0001038838-15-000136.txt : 20150831
0001038838-15-000136.hdr.sgml : 20150831
20150831125911
ACCESSION NUMBER: 0001038838-15-000136
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20120930
FILED AS OF DATE: 20150831
DATE AS OF CHANGE: 20150831
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: TETRIDYN SOLUTIONS INC
CENTRAL INDEX KEY: 0000827099
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372]
IRS NUMBER: 650008012
STATE OF INCORPORATION: NV
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 033-19411-C
FILM NUMBER: 151084217
BUSINESS ADDRESS:
STREET 1: 800 NORTH QUEEN STREET
CITY: LANCASTER
STATE: PA
ZIP: 17603
BUSINESS PHONE: 717-715-0238
MAIL ADDRESS:
STREET 1: 800 NORTH QUEEN STREET
CITY: LANCASTER
STATE: PA
ZIP: 17603
FORMER COMPANY:
FORMER CONFORMED NAME: CREATIVE VENDING CORP
DATE OF NAME CHANGE: 19960408
FORMER COMPANY:
FORMER CONFORMED NAME: HWS MAI CORP
DATE OF NAME CHANGE: 19890426
10-Q
1
q093012.htm
FORM 10-Q ENDED SEPTEMBER 30, 2012
q093012.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 033-19411-C
TetriDyn Solutions, Inc.
(Exact name of registrant as specified in its charter)
Nevada
20-5081381
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
800 South Queen Street, Lancaster, PA 17603
(Address of principal executive offices, including zip code)
(717) 715-0238
(Registrant’s telephone number, including area code)
n/a
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
o
No
x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
o
No
x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer ¨
Non-accelerated filer o
Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
o
No
x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 28, 2015, issuer had 53,404,140 outstanding shares of common stock, par value $0.001.
TABLE OF CONTENTS
Item
Description
Page
Special Introductory Note—August 2015
3
PART I – FINANCIAL INFORMATION
Item 1
Financial Statements
4
Condensed Consolidated Balance Sheets (Unaudited)
4
Condensed Consolidated Statements of Operations (Unaudited)
5
Condensed Consolidated Statements of Cash Flows (Unaudited)
6
Notes to the Condensed Consolidated Financial Statements (Unaudited)
7
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
17
Item 3
Quantitative and Qualitative Disclosures about Market Risk
22
Item 4
Controls and Procedures
22
PART II – OTHER INFORMATION
Item 3
Defaults upon Senior Securities
24
Item 6
Exhibits
25
Signature
25
2
SPECIAL INTRODUCTORY NOTE
August 2015
The following Quarterly Report on Form 10-Q provides information as of September 30, 2012, and for the nine months then ended, without giving effect to the matters set forth in Note 9 under the caption “Subsequent Events.”
This report is being filed in August 2015 in conjunction with our filing, at or about the same time, of our:
Ø
Quarterly Report on Form 10-Q for the quarter ended September 30, 2012;
Ø
Annual Report on Form 10-K for the year ended December 31, 2012;
Ø
Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30, and September 30, 2013;
Ø
Annual Report on Form 10-K for the year ended December 31, 2013;
Ø
Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30, and September 30, 2014;
Ø
Annual Report on Form 10-K for the year ended December 31, 2014; and
Ø
Quarterly Report on Form 10-Q for the quarter ended March 31, 2015.
You should read all of the foregoing reports and may rely on the Annual Report on Form 10-K for the year ended December 31, 2014; the Quarterly Report on Form 10-Q for the quarter ended March 31, 2015; and any current reports on Form 8-K for a description of current operations.
