares having rights, preferences or privileges senior to or on a parity with shares of the Series B preferred stock;

·

repurchase any equity security (except with respect to shares of the Series B preferred stock);

·

effect a recapitalization, reclassification, splitoff, spinoff or bankruptcy of the Company or any of its subsidiaries;

·

effect any Liquidation;

·

increase or decrease the authorized size of the Board or any committee thereof or create any new committee of the Board of the Company or any of its subsidiaries;

·

appoint or change the auditors of the Company or any of its subsidiaries;

·

propose to amend or waive any provision of the Company’s or any of its subsidiaries’ constitutional documents; and select the securities exchange or market and/or the underwriters in connection with any public offering of the Company’s securities and approve the valuation and terms and conditions for any such public offering.

 

The Company currently has convertible debentures, Series C convertible preferred stock and warrants outstanding which are all convertible into common stock.

 

Should the holders of these common stock equivalents convert their securities to the underlying common shares, there would be an additional 220,020,010 shares of common stock available for sale. This would result in a substantial dilution to our existing stockholders. We cannot estimate the impact on our stock price, if any, as a result of the potential dilution.

 

Forward Looking Statements

 

This prospectus contains forward- looking statements within the meaning of the Federal Securities laws. These statements relate to future events or future predictions, including events or predictions relating to our future financial performance, and are based on current expectations, estimates, forecasts and projections about us, our future performance, our beliefs and management’s assumptions. They are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “feel,” “confident,” “estimate,” “intend,” “predict,” ”forecast,” “potential” or “continue” or the negative of such terms or other variations on these words or comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks described under “Risk Factors” that may cause the Company’s or its industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In addition to the risks described in Risk Factors, important factors to consider and evaluate in such forward-looking statements include: (i) general economic conditions and changes in the external competitive market factors which might impact the Company’s results of operations; (ii) unanticipated working capital or other cash requirements including those created by the failure of the Company to adequately anticipate the costs associated with acquisitions and other critical activities; (iii) changes in the Company’s corporate strategy or an inability to execute its strategy due to unanticipated changes; and (iv) the failure of the Company to complete any or all of the transactions described herein on the terms currently contemplated. In light of these risks and uncertainties, many of which are described in greater detail elsewhere in this Risk Factors discussion, there can be no assurance that the forward-looking statements contained in this prospectus will in fact transpire.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of such statements. We do not undertake any duty to update any of the forward-looking statements after the date of this prospectus to conform such statements to actual results or changes in our expectations.

 

 
29
 

  

USE OF PROCEEDS

 

The selling stockholders will receive all of the proceeds from the sale of their shares offered by them under this prospectus. We will not  receive any proceeds from the sale of the shares so ld by t he selling stockholders . If the debentures are converted in full, our outstanding debt will be reduced by $3,525,000 and if the warrants are exercised in full for cash we will receive approximately $143,000 upon such exercise.

 

MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Effective January 21, 2015, our symbol changed to CYBG. Prior to that, our common stock had been quoted on the OTC Market under the symbol MKHD since October 3, 2007. As of September 15 , 2015 there were approximately 200 holders of record of our common stock. The following table sets forth the high and low sales prices (as adjusted for the 1:10 reverse split) for our common stock for the periods indicated, as reported by Yahoo Finance. The quotations reflect interdealer prices, without retail markup, markdown or commission.

 

Period Ended September 15, 2015

 

 

 

 

 

 

July 1 , 2015 through September 15, 2015

 

 

0.29

 

 

 

0.06

 

April 1, 2015 through June 30, 2015

 

 

2.18

 

 

 

0.15

 

January 1, 2015 through March 31, 2015

 

 

2.40

 

 

 

1.05

 

 

 

 

 

 

 

 

 

 

Year Ended December 2014

 

 

 

 

 

 

 

 

October 31, 2014 through December 31, 2014

 

 

3.00

 

 

 

0.40

 

July 1, 2014 through September 30, 2014

 

 

0.90

 

 

 

0.10

 

April 1, 2014 through June 30, 2014

 

 

0.30

 

 

 

0.10

 

January 1, 2014 through March 31, 2014

 

 

0.50

 

 

 

0.10

 

 

 

 

 

 

 

 

 

 

Year Ended December 2013

 

 

 

 

 

 

 

 

October 31, 2013 through December 31, 2013

 

 

0.60

 

 

 

0.30

 

July 1, 2013 through September 30, 2013

 

 

1.00

 

 

 

0.30

 

April 1, 2013 through June 30, 2013

 

 

2.00

 

 

 

0.90

 

January 1, 2013 through March 31, 2013

 

 

2.50

 

 

 

0.40

 

 

The last report sales price of our common stock on September 15, 2015 was $0.133 per share.

 

Dividend Policy

 

We have not declared nor paid any cash dividend on our common stock, and we currently intend to retain future earnings, if any, to finance the expansion of our business, and we do not expect to pay any cash dividends in the foreseeable future. The decision whether to pay cash dividends on our common stock will be made by our Board of Directors, in their discretion, and will depend on our financial condition, results of operations, capital requirements and other factors that our Board of Directors considers significant.

 

 
30
 

 

Equity Compensation Plan Information

 

The following table provides equity compensation plan information as of  July 3, 2015.

 

Category

 

Number of securities to be issued upon exercise of outstanding options, warrants and rights

 

 

Weighted-average exercise price of outstanding options, warrants and rights

 

 

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

 

 

 

(a)

 

 

(b)

 

 

(c)

 

Equity compensation plans approved by security holders

 

 

22,428,444

 

 

$ .081

 

 

 

50,340,556

 

Equity compensation plans not approved by security holders

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

 

22,428,444

 

 

$ .081

 

 

 

50,340,556

 

 

CAPITALIZATION

 

The following table sets forth our capitalization as of  July 3, 2015 as reported in our Quarterly Report on Form 10-Q.

 

You should read the following table in conjunction with the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus.

 

 

 

 

 

Total long-term debt, net

 

$ 8,628,000

 

Stockholders’ equity:

 

 

 

 

Common stock, par value $0.0001 per share: 3,000,000,000 shares authorized; 20,750,603 shares issued and outstanding

 

 

21,000

 

Series B Preferred stock, par value $0.0001 per share: 1,000 shares authorized, issued and outstanding

 

 

-

 

Series C Preferred stock, par value $0.0001 per share: 250,000,000 shares authorized; 53,733,436 issued and outstanding

 

 

5,000

 

Additional paid-in capital

 

 

1,633,000

 

Accumulated deficit

 

 

(31,976,000 )

Total Cybergy Holdings, Inc. Stockholders’ equity

 

 

(30,317,000 )

Total Cybergy Holdings, Inc. capitalization

 

$ (21,689,000 )

 

  

 
31
 

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

The following discussion should be read in conjunction with the consolidated financial statements and the related notes contained elsewhere in this prospectus. In addition to historical information, the following discussion contains forward looking statements based upon current expectations that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including, but not limited to, risks described in the section entitled “Risk Factors” and elsewhere in this prospectus.

 

Cautionary Statement

 

You should read the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” together with the consolidated financial statements and related notes beginning on page F-1 in this Form S-1, as well as the financial statements and related notes included in the Current Report on Form 8-K/A filed on March 18, 2015, including:

 

·

Cybergy Partners, Inc. Unaudited Consolidated Financial Statements for the nine months ended September 30, 2014 and 2013;

·

Cybergy Holdings, Inc. Unaudited Pro Forma Condensed Financial Statements.

 

Merger and Recapitalization

 

The Merger of Partners and MKHD, a nonoperating public shell corporation, resulted in the owners and management of Partners obtaining actual and effective voting and operating control of the combined company. The Merger was treated as a public shell reverse acquisition and therefore treated as a capital transaction in substance, rather than a business combination. The historical financial statements of MKHD before the Merger were replaced with the historical financial statements of Partners before the Merger. As a result of the Merger, Cybergy acquired the business of Partners, and has continued the existing business operations of Partners.

 

Executive Overview

 

Cybergy Holdings, Inc., a Nevada corporation, is a holding company for our wholly-owned subsidiary, Cybergy Partners, Inc. (“Partners”), a Delaware corporation. Partners is an operationalfocused company, committed to building a premier, full spectrum, advisory services and products provider for the federal and state governments, and commercial clients. We currently deliver innovative, technologyenabled products and services in clean energy, smart grid, energy resilience, cybersecurity, and business growth services.

 

Our subsidiary, Cybergy Partners, Inc., through its three wholly-owned subsidiaries, New West Technologies (“New West”), Cybergy Labs, and Primetrix, as well as its 51% owned joint venture, New WestEnergetics Joint Venture, LLC, provides critical infrastructure services primarily to U.S. Federal Government agencies, state governments and tier one commercial clients.

 

New WestEnergetics Joint Venture, LLC, formerly EnergyWorks Joint Venture, LLC (the “JV”), was organized in the state of Maryland in 2006. The JV was created by its members to bid on a specific procurement with the U.S. Department of Energy for technical, engineering, analytical, and management support services and was approved to do so by the U.S. Small Business Administration. New West owns 51% of the JV.

 

New West specializes in management systems, strategic planning, engineering and analysis of clean energy, smart grid, advanced transportation and environmental technologies, markets, and policies for federal agencies such as the Department of Energy, the Department of Transportation and the Department of Defense (Navy and Air Force). They also provide similar services for various other federal agencies, national laboratories (such as Oak Ridge National Laboratory, and the National Renewable Energy Laboratory), state agencies and private companies.

 

 
32
 

  

Cybergy Labs specializes in innovative solutions to critical infrastructure challenges, and is a technology accelerator with experience in business development and grant proposal preparation in “Tech to Market” programs for the U.S. Federal Government and the commercial sector. One example of technology developed by Cybergy Labs for the enterprise software market is SmartFile. The patent-pending SmartFile technology, with more than 37,000 beta-users, connects digital documents to the internet, including all types of Microsoft Office and Adobe PDF files. This innovation is designed to take an organization’s security a level deeper into documents and files themselves and provides real-time reporting when documents are opened or viewed, printed, saved or shared with others. Further, it provides real-time reports to alerts when sensitive files have been leaked or when unauthorized users (hackers) gain access and open documents. Cybergy Labs plans to release the first commercial version of SmartFile in 2015.

 

Primetrix provides contracting, compliance and growth services, often referred to as “shared services”. Primetrix assists with our Merger and Acquisition (“M&A”) integration process and provides five essential service offerings, including:

 

·

Bid & Proposal for government contractors;

·

Compliance related to corporate and contract operations throughout an engagement’s lifecycle;

·

HR, compliance, ERISA and recruiting

·

IT support services including security; and

·

Accounting services.

 

Summary of corporate structure

 

Cybergy Holdings, Inc. is the parent corporation. Our subsidiaries consist of:

 

·

Cybergy Partners, Inc., whose subsidiaries are:

·

New West Technologies, LLC

·

New WestEnergetics Joint Venture, LLC (51%)

·

Primetrix, LLC

·

Cybergy Labs, LLC

 

Revenue and expenses

 

Substantially all of our work is performed for our customers on a contract basis. Significantly all of our contracts are based on time and materials. Revenues result from work performed on these contracts by our employees and our subcontractors and from costs for materials and other work related costs allowed under our contracts.

 

Contract costs consist primarily of reimbursable costs including subcontract, travel, material, and supplies used in the performance of our work, and indirect costs associated with these costs as well as direct labor charged by our billable employees.

 

As contracts near their end date, direct labor rates often rise faster than the rate adjustments allowed in the contract. Further, employees move on to other contract opportunities, requiring us to backfill the work with higher cost professionals and no corresponding increase in the bill rate. This is referred to as “end of contract cost compression”.

   

Selling, general and administrative expenses represent both divisional operating office and corporate-level operating expenses. Divisional operating expenses consist primarily of non- billable staff payroll and personnel related costs, occupancy costs, and incentive compensation. Corporate-level operating expenses consist primarily of executive and corporate employee payroll and personnel related costs, professional and legal fees, sales & marketing, merger & acquisition costs, depreciation & amortization, occupancy costs, information systems costs and executive and corporate staff incentive compensation. Selling, general and administrative expenses are not directly chargeable or reimbursable on our contracts.

 

 
33
 

  

Amortization of intangible assets consists of the amortization of acquisition related intangibles. These costs are amortized using the straight-line method over their estimated useful lives, which range from one to fifteen years.

 

Other expenses are primarily related to the fair value adjustment of out derivative and put liabilities.

 

Management Outlook

 

The challenges we have experienced and continue to face with our services and the acquisition of New West has given us a clear direction for our future. Going forward, our growth initiatives will focus on expanding and leveraging our current business offerings while we look to grow through the expansion of Labs and targeted acquisitions.

 

We believe that some of the initiatives undertaken during the last years, such as restructuring both our back office and field operations and upgrading our corporate systems and technology, have increased our operating efficiencies, thereby enabling us to be more responsive to our customers. We believe our operations model, which allows us to deliver our service offerings in a disciplined and consistent manner across all geographies and business lines, as well as our highly centralized back office operations, are competitive advantages and keys to any future growth and profitability. We continue to evaluate and make adjustments to our internal staff to reflect current sales volume, while not jeopardizing the high quality of service our customers have come to expect.

 

Our plan continues to focus organic sales efforts on opportunities yielding a higher gross margin which may result in decreased opportunities for revenue from lower margin business. As funding becomes available, we plan to seek strategic acquisitions which will provide either geographic or business line opportunities. We believe this focus will enhance stockholder value in future years. 

 

Our plan is to expand the markets and service offerings of Labs so as not be so reliant on tax funded government spending. We are actively marketing these service offerings to new customer targets. Our plan for expanding our markets for these service offerings has shifted a portion of our strategic direction on this part of our business and direct financial and management resources toward such efforts.

 

The challenges faced by our business offerings resulted in revenue declines. We have seen declines in some of our contracts due to delays in government contract awards and funding, and to the expiration of programs without follow-on contract awards to continue the work. In response to our uncertain business environment, we took actions to reduce our indirect costs to achieve and retain balance with our workload in 2014. We allowed staff reductions and took other actions that resulted in approximately $1 million of reduced indirect labor and related costs and cash flow in 2014. We will continue to assess the need for further alignments to remain competitive and become  profitable as we go forward.

 

Critical Accounting Policies

 

We have identified the policies listed below as critical to our business and the understanding of our results of operations. For a detailed discussion of the application of these and other accounting policies, see Note A in the Notes to the Consolidated Financial Statements beginning on page F- 22 of this Form S-1. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, also referred to herein as GAAP, requires management to make estimates and assumptions that affect 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. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, collectability of accounts receivable, impairment of goodwill and intangible assets, contingencies, litigation, income taxes, stock option expense, and derivative and put option liabilities. Management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances. Actual results under circumstances and conditions different than those assumed could result in differences from the estimated amounts in the consolidated financial statements.

 

 
34
 

  

Revenue Recognition

 

Substantially all of our work is performed for our customers on a contract basis. The primary types of contracts used are time and materials. Revenues result from work performed on these contracts by our employees and our subcontractors and from costs for materials and other work related costs allowed under our contracts.

 

Revenues for time and materials contracts are recorded on the basis of contract allowable labor hours worked multiplied by the contract defined billing rates, plus the direct costs and indirect cost burdens associated with materials and subcontract work used in performance on the contract. Generally, gross profit on time and materials contracts results from the difference between the direct cost of services performed and the contract defined billing rates for these services.

 

Under certain contracts with the U.S. government and other governmental entities, contract costs, including indirect costs, are subject to audit by and adjustment through negotiation with governmental representatives. Revenue is recorded in amounts expected to be realized on final settlement of any such audits.

 

Goodwill and Intangible Assets

 

Goodwill represents the excess of the purchase price over the fair value of assets acquired in the business acquisition of New West. We review goodwill and other intangible assets for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

 

Intangible assets consist of the value of contract-related intangible assets, trade names, non-compete agreements, and technologies acquired in acquisitions and patents. We amortize on a straight-line basis intangible assets over their estimated useful lives unless their useful lives are determined to be indefinite.

 

Derivative Liabilities

 

The Company applies the applicable accounting provisions for the accounting of the valuation of the conversion features embedded in our convertible debentures, warrants and put option. The liabilities are adjusted quarterly to the estimated fair value based upon then current market conditions. The Company records the change in the estimated fair value of the derivative liabilities as an adjustment to other expense.

 

Financial Instruments

 

The Company uses fair value measurements in areas that include, but are not limited to: the allocation of purchase price consideration to tangible and identifiable intangible assets; impairment testing of goodwill and long-lived assets; and valuation of the derivative and put option liabilities. The carrying values of cash and cash equivalents, contract receivables, accounts payable, and other current assets and liabilities approximate their fair values because of the short-term nature of these instruments. The carrying value of our bank debt approximates fair value due to the variable nature of the interest rates under our Credit Facility and current rates available to the Company for debt with similar terms and risk. The conversion features embedded in the convertible debentures and warrants are valued at estimated fair value utilizing a Lattice model. The Company, using available market information and appropriate valuation methodologies, has estimated the fair value of its financial instruments. However, considerable judgment is required in interpreting data to develop the estimates of fair value.

 

 
35
 

  

Recent Accounting Pronouncements

 

For a discussion of recent accounting pronouncements and their potential effect on our results of operations and financial condition, refer to Note A in the Notes to the Unaudited Consolidated Financial Statements beginning on page F-6 and Note A in the Notes to the Consolidated Financial Statements beginning on page F-22 of this Form S-1.

 

Fluctuations in Quarterly Operating Results

 

Our operating results may fluctuate due to factors such as holidays or weather impaired days which impact billable hours.

 

Results of Operations

 

The Merger of Partners and MKHD, a nonoperating public shell corporation, resulted in the owners and management of Partners obtaining actual and effective voting and operating control of the combined company. The Merger was treated as a public shell reverse acquisition and therefore treated as a capital transaction in substance, rather than a business combination. The historical financial statements of MKHD before the Merger were replaced with the historical financial statements of Partners before the Merger. As a result of the Merger, Cybergy acquired the business of Partners, and has continued the existing business operations of Partners.

 

As discussed below , a significant portion of our revenues were generated through the JV in 2015 and 2014. The JV was formed in 2006 to allow New West to participate in the small disadvantaged minority owned business program regulated by the U.S. Small Business Administration that awards government contracting opportunities. In 2008, the JV was awarded a five-year contract with the Department of Energy and in December 2013, the contract work was extended for another six months. In mid-2014, the contract was extended another six months pending the award of a follow-on contract.

 

In September 2014, the follow-on contract was awarded to the Allegheny Science & Technology (“AST”) Team, of which New West is a key partner. This technical support contract is the successor to the work performed through the JV and provides professional and engineering services across EERE’s five offices for three years: Energy Efficiency, Renewable Power, Strategic Programs, Transportation and Business Operations. The contract has a total contract value of up to $85 million, of which New West is expected to receive approximately 25%; however, based upon the final allocation of work, this could change. The new contract was awarded in September 2014, and immediately protested with the General Accounting Office (“GAO”) under allowable procedures. In December 2014, we received an additional 6 month extension to the existing contract through June 2015. On February 23, 2015 the GAO announced that it denied the protest. The new contract is now active and transition is underway. We expect the new contract to be fully in place by June 30, 2015, at which time we plan to wind down the JV activity and terminate the JV. The impact on our consolidated revenues after the transition to the follow-on contract will be significant as we will no longer include the operations of the JV.

 

On March 23, 2015, New West was selected by the U.S. Department of Health and Human Services (HHS) as one of the prime contractors for a Multiple Award IDIQ contract, with a ceiling of $500 million over 10 years. This multipurpose technical, analytical, and support services contract with HHS includes services for policy and program assessments; data collection and analysis; performance measurements; and auxiliary services. Cybergy’s SmartFile technology will be incorporated as a unique feature in the services provided by New West. The contract has a 5year base period of performance and includes one 5year extension option. The global value of the contract is $500 million and task orders under the contract will be awarded on limited competition among individual awardees of the contract.

 

COMPARISON OF THE SIX MONTHS ENDED JULY 3, 2015 AND JUNE 30, 2014

 

Approximately 94% and 86% of our consolidated revenues, and 78% and 63% of Partners revenues, were due to our contract with the Department of Energy. We consolidate the revenues and related costs of the JV and provide back office accounting and reporting services for the JV. The revenue and cost of revenues information below is presented for comparison and analysis purposes and because management believes that such information is informative as to the level of our business activity and useful in managing our operations. 

 

 
36
 

   

The following table indicates certain data derived from our Statements of Operations for the six months ended July 3, 2015 and June 30, 2014:  

 

 

 

July 3, 2015

 

 

June 30, 2014

 

 

 

Partners 

 

 

NW-Energetics JV 

 

 

Consolidated 

 

 

Partners 

 

 

NW-Energetics JV 

 

 

Consolidated 

 

Contract revenue 

 

$ 3,929,000

 

 

$ 9,683,000

 

 

$ 13,612,000

 

 

$ 6,461,000

 

 

$ 10,612,000

 

 

$ 17,073,000

 

Cost of services 

 

 

1,857,000

 

 

 

9,512,000

 

 

 

11,369,000

 

 

 

3,774,000

 

 

 

10,398,000

 

 

 

14,172,000

 

Gross Profit 

 

 

2,072,000

 

 

 

171,000

 

 

 

2,243,000

 

 

 

2,687,000

 

 

 

214,000

 

 

 

2,901,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative 

 

 

4,310,000

 

 

 

177,000

 

 

 

4,487,000

 

 

 

3,243,000

 

 

 

211,000

 

 

 

3,454,000

 

Merger and acquisition 

 

 

136,000

 

 

 

-

 

 

 

136,000

 

 

 

538,000

 

 

 

-

 

 

 

538,000

 

Depreciation and amortization 

 

 

497,000

 

 

 

-

 

 

 

497,000

 

 

 

511,000

 

 

 

-

 

 

 

511,000

 

Total operating expenses 

 

 

4,943,000

 

 

 

177,000

 

 

 

5,120,000

 

 

 

4,292,000

 

 

 

211,000

 

 

 

4,503,000

 

Operating income (loss) 

 

$ (2,871,000 )

 

$ (6,000 )

 

$ (2,877,000 )

 

$ (1,605,000 )

 

$ 3,000

 

 

$ (1,602,000 )
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit % 

 

 

52.7 %

 

 

1.8 %

 

 

16.5 %

 

 

41.6 %

 

 

2.0 %

 

 

17.0 %

 

Revenues and cost of services

 

Our revenues decreased $3,461,000, or 20.3%, due primarily to a 33.8% decrease in average billable hours at New West and a $295,000 decrease in billings at Primetrix due to the loss of contracts. The decrease in billable hours was due to: (i) the winding down of New West’s activity associated with the JV contract, (ii) delays in government contract awards and funding, and (iii) the expiration of programs without follow-on contract awards. This decrease in billed hours was offset by a 6.4% increase in average bill rate at New West. JV revenue decreased $929,000, or 8.8%, due to the winding down of the JV contract. 

 

Cost of services decreased $2,803,000, or 19.8%, corresponding to the decrease in revenue. 

 

Gross profit

 

Gross profit decreased $658,000, or 22.7%, as a result of the items noted above. New West Gross profit percent was negatively impacted in 2014 due to the billing of $372,000 of direct materials at a 3% mark up. 

 

Selling, general and administrative

 

Selling, general and administrative (“SG&A”) and merger and acquisition (“M&A”) expenses increased $631,000, or 15.8%, primarily due to the merger with MKHD, including increased legal and professional fees, insurance costs and additional management and financial personnel associated with being a public company, offset by a decrease in headcount and M&A costs of $402,000.  

 

2014 M&A costs of $538,000 included $150,000 related to the Members severance agreement. 

 

Depreciation and amortization decreased slightly due primarily to reduced software depreciation. 

 

 
37
 

   

Other income and expense

 

Interest expense increased $771,000 in 2015 due to the debt discount associated with the Follow-on notes issued in connection with the merger and Bridge note issued in April 2015. Other expense includes $124,000 related to the registration rights filing fee and $218,000 and $203,000 in 2015 and 2014, respectively, related to the adjustment to Earn-out notes. 