3
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TETRIDYN SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
December 31,
2012
2011
(Unaudited)
ASSETS
Current Assets
Cash
$
1,745
$
18,609
Accounts receivable
16,873
2,563
Prepaid expenses
1,317
11,888
Total Current Assets
19,935
33,060
Property and Equipment, net
11,382
22,319
Total Assets
$
31,317
$
55,379
LIABILITIES
Current Liabilities
Accounts payable
$
397,389
$
388,298
Accrued liabilities
252,354
159,591
Customer deposits
19,333
24,663
Notes payable, current portion
128,413
99,614
Total Current Liabilities
797,489
672,166
Long-Term Liabilities
Notes payable, net of current portion
173,803
209,667
Convertible notes payable to related party
320,000
275,000
Total Long-Term Liabilities
493,803
484,667
Total Liabilities
$
1,291,292
$
1,156,833
COMMITMENTS AND CONTINGENCIES (See Note 8)
STOCKHOLDERS' DEFICIT
Preferred stock - $0.001 par value
Authorized:
5,000,000 shares
Issued and outstanding:
1,200,000 shares and
1,200,000 shares, respectively
1,200
1,200
Common stock - $0.001 par value
Authorized:
100,000,000 shares
Issued and outstanding:
23,031,863 shares and
23,031,863 shares, respectively
23,032
23,032
Additional paid-in capital
2,896,351
2,896,351
Accumulated deficit
(4,180,558)
(4,022,037)
Total Stockholders' Deficit
(1,259,975)
(1,101,454)
Total Liabilities and Stockholders' Deficit
$
31,317
$
55,379
See the accompanying notes to condensed consolidated unaudited financial statements.
4
TETRIDYN SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
For the Nine Months Ended
September 30,
September 30,
2012
2011
2012
2011
Revenue
$
57,579
$
78,791
$
196,395
$
495,483
Cost of Revenue
6,321
25,669
26,117
257,706
Gross Profit
51,258
53,122
170,278
237,777
Operating Expenses
General and administrative
36,942
40,303
120,789
195,266
Professional fees
8,601
7,734
28,314
35,161
Selling and marketing
3,337
4,737
29,664
55,914
Research and development
25,257
44,407
77,703
134,290
Total Operating Expenses
74,137
97,181
256,470
420,631
Net Loss from Operations
(22,879)
(44,059)
(86,192)
(182,854)
Other Expenses
Interest Expense
(23,830)
(24,812)
(72,329)
(65,230)
Total Other Expenses
(23,830)
(24,812)
(72,329)
(65,230)
Net Loss before Provision for Income Taxes
(46,709)
(68,871)
(158,521)
(248,084)
Provision for Income Taxes
-
-
-
-
Net Loss
$
(46,709)
$
(68,871)
$
(158,521)
$
(248,084)
Total Basic and Diluted Loss Per Common Share
$
-
$
-
$
(0.01)
$
(0.01)
Basic and Diluted Weighted-Average
Common Shares Outstanding
23,031,863
23,031,863
23,031,863
22,405,340
See the accompanying notes to condensed consolidated unaudited financial statements.
5
TETRIDYN SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
2012
2011
Cash Flows from Operating Activities
Net Loss
$
(158,521)
$
(248,084)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
10,937
11,539
Common stock issued for services
-
2,415
Changes in operating assets and liabilities:
Accounts receivable
(14,310)
19,994
Prepaid expenses
10,571
14,491
Accrued expenses
92,763
88,297
Accounts payable
9,091
24,797
Customer deposits
(5,330)
(17,723)
Net Cash Used in Operating Activities
(54,799)
(104,274)
Cash Flows from Financing Activities
Proceeds from borrowing under related party notes payable
45,000
100,000
Principal payments on notes payable
(7,065)
(28,230)
Net Cash Provided by Financing Activities
37,935
71,770
Net Decrease in Cash
(16,864)
(32,504)
Cash at Beginning of Period
18,609
65,007
Cash at End of Period
$
1,745
$
32,503
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes
$
-
$
-
Cash paid for interest expense and lines of credit
$
50,971
$
45,827
See the accompanying notes to condensed consolidated unaudited financial statements.
6
TETRIDYN SOLUTIONS, INC., AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Note 1—Basis of Presentation
TetriDyn Solutions, Inc. (the “Company”), specializes in providing business information technology (IT) solutions to its customers. The Company optimizes business and IT processes by using systems engineering methodologies, strategic planning, and system integration to add efficiency and value to its customers’ business processes and to help its customers identify critical success factors in their business.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.
It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made that are necessary for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year. The interim condensed consolidated financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2011, including the financial statements and notes thereto.
Note 2—Organization and Summary of Significant Accounting Policies
Principles of Consolidation—The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, an Idaho corporation also named TetriDyn Solutions, Inc. Intercompany accounts and transactions have been eliminated in consolidation.
Business Segments—The Company had only one business segment for the three and nine months ended September 30, 2012 and 2011.
Use of Estimates—In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates.
Cash and Cash Equivalents—For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.
Revenue Recognition—Revenue from software licenses, related installation, and support services is recognized when earned and realizable. Revenue is earned and realizable when persuasive evidence of an arrangement exists; services, if requested by the customers, have been rendered and are determinable; and collectability is reasonably assured. Amounts received from customers prior to these criteria being met are deferred. Revenue from the sale of software is recognized when delivered to the customer or upon installation of the software if an installation contract exists. Revenue from post-contract support service is recognized as the services are provided, which is determined on an hourly basis. The Company recognizes the revenue received for unused support hours under support service contracts that have had no support activity after two years. Revenue applicable to multiple-element fee arrangements is divided among the software, the installation, and post-contract support service contracts using vendor-specific objective evidence of fair value, as evidenced by the prices charged when the software and the services are sold as separate products or arrangements.
7
The Company had one customer that represented more than 10% of sales for the three-month period ended September 30, 2012, and two customers that represented more than 10% of sales for the nine-month period ended September 30, 2012. The Company had three customers that represented more than 10% of sales for the three-month period ended September 30, 2011, and two customers that represented more than 10% of the sales for the nine-month period ended September 30, 2011, as follows:
Three Months Ended
September 30, 2012
Nine Months Ended
September 30, 2012
Three Months Ended
September 30, 2011
Nine Months Ended
September 30, 2011
Customer A
76%
49%
--
--
Customer B
--
14%
--
--
Customer C
--
--
22%
--
Customer D
--
--
16%
13%
Customer E
--
--
12%
--
Customer F
--
--
--
11%
Going Concern—The accompanying unaudited condensed consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern. As reflected in the accompanying condensed consolidated financial statements, the Company had a net loss of $46,709 and $158,521 for the three and nine months ended September 30, 2012, respectively. The Company used cash of $54,799 in operating activities for the nine months ended September 30, 2012. The Company had a working capital deficiency of $777,554 and a stockholders’ deficit of $1,259,975 as of September 30, 2012. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on its ability to increase sales and obtain external funding for its product development. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Income Taxes—The Company accounts for income taxes under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740-10-25, Income Taxes. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Fair Value of Financial Instruments—ASC 820, Fair Value Measurements and Disclosures, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
8
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist of accounts receivable, prepaid expenses, accounts payable, accrued liabilities, customer deposits, notes payable, and related-party convertible note payable. Pursuant to ASC 820, Fair Value Measurements and Disclosures, and ASC 825, Financial Instruments, the fair value of the Company’s cash equivalents is determined based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all of the other financial instruments approximate fair value due to the relatively short period to maturity for these instruments.
Property and Equipment—Property and equipment are recorded at cost. Maintenance, repairs, and renewals that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Property and equipment are depreciated using the straight-line method over the estimated useful life of the asset, which is set at five years for computing equipment and vehicles and seven years for office equipment. Gains or losses on dispositions of property and equipment are included in the results of operations when realized.
Net Loss per Common Share—Basic and diluted net loss per common share are computed based upon the weighted-average stock outstanding as defined by FASB ASC 260, Earnings Per Share. As of September 30, 2012 and 2011, 2,018,000 and 3,383,000, respectively, of common share equivalents for granted stock options were antidilutive and not used in the calculation of diluted net loss per share. Additionally, as of September 30, 2012 and 2011, 35,452,900 and 54,225,000, respectively, of common share equivalents for convertible note payables were antidilutive and not used in the calculation of diluted net loss per share.