 

Other income relates to $417,561,000 fair value adjustment of the derivative and put liabilities due primarily to a decrease in our closing stock price from $2.40 at December 31, 2014 to $ 0.18 at July 3, 2015. 

 

Provision for Income Taxes

 

Income tax expense attributable to income from operations for 2015 differed from the amount computed by applying the U.S. federal income tax rate of 34% to pretax loss from operations primarily as a result of state tax credit, nontaxable fair value of derivative liabilities, and the increase in the valuation allowance. 

 

Income tax expense attributable to income from operations for 2014 differed from the amount computed by applying the U.S. federal income tax rate of 34% to pretax loss from operations primarily as a result of state tax credit, the release of Partners valuation allowance related to its 2013 net operating loss carry forward, and nondeductible acquisition costs. 

 

In 2014, the Company established initial deferred tax liabilities associated with the identifiable intangible assets related to the acquisition of New West and change in entity tax status in the amount of $1,523,000. 

 

In 2015, we increased the valuation allowance by $2,305,000 for certain of our deferred tax assets. The valuation allowance results from the uncertainty regarding the Company’s ability to produce sufficient taxable income in future periods necessary to realize the benefits of the related deferred tax assets. 

 

Cash Flows

 

Operating Activities

 

Cash used in operating activities of $2,925,000 increased $1,614,000 over 2014. The increase is attributable primarily to an adjusted operating loss (net income adjusted for non-cash adjustments) of $2,780,000 and $145,000 due to changes in the levels of operating assets and liabilities primarily the result of the timing of cash receipts and payments of the JV. Our largest operating asset is our accounts receivable. Our largest operating liabilities are our accounts payable and accrued expenses. A significant portion of our accounts receivable and accounts payable activity results from the use of subcontractors to perform work on our contracts. Accordingly, our levels of accounts receivable and accounts payable may fluctuate depending on the timing of the government services ordered, government funding delays, the timing of billings received from subcontractors, and the timing of payments received from government customers in payment of these services. Such timing differences have the potential to cause significant increases and decreases in our accounts receivable and accounts payable in short time periods. 

 

Investing Activities

 

Cash used in investing activities was $52,000 in 2015 due to equipment purchases compared to $19,000 in 2014. Net cash received in the acquisition of New West was $397,000 in 2014. 

 

Financing Activities

 

Cash provided by financing activities increased $631,000 in 2015 compared to 2014. This was primarily due to the proceeds from the sale of preferred stock of $1,168,000, net; a decrease in payments on other accrued liabilities and debt issuance costs, offset by a decrease in proceeds from long term debt of $355,000, a $242,000 increase in payments on long term debt, and less funding from our line of credit. We used $500,000 of the proceeds from the sale of our preferred stock to pay down the EPA note. 

 

 
38
 

   

COMPARISON OF THE THREE MONTHS ENDED JULY 3, 2015 AND JUNE 30, 2014

 

Approximately 91% and 83% of our consolidated revenues, and 72% and 57% of Partners revenues, were due to our contract with the Department of Energy. The revenue and cost of revenues information below is presented for comparison and analysis purposes and because management believes that such information is informative as to the level of our business activity and useful in managing our operations. 

 

The following table indicates certain data derived from our Statements of Operations for the three months ended July 3, 2015 and June 30, 2014: 

 

 

 

July 3, 2015

 

 

June 30, 2014

 

 

 

Partners 

 

 

NW-Energetics JV 

 

 

Consolidated 

 

 

Partners 

 

 

NW-Energetics JV 

 

 

Consolidated 

 

Contract revenue 

 

$ 1,959,000

 

 

$ 5,090,000

 

 

$ 7,049,000

 

 

$ 2,997,000

 

 

$ 5,273,000

 

 

$ 8,270,000

 

Cost of services 

 

 

986,000

 

 

 

4,999,000

 

 

 

5,985,000

 

 

 

1,971,000

 

 

 

5,169,000

 

 

 

7,140,000

 

Gross Profit 

 

 

973,000

 

 

 

91,000

 

 

 

1,064,000

 

 

 

1,026,000

 

 

 

104,000

 

 

 

1,130,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative 

 

 

2,193,000

 

 

 

100,000

 

 

 

2,293,000

 

 

 

1,488,000

 

 

 

115,000

 

 

 

1,603,000

 

Merger and acquisition 

 

 

129,000

 

 

 

-

 

 

 

129,000

 

 

 

64,000

 

 

 

-

 

 

 

64,000

 

Depreciation and amortization 

 

 

248,000

 

 

 

-

 

 

 

248,000

 

 

 

253,000

 

 

 

-

 

 

 

253,000

 

Total operating expenses 

 

 

2,570,000

 

 

 

100,000

 

 

 

2,670,000

 

 

 

1,805,000

 

 

 

115,000

 

 

 

1,920,000

 

Operating income (loss) 

 

$ (1,597,000 )

 

$ (9,000 )

 

$ (1,606,000 )

 

$ (779,000 )

 

$ (11,000 )

 

$ (790,000 )

Gross profit % 

 

 

49.7 %

 

 

1.8 %

 

 

15.1 %

 

 

34.2 %

 

 

2.0 %

 

 

13.7 %

 

Revenues and cost of services

 

Our revenues decreased $1,221,000, or 14.8%, due primarily to a 25.5% decrease in average billable hours at New West and a $147,000 decrease in billings at Primetrix due to the loss of contracts. The decrease in billable hours was due to: (i) the winding down of New West’s activity associated with the JV contract, (ii) delays in government contract awards and funding, and (iii) the expiration of programs without follow-on contract awards. This decrease in billed hours was offset by a slight increase in average margin dollar per hour. JV revenue decreased $183,000, or 3.5%, due to the winding down of the JV contract. 

 

Cost of services decreased $1,155,000, or 16.2%, corresponding to the decrease in revenue. 

 

Gross profit

 

Gross profit decreased $66,000, or 5.8%, as a result of the items noted above. New West Gross profit percent was negatively impacted in 2014 due to the billing of $110,000 of direct materials at a 3% mark up. 

 

Selling, general and administrative

 

Selling, general and administrative (“SG&A”) and merger and acquisition (“M&A”) expenses increased $755,000, or 45.3%, primarily due to the merger with MKHD, including increased legal and professional fees, insurance costs and additional management and financial personnel associated with being a public company. 

 

Depreciation and amortization decreased slightly due primarily to reduced software depreciation.

 

 
39
 

 

Other income and expense

 

Interest expense increased $488,000 in 2015 due to the debt discount associated with the Follow-on notes issued in connection with the merger and Bridge note issued in April 2015. Other expense includes $18,000 related to the registration rights filing fee and $36,000 and $144,000 in 2015 and 2014, respectively, related to the adjustment to Earn-out notes. 

 

Other income relates to $311,121,000 fair value adjustment of the derivative and put liabilities due primarily to a decrease in our closing stock price from $1.86 at March 31, 2015 to $0.18 at July 3, 2015. 

 

Provision for Income Taxes

 

Income tax expense attributable to income from operations for 2015 differed from the amount computed by applying the U.S. federal income tax rate of 34% to pretax loss from operations primarily as a result of state tax credit, nontaxable fair value of derivative liabilities, and the increase in the valuation allowance. 

 

Income tax expense attributable to income from operations for 2014 differed from the amount computed by applying the U.S. federal income tax rate of 34% to pretax loss from operations primarily as a result of state tax credit, the release of Partners valuation allowance related to its 2013 net operating loss carry forward, and nondeductible acquisition costs. 

 

LIQUIDITY AND CAPITAL RESOURCES

 

Prior to 2014, our operating cash flows and credit line were historically sufficient to fund our working capital and capital expenditure needs, however, they were strained in 2015 and 2014 due to reduced gross margin contribution, debt and related interest payments, and costs associated with being a public company. Our working capital requirements consist primarily of the financing of accounts receivable, payroll and related reimbursable expenses, and general operating costs. For the six months ended July 3, 2015, the Company had negative cash flows from operations of $2,925,000. 

 

In March 2015, the Company issued a Promissory Note in the amount of $140,000 to a Director of the Company. In May 2015, the holder converted the note into 140,000 shares of our Series C preferred stock. 

 

In April 2015, the Company issued a six month Promissory Note in the amount of $705,000 which provided net proceeds of $480,000. The note includes an original issue discount of up to $200,000 depending on the repayment date. 

 

In April and May 2015, the Company raised net proceeds of $1,168,000 through the sale of 1,215,000 shares of our Series C preferred stock. We used $500,000 of the proceeds to repay a portion of the EPA note. 

 

We have not paid the interest due on $2,925,000 of our convertible debentures which was due in March, April and June 2015. While the Company is in technical default under the debenture agreement, to date, no holder has demanded an accelerated payment. The holder of the EPA note has agreed to defer the interest due pending the sale to another investor. If the amounts outstanding are accelerated, we cannot assure you that our assets will be sufficient to repay in full the money owed to the banks or to our convertible debt holders.  

 

Management believes the Company will need additional capital in 2015 of approximately $3.0 to $3.5 million to further fund operations and market expansion of the SmartFile software. The Company intends to cover its future operating expenses through additional financing from existing and prospective investors, revenue from existing and new contracts, revenue from potential grants and collaborative marketing agreements, as well as revenue from the commercialization of products and services. However, we may not be successful in obtaining funding from new or existing collaborative agreements or the commercialization of our products and services. Further, actual revenue may be less than forecasted. 

 

Additionally, we have engaged a financial advisor to raise capital through the sale of stock, issuance of convertible debt or asset based loans, which has a track record of successfully raising capital for hundreds of development stage to midcap scale companies.

 

 
40
 

   

There can be no assurance that we will be successful in increasing our operating cash flows sufficient to sustain our operations through 2015. The timing and degree of any future financing requirements will depend on the accuracy of the assumptions underlying our estimates for operating cash needs in 2015. 

 

We cannot be sure that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or to our stockholders. Having insufficient funds may require us to delay, scale back, or eliminate some or all of our development programs or relinquish rights to our technology on less favorable terms than we would otherwise choose. Failure to obtain adequate financing could eventually adversely affect our ability to operate as a going concern. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business. If financing is not sufficient and additional financing is not available or available only on terms that are detrimental to the long-term survival of the company, it could have a major adverse effect on our ability to continue to function as a going concern. 

 

We expect, although there can be no assurances, that the convertible debentures will convert to equity before their maturity dates. 

 

The maximum amount of credit available to us from the revolving credit agreement was limited due to the billing process and related nature of the JV. Although there can be no assurances, upon the transition to the follow-on contract, we believe the billings will be eligible for higher funding limits under the revolving credit agreement. We were fully funded under our revolving line of credit as of July 3, 2015 and December 31, 2014. 

 

As a result of the Member litigation (See Note C in the Notes to Unaudited Consolidated Financial Statements), we stopped making payments on the First notes as of September 1, 2014, and all due dates related to the Acquisition notes are suspended pending the outcome of the case. On May 8, 2015, the Company and the Member agreed to a settlement on the litigation initiated in September 2014. Under the terms of the agreement, the Company has agreed to establish an ESOP for its employees before December 1, 2015. The ESOP will purchase from the Member that amount of Cybergy stock equal to a current market value of $2,565,000. The remainder of the Cybergy stock owned by the Member will be canceled. All other amounts owed by the Company to the Member will be discharged and the Put option will be cancelled. 

 

In July 2015, the amounts due to the creditor under the legal dispute recorded in Other accrued liabilities agreed to a forbearance on the payments due. Monthly payments of $17,000 for March through September were delayed. Beginning in October, the Company will be required to pay ½ of the monthly amount through May 2016. All deferred amounts will bear interest at 12% annual interest. The due date was extended until September 2017. 

 

At December 31, 2014 and July 3, 2015, the Company was in technical default of the tangible net worth requirement under our revolving line of credit agreement as a result of recording the Derivative and put liabilities. The bank provided a waiver as of December 31, 2014 and July 3, 2015. 

 

Year ended December 2014 

 

The discussion below relates to the operations of Partners and its related businesses for 2014 as the operating results for Partners in 2013 are not comparable.

 

The accompanying consolidated financial statements for 2014 include the accounts of Holdings, its wholly-owned subsidiaries; Partners, New West, Primetrix, Labs, and its 51% owned New WestEnergetics Joint Venture, LLC (“JV”).

 

We have provided a pro forma statement of operations for the year ended December 2013 on page  44 of this Form S-1 for informational purposes.

 

Approximately 89% of our revenues are generated through the JV. The JV was formed in 2006 to allow New West to participate in the small disadvantaged minority owned business program regulated by the U.S. Small Business Administration that awards government contracting opportunities. In 2008, the JV was awarded a five-year contract with the Department of Energy and in December 2013, the contract work was extended for another six months. In mid2014, the contract was extended another six months pending the award of a follow-on contract. In September 2014, the follow-on contract was awarded to Allegheny Science & Technology (“AST”), the primary contractor. This technical support contract is the successor to the work performed through the JV and provides professional and engineering services across EERE’s five offices for three years: Energy Efficiency, Renewable Power, Strategic Programs, Transportation and Business Operations. The contract has a total contract value of up to $85 million, the maximum amount as designated by the contracting officer with the DoE. New West is expected to receive approximately 25% based upon the teaming agreement with AST. The final allocation of work could change based upon the specific task orders issued, the qualifications of consultants required, and funding level of such task orders. Since the new contract was awarded in September 2014, it has been under protest with the General Accounting Office (“GAO”) under allowable procedures. In December 2014, we received an additional 6month extension to the existing contract through June 2015. On February 23, 2015 the GAO announced that it denied the protest. The new contract is now active and we are working to terminate the JV. The impact on our consolidated revenues after the transition to the follow-on contract will be significant as we will no longer include the operations of the JV.

 

On March 23, 2015, New West was selected by the U.S. Department of Health and Human Services (HHS) as one of the prime contractors for a Multiple Award IDIQ contract, with a ceiling of $500 million over 10 years. This multipurpose technical, analytical, and support services contract with HHS includes services for policy and program assessments, data collection and analysis, performance measurements, and auxiliary services. Cybergy’s SmartFile technology will be incorporated as a unique feature in the services provided by New West. The contract has a 5year base period of performance and includes one 5year extension option. The global value of the contract is $500 million and task orders under the contract will be awarded on limited competition among individual awardees of the contract.

 

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2014 AND PERIOD FROM JUNE 2013 (INCEPTION) TO DECEMBER 31, 2013

 

The Company’s fiscal year ended on December 31. Our balance sheet dates are referred to herein as December 2014 and 2013, respectively. Our annual periods are referred to herein as 2014 and 2013.

 

Partners was formed in June of 2013 and its operations were composed mostly of startup and acquisition costs during that period.

 

For the year ended December 2014 approximately 89% of our consolidated revenues, and 69% of Partners revenues, were due to our contract with the Department of Energy. We consolidate the revenues and related costs of the JV and provide back office accounting and reporting services for the JV. The revenue and cost of revenues information below is presented for comparison and analysis purposes and because management believes that such information is informative as to the level of our business activity and useful in managing our operations.

 

 
41
 

  

The following table breaks out the operations of Partners and the JV for the 2014.

 

 

 

Year Ended December 2014

 

 

 

Partners

 

 

NW - Energetics JV

 

 

Consolidated

 

Contract Revenue

 

$ 11,374,000

 

 

$ 20,637,000

 

 

$ 32,011,000

 

Cost of Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Other Direct Costs

 

 

1,542,000

 

 

 

20,238,000

 

 

 

21,780,000

 

Direct Labor Costs

 

 

4,340,000

 

 

 

-

 

 

 

4,340,000

 

Total

 

 

5,882,000

 

 

 

20,238,000

 

 

 

26,120,000

 

Gross Margin

 

$ 5,492,000

 

 

$ 399,000

 

 

$ 5,891,000

 

Gross Margin %

 

 

48.3 %

 

 

1.9 %

 

 

18.4 %

 

Revenues and cost of revenue

 

Our revenues decreased during the year due primarily to a 27.8% decrease in average billable hours at New West comparing the 1st quarter of 2014 to the 4th quarter of 2014. The decrease in billable hours was due to: (i) the winding down of New West’s activity associated with the JV contract, (ii) delays in government contract awards and funding, (iii) the expiration of programs without follow-on contract awards, and (iv) the impact of holidays during the fourth quarter. This decrease in billed hours was offset by an increase of $400,000 of new 3rd party billings by Primetrix, a slight increase in average bill rate, and increased billings through the JV and its other partners.

 

Our cost of revenue decreased 25.6% comparing the same periods as above. The decrease corresponds to the decrease in revenue, offset by end of contract cost compression.

 

Gross profit and gross margin percentage

 

Gross profit decreased $481,000, or 27.2%, from the 1st quarter of 2014 to the 4th quarter of 2014 as a result of the items noted above. Consolidated quarterly gross margin percentage fluctuated during the year from between 20.1% to 16.2% based on the mix of revenue type and related costs.

 

Selling, general and administrative

 

Selling, general and administrative (“SG&A”) expenses increased primarily due to the purchase of New West and merger with MKHD, including increased legal and professional fees and additional financial personnel, offset by a decrease in headcount during the year. Included in SG&A are merger and acquisition (“M&A”) costs of approximately $12,778,000, an increase of $12,343,000 due primarily to shares issued for advisory services related to the merger. Included in SG&A is approximately $206,000 related to the selling Members severance agreement. Also included in 2014 SG&A was approximately $245,000 related to legacy mentor programs which were eliminated in the 2nd quarter.

 

We expect recurring SG&A expenses to increase in 2015 as a result of the associated costs of being a public company, merger and acquisition activity, as well as increased focus on the growth of Labs.

 

The increase in depreciation and amortization of $973,000 was due primarily to the intangible assets with a gross value of $2,563,000 and property and equipment with a net book value of $1,087,000 added in the acquisition of New West.

 

 
42
 

  

Operating loss vs. 2013

 

Our operating loss increased by $15,048,000 in 2014 as compared to 2013. The increased loss was due to additional SG&A cost associated with the acquisition of New West and other SG&A as discussed above, the noncash advisory services costs, offset by gross margin contribution from the acquisition of New West.

 

Interest expense increased as result of the debt incurred in the acquisition of New West and the merger which included amortization of debt discount and issuance costs of $437,000.

 

Other expense relates to the revision of the estimated pay out of the earn-out notes to the selling Member and $204,963,000 related to the fair value adjustment of the derivative liabilities.

 

Provision for Income Taxes

 

Income tax expense attributable to income from operations for 2014 differed from the amount computed by applying the U.S. federal income tax rate of 34% to pretax loss from operations primarily as a result of state tax credit, the release of Partners valuation allowance related to its 2013 net operating loss carry forward, nondeductible acquisition costs and fair value adjustment of the derivative liabilities.

 

The Company established initial deferred tax liabilities associated with the identifiable intangible assets related to the acquisition of New West and change in entity tax status in the amount of $1,523,000.

 

Additionally in 2014, we established a valuation allowance of $4,616,000 for certain of our deferred tax assets. The valuation allowance results from the uncertainty regarding the Company’s ability to produce sufficient taxable income in future periods necessary to realize the benefits of the related deferred tax assets.

 

Cash Flows

 

Cash and cash equivalents increased $1,415,000 during 2014 due primarily to the activities described below.

 

Operating Activities

 

Cash used in operating activities was $1,593,000. The change is attributable to a decrease in cash due to an adjusted operating loss of $2,921,000, offset by an increase of $1,328,000 due to changes in the levels of operating assets and liabilities primarily the result of the timing of cash receipts and payments of the JV. Our largest operating asset is our accounts receivable. Our largest operating liabilities are our accounts payable and accrued expenses. A significant portion of our accounts receivable and accounts payable activity results from the use of subcontractors to perform work on our contracts. Accordingly, our levels of accounts receivable and accounts payable may fluctuate depending on the timing of the government services ordered, government funding delays, the timing of billings received from subcontractors, and the timing of payments received from government customers in payment of these services. Such timing differences have the potential to cause significant increases and decreases in our accounts receivable and accounts payable in short time periods.

 

Investing Activities

 

Cash provided by investing activities was $472,000. This was due to $897,000 received in the acquisition of New West, offset by the $500,000 payment to the Member for the acquisition of New West, the repayment of Notes receivable of $97,000, and $45,000 of equipment purchases.

 

 
43
 

  

Financing Activities

 

Cash provided by financing activities was $2,536,000. This was primarily due to $3,525,000 provided by the issuance of our convertible debentures related to the acquisition of New West and MKHD as well as borrowings on our revolving credit agreement of $56,000. These sources were offset by debt payments of $665,000 and debt issuance costs of $380,000.

 

Unaudited Pro Forma Statement of Operations for the year ended December 2013

 

The Unaudited Pro Forma Statement of Operations for the year ended December 2013 represents the historical statement of operations as if the merger and acquisition of New West had been consummated on January 1, 2013 and includes the results of operations for Partners and Labs during 2013. We present the unaudited pro forma financial information for informational purposes only. The pro forma information is not necessarily indicative of what our operating results actually would have been had we completed the merger and acquisition on January 1, 2013. In addition, the unaudited pro forma financial information does not purport to project the future financial position or operating results of Cybergy. The revenue and cost information below is presented for comparison and analysis purposes and because management believes that such information is informative as to the level of our business activity and useful in managing our operations.

 

 

 

Years Ended December

 

 

 

2014

 

 

2013

 

 

 

As reported

 

 

Pro forma

 

 

 

 

 

 

 

 

 

 

Contract revenue

 

$ 32,011,000

 

 

$ 35,490,000

 

Cost of services

 

 

26,120,000

 

 

 

27,904,000

 

Gross profit

 

 

5,891,000

 

 

 

7,586,000

 

Operating expenses

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

7,645,000

 

 

 

7,780,000

 

Merger and acquisition

 

 

12,778,000

 

 

 

435,000

 

Depreciation and amortization

 

 

1,014,000

 

 

 

1,026,000

 

Total operating expenses

 

 

21,437,000

 

 

 

9,241,000

 

Operating (loss)

 

 

(15,546,000 )

 

 

(1,655,000 )

Other expense

 

 

 

 

 

 

 

 

Interest expense, net of interest income

 

 

1,152,000

 

 

 

1,934,000

 

Change in fair value of derivative and put liabilities

 

 

204,963,000

 

 

 

-

 

Other

 

 

360,000

 

 

 

36,000

 

Total other expense

 

 

206,475,000

 

 

 

1,970,000

 

Income (loss) before income taxes

 

 

(222,021,000 )

 

 

(3,625,000 )

Income tax (benefit) expense

 

 

(1,037,000 )

 

 

-

 

Net (loss)

 

 

(220,984,000 )

 

 

(3,625,000 )

Net income attributable to noncontrolling interest in joint venture

 

 

18,000

 

 

 

35,000

 

Net (loss) attributable to Cybergy

 

$ (220,966,000 )

 

$ (3,590,000 )

 

Financial Condition

 

Our financial condition changed significantly in 2014. We acquired New West and merged with MKHD. As a result of the acquisition of New West, we incurred initial long-term debt of $6,530,000. Concurrent with the merger with MKHD, we incurred additional long- term debt of $2,525,000. Changes to other asset and liability accounts were due primarily to our operating losses, our level of business activity, subcontractor and vendor payments required to perform our work, and the timing of associated billings to and collections from our customers.

 

 
44
 

  

Liquidity and Capital Resources

 

For the year ended December 2014, the Company had negative cash flows from operations of $1,593,000. In September and October of 2014, the Company raised net proceeds of approximately $2.3 million through the issuance of the Follow-on notes (see Note I in the Notes to Consolidated Financial Statements). Through March 2015, the Company has financed its operations primarily through the sale of these notes.

 

In April and May 2015, the Company raised net proceeds of $1,660,000 from the sale of Series C preferred stock and a short term bridge loan.

 

Additionally, we have engaged a financial advisor to raise capital through the sale of stock, issuance of convertible debt or asset based loans, which has a track record of successfully raising capital for hundreds of development stage to midcap scale companies.