Stock-Based Compensation—On June 17, 2009, at the Company’s annual shareholders meeting, the Company’s shareholders approved the 2009 Long-Term Incentive Plan under which up to 4,000,000 shares of common stock may be issued. The 2009 plan is to be administered either by the board of directors or by the appropriate committee to be appointed from time to time by the board of directors. Awards granted under the 2009 plan may be incentive stock options (“ISOs”) (as defined in the Internal Revenue Code), appreciation rights, options that do not qualify as ISOs, or stock bonus awards that are awarded to employees, officers, and directors who, in the opinion of the board or the committee, have contributed or are expected to contribute materially to the Company’s success. In addition, at the discretion of the board of directors or the committee, options or bonus stock may be granted to individuals who are not employees, officers, or directors, but contribute to the Company’s success.
Equity instruments issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB ASC 505, Share-Based Payment. Emerging Issues Task Force, or EITF, Issue 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, defines the measurement date and recognition period for such instruments. In general, the measurement date is when either: (a) a performance commitment, as defined, is reached; or (b) the earlier of: (i) the nonemployee performance is complete; or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the EITF.
Effective January 1, 2006, the Company adopted the provisions of FASB ASC 505 for its stock-based compensation plan. Under FASB ASC 505, all employee stock-based compensation is measured at the grant date, based on the fair value of the option or award, and is recognized as an expense over the requisite service period, which is typically through the date the options or awards vest. The Company adopted FASB ASC 505 using the modified prospective method. Under this method, for all stock-based options and awards granted prior to January 1, 2006, that remain outstanding as of that date, compensation cost is recognized for the unvested portion over the remaining requisite service period, using the grant-date fair value measured under the original provisions of FASB ASC 505 for pro forma and disclosure purposes. Furthermore, compensation costs will also be recognized for any awards issued, modified, repurchased, or cancelled after January 1, 2006.
9
Reclassifications—Certain amounts in the 2011 information have been reclassified to conform to the 2012 presentation. These reclassifications had no impact on the Company’s net loss or cash flows.
Note 3—Recent Accounting Pronouncements
In June 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. The update gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede some cost guidance included in Subtopic 605-35, Revenue Recognition–Construction-Type and Production-Type Contracts. The update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. This updated guidance is not expected to have a material impact on the Company's results of operations, cash flows, or financial condition.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern, which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is not expected to have a material effect on the Company's consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, to simplify presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU does not affect the recognition and measurement guidance for debt issuance costs. For public companies, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted. The Company is currently reviewing the provisions of this ASU to determine if there will be any impact on its results of operations, cash flows, or financial condition.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which provides guidance to customers about whether a cloud computing arrangement includes a software license. If such an arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for it as a service contract. For public business entities, the ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early application is permitted. The Company is currently reviewing the provisions of this ASU to determine if there will be any impact on its results of operations, cash flows, or financial condition.
All other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.
10
Note 4—Investments
As of September 30, 2012 and December 31, 2011, the Company had an approximately 40% minority interest in an entity that is developing electronic livestock tracking systems. The Company has no management or financial control over this entity and therefore accounted for the investment using the cost method. The value of the investment was $0 as of September 30, 2012 and December 31, 2011, as determined based on Level 3 inputs.
Note 5—Accounts Payable and Accrued Liabilities
As of September 30, 2012, the Company had $397,389 in accounts payable, $352,324 of which was due on multiple revolving credit cards under the name of the Company's former chief executive officer (now deceased) or the name of the Company's current president. These amounts represent advances to the Company from funds borrowed on credit cards in the name of these officers as an accommodation to the Company at a time when it was unable to obtain advances on its own credit The obligations bear varying rates of interest between 5.25% and 29.99%. The Company agreed to reimburse the former chief executive officer and current president for these liabilities (see Note 9).
As of September 30, 2012, the Company had $252,354 in accrued liabilities. The accrued liabilities included $186,733 that represents unpaid salaries (including accrued payroll taxes) for two of its officers.
Note 6—Convertible Notes Payable to Related Parties
In 2010, the Company borrowed $150,000 in three separate loans from two of its officers and directors, repayable pursuant to various convertible promissory notes. The terms of the notes are as follows: (a) no interest will accrue if the note is repaid within 60 days; (b) if the note is not repaid within 60 days, the Company is obligated to pay 10% for costs associated with securing the funds; (c) if the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid within one year, the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the lenders are authorized to convert part or all of the note balance and accrued interest, if any, into the Company’s common stock at its fair value at any time while the note is outstanding; and (e) the loan’s due date for full repayment is December 31, 2013. Since the loans were not paid within 60 days, the Company is obligated to pay $15,000 for costs associated with securing the funds and accrued interest.
In 2011, the Company borrowed $125,000 in five separate loans from two of its officers and directors, repayable pursuant to various convertible promissory notes. The terms of the notes are as follows: (a) no interest will accrue if the note is repaid within 60 days; (b) if the note is not repaid within 60 days, the Company is obligated to pay 10% for costs associated with securing the funds; (c) if the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid within one year, the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the lenders are authorized to convert part or all of the note balance and accrued interest, if any, into the Company’s common stock at its fair value at any time while the note is outstanding; and (e) the loan’s due date for full repayment is December 31, 2014. Since the loans were not paid within 60 days, the Company is obligated to pay $12,500 for costs associated with securing the funds.
In February 2012, the Company borrowed $40,000 from two of its officers and directors, repayable pursuant to a convertible promissory note. The terms of the note are as follows: (a) no interest will accrue if the note is repaid within 60 days; (b) if the note is not repaid within 60 days, the Company is obligated to pay $4,000 for costs associated with securing the funds; (c) if the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid within one year, the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the lenders are authorized to convert part or all of the note balance and accrued interest, if any, into the Company’s common stock at its fair value at any time while the note is outstanding; and (e) the loan’s due date for full repayment is December 31, 2014. Since the loan was not paid within 60 days, the Company is obligated to pay $4,000 for costs associated with securing the funds.
11
In August 2012, the Company borrowed $5,000 from two of its officers and directors, repayable pursuant to a convertible promissory note. The terms of the note are as follows: (a) no interest will accrue if the note is repaid within 60 days; (b) if the note is not repaid within 60 days, the Company is obligated to pay $500 for costs associated with securing the funds; (c) if the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid within one year, the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the lenders are authorized to convert part or all of the note balance and accrued interest, if any, into the Company’s common stock at its fair value at any time while the note is outstanding; and (e) the loan’s due date for full repayment is December 31, 2014. Since the loan was not paid within 60 days, the Company is obligated to pay $500 for costs associated with securing the funds.
As of September 30, 2012, the Company had $320,000 in convertible notes payable due to related parties with $34,539 in accrued interest.
Note 7—Notes Payable in Default
As of October 25, 2011, a loan from one economic development entity was in default. The loan principal was $50,000 with accrued interest of $5,035 through September 30, 2012.
As of September 30, 2012, the Company was delinquent in payments on two loans to a second economic development entity. The Company owed this economic entity $22,529 in late payments, with an outstanding balance of $163,791 and accrued interest of $11,203 as of September 30, 2012. Both loans are guaranteed by two of the Company’s officers. One loan is secured by liens on intangible software assets and the other loan is secured by the officers’ personal property. The Company is working with this entity to bring the payments current as soon as cash flow permits.
As of September 30, 2012, the Company was delinquent in payments on a loan to a third economic development entity. The Company owed the third economic entity $16,000 in late payments, with an outstanding balance of $85,821 and accrued interest of $2,526 as of September 30, 2012. This loan is secured by a junior lien on all the Company’s assets and shares of our founders’ common stock. The Company is working with this entity to bring the payments current as soon as cash flow permits.
Note 8—Commitments and Contingencies
In March 2012, the compensation committee set the annual salaries for the Chief Executive Officer and the Deputy Chief Executive Officer to be $50,000 and $50,000, respectively, through calendar year 2012 and for subsequent calendar years until otherwise modified in a subsequent compensation committee resolution.
Note 9—Subsequent Events
Office Relocation
In October 2012, the Company moved its offices from 1651 Alvin Ricken Drive, Pocatello, Idaho to 1585 North Skyline Drive, Idaho Falls, Idaho. The Company did not enter into an operating lease agreement for the new office space. The office space is owned by one of the Company’s directors. The Company occupies the office space at no charge to the Company and records the monthly rent expense as in-kind contribution of rent.