 

Based on current projections, Management believes the Company will need additional capital in 2015 of approximately $2.4 million to further fund operations, market expansion of the SmartFile software, and service debt. The Company intends to cover its future operating expenses through additional financing from existing and prospective investors, revenue from existing and new contracts, revenue from potential grants and collaborative marketing agreements, as well as revenue from the commercialization of products and services. However, we may not be successful in obtaining funding from new or existing collaborative agreements or the commercialization of our products and services. Further, actual revenue may be less than forecasted.

 

There can be no assurance that we will be successful in increasing our operating cash flows sufficient to sustain our operations through 2015. The timing and degree of any future financing requirements will depend on the accuracy of the assumptions underlying our estimates for operating cash needs in 2015.

 

We cannot be sure that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or to our stockholders. Having insufficient funds may require us to delay, scale back, or eliminate some or all of our development programs or relinquish rights to our technology on less favorable terms than we would otherwise choose. Failure to obtain adequate financing could eventually adversely affect our ability to operate as a going concern. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business. If financing is not sufficient and additional financing is not available or available only on terms that are detrimental to the long-term survival of the company, it could have a major adverse effect on our ability to continue to function as a going concern.

 

We expect, although there can be no assurances, that the convertible debentures will convert to equity before their maturity dates.

 

The maximum amount of credit available to us from the revolving credit agreement is limited due to the billing process and related nature of the JV. Although there can be no assurances, upon the transition to the follow-on contract, we believe the billings will be eligible for higher funding limits under the revolving credit agreement. We were fully funded under our revolving line of credit as of December 2014.

 

We pay principal and interest on the term loan borrowings and revolving loan borrowings as required by the underlying debt agreements.

 

As a result of the Member litigation (See Note L in the Notes to Consolidated Financial Statements), we stopped making payments on the First notes as of September 1, 2014, and all due dates related to the Acquisition notes are suspended pending the outcome of the case.

 

At December 2014, March 2015, and June 2015, the Company was in technical default of the tangible net worth requirement under our revolving line of credit agreement as a result of recording the Derivative and put liabilities and continued operating losses. The bank provided a waiver as of December 2014 and March 2015. The bank has continued to fund under the line of credit. As of May 13, 2015, we had no borrowings outstanding under the revolving line of credit. The Company expects to be in technical default as of September 2015. The impact on our cash flow, should the bank discontinue funding, would be short term as collections from Contract receivables would be directed to our operating account.

 

 
45
 

 

Off-Balance Sheet Arrangements

 

None.

 

Contractual Obligations

 

Our contractual cash obligations as of December 2014, including other accrued liabilities, long-term debt, and commitments for future payments under noncancelable lease arrangements, and service agreements, are summarized in the table below:

 

 

 

Total

 

 

Less than 1 year

 

 

1 to 3 years

 

 

3 to 5 years

 

 

More than 5 years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued liabilities

 

$ 334,000

 

 

$ 187,000

 

 

$ 147,000

 

 

$ -

 

 

$ -

 

Long-term debt, excluding Acquisition notes

 

 

3,636,000

 

 

 

1,057,000

 

 

 

2,569,000

 

 

 

10,000

 

 

 

-

 

Acquisition notes (1)

 

 

5,634,000

 

 

 

3,800,000

 

 

 

1,834,000

 

 

 

-

 

 

 

-

 

Operating leases and other service agreements

 

 

3,245,000

 

 

 

849,000

 

 

 

1,360,000

 

 

 

885,000

 

 

 

151,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total contractual cash obligations

 

$ 12,849,000

 

 

$ 5,893,000

 

 

$ 5,910,000

 

 

$ 895,000

 

 

$ 151,000

 

  

Operating lease commitments are primarily for leased facilities for our office locations. We also have some equipment and software leases that are included in these amounts.

 

Inflation and Pricing

 

Most of our contracts provide for estimates of future labor costs to be escalated during the contract period and for any option periods, while the nonlabor costs in our contracts are normally considered reimbursable at cost. Our property and equipment consists principally of computer systems equipment, furniture and fixtures, and building improvements. We do not expect the overall impact of inflation on replacement costs of our property and equipment to be material to our future results of operations or financial condition.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

 

We are exposed to certain market risks from transactions we enter into in the normal course of business. Our primary market risk exposure relates to interest rate risk.

 

Interest Rates

 

Our revolving credit agreement provides available borrowing to us at variable interest rates. Accordingly, future interest rate changes could potentially put us at risk for an adverse impact on future earnings and cash flows.

 

The valuation of the derivative liability requires the use of the volatility estimates of our common stock and long-term interest rates. Changes in the stock price and volatility, as well as changes in interest rates, may have a significant non-cash impact on the warrant and conversion features valuation and net income in future periods.

 

OUR BUSINESS

 

Overview of Our Business

 

Cybergy Holdings, Inc. is a holding company for our wholly-owned subsidiary, Cybergy Partners, Inc. (“Partners”). Partners is an operational-focused company, committed to building a premier, full spectrum, advisory services and products provider for the federal and state governments, and currently delivers innovative, technology-enabled products and services in clean energy, smart grid, energy resilience, cybersecurity, and business growth services.

 

Partners, through its three wholly-owned subsidiaries, New West Technologies, Cybergy Labs, and Primetrix, as well as its 51% owned joint venture, New West-Energetics Joint Venture, LLC, provides critical infrastructure services primarily to U.S. Federal Government agencies, state governments and tier one commercial clients.

 

 
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New West-Energetics Joint Venture, LLC, formerly EnergyWorks Joint Venture, LLC (the “JV”) was created by its members to bid on a specific procurement with the U.S. Department of Energy for technical, engineering, analytical, and management support services and was approved to do so by the U.S. Small Business Administration. New West owns 51% of the JV.

 

New West specializes in management systems, strategic planning, engineering and analysis of clean energy, smart grid, advanced transportation and environmental technologies, markets, and policies for federal agencies such as the Department of Energy, the Department of Transportation and the Department of Defense (Navy and Air Force). They also provide similar services for various other federal agencies, national laboratories (such as Oak Ridge National Laboratory, and the National Renewable Energy Laboratory), state agencies and private companies.

 

Cybergy Labs specializes in innovative solutions to critical infrastructure challenges, and is a technology accelerator with experience in business development and grant proposal preparation in “Tech to Market” programs for the U.S. Federal Government and the commercial sector. One example of technology developed by Cybergy Labs for the enterprise software market is SmartFile. The patent-pending SmartFile technology, with more than 37,000 beta-users, connects digital documents to the internet, including all types of Microsoft Office and Adobe PDF files. This innovation is designed to take an organization’s security a level deeper into documents and files themselves and provides real-time reporting when documents are opened or viewed, printed, saved or shared with others. Further, it provides real- time reports to alerts when sensitive files have been leaked or when unauthorized users (hackers) gain access and open documents. Cybergy Labs plans to release the first commercial version of SmartFile in 2015.

 

Primetrix provides contracting, compliance and growth services, often referred to as “shared services”. Primetrix assists with our M&A integration process and provides five essential service offerings, including:

 

·

Bid & Proposal for government contractors;

·

Compliance related to corporate and contract operations throughout an engagement’s lifecycle;

·

HR, compliance, ERISA and recruiting;

·

IT support services including security; and

·

Accounting, including tax, audit and SEC reporting.

 

Our History

 

The Company was incorporated as Auror Capital Corp. under the laws of the State of Nevada in March 2006. In January 2010, the Company changed its name to Mount Knowledge Holdings, Inc. Pursuant to the Merger Agreement described below; the Company changed its name to Cybergy Holdings, Inc.

 

On October 3, 2014, MKHD finalized the Agreement and Plan of Merger (the “Merger Agreement”) with MK Merger Acquisition Sub, Inc., a wholly-owned subsidiary of MKHD (“Merger Sub”), Access Alternative Group S.A., and Cybergy Partners, Inc. providing for the merger of Merger Sub with and into Partners (the “Merger”), with Partners surviving the Merger as a wholly-owned subsidiary of Cybergy. Pursuant to the Merger Agreement, the shareholders of Partners and MKHD exchanged shares in the respective companies for 88% and 12% ownership, respectively, of the surviving company.

 

The Merger of Partners and MKHD resulted in the owners and management of Partners obtaining actual and effective voting and operating control of the combined company. The Merger was treated as a public shell reverse acquisition and therefore treated as a capital transaction in substance, rather than a business combination. The historical financial statements of MKHD before the Merger were replaced with the historical financial statements of Partners before the Merger. As a result of the Merger, Cybergy acquired the business of Partners, and has continued the existing business operations of Partners.

 

Partners (previously Civergy, Inc.) was formed in 2013 to facilitate the acquisitions of New West and Cybergy Labs (“Labs”).

 

Effective January 1, 2014, Partners entered into an Equity Purchase Agreement (the “EPA”) with the Member of New West. Under the EPA, Partners purchased all the assets, liabilities, and equity of New West for a purchase price of approximately $7.4 million, as adjusted based on certain earnout provisions in 2014 and 2015. See Note Q on Page F-44 in the Notes to Consolidated Financial Statements.

 

Additionally, Partners and Labs entered into a Share Exchange Agreement effective January 1, 2014, whereby Labs transferred all assets, liabilities and equity to Partners in exchange for 4,851,258 shares of Series C preferred stock.

 

New West was a limited liability company formed in the state of Colorado in January 1998 as Heritage Technologies, LLC and was reorganized as New West Technologies, LLC in the state of Colorado in September 2004. New West provides technical, management, and analytical solutions in the areas of advanced transportation technology, engineering systems, environmental analysis, policy, regulatory and outreach support, program planning and evaluation, renewable energy systems, systems analysis and deployment, and Tribal development.

 

 
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New West-Energetics Joint Venture, LLC, formerly EnergyWorks Joint Venture, LLC (the “JV”), was organized in the state of Maryland in 2006. The JV was created by its members to bid on a specific procurement with the U.S. Department of Energy for technical, engineering, analytical, and management support services and was approved to do so by the U.S. Small Business Administration. New West owns 51% of the JV.

 

During 2013, NWBSS, LLC (“NWBSS”) was formed as a limited liability company in the state of Colorado and was a wholly-owned subsidiary of New West. NWBSS did not have activity during 2013. NWBSS was spun out as a wholly-owned subsidiary of Partners in September 2014 and changed its name to Primetrix. Primetrix is a business services provider designed to give organizations the edge they need when facing the demands of a dynamic and complex government contracting environment. Primetrix offers the opportunity for small and mediumsized businesses to leverage efficiencies of scale in back office support, streamlining operations, ensuring compliance with federal government regulations and guidelines, and providing the knowledge they need to make the best decisions for the health of their brands.

 

Formed in 2011, Labs (formerly BION Enterprises, LLC) was created as a midtier Software-as-a-Service (SaaS) firm, focused on four primary areas: intellectual property protection, business intelligence, workflow management, and fighting fraud. Lab’s flagship product, SmartFile, is a document tracking software–monitoring human interaction with their digital documents. In 2014, Labs expanded its scope to including other technologies focused on critical infrastructure solutions.

 

Summary of corporate structure

 

Cybergy Holdings, Inc. is the parent corporation. Our subsidiaries consist of:

 

·

Cybergy Partners, Inc., whose subsidiaries are:

 

·

New West Technologies, LLC

 

·

New West-Energetics Joint Venture, (51%)

 

·

Primetrix, LLC

 

 

 

·

Cybergy Labs, LLC

 

Customers and Services

 

We currently provide professional and technical services in clean energy, smart grid, advanced transport and environmental technology systems for the Department of Energy including national laboratories such as Oak Ridge, NREL, and other federal agencies such as the Department of Defense and the Department of Transportation. We also provide similar services for other federal, state and commercial customers. Our consulting services are performed on a contract basis.

 

Organization and Segments

 

Our business is currently managed under three operating groups consisting of one or more divisions or wholly-owned subsidiaries that perform our services. We currently have one reportable segment; IT, Energy and Management Consulting. Our proposal development group provides key support for:

 

·

Procurement tracking & analysis;

·

Pre Request for Proposal (“RFP”) proposal prep;

·

Proposal & pipeline management;

·

Proposal writing/editing; and

·

Marketing support.

 

 
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The following table shows the activity of this group for 2015 year-to-date and the previous two years.

 

Year

 

Proposals Count

 

 

Total $ Amount Submitted

 

 

Awarded

 

 

Pending

 

2015 Year to date

 

21

 

 

$ 63,810,000

 

 

$ 3,948,000

 

 

$ 59,732,000

 

2014

 

60

 

 

$ 67,535,000

 

 

$ 23,271,000

 

 

$ 5,467,000

 

2013

 

75

 

 

$ 30,280,000

 

 

$ 9,669,000

 

 

$ 1,583,000

 

 

Backlog and Pipeline

 

Funded backlog for government contracts represents a measure of our potential future revenues. Funded backlog is defined by us as the total value of contracts that have been appropriated and funded by the procuring agencies, less the amount of revenues that have already been recognized on such contracts. Our backlog is comprised of funding received by us in incremental amounts intended to fund work that is generally expected to be completed over the next three to five years.

 

New West has active contracts with federal and state governments and other private clients currently. A comprehensive Contract Backlog and Opportunities Pipeline is maintained and updated regularly as new contracts and task orders are received, and as new bids and proposals are placed with our clients.

 

Waterfall

 

We monitor our contract activity in our “Waterfall” in three stages; Backlog, Opportunities, and Leads.

 

Values are determined based upon the following methodology. The business development team utilizes a bid board process to estimate the Company's probability of success that is consistent with other government contractors and their processes. We also utilize information known at the bid prior to submission such as, the previous relationship with the customer, the Company's history of winning or losing with that customer, any previous relationships that are known to exist between key employees and that customer, and other factors that may affect the bid such as public knowledge of pricing. The business development team also utilizes a third party "opportunity assessment tool" that is also widely used in the industry to validate our "probability of win" assumptions. However, all of these assumptions are subjective and open to personal interpretation as to whether or not the Company feels that we have an established relationship with a client, and should not be construed as fact or a guarantee of winning any particular work.

 

Backlog

 

Our revenues depend on contracts, and contract backlog generally occurs when contract documentation is received. For our revenues that depend on contract backlog arising from the receipt of contract documentation, contract backlog is an indicator of potential future revenues. While contracts generally result in revenues, occasionally we will have contracts that expire or are deobligated upon contract completion and do not generate revenue.

 

Opportunities

 

This category represents contracts for which we have submitted proposals, or are currently writing, and are weighted based on the percentage of the contract that would be awarded to us and the estimated likelihood of winning.

 

 
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Leads

 

This category represents contracts for which we believe we have the technical expertise to submit a proposal, but have not started due to the timing of the RFP submittal date. These are also weighted based on the percentage of the contract that would be awarded to us and the estimated likelihood of winning.

 

A summary of our current Waterfall as of June 30, 2015 with estimated totals through 2020 is as follows:

 

 

 

 

 

 

 

Backlog

 

34

 

 

$ 35,562,000

 

Opportunities

 

34

 

 

$ 36,735,000

 

Leads

 

38

 

 

$ 296,934,000

 

 

Revenue and expenses

 

Substantially all of our work is performed for our customers on a contract basis. Significantly all of our contracts are based on time and materials. Revenues result from work performed on these contracts by our employees and our subcontractors and from costs for materials and other work related costs allowed under our contracts.

 

Contract costs consist primarily of reimbursable costs including subcontract, travel, material, and supplies used in the performance of our work, and indirect costs associated with these costs as well as direct labor charged by our billable employees.

 

As contracts near their end date, direct labor rates often rise faster than the rate adjustments allowed in the contract. Further, employees move on to other contract opportunities, requiring us to backfill the work with higher cost professionals and no corresponding increase in the bill rate. This is referred to as “end of contract cost compression”.

 

Selling, general and administrative expenses represent both divisional operating office and corporatelevel operating expenses. Divisional operating expenses consist primarily of nonbillable staff payroll and personnel related costs, occupancy costs, and incentive compensation. Corporatelevel operating expenses consist primarily of executive and corporate employee payroll and personnel related costs, professional and legal fees, sales & marketing, merger & acquisition costs, depreciation & amortization, occupancy costs, information systems costs and executive and corporate staff incentive compensation. Selling, general and administrative expenses are not directly chargeable or reimbursable on our contracts.

 

Amortization of intangible assets consists of the amortization of acquisition related intangibles. These costs are amortized using the straight-line method over their estimated useful lives, which range from one to fifteen years.

 

Industry Overview

 

Sector Trends: As the federal government seeks to trim budgets and procure more efficiently in the current economic environment, management has observed a number of trends.

 

·

There is an increase in multicontractor awards, therefore, those firms that are best at operating joint ventures and teaming agreements will have greater opportunities. Cybergy has continued focusing on teaming agreements and pursuing strategic partnerships with other businesses that operate in this space, and currently is managing over 35 active teaming agreements.

 

·

The Department of Defense (“DoD”) has adopted a “best price technically qualified” bidding practice, which has generated a race to the bottom on margin. The DoD is, therefore, a less attractive customer for “commodity” products and services based on margin. Cybergy continues to maintain its DoD contracts that are in place, but for future opportunities, Cybergy is focusing more on DoD contracts that are serviceoriented and are primarily comprised of staff augmentation contracts. By shifting the type of work that Cybergy is actively pursuing from DoD, Cybergy can potentially boost its future margin.

 

 
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·

Programs and agencies such as the Department of State, which operates our embassies and foreign diplomacy, are seeing significant budget increases, and DoD is fighting wars on two fronts. Opportunities for increased international work and contracts that are “OCONUS” (Outside the Contiguous United States) based are becoming more lucrative, and Cybergy is looking to expand its footprint beyond servicing only the Continental United States.

 

·

Cybersecurity and intelligence are seeing significant increases in spending. Cybergy believes that this will directly correlate to an increase in Cybergy’s revenue.

 

·

Clean energy and smart infrastructure are getting increased attention due primarily to severe weather events. Cybergy’s demonstration projects in these particular lines of business serve as strong case studies to sell additional clean energy and smart grid projects in the near term.

   

Cybersecurity has been identified as one of the most serious economic and national security challenges we face as a nation, but one that we as a government or as a country are not adequately prepared to counter. Assuring the security of sensitive, classified information is a growing market. Despite federal budget constraints, the U.S. federal cybersecurity market is forecasted at $65.5 billion over the next five years. There is a general recognition among corporate and government entities that proprietary and sensitive information is being sent to unauthorized recipients with increasing frequency.

 

The federal government is funding programs to rectify that by working with the private sector, across government departments and agencies, to secure critical digital infrastructure, networks and systems, and protect intellectual property from unauthorized intrusion or malicious attacks. One goal, for instance, is to “develop technologies that provide increases in cybersecurity by orders of magnitude above current systems and which can be deployed within 5 to 10 years.” Various programs within the federal law enforcement, intelligence and defense communities are providing funding to enhance national cybersecurity efforts.

 

Contracts

 

Depending on solicitation requirements and other factors, we offer our professional and technical services and products through various competitive contract arrangements and business units that are responsive to client requirements. Some of the contracts permit the contracting agency to issue delivery orders or task orders in an expeditious manner to satisfy relatively short-term requirements for engineering and technical services.

 

Our Strategy

 

The consolidation of back offices via workforce optimization and Shared Service Centers (SSC)

 

Commencing in 2011, New West created a sharedservices center comprised of all back office functionality. They have provided accounts receivable, accounts payable, HR, legal, compliance, audit, real estate, accounting, and other services for New West and two related companies. The shared services center is designed for optimal growth by reducing redundant back office overhead across multiple government contractors.

 

Meeting today’s new demands and regulation requires improved performance in both the front and back offices – and increasingly, government contractors are adopting shared services as the engine for efficient operations. Management plans to build and grow a shares services enterprise, which it believes can enhance both our current operations and future M&A opportunities, with a culture that engages current teams in four phases: Reduced Costs; Higher Efficiencies; Management Focus on Core Competencies; and Flexibility and Delivery.

 

 
51
 

  

IP Commercialization and Cross selling

 

The Cybergy companies are well positioned for crossselling and marketing given their differentiated customer sets and capabilities. Injecting IP (such as SmartFile) into existing and proposed contracts for New West and future partners is an integral part of our plan.

 

Increase Client Utilization of our Services

 

We believe that increasing the penetration of our existing markets is an effective and cost-efficient means of growth as we are able to capitalize on our reputation and growing brand awareness in the business lines in which we operate. We invest substantial time integrating our services into our clients’ organizations to optimize their effectiveness and measure their results. We believe that there is substantial opportunity to further penetrate these areas. We intend to increase our penetration in our existing markets by continued growth through the effective use of our internal staff, referrals from current clients and marketing efforts.

 

Management is actively engaged in teaming agreements with other U.S. government contractors, which increases our opportunity for organic growth. The government clients can rely on New West’s years of experience, past performance and high value record for excellence in customer service, including partners with access using an 8(a) set-aside contract vehicle, which helps small, disadvantaged businesses compete in the marketplace.

 

The 8(a) Business Development Program is;

 

·

a business assistance program for small disadvantaged businesses. The 8(a) Program offers a broad scope of assistance to firms that are owned and controlled at least 51% by socially and economically disadvantaged individuals;

·

an essential instrument for helping socially and economically disadvantaged entrepreneurs gain access to the economic mainstream of American society. The program helps thousands of aspiring entrepreneurs to gain a foothold in government contracting; and

·

a program divided into two phases over nine years: a four-year developmental stage and a five-year transition stage.

 

Enhance Management Information Systems

 

We continue to invest in developing our information technology infrastructure. We believe that our platform gives us a competitive advantage by allowing us to provide a high level of flexibility in meeting a variety of demands of our small and mediumsized business customers on a cost-effective basis. Furthermore, we believe that our current technology platform is capable of supporting our planned development of new business units and expected increased market share in the foreseeable future.

 

Penetrate Other Selected Markets

 

Protecting our critical digital infrastructure, through Ideas, Innovation and Initiative is the mission statement for the Cybergy companies. Our sector focus includes: cybersecurity, cyber operations (offense, defense and network strategy), energy security, big data (including cloud data centers) for a growing list of federal government and commercial clients.

 

We plan to grow the Company through organic growth and acquisitions. While we do not have any definitive agreements in place, we are actively reviewing potential acquisition partners. Crucially, we also plan to commercialize intellectual property (“IP”) developed for the U.S. Federal Government with commercial market potential at higher margins, an endeavor we believe has tremendous potential given industry forecasts for the cybersecurity space over the next five years.

 

 
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Market Research Media estimates that the United States Federal Cybersecurity Market Forecast for 2015 through 2020 will reach $65.5 billion, and will grow steadily at around 6.2% CAGR. Furthermore, an Executive Order 13636, titled “Improving Critical Infrastructure Cybersecurity” that was issued on June 12, 2013, by the Department of Homeland Security, established an Incentives Working Group that recommends a set of incentives designed to promote the adoption of the Cybersecurity Framework under development by the National Institute of Standards and Technology, among other things.

 

“While some marketbased incentives exist to improve the cybersecurity of critical infrastructure, independent of government intervention, the pace of the necessary improvement in cybersecurity needs to be hastened in order to more rapidly counter the increasing risk of cyberattacks and cyber espionage. As such, it is appropriate to consider where government action can provide additional impetus to the market, while acknowledging that there are places where market-based incentives may perform adequately independent of government intervention.”

 

Cybergy Labs plans to partner with venturebacked firms in the areas of big data, analytics and cybersecurity, bringing well developed, later stage tech companies into Cybergy Labs, through both acquisition and partnership arrangements, for a 24 to 36 month Tech to Market program designed to provide three key capabilities:

 

·

Access to capital through our grant program expertise (through New West we have assisted other entities in the award of more than $650MM in issued grants since 2008 from the U.S. Federal Government and the State of New York).

 

 

 

·

Our sales and marketing, business development and contract proposal shop has a five (5) year 42% win average which has generated five (5) Inc. 500/5000 Fastest Growing Private Companies in America awards , and;

 

 

 

·

Exit Strategy, for those companies which are acquired by Cybergy Labs as wholly-owned, fully integrated Tech Accelerator companies.