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Sales of Unregistered Securities in 2013
On March 25, 2013, the board of directors authorized the issuance of 1,000,000 shares of the Company’s common stock for compensation as follows:
●
200,000 restricted shares of common stock to existing employees of the Company, excluding directors and officers, as determined by management;
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275,000 restricted shares of common stock to each outside director on a discretionary basis for past service;
●
150,000 restricted shares of common stock to an outside consultant for technical services; and
●
100,000 restricted shares of common stock to an outside consultant for marketing and product development services.
The issuances were recorded for financial statement purposes at $0.02 per share, the approximate market price for the common stock on the date the issuances were approved, for a total of $20,000.
Credit Card Obligations
The Company was responsible for reimbursing Dave Hempstead, its chief executive officer, principal financial officer, and director, for personal credit card account expenditures on its behalf. The balance due on these credit card accounts was $261,609 as of the date of Mr. Hempstead's death on April 26, 2013. The credit card companies have not sought collection from assets owned jointly with Mr. Hempstead's surviving spouse, who in turn advised the Company on July 15, 2015, that she will not seek reimbursement from the Company unless the credit card companies hereafter seek payment. The full amount of this liability has been recorded and disclosed as part of accounts payable and will continue to be accrued until the statute of limitations is met.
Sale of Southfork Solutions, Inc.
On August 26, 2014, the Company sold to Southfork Solutions, Inc., the variable interest subsidiary engaged in providing IT solutions to the livestock segment, its 39% minority, nonoperating interest in Southfork Solutions for $75,000. This operation had been discontinued in 2009.
Consolidation of Convertible Notes Payable to Related Parties
On March 19, 2015, the Company exchanged convertible notes payable to its officers and directors in the aggregate principal amount of $320,246, plus accrued but unpaid interest of $74,134, for an aggregate of $394,380 as of December 31, 2014, into a single, $394,380 consolidated convertible note dated December 31, 2014. The new consolidated convertible note has payment and other terms identical to the notes exchanged, except that the conversion provisions were changed from a conversion price to be equal to the stock’s fair value as of the conversion date to a fixed conversion price under the consolidated note of $0.025 per share, the approximate market price of the Company’s common stock as of the date of the issuance of the consolidated note in March 2015. The note is due and payble within 90 days after demand. See Note 6—Convertible Notes Payable to Related Parties.
2015 Investment and Merger Agreements
On March 23, 2015, the Company entered into an Investment Agreement dated March 12, 2015, with JPF Venture Group, Inc. (“JPF”) and an Agreement and Plan of Merger dated March 12, 2015 (the “Merger Agreement”) with Ocean Thermal Energy (“OTE”). Before entering into these agreements, there was no material relationship between the Company and its affiliates and either JPF or OTE and their respective affiliates.
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Investment Agreement—Under the terms of the Investment Agreement, JPF purchased for $100,000 in cash 29,372,277 shares of the Company’s common stock at $0.003405 per share (the “JPF Stock”) and a warrant to purchase up to 1,033,585 shares of the Company’s common stock at an exercise price of $0.003 per share. JPF is an investment entity that is majority-owned by Jeremy P. Feakins (“Feakins”), the Chairman and Chief Executive Officer of OTE. The JPF Stock represents a 55% ownership interest by JPF in the Company, without giving effect to the issuance of additional shares of the Company’s common stock on the conversion of outstanding convertible notes.
JPF’s investment is being used principally to initiate and pursue an updated technical and commercialization review of the Company’s intellectual properties with a view toward possible broadened marketing introduction and, in general, advance the Company’s business activities and to bring its regulatory filings current. The terms of the Investment Agreement provide that, if the Merger (as defined below) with OTE is consummated, 100% of the JPF Stock will be cancelled and returned to the status of authorized and unissued shares. The purpose of this intended cancellation is to ensure that the Company’s current shareholders (excluding JPF) retain a 5% interest in the post-Merger company. If the Merger is not consummated, the JPF Stock will remain outstanding, and JPF will maintain its position as a 55% stockholder in the Company.
Concurrently with the execution of the Investment Agreement, Antoinette Knapp Hempstead and the estate of her late husband, David W. Hempstead (together, the “Hempsteads”), JPF, and Feakins entered into an agreement whereby, among other things: (i) JPF agreed to execute supplemental guarantees for the Hempsteads in connection with certain debt obligations to economic development entities owed by the Company and guaranteed by the Hempsteads; (ii) the Hempsteads transferred to JPF the consolidated convertible note payable by the Company to the Hempsteads with an outstanding principal balance of $394,380 as of December 31, 2014, together with accrued and unpaid payroll of $213,436, for a total of $607,816; and (iii) the Hempsteads returned to the Company for cancellation 1,200,000 shares of Series A Preferred Stock, which were cancelled. The Company has filed a Certificate of Withdrawal of Certificate of Designation for the preferred stock with the Nevada Secretary of State.
As required by the Investment Agreement, two designees of JPF, Feakins and Peter Wolfson, were appointed as directors of the Company to replace incumbent directors Orville J. Hendrickson and Larry J. Ybarrondo, who resigned. See below.
Agreement and Plan of Merger
Merger Terms. Under the terms of the Merger Agreement, the Company would acquire OTE (the “Merger”) as follows: (i) the Company would organize a wholly owned subsidiary that would merge with and into OTE, with OTE continuing as the surviving corporation and as a wholly owned subsidiary of the Company; and (ii) each share of OTE common stock outstanding or issuable on the conversion of outstanding notes and exercise of warrants (other than shares owned by stockholders who dissent to the transaction) immediately before the Merger, would be converted into the right to receive one newly issued share of the Company’s common stock in accordance with the terms and conditions of the Merger Agreement.
Conditions to Completion of Merger. The completion of the Merger would constitute the offer and sale of the Company’s securities to the stockholders of OTE, which can only be effected if a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), is effective or an exemption from registration is available. The Company has determined to seek an exemption from registration under the Securities Act by meeting the requirements of Section 3(a)(10) of this statute, which exempts from registration securities issued when the terms and conditions of such issuance are approved, after hearing upon the fairness of the terms and conditions meeting certain requirements by, among others, a duly authorized administrative agency. In an effort to meet these requirements, the Company has filed an application for a fairness hearing to be held pursuant to the provisions of Section 25142 of the California Securities Law (the “Fairness Hearing”) so that the issuance of the securities to complete the Merger will be exempt from the registration requirements of the Securities Act pursuant to the exemption provided by Section 3(a)(10) of the Securities Act.
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The California application for a Fairness Hearing is now pending. The Fairness Hearing and permitting application are significant and quite technical, and the determination of whether the Merger will meet the California fairness requirements will be subject to the discretion of the hearing officer. No assurance can be given as to whether or not the hearing will result in the denial of the application, an adjustment of the terms of the Merger, the issuance of a permit meeting the conditions of the Securities Act Section 3(a)(10) exemption, or other action.
If California issues a permit availing the Company of the exemption under the Securities Act Section 3(a)(10) and the other conditions to closing the Merger are met, the Merger will be completed promptly thereafter. If California does not issue the permit or the other Merger conditions are not satisfied: (i) the Merger Agreement will terminate; (ii) the Company and OTE will remain as separate companies; and (iii) JPF will continue as the 55% controlling stockholder of the Company as it seeks to advance commercialization of its technologies or pursue other opportunities.
Completion of the Merger is also conditioned on the continuing accuracy of the representations and warranties of the respective parties to the Merger Agreement, the satisfaction of certain conditions, and other covenants, many of which may be waived by either party.
Reverse Split to Facilitate Merger. The Company currently has an authorized capitalization of 100,000,000 shares of common stock and 5,000,000 shares of preferred stock. With 24.0 million shares outstanding immediately preceding the Merger, after giving effect to JPF’s return of 24,031,863 shares issued under the Investment Agreement for cancellation immediately preceding the closing of the Merger, the Company does not have a sufficient number of authorized but unissued shares to convey 95% ownership of its stock to the OTE stockholders as agreed to complete the Merger, which would require the issuance of 369.9 million shares at closing and the reservation of about 86.7 shares for issuance on the conversion of outstanding notes and the exercise of outstanding warrants. Accordingly, immediately preceding the Merger, the Company will effect a 1-for-4.6972 reverse-stock-split of its common stock (the “Reverse Split”) by filing an amendment with the Nevada Secretary of State. This amendment will also increase the Company’s authorized common stock to 200,000,000 shares.