 

Pursue Strategic Acquisitions

 

Cybergy Partners plans to build a premier, middlemarket provider of products and services to support our nation’s critical infrastructure in the areas of renewable energy, the Smart Grid and digital (including: big data, analytics and cybersecurity). Our investment model concentrates on the acquisition of companies that bring new critical capabilities to our existing clients and that can open new markets for our existing capabilities. Currently, however, the Company has no binding agreements in place for any strategic acquisition.

 

Managing Integration Risk & Opportunities

 

Management believes that one of the key drivers in growth by acquisition is the “integration” of future businesses, with the Cybergy family of companies, including, their cultures and operating systems. Management has years of experience in M&A integration and has developed a specialized operating division, Primetrix, to provide both due diligence and integration solutions that are custom to each acquisition opportunity. Specifically, the Cybergy/Primetrix integration strategy provides for back office integration only, through our Primetrix “Shared Services Center”, with service offerings in AR, AP, HR, legal, accounting, compliance and all phases of business development, proposal writing and contract capture, on an “alacarte” basis (as needed) or on a complete turnkey basis.

 

Operations

 

We provide managers considerable operational autonomy and financial incentives related to the financial performance of their respective divisions. Managers focus on business opportunities within their specialized skill area and are provided centralized support to achieve success in those markets. We believe that this structure allows us to recruit and retain highly motivated managers who have demonstrated the ability to succeed in a competitive environment. This structure also allows managers and professional staff to focus on market development while relying on centralized services for support in back office operations, such as risk management programs, credit, collections, accounting, advice on legal and regulatory matters, quality standards and marketing.

 

 
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Recruiting

 

We believe that a key component of our success is the ability to recruit and maintain a pool of qualified personnel and regularly utilize their individual skills on desirable and appropriate contracts. We use comprehensive methods to identify, assess, select and, when appropriate, measure the skills of our employees to meet needs of our clients.

 

Marketing

 

Our marketing activities are conducted at the operating group level by our business development staff and our professional staff of engineers, program managers, and other personnel. Information concerning new programs and requirements becomes available in the course of contract performance, through formal and informal briefings, from participation in professional organizations, and from literature published by the government, trade associations, professional organizations and commercial entities.

 

Customers

 

Our customers include the U.S. Federal Government agencies, state governments and tier one commercial clients.

 

Financial Information about Segments

 

The Company currently operates in one business segment providing engineering, analysis, and support of clean energy, smart grid, advanced transportation, and environmental technologies.

 

New Market Segments

 

Cybergy Partners is planning to expand its service offerings into the utility markets in 2015. Utilities are increasingly contracting with companies such as New West to provide services to major new clean energy and smart grid programs.

 

Cybergy Partners is planning to expand its service offerings into the IT services, IT Security, and Federal loan guarantee program administration arenas in 2015. New cybersecurity opportunities are being developed based on new IT and IT security requirements released by the Federal government under the United States Government Accountability Office, Office of Management and Budget circulars, and other agency white papers. These directives contain such requirements to provide Computer Network Defense (CND) Monitoring, Cyber Incident Response Teams (CIRTs), Federal loan compliance activities, and Cyber Security Systems Engineering and Integration (CSSE&I).

 

Our Technology and Management Information Systems

 

Our management information systems provide support to both branch office locations and the corporate back office. We utilize Deltek for our accounting and project management. The application also provides for the sharing of information between our operating divisions and corporate headquarters. Utilizing this system, field offices capture and input customer, billing and payroll information. This information is electronically captured on centralized servers where payroll, billing and financial information is processed. These systems also support operations with daily, weekly, monthly and quarterly reports that provide information ranging from customer activity to division profitability.

 

 
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Intellectual Property and Other Proprietary Rights

 

We regard our service marks and similar intellectual property as important, but not critical, to our success. We rely on a combination of laws and contractual restrictions with our employees, customers and others to establish and protect our proprietary rights.

 

We have applied to register the following patents which are utilized in current contracts or are integral to our SmartFile software.

 

Flexible Thermal Energy Storage for Transportation Refrigeration Filed January 2014, application Number 14151653

 

The Thermal Energy Storage System (TESS) described in this patent is an innovation applied to refrigerated truck trailers that support the refrigerated/frozen food industry. The refrigeration processes for refrigerated trailers are powered by trailer refrigeration units, or TRUs. TRUs are predominantly vapor compression cycle (VCC) refrigeration units driven by diesel auxiliary power units (APU) engines (directly or through a genset) for large 53foot trailers. The TESS converts electrical energy and stores it as a thermal differential in a thermal energy storage reservoir. The thermal energy can then be available for use in helping to maintain required TRU storage temperatures, either while parked at a terminal or in transit. During the time the thermal energy is drawn from the reservoir, the diesel enginedriven refrigeration system on the trailer need not be operated, thereby saving fuel. The electric energy necessary for charging the TESS can be supplied from an electric power outlet while the TRU is stationary, from solar panel collection, and/or from truck tractor generated power. If an electrical power outlet is the source, the charging of the TESS can be done overnight when demand charges are the lowest and highest fuel savings can be gained.

 

Transportation Refrigeration System with Integrated Power Generation and Energy Storage Filed in May 2014, application Number 14266828

 

The hybrid powered thermal energy storage system (HTESS) described in this patent enables the discharge of controlled refrigerated air for cooling cargo or passenger space, such as those for refrigerated truck trailers, transit buses, or seacontainers. HTESS can provide this benefit for typical vehicle shift service life periods while in motion over the road or while plugged into shore electrical power. The HTESS provides multitemperature vehicle compartment refrigeration without the need for operating a conventional vapor compression cycle refrigeration unit that may be driven by the primary vehicle engine, or an APU engine, thereby saving fuel use while in transit over the road and/or for extended periods of time while parked or idling in traffic. The HTESS operates at a net zero or less weight basis compared to conventional trailer refrigeration units (TRU) systems, and at a substantially lower weight than current electric or batteryonly powered systems used for supporting vehicle refrigeration units.

 

Document Tracking System and Method Filed Aug 31, 2012, US 20130198621 A1

 

A system and method is disclosed for modifying an origin document to create a tagged document, receiving a copy of a portion of a remote document, comparing the remote document portion with the tagged document and associating data on use of the remote document with the tagged document when the remote document portion includes a tag from the tagged document. The SmartFile software lets you effortlessly connect all of Microsoft Office and Adobe PDF files to the internet, so you stay connected for the life of your documents. Now you can know when your documents are opened or viewed, printed, saved or shared with others across town or around the globe. No special software of any type is required on the viewing computer (PC, Mac or Linux).

 

Competition

 

The professional and technical services industry in which we are engaged is very competitive. Numerous other organizations, including large, diversified firms, have greater financial resources and larger technical staffs that are capable of providing the same services offered by us.

 

Government agencies emphasize awarding contracts on a competitive basis as opposed to a sole source or other noncompetitive basis. Most of the significant contracts under which we currently perform were either initially awarded on a competitive basis or have been renewed at least once on a competitive basis.

 

 
55
 

  

We sell our services and products primarily to U.S. Federal Government agencies, including the Department of Energy and the Department of Defense. The level of technical expertise and past performance required for this work limits the range of competitors against whom we compete for customers in both civilian and governmental agencies. We compete either as prime contractor or as a subcontractor, depending on the requirements and scope of the project.

 

In our government market, our competitors include both large competitors that offer a broad range of services and capabilities and smaller boutique organizations that are highly focused on particular capabilities, solutions, and customers. Our larger competitors include divisions of large government contractors such as Lockheed Martin Corporation, The Boeing Company and Northrop Grumman Corporation. We also face competition from a number of large, well-established government contractors such as Science Applications International Corporation, CACI International, Inc. and others. The smaller competitors are generally privately held corporations with strong capabilities in delivering specific elements of a solution for a narrow range of customers. See “Risk Factors” for a description of the various risks we may face from our competitors.

 

The extent and range of competition that we will encounter as a result of changing economic or competitive conditions, customer requirements or technological developments is unpredictable. We believe the principal competitive factors for our business are technical and financial qualifications, past performance, government budgetary stress, and price.

 

Employees

 

As of  September 15, 2015, we had approximately  79 employees, of which 52 are full time employees . The number of employees at any given time may vary due to contract start and expiration dates. We are the exclusive employer of our managerial, professional, and administrative employees. During 2014, none of our employees were covered by a collective bargaining agreement. We believe that our employee relations are good.

 

Fluctuations in Quarterly Operating Results

 

Our operating results may fluctuate due to factors such as holidays or weather impaired days which impact billable hours.

 

Working capital practices

 

See the discussion contained under the heading “Liquidity and Capital Resources” Item 7 of this Form S-1.

 

Regulation

 

We are subject to regulation by numerous federal, state and local regulatory agencies, including but not limited to the U.S. Department of Labor, which sets employment practice standards for workers, and similar state and local agencies. We must comply with and are affected by laws and regulations relating to the award, administration and performance of government contracts. Additionally, we are responsible for subcontractor compliance with these laws and regulations. Government contract laws and regulations affect how we conduct business with our customers and, in some instances, impose added costs to us. A violation of specific laws and regulations could result in the imposition of fines and penalties or the termination of contracts or debarment from bidding on government contracts. Compliance with these laws has not had and is not anticipated to have a material effect on our results of operations.

 

Government agencies, including the Defense Contract Audit Agency and the Department of Labor, routinely audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. The government also may review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed and any such costs already reimbursed must be refunded.

 

 
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Legal Proceedings

 

Except as discussed below, the Company is not currently a party to any material litigation; however in the ordinary course of our business the Company is periodically threatened with or named as a defendant in various lawsuits or actions. The principal risks that the Company insures against, subject to and upon the terms and conditions of various insurance policies, are workers’ compensation, general liability, automobile liability, property damage, professional liability, employee benefits liability, errors and omissions, employment practices, fiduciary liability, fidelity losses and director and officer liability.

 

The Company, in September 2014 through its wholly-owned subsidiary, Partners, filed a complaint in the U.S. District Court of Delaware related to the Equity Purchase Agreement used to purchase New West, alleging breach of warranties and covenants by the selling member (“Member”) of New West, as well as breach of fiduciary duty as an officer and director. The Member subsequently initiated an arbitration matter in Colorado asserting claims as a former employee. On May 8, 2015, the Company and the selling Member of New West (the “Member”) agreed to a settlement on the litigation initiated in September 2014 and the arbitration matter. Under the terms of the agreement, the Company has agreed to establish an ESOP for its employees before December 1, 2015. The ESOP will purchase from the Member that amount of Cybergy stock equal to a current market value of $2,565,000 (the “settlement”). The remainder of the Cybergy stock owned by the Member will be canceled. All other amounts owed by the Company to the Member will be discharged and the Put option will be cancelled. The Member also assumes all obligations under the Management Performance Units Plan. The settlement agreement also contains non-financial terms.

 

In October 2014, a former employee filed a claim with the American Arbitration Association, alleging wrongful termination and a dispute regarding his individually negotiated employment agreement, which was terminated by Partners on May 13, 2014. The parties previously tried to reach a settlement during mediation in July 2014. The Company denies any and all liability in this claim. In January 2015, Partners filed an Answer and Counterclaim under his Employment Agreement, Nondisclosure Agreement, and the Employee Handbook alleging counterclaims related to selfdealing, falsification of time records, false expense reimbursements, and disclosing proprietary and other private information to improper parties. An arbitration date has not yet been determined. The Company believes that its defense of the original claim will demonstrate Partners acted within its rights to terminate, and that Partners’ counterclaims are expected to result in a favorable judgment.

 

The Company is a party to an arbitration involving a claim by a former investment banker which had performed certain work for Partners. The amounts claimed are unclear, and, pursuant to the arbitration agreement between the parties, the matter must first be mediated before arbitration can commence. Assuming the matter is not resolved in mediation, Partners will defend the arbitration on the grounds that the services for which it is claiming compensation were not performed, and deceived Partners with respect to the services it was providing or could provide, and that it may need to refund certain compensation to Partners. The arbitration is being conducted by JAMS in New York, New York and was instituted on March 10, 2015.

 

In August 2014, a former employee of Partners alleged that he was wrongfully terminated from employment and that Partners breached an "employment contract" he has with the Company. The employee has not yet claimed an amount, although his employment agreement stipulates one year severance. Partners is seeking an out of court settlement.

 

MANAGEMENT

 

Set forth below is certain information regarding our current executive officers and directors. Each of the directors listed below will serve until our next annual meeting of stockholders or until his or her successor is elected and qualified. All directors hold office for one year terms until the election and qualification of their successors. The following table sets forth information regarding the members of our Board of Directors and our executive officers:

 

Name

Age

Positions Held

Mark Gray

57

Chief Executive Officer and Chairman of the Board of Directors

Bill Gregorak

60

Chief Financial Officer

Jennifer Cockrum

39

Chief Administrative Officer

David Carey

70

Director

Wyly Wade

40

Chief Technical Officer and Director

Tom A. Vukota

41

Director

Andy Westlund

62

Director

 

 
57
 

  

Management Team

 

Biographies for the members of our current Board of Directors and our executive officers who are not members of our Board of Directors are provided below.

 

Mark Gray has served as the Chief Executive Officer of Partners since September 2014. From June 2013, as founder and Chairman of Partners, he led the acquisition of New West and BION Enterprises, LLC by Partners, including all phases of capital formation and M&A transactions. From September 2011 to June 2014, he was the Chief Executive Officer of BION Enterprises, LLC, a company focused on development of cybersecurity and intelligence software, including SmartFile, for the U.S. Federal Government and commercial enterprise software marketplace. From June 2009 until September 2011, he was a member of the Board of Directors, and 40% shareholder of Tessada and Associates, Inc. a top-secret cleared US Federal Government contractor supporting NASA, State Department and Department of Defense with approximately 500 employees. Prior to 2009, he was managing director of Gray Capital Partners, LLC. Gray Capital Partners, LLC is a family trust office specializing in control investments in small to midsize companies with sector focus on U.S. government contractors, cybersecurity, IT products and services both in the U.S. and internationally. He attended Rhodes College in Memphis, Tennessee.

 

Dan Hollenbach became the Chief Financial Officer of Partners in May 2014. Prior to joining the Company, he led the consulting practice for Robert Half Management Resources in Colorado from June 2010 to May 2014. From August 2004 to July 2009, Dan was the CFO for Global Employment Holdings (OTC: GEYH), a national staffing, consulting and PEO company. Mr. Hollenbach began his career in the Audit and Assurance Services practice of EY before entering the corporate world. He has over three decades of experience in corporate accounting and nance, including expertise in IPOs, SEC reporting, mergers and acquisitions, SarbanesOxley, treasury management, process improvement, and all phases of audit, tax, and reporting. Additionally, he has served on audit committees and led negotiations of multiple senior debt restructurings. He is an active CPA, licensed in Texas, holds a CGMA certification, and received his B.B.A. in accounting from Texas Tech University. On July 3, 2015, Cybergy accepted Mr. Hollenbach's resignation as Chief Financial Officer, effective on August 14, 2015, but may be extended to August 21, 2015.

 

Bill Gregorak became the Chief Financial Officer of Partners in August 2015. Prior to joining the Company, he was Chief Financial Officer for Ascent Solar Technologies, Inc. (NASDAQ: ASTI) in Colorado, a manufacturer and marketer of flexible, thin-film photovoltaic modules for off-grid and specialty applications such as UAV’s (unmanned aerial vehicles) from September 2013 to May 2015. From June 2008 to June 2013, Bill was the CFO for Thule Organization Solutions, a multinational manufacturer and marketer of cases for consumer electronics sold under both the Case Logic and Thule brands. Before Thule, Mr. Gregorak was the Vice President and corporate controller for Advanced Energy and Xilinx Corporations, both of which currently trade on the NASDAQ. Mr. Gregorak spent 17 years with the Hewlett-Packard Company in various financial and operational capacities. Mr. Gregorak holds a Bachelor’s degree in Economics from the University of Washington.

 

Jennifer Cockrum became the Chief Administrative Officer of Partners in June 2014, and also serves as President of Primetrix, LLC. Ms. Cockrum has been an employee of New West Technologies since 2011, when she joined New West, as the Director of Business Development. From 2007 to 2011, Ms. Cockrum served as a Director of Human Resources of Pepsico, where she handled the human resource and personnel needs of an employee population totaling 800 bargaining unit employees and 75 managers and executives on site. Ms. Cockrum has over 15 years of experience in operations management, human resources, employee benefit plan management, and business development. Ms. Cockrum received her Bachelors’ degree in Economics from the University of Notre Dame, and her Masters’ Degree in Human Resources Development from Villanova University, and is a certified Senior Professional of Human Resources. She has also served on several business and community Boards and committees that focus on recruiting and retaining minority employees.

 

David Carey has been a director of Partners since its inception. Mr. Carey is a former Executive Director of the Central Intelligence Agency. Since July 2009, Mr. Carey has served on the governance Board of DRS Technologies, and beginning in spring 2014 serves on the governance Board of Qinetiq North America, a Qinetiq plc company. Mr. Carey also serves on a number of Advisory Boards, including the Advisory Board of Raytheon Cyber Products. Mr. Carey is also on the Board of Directors of ImageWare Systems Inc. Mr. Carey also consults with companies both independently and as an affiliate of the Command Consulting Group. From April 2005 to August of 2008, Mr. Carey served as Executive Director for Blackbird Technologies, which provides state-of-the- art IT security expertise, where he assisted the company with business development and strategic planning. Prior to joining Blackbird Technologies, Mr. Carey was Vice President, Information Assurance for Oracle Corporation from September 2001 to April 2005. Mr. Carey worked for the CIA for 32 years until 2001. During his career at the CIA, Mr. Carey held several senior positions including that of Executive Director, often referred to as the Chief Operating Officer or No. 3 person in the agency, from 1997 to 2001. Before assuming that position, Mr. Carey was Director of the DCI Crime and Narcotics Center, the Director of the Office of Near Eastern and South Asian Analysis, and Deputy Director of the Office of Global Issues. Mr. Carey is a graduate of Cornell University and the University of Delaware. Mr. Carey’s experience and his ability to provide information to the board  in  cyber sercurity and government contracting, the  primary focus of our business,  will be an asset to the Board of Directors.

 

Wyly Wade has been our Chief Technical Officer since June 2014 and a director of Partners since its inception. Mr. Wade has over 20 years’ experience in cybersecurity, big data and identification technologies. He has worked with Partners and its subsidiaries New West, as an advisory board member, and Cybergy Labs in various capacities, including Chief Technical Officer, since January 2013. He also has served as the Chief Technology Innovation Officer at SEAF, a global investment firm, since September 2013. Since 2009, he has served as a Social Protection Consultant for the World Bank specializing in complex biometric technologies and government policy. During this time Mr. Wade worked with the governments of India, Pakistan, Vietnam, Bangladesh, Maldives, Ghana, Mexico, Tajikistan and Djibouti. Since 2005, he has been a partner at XAltitude, a consulting firm. From 2009 to 2012, Mr. Wade as a member of the core team of both The Unique Identification Authority of India (UID) and Rashtriya Swasthya Bima Yojana (RSBY) the largest biometric identification project and the largest health insurance project in the world. The Board of Directors will benefit from Mr. Wade’s experience in the cybersecurity field.

 

 
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Tom Vukota has been a director since November 2014. Mr. Vukota is founder, President and Chief Investment Officer of Vukota Capital Management, a boutique alternative investment management firm founded in early 2010. Mr. Vukota was previously a Managing Director of Manulife Financial’s (parent of John Hancock) alternative asset management division where he spent 10 years from 2000 to 2010. Mr. Vukota sits on advisory Boards of several private entities. He has accumulated over 20 years of experience in the investment industry, possessing diverse alternative asset management experience. He earned a Bachelor of Science Degree in Finance from the University of Vermont. He also holds a Certified Management Accountant designation and a Chartered Financial Analyst designation. He is also a member of the Institute of Management Accountants and the CFA Institute. His financial and accounting background will be valuable to the Board of Directors.

 

Andrew Westlund has been a director since April 2015. He is currently Chief Executive Officer of Organically Grown Company, an importer and distributor of organically grown produce. He has been Chief Executive Officer of Organically Grown Company, a private company, since 2012 after serving on its Board of Directors since 2007 and serving as Chairman of the Board. From 2003 to 2013, he was a consultant working on business development projects for the Texas Transportation Institute, a division of Texas A&M University. From 1998 to 2003, he worked at Amazon.com, serving as Vice President of Global Operations. From his experience, Mr. Westlund will be able to advise the Board of Directors on strategic planning, risk management, corporate governance, human resource and organizational development management

 

Certain Significant Employees

 

None.

 

Family Relationships

 

Our directors and executive officers are not related by blood, marriage or adoption.

 

Board of directors

 

Our bylaws provide that the size of the board of directors shall be determined from time to time by our board of directors. Our board of directors currently consists of five members, one of whom is our chief executive officer, who devotes his full time to our affairs. Our nonemployee directors devote the amount of time to our affairs as necessary to discharge their duties.

 

Independent Directors

 

Tom Vukota, David Carey, and Andy Westlund are “independent directors” and Tom Vukota qualifies as an audit committee financial expert as those terms are defined by listing standards of the national securities exchanges and SEC rules, including the rules relating to the independence standards of an audit committee and the nonemployee director definition of Rule 16b3 under the Securities Exchange Act of 1934. We intend to add additional independent directors in order to meet listing requirements of a national securities exchange, in accordance with the phase-in provisions of NASDAQ Rule 5615(b).

 

Committees of the Board of Directors

 

Currently, our independent Board of Director members serve on the audit, nominating, and corporate governance committees. Additionally, Mr. Gray serves on the nominating and compensation committees. The Board of Directors has adopted charters relative to its audit committee, compensation committee and nominating committee. We intend to appoint persons to the Board of Directors and committees of the Board of Directors as required meeting the corporate governance requirements of a national securities exchange, in accordance with the phase-in provisions of NASDAQ Rule 5615(b). We intend to appoint directors in the future so that we have a majority of our directors who will be independent directors.

 

 
59
 

  

Audit Committee

 

The audit committee’s duties under the terms of its charter are to recommend to our Board of Directors the engagement of independent auditors to audit our financial statements. The audit committee reviews the scope, timing and fees for the annual audit and the results of audit examinations performed by independent public accountants, including their recommendations to improve the system of accounting and internal controls. The audit committee oversees the independent auditors, including their independence and objectivity. However, the committee members are not acting as professional accountants or auditors, and their functions are not intended to duplicate or substitute for the activities of management and the independent auditors. The audit committee is empowered to retain independent legal counsel and other advisors as it deems necessary or appropriate to assist the audit committee in fulfilling its responsibilities, and to approve the fees and other retention terms of the advisors. The audit committee members possess an understanding of financial statements and generally accepted accounting principles.

 

Compensation Committee

 

The compensation committee has certain duties and powers as described in its charter, including but not limited to periodically reviewing and approving our salary and benefits policies, compensation of our executive officers, administering our stock option plans, and recommending and approving grants of stock options under those plans.

 

Nominating Committee

 

Under the charter of our nominating and corporate governance committee, the nominating and corporate governance committee considers and makes recommendations on matters related to the practices, policies and procedures of the Board of Directors and takes a leadership role in shaping our corporate governance. As part of its duties, the nominating and corporate governance committee assesses the size, structure and composition of the Board of Directors and its committees, coordinates evaluation of Board performance and reviews Board compensation. The nominating and corporate governance committee also acts as a screening and nominating committee for candidates considered for election to the Board of Directors. The company identifies candidates for the Board based on input from current board members and recommendations from our financial and business partners. The Board evaluates candidates to be nominated as directors based upon the business background or expertise that the individual will bring to the Board. No candidates for director nominees have been put forward by shareholders to date. If this occurs, its process for considering such candidates will be the same. No candidates have been put forward by large, long-term security holders or groups of security holders.

 

Compensation Committee Interlocks and Insider Participation

 

None of our directors or executive officers serves as a member of the Board of Directors or compensation committee of any other entity that has one or more of its executive officers serving as a member of our Board of Directors.

 

EXECUTIVE COMPENSATION

 

The table below sets forth, for 2014, the compensation earned by (i) each individual who served as our principal executive officer, and (ii) our most highly compensated executive officers, other than our principal executive officer, who were serving as executive officers at the end of the last fiscal year.

 

Name and Principal Position

 

Year

 

Salary ($)

 

 

Bonus ($)

 

 

Option Awards ($) (d)

 

 

All Other Compensation ($)

 

 

Total ($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Gray, Chairman and CEO (a)

 

2014

 

$ 108,333

 

 

$ 9,285

 

 

$ -

 

 

$ 5,740

 

 

$ 123,358

 

Dan Hollenbach, CFO (b)

 

2014

 

$ 91,814

 

 

$ 1,017

 

 

$ 15,674

 

 

$ -

 

 

$ 108,505

 

Jennifer Williamson Cockrum, CAO (c)

 

2014

 

$ 172,334

 

 

$ 1,451

 

 

$ 17,295

 

 

$ 6,600

 

 

$ 197,680

 

 

a)

Mr. Gray’s employment stated on June 1, 2014. Other includes relocation allowance.

b)

Mr. Hollenbach’s employment started on May 12, 2014.

c)

Other includes car allowance.

d)

Grant date fair value computed in accordance with FASB ASC Topic 718. See Outstanding Equity Awards table on page 62.

 

 
60
 

  

Employment Contracts and Termination of Employment and Change in Control

 

We have entered into employment agreements with our new executive officers as described below.

 

Mark Gray — Chief executive officer and chairman of the Board of Directors

 

Mr. Gray’s employment agreement provides for an annual base salary of $200,000 and an annual bonus tied to Cybergy meeting certain targets and performance criteria for Mr. Gray established by our compensation committee. Our compensation committee reviews and may change Mr. Gray’s base salary and bonus at least annually. In March 2015, Mr. Gray began receiving a car allowance of $550 per month under the terms of the Executive Vehicle Benefit policy. On November 1, 2014, in connection with Mr. Gray’s relocation to the Maryland office, the Board authorized a relocation package for Mr. Gray, a summary of which is presented below:

 

·

An amount not to exceed $10,000 for moving household goods and personal effects and;

·

For a period of nottoexceed nine months, a $2,500 per month rental allowance to allow for temporary living and utilities and up to $400 per month for storage of household goods while the Mr. Gray is in temporary housing.

 

Mr. Gray’s employment agreement was effective as of June 1, 2014 and is continuing until June 1, 2017 or his death, disability, dismissal (for or without cause), change of control or resignation. The Company may terminate Mr. Gray’s employment at any time by giving at least ninety (90) days’ prior notice and he will be entitled, after execution of our standard form release agreement, to a severance payment in the amount equal to three months’ salary plus one year of Mr. Gray’s annual base salary, any unpaid bonus, vacation, and any amounts due under the EPA.

 

Mr. Gray’s employment agreement, as well as a noncompetition agreement contains customary nondisclosure, nonsolicitation and noncompetition provisions.

 

Dan Hollenbach — Chief financial officer and principal accounting officer

 

Mr. Hollenbach’s employment agreement provides for an annual base salary of $185,000 and an annual bonus tied to Cybergy meeting certain targets and performance criteria for Mr. Hollenbach established by our compensation committee. Our compensation committee reviews and may change Mr. Hollenbach’s base salary and bonus at least annually. Mr. Hollenbach will be entitled to a car allowance of $550 per month in May 2015 under the terms of the Executive Vehicle Benefit policy.

 

Mr. Hollenbach’s employment agreement was effective as of November 1, 2014 and is continuing until November 1, 2017 or his death, disability, dismissal (for or without cause), change of control or resignation. The Company may terminate Mr. Hollenbach’s employment at any time by giving at least ninety (90) days’ prior notice and he will be entitled, after execution of our standard form release agreement, to a severance payment in the amount equal to three months’ salary. Should there be a sale of the Company that results in the termination of Mr. Hollenbach’s employment or a material adverse change in his duties and responsibilities, he will be entitled to a lumpsum payment of one times the amount of his annual base salary; and lumpsum payment equal to twelve months of his health and welfare benefit costs, grossed up, to cover twelve months of COBRA payments.

 

Mr. Hollenbach’s employment agreement, as well as a noncompetition agreement contains customary nondisclosure, nonsolicitation and noncompetition provisions.

 

On July 3, 2015, Cybergy accepted Mr. Hollenbach's resignation as Chief Financial Officer, effective on August 14, 2015, but was extended to August 21, 2015.

 

 
61
 

 

Jennifer Cockrum — Chief administrative officer and President of Primetrix

 

Ms. Cockrum’s employment agreement provides for an annual base salary of $205,000, a 2% annual salary adjustment, and an annual bonus tied to Cybergy and Primetrix meeting certain targets and performance criteria for Ms. Cockrum established by our compensation committee. Ms. Cockrum also receives the use of a company-provided automobile under the terms of the Executive Vehicle Benefit policy. Our compensation committee reviews and may change Ms. Cockrum’s base salary and bonus at least annually.

 

Ms. Cockrum’s employment agreement was effective as of May 1, 2013 and is continuing until May 1, 2016 or her death, disability, dismissal for cause, or resignation. The Company may terminate Ms. Cockrum’s employment at any time for cause, as defined. On May 1, 2016, if she is still employed by the Company, she is entitled to a Retention Bonus equal to 50% of her then effective annual salary.

 

Ms. Cockrum’s employment agreement, as well as a noncompetition agreement contains customary nondisclosure, nonsolicitation and noncompetition provisions.

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table indicates our outstanding equity awards as of December 31, 2014.

 

 

 

 

 

 

Option awards

 

 

Name

 

Number of securities underlying unexercised options(#) exercisable

 

 

Number of securities underlying unexercised options(#) unexercisable

 

 

Equity incentive plan awards: Number of securities underlying unexercised unearned options(#)

 

 

Option exercise price($)

 

 

Option

grant date

 

 

Option

expiration

date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CEO

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

-

 

 

-

 

CFO

 

 

586,193

 

 

 

2,930,969

 

 

 

-

 

 

$ .00008

 

 

5/21/2014

 

 

5/21/2024

 

CAO

 

 

970,251

 

 

 

2,910,756

 

 

 

-

 

 

$ .00008

 

 

3/17/2014

 

 

3/17/2024

 

 

Except for vesting, the options are subject to the provisions of the Cybergy Holdings Stock Plan summarized below. The options are non-qualified and vest 8.33% at the end of each quarter after the grant date. The term of the options are 10 years.

 

Equity Compensation Plan Information

 

Cybergy Holdings Stock Plan

 

On November 21, 2014, the Board unanimously approved and adopted the Cybergy Holdings 2014 Stock Plan (the "Stock Plan"), which became effective when it was approved by the Consenting Stockholders. The Stock Plan will permit the grant of incentive and nonqualified stock options and other stockbased awards to employees and consultants.

 

Maintaining an effective equity compensation program in which our employees, directors and consultants participate is a key component of achieving our longterm goals. The Board believes that the Stock Plan will afford us the ability to design compensatory awards that are responsive to our needs, including our ability to continue to attract and retain key employees and directors, motivate such individuals to achieve longrange goals, and allow such individuals to participate in our longterm growth and financial success.

  

Summary of the Stock Plan

 

The following summary of the material terms of the Stock Plan is qualified in its entirety by reference to the complete text of the Stock Plan. You should read the complete text of the Stock Plan for more details regarding the operation of the Stock Plan.

 

Purpose The purpose of the Stock Plan is to promote our interests and those of our stockholders by attracting and retaining key officers, employees, directors and consultants; motivating such individuals by means of performancerelated incentives to achieve longrange performance goals; enabling such individuals to participate in our longterm growth and financial success; encouraging ownership of our stock by such individuals; and linking their compensation to our longterm interests and those of our stockholders.

 

 
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Administration The Stock Plan will be administered by the Board of Directors or a committee (“Committee”) that has and may exercise such powers and authority of the Board as may be necessary or appropriate for the Committee to carry out its functions as described in the Stock Plan. The Board and/or the Committee have authority to prescribe, amend, and rescind rules and regulations relating to the Stock Plan. All interpretations, determinations, and actions by the Committee will be final, conclusive, and binding upon all parties. No member of the Board or the Committee will be liable for any action or determination made in good faith by the Board or the Committee with respect to the Stock Plan or any Award under it.

 

Eligible Participants Awards may be granted to employees and consultants of the Company or any of its subsidiaries in the sole discretion of the Board or the Committee. In determining the persons to whom awards shall be granted and the type of Award, the Board or the Committee shall take into account such factors they shall deem relevant in connection with accomplishing the purposes of the Stock Plan. Each award will be evidenced by an agreement and may include any other terms and conditions consistent with the Stock Plan as the Board or the Committee may determine.

 

Shares Subject to the Stock Plan The maximum number of shares of our common stock that may be issued pursuant to awards under the Stock Plan is 72,769,000 shares of the Company’s common stock. Each share issued pursuant to an award will reduce the shares reserved by one share.

 

Limitations on Awards The Company shall not grant an ISO under the Stock Plan to any Employee if such Grant would result in such Employee holding the right to exercise for the first time in any one calendar year, under all ISO’s granted under the Stock Plan or any other plan maintained by the Company, options with respect to shares of common stock having an aggregate fair market value, determined as of the date the Option is granted, in excess of $100,000.

 

Stock Options A stock option represents the right to purchase a specified number of shares during a specified period of up to ten years. The award agreement will set forth the number of shares subject to the stock options, the option price, and the conditions and limitations applicable to the exercise of the stock options as determined by the Compensation Committee. The option price of stock options may not be less than the fair market value on the date that such stock options are deemed to be granted under the Stock Plan. With respect to incentive stock options, the terms and conditions of such stock options will be subject to and comply with Section 422 of the Internal Revenue Code. To the extent the aggregate fair market value (determined at the time the incentive stock option is granted) of the shares with respect to which all incentive stock options are exercisable for the first time by an employee during any calendar year exceeds $100,000, or if stock options fail to qualify as incentive stock options for any other reason, such stock options will constitute nonqualified stock options. Incentive stock options may not be granted to any individual who, at the time of grant owns stock possessing more than 10% of the total combined voting power of all of our outstanding common stock or any of our subsidiaries, unless the exercise price is not less than 110% of the fair market value of the common stock on the date of the grant and the exercise of such option is prohibited by its terms after the expiration of five years from the date of grant of such option.

 

Restricted Shares The Board or the Committee may impose conditions on any shares granted or sold pursuant to the Stock Plan as it may deem advisable, including, without limitations, restrictions under the Stock Exchange Act of 1934.

 

Transferability of Awards Except as otherwise permitted in an award agreement or by the Board or Committee; awards under the Stock Plan are not transferable other than by a participant's will or the laws of descent and distribution.

 

Term and Amendment No new awards may be granted under the Stock Plan after the tenth anniversary of its adoption by the Board, November 21, 2024. The Board may amend, alter, suspend, discontinue or terminate the Stock Plan at any time; however, no amendment, alteration, suspension, discontinuation or termination may be made without stockholder approval if approval is necessary to comply with any tax or regulatory requirement for which or with which the Board deems it necessary or desirable to comply.

  

Director Compensation

 

None of our directors received compensation during the fiscal years ended December 2014, 2013 or 2012 for services provided as a director except reimbursement of ordinary and reasonable expenses incurred in exercising their responsibilities and duties as a director. Directors that serve as employees will not receive any compensation for their service on the Board of Directors. While there are currently no compensation plans in place for our nonemployee directors, the compensation policy is currently under review. We expect this plan will include a combination of cash, long term incentive, and reimbursement of ordinary and reasonable expenses incurred in exercising their responsibilities and duties as a director.

 

 
63
 

  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information regarding the beneficial ownership of shares of our Common Stock as of September 15, 2015 by:

 

·

each person who is known by us to beneficially own more than 5% of our issued and outstanding shares;

·

our named executive officers;

·

our directors; and

·

all of our executive officers and directors as a group.

 

Beneficial ownership as determined in Rule 13d-3 under the Exchange Act includes common stock acquirable upon exercise or conversion of securities of the Company within 60 days and common stock beneficially owned by an entity or person controlled directly or indirectly, through any contract, arrangement, understanding or otherwise.

  

 

 

Common stock (1)

 

 

Series B

Preferred Stock (2)

 

 

Series C

Preferred Stock (3)

 

 

%

Total Voting

 

Name and Address of Beneficial Holder

 

No. of shares

 

 

% of class

 

 

No. of shares 

 

 

% of class

 

 

No. of shares

 

 

% of class 

 

 

Power (4)

 

Officers and Directors and 5% Shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Gray (5)

 

 

 

 

 

 

 

 

1,000

 

 

 

100

 

 

 

6,670,480

 

 

 

12.7 %

 

 

9.0

%

David Carey (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wyly Wade (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,670,480

 

 

 

12.7 %

 

 

9.0

%

Tom Vukota (6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

163,910

 

 

 

0.3 %

 

 

0.2

%

Andrew Westlund (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,565,629

 

 

 

4.9 %

 

 

3.5

%

Bill Gregorak  (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jennifer Cockrum (5)(1)

 

 

1,617,085

 

 

 

7.2 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.2

%

Officers and Directors as a Group

 

 

2,789,472

 

 

 

11.8 %

 

 

 

 

 

 

 

 

 

 

16,070,499

 

 

 

30.5 %

 

 

24.8

%

MMCAP International Inc. SPC (7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bermuda Commercial Bank Building

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19 ParLaVille Road

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hamilton, HM 11 Bermuda

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Matthew MacIsaac, Director

 

 

1,139,200

 

 

 

5.2

%

 

 

 

 

 

 

 

 

 

 

5,696,000

 

 

 

10.6 %

 

 

9.7

%

Birch First Advisors LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Birch First Global Exempt Fund Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

205 Worth Avenue, Ste. 201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Palm Beach, Florida 33480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pier S. Bjorklund, Managing Director

 

 

4,766,563

 

 

 

23.0 %

 

 

 

 

 

 

 

 

 

 

2,383,915

 

 

 

4.6 %

 

 

9.6

%

Ross Macleod

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2923 Duncairn Dr L5M 5V7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mississauga, ON Canada

 

 

2,850,001

 

 

 

13.7 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.8

%

Seton Securities International LTD.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lyford Cay House, 1st Floor

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lyford Cay, PO Box CB 13401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nassau, Bahamas

 

 

1,188,569

 

 

 

5.4 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.6

%

James S. Williamson (8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

c/o Core Capital Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5526 N. Academy Blvd., Suite

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

203Colorado Springs, CO 80918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,270,755

 

 

 

17.7 %

 

 

12.5

%

James S. Williamson 2012 Irrevocable (8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust c/o Core Capital Group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5526 N. Academy Blvd., Suite

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

203Colorado Springs, CO 80918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Andrew Fowler, Trustee

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,180,503

 

 

 

11.8 %

 

 

8.3

%

__________________

(1)

Based on 21,889,803 shares of common stock issued and outstanding as of September 15, 2015 and 2,789,472 shares of common stock underlying option grants issued under the 2014 Stock Plan, vested as of May 13, 2015.

 

 
64
 

 

(2)

Based on 1,000 Series B Preferred issued and outstanding as of September 15, 2015 . Each share of Series B Preferred shall be entitled to vote on all matters submitted or required to be submitted to a vote of the stockholders of the Corporation and shall be entitled to one (1 vote of share of common stock for each share of Series C Preferred owned at the record date for the determination of stockholders entitled to vote on such matters.)

(3)

Based on 53,688,942 Series C Preferred issued and outstanding as of September 15, 2015 . Each share of Series C Preferred shall be entitled to vote on all matters submitted or required to be submitted to a vote of the stockholders of the Corporation and shall be entitled to one (1) vote of share of common stock for each share of Series C Preferred owned at the record date for the determination of stockholders entitled to vote on such matters.

(4)

Percentage Total Voting Power represents total voting power for each beneficial owner with respect to all shares of our common stock, Series B Preferred and Series C Preferred, assuming conversion of our Senior Secured Convertible Debentures and exercise of warrants beneficially owned as of September 15, 2015 .

(5)

Address is c/o Civergy Partners, Inc., 10333 E Dry Creek Road, Suite 200, Englewood, CO 80112.

(6)

Represents shares owned by Vukota MultiStrategy Fund, L.P., c/o Vukota Capital Management Inc., One DTC, 5251 DTC Parkway, Suite 1001, Greenwood Village, CO 80111. Mr. Vukota has voting power and investment power for this entity.

 

 

(7)

Includes 2,278,000 shares of Series C preferred stock and 3,417,600 shares of Series C preferred stock issuable upon the conversion of convertible debenture.

(8)

On May 7, 2015, the Company and the Member settled the litigation initiated in September 2014. Under the terms of the agreement, the Company has agreed to establish an ESOP for its employees before December 1, 2015. The ESOP will purchase from the Member that amount of Cybergy stock equal to a current market value of $2,565,000. The remainder of the Cybergy stock owned by the Member will be canceled.

 

SELLING STOCKHOLDERS

 

Up to 228,184,366 shares of common stock are being offered by this prospectus, all of which are being registered for sale for the accounts of the selling security holders, or the Company, and include the following:

 

Selling Stockholder

 

Shares of Common Stock Beneficially Owned Before this Offering
(1)

 

 

Percentage of Common Stock Beneficially Owned Before this Offering
(1)

 

 

Shares of Common Stock Being Offered in this Offering
(2)

 

 

Shares of Common Stock Beneficially Owned After this Offering
(3)

 

 

Percentage of Common Stock Beneficially Owned After this Offering
(2)

 

MMCAP International Inc. SPC (4)

 

 

58,099,200

 

 

10 %

 

 

58,099,200

 

 

 

-

 

 

*

 

Access Alternative Group S.A. (5)

 

 

14,495,961

 

 

5 %

 

 

14,496,051

 

 

 

-

 

 

*

 

Neal Goldman (6)

 

 

29,760,000

 

 

11 %

 

 

29,760,000

 

 

 

-

 

 

*

 

Jacob Lantz (7)

 

 

12,257,600

 

 

4 %

 

 

12,257,600

 

 

 

-

 

 

*

 

Sanderson Capital Partners Limited (8)

 

 

13,670,400

 

 

4 %

 

 

13,670,400

 

 

 

-

 

 

*

 

Michael Horochivsky (9)

 

 

5,664,210

 

 

3 %

 

 

5,664,210

 

 

 

-

 

 

*

 

Amir Medhi Safavi (10)

 

 

9,113,600

 

 

4 %

 

 

9,113,600

 

 

 

-

 

 

*

 

Joseph Randall Schottland (11)

 

 

9,113,600

 

 

4 %

 

 

9,113,600

 

 

 

-

 

 

*

 

SNDT Communications, Inc. (12)

 

 

7,188,600

 

 

3 %

 

 

7,188,600

 

 

 

-

 

 

*

 

Enigma Technology Consulting Services Limited (13)

 

 

2,500,000

 

 

1 %

 

 

2,500,000

 

 

 

-

 

 

*

 

Scott M. Stern Revocable Trust (14)

 

 

4,556,800

 

 

2 %

 

 

4,556,800

 

 

 

-

 

 

*

 

Richard Imperatore (15)

 

 

3,917,600

 

 

2 %

 

 

3,917,600

 

 

 

-

 

 

*

 

Sichenzia Ross Friedman Ference LLP (16)

 

 

2,022,250

 

 

1 %

 

 

2,022,250

 

 

 

-

 

 

*

 

Vukota Multi-Strategy Fund, L.P. (17)

 

 

1,714,100

 

 

1 %

 

 

1,714,100

 

 

 

-

 

 

*

 

Singer Children Management Trust (18)

 

 

3,856,800

 

 

2 %

 

 

3,856,800

 

 

 

-

 

 

*

 

Andy Westlund (19)

 

 

1,400,000

 

 

1 %

 

 

1,400,000

 

 

 

-

 

 

*

 

KaJuTi GmbH (20)

 

 

1,200,000

 

 

1 %

 

 

1,200,000

 

 

 

-

 

 

*

 

 

 
 
 

 

Dr. Michael A. Holloway Inc. (21)

 

 

2,865,067

 

 

1 %

 

 

2,865,067

 

 

 

-

 

 

*

 

Clyde Berg (22)

 

 

2,278,400

 

 

1 %

 

 

2,278,400

 

 

 

-

 

 

*

 

Robert J. McCarthy (23)

 

 

2,278,400

 

 

1 %

 

 

2,278,400

 

 

 

-

 

 

*

 

Stourbridge Investments, LLC (24)

 

 

2,278,400

 

 

1 %

 

 

2,278,400

 

 

 

-

 

 

*

 

JMM Foundation (25)

 

 

2,278,400

 

 

1 %

 

 

2,278,400

 

 

 

-

 

 

*

 

Jeffrey Compton (26)

 

 

1,639,200

 

 

1 %

 

 

1,639,200

 

 

 

-

 

 

*

 

Gemini Master Fund, Ltd. (27)

 

 

1,000,000

 

 

*

 

 

 

1,000,000

 

 

 

-

 

 

*

 

RBB Capital LLC (28)

 

 

1,000,000

 

 

*

 

 

 

1,000,000

 

 

 

-

 

 

*

 

Richard Shanley (29)

 

 

1,000,000

 

 

*

 

 

 

1,000,000

 

 

 

-

 

 

*

 

Michael Judd (30)

 

 

1,389,200

 

 

1 %

 

 

1,389,200

 

 

 

-

 

 

*

 

George Anaya (31)

 

 

604,480

 

 

*

 

 

 

604,480

 

 

 

-

 

 

*

 

Blue Casa Telephone, LLC (32)

 

 

1,139,200

 

 

1 %

 

 

1,139,200

 

 

 

-

 

 

*

 

Anything Media Inc. (33)

 

 

500,000

 

 

*

 

 

 

500,000

 

 

 

-

 

 

*

 

Black Mountain Equities, Inc. (34)

 

 

500,000

 

 

*

 

 

 

500,000

 

 

 

-

 

 

*

 

Gary Herick (35)

 

 

500,000

 

 

*

 

 

 

500,000

 

 

 

-

 

 

*

 

Pass the Biscuits, LLC (36)

 

 

500,000

 

 

*

 

 

 

500,000

 

 

 

-

 

 

*

 

Rainmaker Consulting LLC (37)

 

 

500,000

 

 

*

 

 

 

500,000

 

 

 

-

 

 

*

 

Woodcrest Capital LLC (38)

 

 

500,000

 

 

*

 

 

 

500,000

 

 

 

-

 

 

*

 

Vikram P. Grover (39)

 

 

781,020

 

 

*

 

 

 

781,020

 

 

 

-

 

 

*

 

Andrea Cataneo (40)

 

 

346,380

 

 

*

 

 

 

346,380

 

 

 

-

 

 

*

 

Dave Zook (41)

 

 

344,500

 

 

*

 

 

 

344,500

 

 

 

-

 

 

*

 

Gideon D. Zook (42)

 

 

257,000

 

 

*

 

 

 

257,000

 

 

 

-

 

 

*

 

Charles Cain (43)

 

 

250,000

 

 

*

 

 

 

250,000

 

 

 

-

 

 

*

 

Clayton B. Mahaffey (44)

 

 

250,000

 

 

*

 

 

 

250,000

 

 

 

-

 

 

*

 

Clayton R. Mahaffey(45)

 

 

250,000

 

 

*

 

 

 

250,000

 

 

 

-

 

 

*

 

Eric Hertz & Jennifer L Barnes Hertz JT TEN (46)

 

 

250,000

 

 

*

 

 

 

250,000

 

 

 

-

 

 

*

 

Kelly Myers (47)

 

 

250,000

 

 

*

 

 

 

250,000

 

 

 

-

 

 

*

 

Larry Steinberg (48)

 

 

250,000

 

 

*

 

 

 

250,000

 

 

 

-

 

 

*

 

Microcap Equity Group LLC (49)

 

 

250,000

 

 

*

 

 

 

250,000

 

 

 

-

 

 

*

 

Nicola Wolfram (50)

 

 

250,000

 

 

*

 

 

 

250,000

 

 

 

-

 

 

*

 

Robert Nibbelink(51)

 

 

250,000

 

 

*

 

 

 

250,000

 

 

 

-

 

 

*

 

Robert Traversa (52)

 

 

250,000

 

 

*

 

 

 

250,000

 

 

 

-

 

 

*

 

 

 
 
 

 

Shaw Investment Properties LLC (53)

 

 

250,000

 

 

*

 

 

 

250,000

 

 

 

-

 

 

*

 

Talari Industries, LLC (54)

 

 

250,000

 

 

*

 

 

 

250,000

 

 

 

-

 

 

*

 

Gary S. Definis (55)

 

 

455,680

 

 

*

 

 

 

455,680

 

 

 

-

 

 

*

 

Benjamin J. Riegsecker (56)

 

 

200,000

 

 

*

 

 

 

200,000

 

 

 

-

 

 

*

 

Marco Services, Inc.. (57)

 

 

200,000

 

 

*

 

 

 

200,000

 

 

 

-

 

 

*

 

Floyd D. King (58)

 

 

187,500

 

 

*

 

 

 

187,500

 

 

 

-

 

 

*

 

David R Zook Roth IRA (59)

 

 

162,500

 

 

*

 

 

 

162,500

 

 

 

-

 

 

*

 

ZZZ Holdings LLC (60)

 

 

150,000

 

 

*

 

 

 

150,000

 

 

 

-

 

 

*

 

Lantz Holdings, LLC (61)

 

 

132,150

 

 

*

 

 

 

132,150

 

 

 

-

 

 

*

 

Gary Elliston (62)

 

 

100,000

 

 

*

 

 

 

100,000

 

 

 

-

 

 

*

 

Perry Douglas West (63)

 

 

100,000

 

 

*

 

 

 

100,000

 

 

 

-

 

 

*

 

Vesselin M Mihaylov (64)

 

 

100,000

 

 

*

 

 

 

100,000

 

 

 

-

 

 

*

 

Mauricio Vega III (65)

 

 

87,500

 

 

*

 

 

 

87,500

 

 

 

-

 

 

*

 

Marlin Lantz (66)

 

 

62,500

 

 

*

 

 

 

62,500

 

 

 

-

 

 

*

 

Henry Garman (67)

 

 

37,500

 

 

*

 

 

 

37,500

 

 

 

-

 

 

*

 

Kauffman Precast LLC (68)

 

 

37,500

 

 

*

 

 

 

37,500

 

 

 

-

 

 

*

 

Ross Macleod (69)

 

 

2,850,001

 

 

1 %

 

 

2,850,001

 

 

 

-

 

 

*

 

Blue Fire Consulting Group Limited(70)

 

 

576,237

 

 

*

 

 

 

576,237

 

 

 

-

 

 

*

 

George B. Kaufman (71)

 

 

6,230,150

 

 

*

 

 

 

10,495,520

 

 

 

-

 

 

*

 

Birch First Advisors, LLC (72)

 

 

238,054

 

 

*

 

 

 

238,054

 

 

 

-

 

 

*

 

Andrew Pateras (73)

 

 

187,000

 

 

*

 

 

 

187,000

 

 

 

-

 

 

*

 

Melissa PaterasS (74)

 

 

187,000

 

 

*

 

 

 

187,000

 

 

 

-

 

 

*

 

Uptick 20 S.A. (75)

 

 

143,334

 

 

*

 

 

 

143,334

 

 

 

-

 

 

*

 

Breakwater International, INC. (76)

 

 

110,000

 

 

*

 

 

 

110,000

 

 

 

-

 

 

*

 

8309841 Canada INC. (77)

 

 

100,000

 

 

*

 

 

 

100,000

 

 

 

-

 

 

*

 

John McComber (78)

 

 

83,334

 

 

*

 

 

 

83,334

 

 

 

-

 

 

*

 

Jacques Proulx (79)

 

 

80,000

 

 

*

 

 

 

80,000

 

 

 

-

 

 

*

 

Geneweb Incorporated (80)

 

 

77,000

 

 

*

 

 

 

77,000

 

 

 

-

 

 

*

 

Kerry Kulak (81)

 

 

66,667

 

 

*

 

 

 

66,667

 

 

 

-

 

 

*

 

Christopher Sean Durcan (82)

 

 

59,081

 

 

*

 

 

 

59,081

 

 

 

-

 

 

*

 

Vantech Securities Ltd. (83)

 

 

55,000

 

 

*

 

 

 

55,000

 

 

 

-

 

 

*

 

Anslow & Jaclin LLP (84)

 

 

51,242

 

 

*

 

 

 

51,242

 

 

 

-

 

 

*

 

James D. Beatty (85)

 

 

50,000

 

 

*

 

 

 

50,000

 

 

 

-

 

 

*

 

 

 
 
 

 

European Marketing Group Inc (86)

 

 

50,000

 

 

*

 

 

 

50,000

 

 

 

-

 

 

*

 

Mark Jon Wood (87)

 

 

47,469

 

 

*

 

 

 

47,469

 

 

 

-

 

 

*

 

Glenstar Enterprises Ltd. (88)

 

 

45,000

 

 

*

 

 

 

45,000

 

 

 

-

 

 

*

 

Simon G. Arnison (89)

 

 

42,500

 

 

*

 

 

 

42,500

 

 

 

-

 

 

*

 

Practical Business Advisors, LLC (90)

 

 

42,500

 

 

*

 

 

 

42,500

 

 

 

-

 

 

*

 

Vlada Poliak (91)

 

 

40,000

 

 

*

 

 

 

40,000

 

 

 

-

 

 

*

 

Threshold Ventures, LLC (92)

 

 

36,900

 

 

*

 

 

 

36,900

 

 

 

-

 

 

*

 

DLE Trading, Inc. (93)

 

 

33,334

 

 

*

 

 

 

33,334

 

 

 

-

 

 

*

 

Kosmayer Investments, Inc. (94)

 

 

33,334

 

 

*

 

 

 

33,334

 

 

 

-

 

 

*

 

Richard Tennanbaum IRA (95)

 

 

33,334

 

 

*

 

 

 

33,334

 

 

 

-

 

 

*

 

James Petrozzi (96)

 

 

30,000

 

 

*

 

 

 

30,000

 

 

 

-

 

 

*

 

Jeffrey Scott Tennenbaum (97)

 

 

26,496

 

 

*

 

 

 

26,496

 

 

 

-

 

 

*

 

China Business Consultings, Inc. (98)

 

 

24,000

 

 

*

 

 

 

25,000

 

 

 

-

 

 

*

 

Benny Bien(99)

 

 

24,000

 

 

*

 

 

 

24,000

 

 

 

-

 

 

*

 

Tomislav Vukota (100)

 

 

22,000

 

 

*

 

 

 

23,000

 

 

 

-

 

 

*

 

Jan Michael Rosen (101)

 

 

22,000

 

 

*

 

 

 

22,000

 

 

 

-

 

 

*

 

Thomas Pateras (102)

 

 

20,000

 

 

*

 

 

 

20,000

 

 

 

-

 

 

*

 

Lilydmila Poliak (103)

 

 

20,000

 

 

*

 

 

 

20,000

 

 

 

-

 

 

*

 

Michael Voisin (104)

 

 

20,000

 

 

*

 

 

 

20,000

 

 

 

-

 

 

*

 

John Zwerling AND Patricia West (105)

 

 

20,000

 

 

*

 

 

 

20,000

 

 

 

-

 

 

*

 

Stephen P Magenta (106)

 

 

15,400

 

 

*

 

 

 

15,400

 

 

 

-

 

 

*

 

Upscale Solutions Inc. (107)

 

 

13,334

 

 

*

 

 

 

13,334

 

 

 

-

 

 

*

 

Bonnie Vistorino (108)

 

 

13,317

 

 

*

 

 

 

13,317

 

 

 

-

 

 

*

 

Irina Kuzovenko (109)

 

 

12,500

 

 

*

 

 

 

12,500

 

 

 

-

 

 

*

 

Bridgeone, LLC (110)

 

 

10,000

 

 

*

 

 

 

10,000

 

 

 

-

 

 

*

 

Candlebrook Capital Corp. (111)

 

 

10,000

 

 

*

 

 

 

10,000

 

 

 

-

 

 

*

 

Joseph K. Delisle (112)

 

 

10,000

 

 

*

 

 

 

10,000

 

 

 

-

 

 

*

 

H. James Garel (113)

 

 

10,000

 

 

*

 

 

 

10,000

 

 

 

-

 

 

*

 

Gotham Advisory Group, LLC (114)

 

 

10,000

 

 

*

 

 

 

10,000

 

 

 

-

 

 

*

 

Anna Metcalfe (115)

 

 

10,000

 

 

*

 

 

 

10,000

 

 

 

-

 

 

*

 

Diane Proulx (116)

 

 

10,000

 

 

*

 

 

 

10,000

 

 

 

-

 

 

*

 

Erwin Ernest Sniedzins (117)

 

 

10,000

 

 

*

 

 

 

10,000

 

 

 

-

 

 

*

 

Melita Sniedzins(118)

 

 

10,000

 

 

*

 

 

 

10,000

 

 

 

-

 

 

*

 

Scott Sniedzins(119)

 

 

10,000

 

 

*

 

 

 

10,000

 

 

 

-

 

 

*

 

AJ Butler (120)

 

 

8,000

 

 

*

 

 

 

8,000

 

 

 

-

 

 

*

 

Nina Oukhina(121)

 

 

8,000

 

 

*

 

 

 

8,000

 

 

 

-

 

 

*

 

Thomas Sniedzins (122)

 

 

8,000

 

 

*

 

 

 

8,000

 

 

 

-

 

 

*

 

 

 
 
 

 

Jian Jun Yan (123)

 

 

8,000

 

 

*

 

 

 

8,000

 

 

 

-

 

 

*

 

Doug Jackson (124)

 

 

7,500

 

 

*

 

 

 

7,500

 

 

 

-

 

 

*

 

Kristian Alrbight and Leslie Albright, JT Ten (125)

 

 

7,000

 

 

*

 

 

 

7,000

 

 

 

-

 

 

*

 

Anzhelika Shenton (126)

 

 

7,000

 

 

*

 

 

 

7,000

 

 

 

-

 

 

*

 

Gabriel Bolotin (127)

 

 

6,667

 

 

*

 

 

 

6,667

 

 

 

-

 

 

*

 

Ron Foley (128)

 

 

6,667

 

 

*

 

 

 

6,667

 

 

 

-

 

 

*

 

Kanan,Corbin, Schupak & Aronow INC. (129)

 

 

6,667

 

 

*

 

 

 

6,667

 

 

 

-

 

 

*

 

Kendall Marin (130)

 

 

6,667

 

 

*

 

 

 

6,667

 

 

 

-

 

 

*

 

Raster Investments Inc. (131)

 

 

6,667

 

 

*

 

 

 

6,667

 

 

 

-

 

 

*

 

Gairin Smith (132)

 

 

6,667

 

 

*

 

 

 

6,667

 

 

 

-

 

 

*

 

Richard C. & Patricia M. Alrbgiht, JT Ten (133)

 

 

5,000

 

 

*

 

 

 

5,000

 

 

 

-

 

 

*

 

Dennis Johnston (134)

 

 

5,000

 

 

*

 

 

 

5,000

 

 

 

-

 

 

*

 

Irene S. Lukkarinen (135)

 

 

4,500

 

 

*

 

 

 

4,500

 

 

 

-

 

 

*

 

Roger L. Bumgarner (136)

 

 

4,000

 

 

*

 

 

 

4,000

 

 

 

-

 

 

*

 

Eric Elefante (137)

 

 

4,000

 

 

*

 

 

 

4,000

 

 

 

-

 

 

*

 

Steve Simunic (138)

 

 

4,000

 

 

*

 

 

 

4,000

 

 

 

-

 

 

*

 

Bruce A. Miles (139)

 

 

3,334

 

 

*

 

 

 

3,334

 

 

 

-

 

 

*

 

Danny Pate (140)

 

 

3,300

 

 

*

 

 

 

3,300

 

 

 

-

 

 

*

 

Jeffrey O. Boateng (141)

 

 

3,000

 

 

*

 

 

 

3,000

 

 

 

-

 

 

*

 

Edward Gray Weatherly, Jr. (142)

 

 

3,000

 

 

*

 

 

 

3,000

 

 

 

-

 

 

*

 

Taras Koulik (143)

 

 

2,500

 

 

*

 

 

 

2,500

 

 

 

-

 

 

*

 

Kevin McCarter (144)

 

 

2,000

 

 

*

 

 

 

2,000

 

 

 

-

 

 

*

 

Daniel G. Bondy (145)

 

 

1,334

 

 

*

 

 

 

1,334

 

 

 

-

 

 

*

 

Eric Laursen (146)

 

 

1,000

 

 

*

 

 

 

1,000

 

 

 

-

 

 

*

 

Shai Gerson (147)

 

 

182,272

 

 

*

 

 

 

1,822,720

 

 

 

-

 

 

*

 

TOTALS:

 

 

228,184,366

 

 

 

 

 

 

228,184,366

 

 

 

-

 

 

 

 

____________ 

* Represents less than 1%.

 

 

(1)

The number of shares beneficially owned before the offering includes shares of common stock and shares of common stock issuable upon conversion of the Debentures, common stock issuable upon conversion of the Series C Preferred Stock and common stock issuable upon exercise of the Warrants.

 

(2)

Represents shares of common stock and shares of common stock issuable upon conversion of the Debentures, common stock issuable upon conversion of the Series C Preferred Stock and common stock issuable upon exercise of the Warrants`.

 

(3)

Assumes that (i) all of the shares of common stock to be registered on the registration statement of which this prospectus is a part, including all shares of common stock underlying the Debentures, Series C Preferred Stock and Warrants held by the selling stockholders, are sold in the offering and (ii) that no other shares of common stock are acquired or sold by the selling stockholder prior to the completion of the offering. However, subject to the restrictions of transfer agreed to by the selling stockholders (see “Plan of Distribution” in this prospectus), the selling stockholders may sell all, some or none of the shares offered pursuant to this prospectus and may sell other shares of our common stock that they may own pursuant to another registration statement under the Securities Act or sell some or all of their shares pursuant to an exemption from the registration provisions of the Securities Act, including under Rule 144.

 

(4)

Reflects 2,278,400 Series C Preferred shares, Debentures convertible into 3,417,600 Series C Preferred shares, and 1,139,200 shares of Common Stock held by MMCAP International Inc. Matthew MacIsaac is the Director of MMCAP International Inc. and has voting and dispositive power over these securities. The address of MMCAP International Inc. is PO Box 32021 SMB, Admiral Financial Centre, 99 Fort Street, Grand Cayman, Cayman Islands, KY1-1208

 

(5)

Reflects 1,398,540 Series C Preferred shares and 510,561 shares of common stock held by Access Alternative Group S.A. Richard Montgomery is the President of Access Alternative Group S.A. and has voting and dispositive power over these securities. The address of Access Alternative Group S.A. is Suite 104B, Saffrey Square Building Bank Lane, Nassau, Bahamas.

 

 
 
 

 

 

(6)

Reflects 1,267,200 Series C Preferred shares and Debentures convertible into 1,708,800 shares of Series C Preferred shares held by Neal Goldman. Mr. Goldman exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 767 Third Avenue, New York, New York, 10017.

 

(7)

Reflects 1,225,760 Series C Preferred shares held by Jacob Lantz. Mr. Lantz exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 1535 White School Road, Honey Brook, Pennsylvania 19344.

 

(8)

Reflects 683,520 Series C Preferred shares and Debentures convertible into 683,520 Series C Preferred shares held by Sanderson Capital Partners Limited. Tanvier Malik is the director of Sanderson Capital Partners Limited and exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 1535 White School Road, Honey Brook, Pennsylvania 19344.

 

(9)

Reflects 566,421 Series C Preferred Shares held by Michael Horochivsky. Mr. Horochivsky exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 1612 Sheffield Drive, Lompoc, California 93436.

 

(10)

Reflects 455,680 Series C Preferred shares and Debentures convertible into 455,680 Series C Preferred shares held by Amir Mehdic Safavi. Mr. Safavi exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 634-B North Robertson Blvd., West Hollywood, Florida 90069.

 

(11)

Reflects 455,680 Series C Preferred shares and Debentures convertible into 455,680 Series C Preferred shares held by Joseph Randall Schottland. Mr. Schottland exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 227 Clinton Street, Brooklyn, New York 11201.

 

(12)

Reflects 263,180 Series C Preferred shares and Debentures convertible into 455,680 Series C Preferred shares held by SNDT Communications, Inc. Barry Thompson is the partner of SNDT Communications, Inc. and exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 99 Prince Street, Apartment 8N, New York, New York 10012.

 

(13)

Reflects 250,000 Series C Preferred shares held by Enigma Technology Consulting Services Limited. Edward Bowers is the director of Enigma Technology Consulting Services Limited and exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 2a Lord Street, Douglas, Isle of Man IM1 2BD.

 

(14)

Reflects 227,480 Series C Preferred shares and Debentures convertible into 227,480 Series C Preferred shares held by Scott M. Stern Revocable Trust. Scott M. Stern is the trustee of the Scott M. Stern Revocable Trust and exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 4 Chateau Oaks, St. Louis, Missouri 63124.

 

(15)

Reflects 220,880 Series C Preferred shares and Debentures convertible into 170,880 Series C Preferred shares held by Richard Imperatore. Mr. Imperatore exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 227 Clinton Street, Brooklyn, New York 11201.

 

(16)

Reflects 202,225 Series C Preferred shares held by Sichenzia Ross Friedman Ference LLP. Andrea Cataneo is a partner of Sichenzia Ross Friedman Ference LLP and exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 61 Broadway, 32nd Floor, New York, New York 10006.

 

(17)

Reflects 163,910 Series C Preferred shares and 75,000 shares of common stock held by Vukota Multi-Strategy Fund, L.P. Mr. Vukota has voting power and investment power for this entity. The address of the beneficial owner is 5251 DTC Parkway, Suite 1001, Greenwood Village, Colorado, 80112.

 

(18)

Reflects 157,840 Series C Preferred shares and Debentures convertible into 227,840 Series C Preferred shares held by Singer Children Management Trust. Karen Singer is the trustee of Singer Children Management Trust and exercises voting and dispositive power over these securities. The address of the beneficial owner is 2200 Fletcher Avenue, Suite 501, Fort Lee, New Jersey, 07024.

 

(19)

Reflects 140,000 Series C Preferred shares held by Andy Westlund. Mr. Westlund exercises sole voting and investment power over these securities. The address of the beneficial owner is 41154 Ridge Drive, Scio, Oregon, 98374.

 

(20)

Reflects 120,000 Series C Preferred shares held by KaJuTi GmbH. Kay Buschmann is the Managing Director of KaJuTi GmbH Trust and exercises sole voting and dispositive power over these securities. The address of the beneficial owner is Nussbaumstrasse 25 65719 Hofheim am Taunus, Germany.

 

(21)

Reflects 113,920 Series C Preferred shares, Debentures convertible into 113,920 Series C Preferred shares and 586,667 shares of Common Stock held by Dr. Michael A. Holloway Inc.. Dr. Michael A. Holloway exercises sole voting and dispositive power over these securities. The address of the beneficial owner is #204-1406 Laburnum Street, Vancouver, BC V6J 3W3.

 

(22)

Reflects 113,920 Series C Preferred shares, Debentures convertible into 113,920 Series C Preferred shares held by Clyde Berg. Mr. Berg exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 10050 Bandley Drive, Cupertino, California 95014.

 

(23)

Reflects 113,920 Series C Preferred shares, Debentures convertible into 113,920 Series C Preferred shares held by Robert J. McCarthy. Mr. McCarthy exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 1450 Fairbank Drive, St. Louis, Missouri 63131.

 

(24)

Reflects 113,920 Series C Preferred shares, Debentures convertible into 113,920 Series C Preferred shares held by Stourbridge Investments, LLC. Steve Schnipper, Managing Member of Stourbridge Investments LLC, has voting and investment power over these securities. The address of the beneficial owner is 700 Summit Road, Union, New Jersey 07083.

 

(25)

Reflects 113,920 Series C Preferred shares, Debentures convertible into 113,920 Series C Preferred shares held by JMM Foundation. Joshua Lifshitz has voting and investment power over these securities. The address of the beneficial owner is 160 Hollywood Crossing, Lawrence NY 11559.

 

 
 
 

 

 

(26)

Reflects 106,960 Series C Preferred shares, Debentures convertible into 56,960 Series C Preferred shares held by Jeffrey Compton. Mr. Compton exercises sole voting and dispositive power over these securities. The address of the beneficial owner is PO Box 632, Los Olivos, California 93441.

 

(27)

Reflects 100,000 Series C Preferred shares held by Gemini Master Fund, Ltd.. Steven Winters has voting and investment power over these securities. The address of the beneficial owner is 619 South Vulcan, Suite 203, Encinitas, California 92024.

 

(28)

Reflects 100,000 Series C Preferred shares held by RBB Capital LLC. Mark Grober, a manager of RBB Capital LLC, has voting and investment power over these securities. The address of the beneficial owner is 200 Stonehinge #3, Carle Place, NY 11514.

 

(29)

Reflects 100,000 Series C Preferred shares held by Richard Shanley. Mr. Shanley exercises sole voting and investment power over these securities. The address of the beneficial owner is 1121 Diplomat Parkway, Hollywood, Florida 33019.

 

(30)

Reflects 81,960 Series C Preferred shares and Debentures convertible into 56,960 Series C Preferred shares held by Michael Judd. Mr. Judd exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 7 Michaels Lane, Old Brookville, NY 115445.

 

(31)

Reflects 60,448 Series C Preferred shares held by George Anaya. Mr. Anaya exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 6278 North Federal Highway, #438, Fort Lauderdale, Florida 33308.

 

(32)

Reflects 56,960 Series C Preferred shares and Debentures convertible into 56,960 Series C Preferred shares held by Blue Casa Telephone, LLC. Jeff Compton exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 144 E. Haley Street, Suite A, Santa Barbara, California 93101.

 

(33)

Reflects 50,000 Series C Preferred shares held by Anything Media, Inc. The address of the beneficial owner Is 4625 West Nevso Dr, Suite 2, Las Vegas, NV, 89103.

 

(34)

Reflects 50,000 Series C Preferred shares held by Black Mountain Equities, Inc. The address of the beneficial owner is 13366 Greenstone Crt, San Diego, CA, 92131.

 

(35)

Reflects 50,000 Series C Preferred shares held by Gary Herick. Mr. Herick has voting and investment power over these securities. The address of the beneficial owner is PO Box 5035, Edwards, CO, 81632.

 

(36)

Reflects 50,000 Series C Preferred shares held by Pass The Biscuits, LLC. The address of the beneficial owner is 5220 Spring Valley Road, Suite 195, Dallas, TX.

 

(37)

Reflects 50,000 Series C Preferred shares held by Rainmaker Consulting. The address of the beneficial owner is 13366 Greenstone Crt, San Diego, CA, 92131.

 

(38)

Reflects 50,000 Series C Preferred shares held by Woodcrest Capital, LLC. Mr. James A. Ryffel, a manager of Woodcrest Capital, LLC has voting And Investment Power Over These Securities. The Address Of The Beneficial Owner is 3113 S University Dr. 6th Floor, Fort Worth, Texas, 76109.

 

(39)

Reflects 42,926 Series C Preferred shares, Debentures convertible into 34,176 Series C Preferred shares and 10,000 shares of Common Stock held by Vikram P. Grover. Mr. Grover exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 111 N 4th Avenue, St. Charles, Illinois, 60174

 

(40)

Reflects 34,638 Series C Preferred shares held by Andrea Cataneo. Ms. Cataneo has voting and investment power over these securities. The address of the beneficial owner is 62 Broadway, 32nd Floor, New York, NY, 10007

 

(41)

Reflects 34,450 Series C Preferred shares held by Dave Zook. Mr. Zook has voting and investment power over these securities. The address of the beneficial owner is 100 Clearwater Drive, Gap, PA, 17527

 

(42)

Reflects 25,700 Series C Preferred shares held by Gideon D. Zook. Mr. Zook has voting and investment power over these securities. The address of the beneficial owner is 729 Northpoint Road, Gap, PA, 17527

 

(43)

Reflects 25,000 Series C Preferred shares held by Charles Cain. Mr. Cain has voting and investment power over these securities. The address of the beneficial owner is 2500 S Pitkin St., B 100, Spring, Texas, 77386

 

(44)

Reflects 25,000 Series C Preferred shares held by Clayton B. Mahaffey. Mr. Mahaffey has voting and investment power over these securities. The address of the beneficial owner is 1712 Park Ridge Way, Cave Springs, Arkansas, 72718

 

(45)

Reflects 25,000 Series C Preferred shares held by Clayton R. Mahaffey. Mr. Mahaffey has voting and investment power over these securities. The address of the beneficial owner is 907 Decatur St, New Orleans, Louisiana, 70116

 

(46)

Reflects 25,000 Series C Preferred shares held by Eric Hertz & Jennifer J. Barnes Hertz, JT TEN. Mr. Hertz and Ms. Barnes Hertz have joint voting and investment power over these securities. The address of the beneficial owner is 20980 Canyon View Dr., Saratoga, California, 95070

 

(47)

Reflects 25,000 Series C Preferred shares held by Kelly Myers. Kelly Myers has voting and investment power over these securities. The address of the beneficial owner is 108 Deer Creek Dr., Aledo, Texas, 76008

 

(48)

Reflects 25,000 Series C Preferred shares held by Larry Steinberg. Mr. Steinberg has voting and investment power over these securities. The address of the beneficial owner is 5420 LBJ Frwy, Lincoln Center II, Dallas, Texas, 75240

 

(49)

Reflects 25,000 Series C Preferred shares held by Microcap Equity Group, LLC. Mr. Steinberg has voting and investment power over these securities. The address of the beneficial owner is 7378 W. Atlantic Blvd., Suite #223, Margate, Florida, 33063

 

(50)

Reflects 25,000 Series C Preferred shares held by Nicola Wolfram. Mr. Wolfram has voting and investment power over these securities. The address of the beneficial owner is Lindenstr 4c, Munich, Germany, 81545

 

(51)

Reflects 25,000 Series C Preferred shares held by Robert Nibbelink. Mr. Nibbelink has voting and investment power over these securities. The address of the beneficial owner is PO Box 2797, Edwards, CO, 81632

 

 
 
 

 

 

(52)

Reflects 25,000 Series C Preferred shares held by Robert Traversa. Mr. Traversa has voting and investment power over these securities. The address of the beneficial owner is 85 River Street, Sleepy Hollow, New York, 10591

 

(53)

Reflects 25,000 Series C Preferred shares held by Shaw Investment Properties, LLC. The address of the beneficial owner is 1811 Myrtle Ridge Dr., Baton Rouge, Louisiana, 70816

 

(54)

Reflects 25,000 Series C Preferred shares held by Talari Industries, LLC. Sam Talari is the managing director has voting and investment power over these securities. The address of the beneficial owner is 3637 4th Street North, # 330, St. Petersburg, FL, 33704

 

(55)

Reflects 22,784 Series C Preferred shares and Debentures convertible into 22,784 Series C Preferred shares held by Gary S. Definis. Mr. Definis exercises sole voting and dispositive power over these securities. The address of the beneficial owner is P.O Box 39287, Philadelphia, Pennsylvania, 19136

 

(56)

Reflects 20,000 Series C Preferred shares held by Benjamin J. Riegsecker. Mr. Riegsecker has voting and investment power over these securities. The address of the beneficial owner is 1270 Kerr Lane, Harrison, Arkansas, 72601

 

(57)

Reflects 20,000 Series C Preferred shares held by Marco Services, Inc. The address of the beneficial owner is 318 N. Carson St. #208, Carson City, New York, 89701

 

(58)

Reflects 18,750 Series C Preferred shares held by Floyd D. King. Mr. King has voting and investment power over these securities. The address of the beneficial owner is 5474 Strasburg Road, Gap, Pennsylvania, 17527

 

(59)

Reflects 16,250 Series C Preferred shares held by RBC Capital Markets Llc Cust Fbo, David R Zook Roth Ira. has voting and investment power over these securities. The address of the beneficial owner is 60 South 6th Street, Mailstop: P9, Minneapolis, Minnesota, 55402

 

(60)

Reflects 15,000 Series C Preferred shares held by ZZZ Holdings, LLC. The address of the beneficial owner is 5075 Lower Valley Rd., Atglen, Pennsylvania, 19310

 

(61)

Reflects 13,215 Series C Preferred shares held by Lantz Holdings, LLC. Jacob Lantz has voting and investment power over these securities. The address of the beneficial owner is 1535 White School Rd., Honey Brook, Pennsylvania, 19344

 

(62)

Reflects 10,000 Series C Preferred shares held by Gary Elliston. Mr. Elliston has voting and investment power over these securities. The address of the beneficial owner is 9206 Westview Circle, Dallas, Texas, 75321

 

(63)

Reflects 10,000 Series C Preferred shares held by Perry Douglas West. Mr. West has voting and investment power over these securities. The address of the beneficial owner is P.O. Box 427, Cocoa, Florida, 32923

 

(64)

Reflects 10,000 Series C Preferred shares held by Vesselin M. Mihaylov. Mr. Mihaylov has voting and investment power over these securities. The address of the beneficial owner is 180 Maiden Lane, Floor #17, New York, New York, 10038

 

(65)

Reflects 8,750 Series C Preferred shares held by Mauricio Vega III. Mr. Vega III has voting and investment power over these securities. The address of the beneficial owner is 14910 Ridge Hill, San Antonio, Texas, 78233

 

(66)

Reflects 6,250 Series C Preferred shares held by Marlin Lantz. Mr. Lantz has voting and investment power over these securities. The address of the beneficial owner is 6422A Ashborough Ct., Milton, Florida, 32570

 

(67)

Reflects 3,750 Series C Preferred shares held by Henry Garman. Mr. Garman has voting and investment power over these securities. The address of the beneficial owner is 331 Yellow Hill Road, Narvon, Pennsylvania, 17555

 

(68)

Reflects 3,750 Series C Preferred shares held by Kauffman Precast, LLC. The address of the beneficial owner is 219 Ware Rd, Iva, South Carolina, 29655

 

(69)

Reflects 2,850,001 shares of Common Stock held by Ross MacLeod. Mr. MacLeod exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 2923 Duncairn Drive, Mississauga, Canada

 

(70)

Reflects 576,237 shares of Common Stock held by Blue Fire Consulting Group, Ltd. Deborah Sweeting exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 2nd Floor Yellowman Building, Old Airport Road, Po Box 170, Grand Turk, Turks & Caicos Islands

 

(71)

,Reflects 575,622 shares of Common Stock held by George B. Kaufman. Mr. Kaufman has voting and dispositive power over these securities. The address of Mr. Kaufman is 311 Greenwich St., #9 D. New York, NY. 10013

 

(72)

Reflects 238,054 shares of Common Stock held by Birch First Advisors, LLC. Pier S. Bjorklund is the ????? and exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 205 Worth Avenue, Ste. 201, Palm Beach, Florida

 

(73)

Reflects 187,000 shares of Common Stock held by Andrew Pateras. Mr. Pateras exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 281 Willlis Drive, Aurora, Canada

 

(74)

Reflects 187,000 shares of Common Stock held by Melissa Pateras. Ms. Pateras exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 281 Willlis Drive, Aurora, Canada

 

 
 
 

 

 

(75)

Reflects 143,334 shares of Common Stock held by Uptick 20 S.A. The address of the beneficial owner is 53 Rd E. Street Urbanizacion, Marbella, Panama

 

(76)

Reflects 110,000 shares of Common Stock held by Breakwater International, Inc. The address of the beneficial owner is 2 Rendezvous Road, Worthing, Christ Church, Barbados

 

(77)

Reflects 100,000 shares of Common Stock held by 8309841 Canada, Inc. Gabriel Malca exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 5890 Marc Chagall # 106, Montreal, Canada

 

(78)

Reflects 83,334 shares of Common Stock held by John McComber. Mr. McComber exercises sole voting and dispositive power over these securities. The address of the beneficial owner is P.O. Box 934, Kahnawake, Canada

 

(79)

Reflects 80,000 shares of Common Stock held by Jacques Proulx. Mr. Proulx exercises sole voting and dispositive power over these securities. The address of the beneficial owner is PTY 14865, 2250 NW, 114th Avenue, Miami, Florida

 

(80)

Reflects 77,000 shares of Common Stock held by Geneweb Incorporated. The address of the beneficial owner is 220-33 Hazelton Avenue, Toronto, Canada

 

(81)

Reflects 66,667 shares of Common Stock held by Kerry Kulak. Mr. Kulak exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 26-20 Kernhan Parkway, London, United Kingdom

 

(82)

Reflects 59,081 shares of Common Stock held by Christopher S. Durcan. Mr. Durcan exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 74 North Parade, Grantham, Lincolnshire, United Kingdom

 

(83)

Reflects 55,000 shares of Common Stock held by Vantech Securities LTD. The address of the beneficial owner is #6 North Buckner Square, Olde Towne Mall, Sandyport, W. Bay Street, Nassau, Bahamas

 

(84)

Reflects 51,242 shares of Common Stock held by Anslow & Jaclin LLP. Mr. Gregg Jaclin exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 195 Route 9 S., Suite 204, Manalapan, New Jersey, 07726

 

(85)

Reflects 50,000 shares of Common Stock held by James D. Beatty. Mr. Beatty exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 46 Teddington Park, Toronto, Canada

 

(86)

Reflects 50,000 shares of Common Stock held by European Marketing Group, Inc. Ms. Marcela A. Doljak exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 23 P.O. Box CH-8022, Zurich, Switzerland

 

(87)

Reflects 47,469 shares of Common Stock held by Mark J. Wood. Mr. Wood exercises sole voting and dispositive power over these securities. The address of the beneficial owner is Mill Mall, Suite 6, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands

 

(88)

Reflects 45,000 shares of Common Stock held by Glenstar Enterprises LTD. The address of the beneficial owner is Suite 31, Don House 30-38 Main Street, Gibraltar, Gibraltar

 

(89)

Reflects 42,500 shares of Common Stock held by Simon G. Arnison. Mr. Arnison exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 12 Littlecote Road, Chippenham, Wiltshire, United Kingdom

 

(90)

Reflects 42,500 shares of Common Stock held by Practical Business Advisors, LLC.. Practical Business Advisors exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 25682 Arcadia Drive, Novi, Missouri, 48374

 

(91)

Reflects 40,000 shares of Common Stock held by Vlada Poliak. Mr. Vlada exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 146 Silver Maple Rd. Richmond Hill, Canada L4E 4YS

 

(92)

Reflects 36,900 shares of Common Stock held by Threshold Ventures, LLC. Threshold Ventures exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 5019 Carefree Trail, Parker, Colorado, 80134

 

(93)

Reflects 33,334 shares of Common Stock held by DLE Trading, Inc. David DesLauriers exercises sole voting and dispositive power over these securities. The address of the beneficial owner is Upper Penthouse, 131 Bloor St. W. Toronto, Canada M5S 183

 

(94)

Reflects 33,334 shares of Common Stock held by Kasmayer Investments, Inc. David Kasmayer exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 1212 Queen Victoria Ave. Missauga, Canada L5M 6J8

 

(95)

Reflects 33,334 shares of Common Stock held by Stifel Nicolaus C/F, Richard Tennenbaum IRA. Mr Nicolaus exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 501 North Broadway, St. Louis, Missouri, 63102

 

(96)

Reflects 30,000 shares of Common Stock held by James Petrozzi. Mr. Petrozzi exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 188 Autumn Hill Cresent, Kitchener, Canada N2N 1K8

 

(97)

Reflects 26,496 shares of Common Stock held by Jeffrey Scott Tennenbaum. Mr. Tennenbaum exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 33 East Riding Drive, Cherry Hill, New Jersey, 08003

 

(98)

Reflects 25,000 shares of Common Stock held by China Business Consultings, Inc. _Ms. Ying Wang exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 4026 Chancery Court, NW. Washington, D.C., 20007

 

(99)

Reflects 24,000 shares of Common Stock held by Benny Bien. Mr. Bien exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 130 Denison Street, Markham, Canada L3R 1B6

 

(100)

Reflects 23,000 shares of Common Stock held by Tomislav Vukota. Mr. Vukota exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 19 Emerald Heights Drive, Stouffville, Canada L4A0C8

 

 
 
 

 

 

(101)

Reflects 22,000 shares of Common Stock held by Jan Michael Rosen. Mr. Rosen exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 322 Glenayr Road, Toronto, Canada M5P 3C5

 

(102)

Reflects 20,000 shares of Common Stock held by Thomas Pateras. Mr. Pateras exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 281 Willis Drive, Aurora, Canada L4G 7M3

 

(103)

Reflects 20,000 shares of Common Stock held by Liydmila Poliak. Ms. Poliak exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 146 Silver Maple Rd. Richmond Hill, Canada L4E 4Y8

 

(104)

Reflects 20,000 shares of Common Stock held by Michael Voisin. Mr. Voisin exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 2046 Old Mill Rd. Kitchener, Canada N2P 1E2

 

(105)

Reflects 20,000 shares of Common Stock held by John Zwerling and Patricia West. Mr. Zwerling and Ms. West exercises sole voting and dispositive power over these securities. The address of the beneficial owners is 1661 Crescent Pike, Washington D.C., 20009

 

(106)

Reflects 15,400 shares of Common Stock held by Stephen P. Magenta. Mr. Magenta exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 9 Cliff Court, Sewell, New Jersey, 08080

 

(107)

Reflects 13,334 shares of Common Stock held by Upscale Solutions Inc. Mr. Gabriel Malca exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 5824 Westluke, Cote St. Luc, Canada H4W 2N8

 

(108)

Reflects 13,317 shares of Common Stock held by Bonnie Vistorino. Ms. Vistorino exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 206 Strathallen Blvd., Toronto, Canada M5N 1T2

 

(109)

Reflects 12,500 shares of Common Stock held by Irina Kuzovenko. Ms. Kuzovenko exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 63 Old Colony Road, Richmond Hill, Canada L4E 3V2

 

(110)

Reflects 10,000 shares of Common Stock held by Bridgeone, LLC. Mr. Joe Michael exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 1101 30th Street, N.W., Suite 500, Washington D.C., 20007

 

(111)

Reflects 10,000 shares of Common Stock held by Candlebrook Capital Corp.. Mr. Alexander C. Logie exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 4th Floor, Harbour Centre, Georgetown, Grand Cayman

 

(112)

Reflects 10,000 shares of Common Stock held by Joseph K. Delisle. Mr. Delisle exercises sole voting and dispositive power over these securities. The address of the beneficial owner is P.O. Box 11, Kahnawake, Canada JoL 1B0

 

(113)

Reflects 10,000 shares of Common Stock held by H. James Garel. Mr. Garel exercises sole voting and dispositive power over these securities. The address of the beneficial owner is P.O. Box 45081, Edwards, Colorado, 81632

(114)

Reflects 10,000 shares of Common Stock held by Gotham Advisory Group, LLC. Gotham Advisory Group exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 637 Wyckoff Avenue #321, Wyckoff, New Jersey, 07481

(115)

Reflects 10,000 Z shares of Common Stock held by Anna Metcalfe. Ms. Metcalfe exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 68-615 Farrington, Hwy # 17A, Haleiwa, Hawaii, 96791

(116)

Reflects 10,000 shares of Common Stock held by Diane Proulx. Ms. Proulx exercises sole voting and dispositive power over these securities. The address of the beneficial owner is PTY 14865, 2250 NW 114th Avenue, Miami, Florida, 33172-3652

(117)

Reflects 10,000 shares of Common Stock held by Erwin Ernest Sniedzins. Mr. Sniedzins exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 38 Helendale Avenue, Toronto, Canada M4R 1C4

(118)

Reflects 10,000 shares of Common Stock held by Melita Sniedzins. Ms. Sniedzins exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 38 Helendale Avenue, Toronto, Canada M4R 1C4

(119)

Reflects 10,000 shares of Common Stock held by Scott Sniedzins. Mr. Sniedzins exercises sole voting and dispositive power over these securities. The address of the beneficial owner is B-851 Quenn Street W. Toronto, Canada M6J 1G4

(120)

Reflects 8,000 shares of Common Stock held by AJ Butler. Mr. Butler exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 26 Apple Ridge Drive, Kitchener, Canada

 

 
 
 

 

 

(121)

Reflects 8,000 shares of Common Stock held by Nina Oukhina. Ms. Oukhina exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 360 Ridelle Avenue, #515, Toronto, Canada

 

(122)

Reflects 8,000 shares of Common Stock held by Thomas Sniedzins. Mr. Sniedzins exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 38 Helendale Avenue, Toronto, Canada

 

(123)

Reflects 8,000 shares of Common Stock held by Jian Jun Yan. Mr. Yan exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 38 Helendale Avenue, Toronto, Canada

 

(124)

Reflects 7,500 shares of Common Stock held by Doug Jackson. Mr. Jackson exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 5019 Carefree Trail, Parker, Colorado, 80134

 

(125)

Reflects 7,000 shares of Common Stock held by Kristian and Leslie Albright. Mr. and Ms. Albright exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 8670 E. 145th Place, Brighton, Colorado, 80602

 

(126)

Reflects 7,000 shares of Common Stock held by Anzhelika Shenton. Ms. Shenton exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 33 Holly Street, APT. # 315, Toronto, Canada

 

(127)

Reflects 6,667 shares of Common Stock held by Gabriel Bolotin. Mr. Bolotin exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 29 Zola Gate, Thornhill, Canada

 

(128)

Reflects 6,667 shares of Common Stock held by Ron Foley. Mr. Foley exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 2080 Kawartha Crescen, Mississauga, Canada

 

(129)

Reflects 6,667 shares of Common Stock held by Danan, Corbin, Schupak & Aronow, Inc. The address of the beneficial owner is 880 Third Avenue, 6th Floor, New York, New York, 10022

 

(130)

Reflects 6,667 shares of Common Stock held by Kendall Marin. Mr. Marin exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 19 Solace Road, Markham, Canada

 

(131)

Reflects 6,667 shares of Common Stock held by Raster Investments, Inc. Ms. Marie Elena Teraskiewicz exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 2384 Orchard Crest Blvd, Manasquan, New Jersey, 08736

 

(132)

Reflects 6,667 shares of Common Stock held by Gairin Smith. Mr. Smith exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 161 Prospect Street, Port Dover, Canada

 

(133)

Reflects 5,000 shares of Common Stock held by Richard C. & Patricia M. Albright. Mr. and Mrs. Albright exercise sole voting and dispositive power over these securities. The address of the beneficial owner is 47320 Beachcrest Drive, Neskowin, Oregon, 97149

 

(134)

Reflects 5,000 shares of Common Stock held by Dennis Johnston. Mr. Johnston exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 1770 Connaught Avenue, Halifax, Canada

 

(135)

Reflects 4,500 shares of Common Stock held by Irene S. Lukkarinen. Ms. Lukkarinen exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 1017 Cortell Street, North Vancouver, Canada

 

(136)

Reflects 4,000 shares of Common Stock held by Roger L. Bumgarner. Mr. Bumgarner exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 188 Sopris Mesa Drive, Carbondale, Colorado, 81623

 

(137)

Reflects 4,000 shares of Common Stock held by Eric Elefante. Mr. Elefante exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 5893 Britannia Crescent, Niagara Falls, Canada

 

(138)

Reflects 4,000 shares of Common Stock held by Steve Simunic. Mr. Simunic exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 44 Glenashton Drive, Oakville, Canada

 

(139)

Reflects 3,334 shares of Common Stock held by Bruce A. Miles. Mr. Miles exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 30 Granby Court, Naples, Florida, 34104

 

(140)

Reflects 3,300 shares of Common Stock held by Danny Pate. Mr. Pate exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 9816 Rocky Bank Drive, Naples, Florida, 34109

 

(141)

Reflects 3,000 shares of Common Stock held by Jeffrey O. Boateng. Mr. Boateng exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 7205 Harrison Lane, #101, Alexandria, Virginia, 22306

 

(142)

Reflects 3,000 shares of Common Stock held by Edward G. Weatherly. Mr. Weatherly exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 4401 Charing Drive, Castle Rock, Colorado, 80109

 

(143)

Reflects 2,500 shares of Common Stock held by Taras Koulik. Mr. Koulik exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 200 Alderbrae Avenue, Toronto, Canada

 

(144)

Reflects 2,000 shares of Common Stock held by Kevin McCarter. Mr. McCarter exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 1448 Tacketts Pond Drive, Raleigh, North Carolina, 27614

 

(145)

Reflects 1,334 shares of Common Stock held by Daniel G. Bondy. Mr. Bondy exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 1424 Bamber Drive, Las Vegas, Nevada, 89117

 

(146)

Reflects 1,000 shares of Common Stock held by Eric Laursen. Mr. Laursen exercises sole voting and dispositive power over these securities. The address of the beneficial owner is 4436 N. Oxbow Place, Boise, Idaho, 83713

 

(147)

Reflects warrants for 182,272 shares of common stock held by Shai Gerson. Mr. Gerson has voting and dispositive power over these securities. The address of Mr. Gerson is Chardan Capital Markets LLC., 17 State St., Suite 1600 New York, NY. 10013

  

 
65
 

        

Each of the transactions by which the selling stockholders acquired their securities from us was exempt under the registration provisions of the Securities Act. The Shares of common stock referred to above are being registered to permit public sales of the shares, and the selling stockholders may offer the shares for resale from time to time pursuant to this prospectus. The selling stockholders may also sell, transfer or otherwise dispose of all or a portion of their shares in transactions exempt from the registration requirements of the Securities Act or pursuant to another effective registration statement covering those shares. We may from time to time include additional selling stockholders in supplements or amendments to this prospectus.

 

The table  above sets forth certain information regarding the selling stockholders and the shares of our common stock offered by them in this prospectus. None of the selling stockholders have had a material relationship with us within the past three years other than described in the footnotes to the table below or as a result of their acquisition of our shares or other securities. To our knowledge, subject to community property laws where applicable, each person named in the table has sole voting and investment power with respect to the shares of common stock set forth opposite such person’s name. Beneficial ownership is determined in accordance with the rules of the SEC.

 

Pursuant to a registration rights agreement with selling stockholders, we were required to file a shelf registration statement for the resale of the common stock issuable upon conversion of the convertible notes and exercise of the warrants by December 3, 2014. Because we failed to file by that date, we are subject to a monthly penalty, equal to 1.0% of the aggregate purchase price of the convertible notes (not to exceed 20%). As a result of our failure to file by the required date, the selling shareholders are due a 6% fee.

  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Except as set forth below, during the past three years, there have been no transactions, whether directly or indirectly, between the Company and any of its officers, directors or their family members.

 

Cybergy Labs borrowed $80,000 in February 2013 from the family of Wyly Wade, Director. The loan was paid in full plus accrued interest in October 2014.

 

In March 2015, the Company issued a Promissory Note in the amount of $140,000 to Andy Westlund, Director. The note accrues interest at prime plus 5% (8.25% at March 2015) and is due on earlier of: (i) June 30, 2015, or (ii) the closing of an equity or debt financing with gross proceeds to the Company of not less than $1,000,000. In May 2015, the note was converted into 140,000 shares of Series C preferred stock.

 

Effective January 1, 2014, Partners entered into an Equity Purchase Agreement (the “EPA”) with the Member (Jim Williamson) of New West. Under the EPA, Partners purchased all the assets, liabilities, and equity of New West for a purchase price of approximately $7.4 million.

 

In connection with the EPA, Partners issued three types of Acquisition Notes to the Member:

 

·

First notes in the original amount of $1,800,000. The notes bear interest at an annual rate of 5% and are payable monthly in the amount of $34,000 based on a sixty (60) month amortization schedule with any unpaid principal and interest due January 31, 2017.

·

Promissory notes in the amount of $2,500,000. The notes bear interest at an annual rate of 10% and the outstanding principal balance, together with accrued interest are payable directly out of funding received subsequent to the closing date until the Promissory notes and accrued interest have been paid in full on or before March 1, 2015.

·

Earn-Out Notes due Member having an original aggregate principal amount of $1,860,000 ($930,000 each) and are subject to an Annual Earn-Out Adjustment. The amounts due on March 31, 2015 and April 30, 2016 respectively are based on a comparison of (x) Gross Profit % for the year ended December 31, 2013 to (y) the Gross Profit % for each of the years ended December 31, 2014 and December 31, 2015. If New West’s Gross Profit % for each of 2014 and 2015 is greater or lesser than the Gross Profit % for 2013, then there will be an Annual Earn-Out Adjustment, up or down based on the product of (x) $930,000 multiplied by (y) either (1) the positive percentage by which Gross Profit % for the applicable year exceeds Gross Profit % for 2013, or (2) the negative percentage by which Gross Profit % for the applicable year is less than the Gross Profit % for 2013. In conjunction with the allocation of the purchase price of New West, the Earn-Out notes were recorded at their estimated fair value based upon Management’s estimate of the applicable Gross Profit % and an appropriate discount factor. Management evaluates the estimate at the end of each quarter and any change in the fair value of the earn-out notes will be recognized in other expense.

 

The Acquisition Notes are secured by the common and Series C preferred shares of Cybergy owned by the CEO and CTO of the Company. Mr. Williamson and the related family trust own 15,451,258 shares of our Series C preferred stock.

 

Related party payables represent amounts due to the 49% owner in the JV at December 31, 2014 for subcontract labor and other costs related to a U.S. Department of Energy contract. Related party payables equal $1,808,000 at December 31, 2014.

 

 
71
 

 

DESCRIPTION OF SECURITIES

 

Authorized and Outstanding Capital Stock

 

We have authorized capital stock currently consists of 3,000,000,000 shares of common stock, $0.0001 par value per and 250,001,000 shares of preferred stock, par value $0.0001 per share, consisting of 1,000 shares of Series B preferred stock and 250,000,000 shares of Series C Convertible preferred stock. Each share of the Series C preferred stock is convertible into 10 shares of our common stock.

 

As of September 15, 2015, we had 21,889,803 shares of common stock held of record by  approximately 200  shareholders of record, 1,000 shares of Series B preferred stock, and 53,688,942 shares of Series C Preferred Stock outstanding.

 

Effective December 15, 2014 (the “Effective Date”), we amended our Articles of Incorporation filed with the State of Nevada to effect a reverse split of our common stock such that each 10 shares of our common stock issued and outstanding immediately prior to the Effective Date were combined into 1 share of our common stock (the “Reverse Stock Split”). No fractional shares were issued to any shareholder and, instead of issuing fractional shares; we roundup shares up to the nearest whole number. There was no change to the authorized number of shares. The conversion rate of any preferred stock, convertible debt, and warrants issued have been adjusted to reflect the Reverse Stock Split.

 

Common Stock

 

The holders of our common stock are entitled to one vote per share. In addition, the holders of our common stock will be entitled to receive ratably dividends, if any, declared by our Board of Directors out of legally available funds; however, the current policy of our Board of Directors is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or windingup, the holders of our common stock are entitled to share ratably in all assets that are legally available for distribution. The holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock, which may be designated solely by action of our Board of Directors and issued in the future.

 

Preferred Stock

 

Our Board of Directors are authorized, subject to any limitations prescribed by law, without further vote or action by our stockholders, to issue from time to time shares of Preferred Stock in one or more series. Each series of Preferred Stock will have the number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by our Board of Directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.

 

It is not possible to state the actual effect of the issuance of any shares of Preferred Stock upon the rights of holders of our common stock until the Board of Directors determines the specific rights of the holders of our preferred stock. However, the effects might include, among other things:

 

·

impairing dividend rights of our common stock;

·

diluting the voting power of our common stock;

·

impairing the liquidation rights of our common stock; and

·

delaying or preventing a change of control without further action by our stockholders.

 

We currently have two classes of Preferred Stock outstanding.

 

 
72
 

  

Series B Preferred Stock

 

So long as any shares of Series B Preferred Stock remain outstanding: (i) the holders of shares of Series B Preferred Stock shall be entitled, voting separately as a single class, to elect three (3) directors of the Company.

 

So long as any shares of Series B Preferred Stock remain outstanding, the Company shall not, without first obtaining the approval of the holders of at least two-thirds of the then outstanding shares of Series B Preferred Stock voting together as a single class, undertake any action (whether by amendment of the Company’s Certificate of Incorporation or Bylaws or otherwise, and whether in a single transaction or a class of related transactions) that approves or effects any of the following transactions involving the Company or any of its subsidiaries:

 

·

alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock or creates, whether by merger, consolidation, reclassification or otherwise, any new class or class of shares having rights, preferences or privileges senior to or on a parity with shares of the Series B Preferred Stock;

·

repurchase any equity security (except with respect to shares of the Series B Preferred Stock);

·

effect a recapitalization, reclassification, split-off, spin-off or bankruptcy of the Company or any of its subsidiaries;

·

effect any Liquidation;

·

increase or decrease the authorized size of the Board or any committee thereof or create any new committee of the Board of the Company or any of its subsidiaries;

·

appoint or change the auditors of the Company or any of its subsidiaries;

·

propose to amend or waive any provision of the Company’s or any of its subsidiaries’

·

constitutional documents; and

 

Series C Convertible Preferred Stock

 

The Series C Convertible Preferred Stock, upon liquidation, winding-up or dissolution of the Corporation, ranks on parity, in all respects, with all the Common Stock, except for sharing in the earnings of the Company. Each share of Series C Preferred Stock is convertible into 10 shares of our common stock.

 

Senior Secured Convertible Debentures

 

The Company has issued $4,025,000 and repaid $500,000  of Senior Secured Convertible Debentures. The debentures are convertible at a holder’s option at any time prior to maturity into shares of the Company’s post-merger Series C preferred stock. Each $100,000 of face value is convertible into 227,840 shares of Series C preferred.

 

The convertible debentures shall automatically be converted by the Company at any time that (a) the Company has filed a registration statement with the SEC and such registration statement has been declared effective, (b) the market capitalization of the Company is greater than $20,000,000 for ten consecutive trading days based on the daily volume weighted average price (c) the average daily trading volume for the ten consecutive trading days is greater than 200,000 shares of Common Stock and (d) the Company has consummated a subsequent financing resulting in gross proceeds of at least $5,000,000.

 

 
73
 

  

Warrants

 

The Company has issued 656,202 warrants for Series C Preferred Shares of the Company to the lead placement agent and financial advisor. The warrants expire five years from issue date and have an exercise price of $0.218 per share of Series C Preferred Stock, subject to adjustment of any Anti-dilution and Price Protection Provisions (including “down- round” provisions). The warrants are convertible into 6,562,020 shares of common stock.

 

On April 28, 2015, the Company issued a Promissory Note in the amount of $705,000. The note holder received warrants to purchase 363,636 shares of common stock, exercisable for a period of 5 years from issue date, at an exercise price of $.41 per share. On May 1st, the holder exercised the warrant in a cashless manner for 280,345 shares of restricted common stock.

 

Additionally, we assumed certain warrants of MKHD exercisable into 501,755 shares of common stock at a conversion price of $5.00.

 

Transfer Agent

 

Our transfer agent is Island Stock Transfer, 15500 Roosevelt Blvd., Suite 301, Clearwater, FL 33760.

 

Indemnification of Directors and Officers

 

Section 718.7502 of the Nevada Revised Statutes (“NRS”) provides, in general, that a corporation incorporated under the laws of the State of Nevada, as we are, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than a derivative action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person (a) is not liable pursuant to Section 73.138 of the NRS, and (b) acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. In the case of a derivative action, a Nevada corporation may indemnify any such person against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person (a) is not liable pursuant to Section 73.138 of the NRS, and (b) acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation.

 

Our Articles of Incorporation and Bylaws provide that we will indemnify our directors, officers, employees and agents to the extent and in the manner permitted by the provisions of the NRS, as amended from time to time, subject to any permissible expansion or limitation of such indemnification, as may be set forth in any Stockholders’ or directors’ resolution or by contract. In addition, our director and officer indemnification agreements with each of our directors and officers provide, among other things, for the indemnification to the fullest extent permitted or required by Nevada law, provided that no indemnitee will be entitled to indemnification in connection with any claim initiated by the indemnitee against us or our directors or officers unless we join or consent to the initiation of the claim, or the purchase and sale of securities by the indemnitee in violation of Section 16(b) of the Exchange Act.

 

Any repeal or modification of these provisions approved by our stockholders will be prospective only and will not adversely affect any limitation on the liability of any of our directors or officers existing as of the time of such repeal or modification.

 

We are also permitted to maintain insurance on behalf of any director, officer, employee or other agent for liability arising out of his actions, whether or not the NRS would permit indemnification.

 

 
74
 

  

Disclosure of Commission Position on Indemnification for Securities Act Liabilities

 

Insofar as indemnification for liabilities under the Securities Act may be permitted to officers, directors or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that it is the opinion of the Securities and Exchange Commission that such indemnification is against public policy as expressed in such Securities Act and is, therefore, unenforceable.

 

Anti-Takeover Effect of Nevada Law, Certain By-Law Provisions

 

Certain provisions of our Bylaws are intended to strengthen the Board of Directors’ position in the event of a hostile takeover attempt. These provisions have the following effects:

 

We are subject to the provisions of NRS 78.378 to 78.3793, inclusive, an anti-takeover law which applies to any acquisition of a controlling interest in an "issuing corporation." In general, such anti- takeover laws permit the articles of incorporation, bylaws or a resolution adopted by the directors of an "issuing corporation" (as defined in NRS 78.3788) to impose stricter requirements on the acquisition of a controlling interest in such corporation than the provisions of NRS 78.378 to 78.3793, inclusive, as well as permit the directors of an issuing corporation to take action to protect the interests of the corporation and its stockholders, including, but not limited to, adopting plans, arrangements or other instruments that grant or deny rights, privileges, power or authority to holder(s) of certain percentages of ownership and/or voting power. Further, an "acquiring person" (and those acting in association) only obtains such voting rights in the control shares as are conferred by resolution of the stockholders at either a special meeting requested by the acquiring person, provided it delivers an offeror's statement pursuant to NRS 78.3789 and undertakes to pay the expenses thereof, or at the next special or annual meeting of stockholders. In addition, the anti-takeover law generally provides for (i) the redemption by the issuing corporation of not less than all of the "control shares" (as defined) in accordance with NRS 78.3792, if so provided in the articles of incorporation or bylaws in effect on the 10th day following the acquisition of a controlling interest in an "issuing corporation", and (ii) dissenter's rights pursuant to NRS 92A.300 to 92A.500, inclusive, for stockholders that voted against authorizing voting rights for the control shares.

 

We are also subject to the provisions of NRS 78.411 to 78.444, inclusive, which generally prohibits a publicly held Nevada corporation from engaging in a "combination" with an "interested stockholder" (each as defined) that is the beneficial owner, directly or indirectly, of at least ten percent of the voting power of the outstanding voting shares of the corporation or is an affiliate or associate of the corporation that previously held such voting power within the past three years, for a period of three years after the date the person first became an "interested stockholder", subject to certain exceptions for authorized combinations, as provided therein.

 

In accordance with NRS 78.195, our articles of incorporation provide for the authority of the Board of Directors to issue shares of Preferred Stock in series by filing a certificate of designation to establish from time to time the number of shares to be included in such series and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof, subject to limitations prescribed by law.

 

Blank Check Preferred Stock

 

The ability to authorize “blank check” Preferred Stock makes it possible for our Board of Directors to issue Preferred Stock with voting or other rights or preferences that could impede the success of any attempt to acquire us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our Company.

 

 
75
 

  

PLAN OF DISTRIBUTION

 

Each selling stockholder and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on the over-the-counter market or any other stock exchange, market or trading facility on which the shares are traded, or in private transactions. These sales may be at fixed or negotiated prices. The distribution of the shares by the selling stockholders is not currently subject to any underwriting agreement. Each selling stockholder must use a broker-dealer which is registered in the state in which the selling stockholder seeks to sell their shares. A selling stockholder may use any one or more of the following methods when selling shares:

 

·

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

·

block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

·

purchases by a broker- dealer as principal and resale by the broker-dealer for its account;

·

conducting business in places where business practices and customs are unfamiliar and unknown;

·

an exchange distribution in accordance with the rules of the applicable exchange;

·

privately negotiated transactions;

·

settlement of short sales entered into after the date of this prospectus;

·

broker-dealers may agree with the selling stockholders to sell a specified number of the shares at a stipulated price per share;

·

a combination of any of these methods of sale;

·

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or

·

any other method permitted pursuant to applicable law.

 

Immediately prior to the commencement of this Offering, there was a limited public market for our common stock and a limited number of shares in the public float. 

  

The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

 

On September 18, 2015, the Company filed with the State of Nevada an amendment of its Certificate of Designation for its Series C preferred stock approved by its Board of Directors and the holders of the majority of the shares of Series C preferred stock. Until the first anniversary of the effectiveness of this Registration Statement on Form S-1, the holders of the Company’s Convertible Preferred Stock will not directly or indirectly, convert, offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of, or announce the intention to otherwise dispose of, any shares of the Company’s convertible preferred stock.

    

 
76
 

  

Rule 144

 

In general, under Rule 144, as currently in effect, a person who owns shares that were acquired from us or one of our affiliates at least six months prior to the proposed sale is entitled to sell, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:

 

·

One percent of the number of shares of common stock then outstanding, which is approximately 218,898 shares immediately as of  September 15, 2015 ; or

·

In addition to these volume limitations, sales of unregistered shares of our common stock in reliance on Rule 144 may only be made by affiliates if such sales:

 

·

are preceded by a notice filing on Form 144;

·

are limited to broker’s transactions, as such term is defined under Section 4(a) (4) of the Securities Act; and

·

only occur at a time when current public information about us is available, which generally would require that we are not delinquent with any of our reports required pursuant to Sections 13 or 15 (d) of the Exchange Act.

 

Rule 144 also provides that our affiliates who sell shares of our common stock that are not restricted shares must nonetheless comply with the same restrictions applicable to restricted shares, with the exception of the holding period requirement.

 

Under Rule 144, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled to sell such shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144. If the non-affiliate has held the shares for at least one year, then the shares may be sold without regard to the public information provisions of Rule 144. Therefore, unless otherwise restricted, shares held by non-affiliates may be sold immediately upon the expiration of the lock-up agreements.

 

Penny Stock Rules

 

Broker-dealer practices in connection with transactions in penny stocks are regulated by certain penny stock rules adopted by the SEC. Penny stocks generally are equity securities with a price of less than US $5.00. Penny stock rules require a broker- dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. Our shares may in the future be subject to such penny stock rules in which care our stockholders would, in all likelihood, as a result of the penny stock rules, find it difficult to sell their securities.

 

The Company has not engaged any FINRA member firms to participate in the distribution of securities, except to the extent that certain broker dealers described below shall be selling shareholders in connection with certain warrants and underlying shares of Common Stock received in their capacity as placement agents for earlier private offerings. Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. Each selling stockholder does not expect these commissions and discounts relating to its sales of shares to exceed what are customary in the types of transactions involved. The registration statement of which this prospectus forms a part includes the shares of common stock underlying the warrants held by these firms and certain associated persons listed below. The SEC has indicated that it is their position that any broker-dealer firm which is a selling stockholder is deemed an underwriter and therefore these firms may be deemed an underwriter with respect to the securities being sold by them.

 

We have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates. In addition, we will make copies of this Prospectus available to the selling stockholders for the purpose of satisfying the Prospectus delivery requirements of the Securities Act.

 

In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to these broker- dealers or other financial institutions of shares offered by this prospectus, which shares these broker-dealers or other financial institutions may resell pursuant to this prospectus (as supplemented or amended to reflect these transactions).

 

 
77
 

  

The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with these sales. In this event, any commissions received by these broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling stockholder has informed us that it does not have any agreement or understanding, directly or indirectly, with any person to distribute the common stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed seven percent (7%).

 

We are required to pay certain fees and expenses incurred by us incident to the registration of the shares. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

The selling stockholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares against certain liabilities, including liabilities arising under the Securities Act.

 

Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the shares by the selling stockholders.

 

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the shares may not simultaneously engage in market making activities with respect to our common stock for a period of two business days prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of our common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale.

 

LEGAL MATTERS

 

Sichenzia Ross Friedman Ference LLP, 61 Broadway, 32nd Fl., New York, New York 10006, will pass upon the validity of the shares of our common stock to be sold in this Offering.

 

EXPERTS

 

The consolidated financial statements of Cybergy Holdings, Inc., formerly Cybergy Partners, Inc., as of December 31, 2014 and 2013 and for the year ended December 31, 2014 and for the period from June 2013 (inception) to December 31, 2013, included in this prospectus have been audited by Mayer Hoffman McCann P.C. an independent registered public accounting firm as set forth in their report, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

 

The financial statements of New West Technologies, LLC as of and for the year then ended December 31, 2013, included in this prospectus have been audited by EKS&H LLLP, an independent registered public accounting firm as set forth in their report, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGAND FINANCIAL DISCLOSURE

 

Not applicable.

 

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FORSECURITIES ACT LIABILITIES

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

 
78
 

 

CYBERGY HOLDINGS, INC.

 

208,681,584 Shares

 

Common Stock

 

PROSPECTUS

 

September 24, 2015

 

 
79
 

 

INDEX TO FINANCIAL STATEMENTS

 

 

 

Page #

Cybergy Holdings, Inc. Unaudited Consolidated Financial Statements for the six months ended June 30, 2015 and 2014

 

 

Unaudited Consolidated Condensed Balance Sheets as of June 30, 2015 and December 31, 2014

 

F-2

Unaudited Consolidated Condensed Statements of Operations for the three and six months ended June 30, 2015 and 2014

 

F-3

Unaudited Consolidated Condensed Statement of Changes in Stockholders’ Equity (Deficit) for the six months ended June 30, 2015

 

F-4

Unaudited Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2015 and 2014

 

F-5

Notes to Unaudited Consolidated Condensed Financial Statements

 

F-6

 

 

 

Cybergy Holdings, Inc. Consolidated Financial Statements for the year ended December 2014 and period from June 2013 (inception) to December 31, 2013

 

 

Report of independent registered public accounting firm

 

F-17

Consolidated Balance Sheets as of December 31, 2014 and 2013

 

F-18

Consolidated Statements of Operations for the year ended December 31, 2014 and  period from inception to December 31, 2013

 

F-19

Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the year ended December 31, 2014 and period from inception to December 31, 2013

 

F-20

Consolidated Statements of Cash Flows for the year ended December 31, 2014 and period from inception to December 31, 2013

 

F-21

Notes to Consolidated Financial Statements

 

F-22

 

 

 

New West Technologies, LLC Audited Consolidated Financial Statements for the year ended December 31, 2013

 

 

Report of independent registered public accounting firm

 

F-46

Consolidated Balance Sheets as of December 31, 2013

 

F-47

Consolidated Statement of Operations for the year ended December 31, 2013

 

F-48

Consolidated Statement of Changes in Member's Equity for the year ended December 31, 2013

 

F-49

Consolidated Statement of Cash Flows for the year ended December 31, 2013

 

F-50

Notes to Consolidated Financial Statements

 

F-51

 

 
F-1
 

 

Cybergy Holdings, Inc.

Unaudited Consolidated Condensed Balance Sheets 

 

 

 

July 3, 2015 

 

 

December 31, 2014 

 

ASSETS

Current Assets 

 

 

 

 

 

 

Cash and cash equivalents 

 

$ 58,000

 

 

$ 1,415,000

 

Contract receivables 

 

 

4,795,000

 

 

 

2,328,000

 

Prepaid expenses and other current assets 

 

 

310,000

 

 

 

314,000

 

Total current assets 

 

 

5,163,000

 

 

 

4,057,000

 

Non-Current Assets 

 

 

 

 

 

 

 

 

Property and equipment, net 

 

 

772,000

 

 

 

838,000

 

Other assets 

 

 

60,000

 

 

 

60,000

 

Intangibles, net 

 

 

1,580,000

 

 

 

1,959,000

 

Goodwill 

 

 

4,075,000

 

 

 

4,075,000

 

Total non-current assets 

 

 

6,487,000

 

 

 

6,932,000

 

Total assets 

 

$ 11,650,000

 

 

$ 10,989,000

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities 

 

 

 

 

 

 

 

 

Accounts payable 

 

$ 1,170,000

 

 

$ 449,000

 

Accrued liabilities 

 

 

1,634,000

 

 

 

1,118,000

 

Related party payable 

 

 

3,130,000

 

 

 

1,808,000

 

Line of credit 

 

 

431,000

 

 

 

56,000

 

Current portion of other accrued liabilities 

 

 

254,000

 

 

 

187,000

 

Current portion of long-term debt - other, net 

 

 

488,000

 

 

 

57,000

 

Current portion of acquisition notes 

 

 

4,873,000

 

 

 

3,800,000

 

Current portion of senior secured convertible notes, net 

 

 

2,271,000

 

 

 

932,000

 

Derivative liability 

 

 

10,401,000

 

 

 

53,834,000

 

Total current liabilities 

 

 

24,652,000

 

 

 

62,241,000

 

Non-Current Liabilities 

 

 

 

 

 

 

 

 

Other accrued liabilities  

 

 

50,000

 

 

 

387,000

 

Long term debt, less current portion - other 

 

 

40,000

 

 

 

53,000

 

Senior secured convertible notes, net 

 

 

-

 

 

 

1,285,000

 

Acquisition notes, less current portion 

 

 

956,000

 

 

 

1,834,000

 

Derivative and put liabilities 

 

 

16,056,000

 

 

 

390,184,000

 

Deferred rent 

 

 

234,000

 

 

 

239,000

 

Total non-current liabilities 

 

 

17,336,000

 

 

 

393,982,000

 

Total liabilities 

 

 

41,988,000

 

 

 

456,223,000

 

Commitments and contingencies 

 

 

 

 

 

 

 

 

Stockholders' Equity (Deficit) 

 

 

 

 

 

 

 

 

Common stock, $.0001 par value, 3,000,000,000 shares authorized; 20,750,603 issued and outstanding at July 3, 2015 and 20,520,229 issued; 20,470,229 outstanding at December 31, 2014 

 

 

21,000

 

 

 

21,000

 

Series C preferred stock, $.0001 par value, 250,000,000 shares authorized; 53,733,436 and 52,378,436 shares issued and outstanding  

 

 

5,000

 

 

 

5,000

 

Series B preferred stock, $.0001 par value, 1,000 shares authorized, issued and outstanding  

 

 

-

 

 

 

-

 

Paid in capital 

 

 

1,633,000

 

 

 

-

 

Accumulated deficit 

 

 

(31,976,000 )

 

 

(445,242,000 )

Total Cybergy stockholders' equity (deficit) 

 

 

(30,317,000 )

 

 

(445,216,000 )

Non-controlling interest in joint venture 

 

 

(21,000 )

 

 

(18,000 )

Total stockholders' equity (deficit) 

 

 

(30,338,000 )

 

 

(445,234,000 )

Total liabilities and stockholders' equity (deficit) 

 

$ 11,650,000

 

 

$ 10,989,000

 

 

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

 

 
F-2
 

 

Cybergy Holdings, Inc. 

Unaudited Consolidated Condensed Statements of Operations

 

 

 

Three months ended

 

 

Six months ended

 

 

 

July 3, 2015 

 

 

June 30, 2014 

 

 

July 3, 2015 

 

 

June 30, 2014 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract revenue 

 

$ 7,049,000

 

 

$ 8,270,000

 

 

$ 13,612,000

 

 

$ 17,073,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services 

 

 

5,985,000

 

 

 

7,140,000

 

 

 

11,369,000

 

 

 

14,172,000

 

Gross profit 

 

 

1,064,000

 

 

 

1,130,000

 

 

 

2,243,000