As a result of the Reverse Split, each record holder of less than 4.6972 shares of the Company’s common stock immediately before the Reverse Split (the “Minority Stockholders”) will receive, from the Company, cash in the amount of $0.03 per share of the Company’s common stock, without interest (which amount includes a 20% premium over the fair market value of $0.025 per share as of March 3, 2015, as determined by the Company’s board of directors), for each share of the Company’s common stock held immediately before the Reverse Split, and the Minority Stockholders will no longer be stockholders of the Company. Each record holder of 4.6972 or more shares of the Company’s common stock immediately before the Reverse Split will own approximately one-fifth of the number of shares of the Company’s common stock held by such stockholder immediately before the Reverse Split.
Post-Merger Business of OTE and the Company. OTE is developing deep-water hydrothermal technologies to provide renewable energy and drinkable water. OTE’s Sea Water Air Conditioning (“SWAC”) technology takes advantage of the difference between cold deep water and warmer surface water to produce hydrothermal energy without requiring fossil fuels. OTE has recently broken ground on a SWAC project at the upscale Baha Mar Resort in the Bahamas. This project, believed to be the first large-scale seawater air conditioning system in the Bahamas, is scheduled to be completed and in service in 2016.
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OTE is interested in the commercial potential of proprietary technologies being developed by the Company as opportunities for future business diversification. Further, OTE recognizes that the Company’s status as a company that is subject to the periodic reporting requirements pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), may enhance its access to the capital markets to fund future projects.
After the Merger, the combined enterprise intends to continue opportunistically to develop the lines of business of both the Company and OTE as commercial opportunities are identified for one, the other, or both, after considering funding availability, potential financial returns, and related risks.
Ownership of the Company Following the Merger and Reverse Split. As a result of the Investment Agreement, JPF now owns 55% of Company’s common stock and is a principal creditor of the Company, which owes JPF pursuant to the consolidated convertible note with an outstanding principal balance of $394,380 as of December 31, 2014, and accrued and unpaid payroll of $213,436, for a total of $607,816.
If the Merger is completed, the JPF Stock purchased pursuant to the Investment Agreement will be cancelled and returned to the Company, and the former OTE stockholders will own 95% of the Company’s outstanding common stock (after giving effect to the exercise of OTE warrants and the conversion of OTE notes). The pre-Merger company shareholders will have a 5% interest in the post-Merger company, and the officers and directors of OTE will be the officers and directors of the post-Merger company.
Change in Directors and Management
On March 23, 2015, in connection with the Investment Agreement, Orville J. Hendrickson and Larry J. Ybarrondo resigned their positions on the Company’s board of directors, and Feakins and Peter Wolfson (as a nominee of JPF) were appointed by board consent to the Company’s board. Antoinette Knapp Hempstead, who was a board member before March 23, 2015, continues as a director. The resignations of Messrs. Hendrickson and Ybarrondo are not the result of any disagreement with the Company on any matter relating to its operations, policies, or practices.
Change of Office Location
In connection with the above transactions, in March 2015 the Company’s offices were relocated to the facilities of JPF at 800 South Queen Street, Lancaster, Pennsylvania 17603, telephone number (717) 715-0238, where it shares offices with OTE at no charge to the Company.
2015 Convertible Note Payable to Related-Party
On June 23, 2015, the Company borrowed $50,000 from its principal stockholder, JPF Venture Group, Inc., pursuant to a promissory note. The terms of the note are as follows: (i) interest is payable at 6% per annum; (ii) the note is payable 90 days after demand; and (iii) payee is authorized to convert part or all of the note balance and accrued interest, if any, into shares of the Company’s common stock at their fair market value at the time of conversion. JPF is an investment entity that is majority-owned by Jeremy P. Feakins, a director, chief executive officer, and chief financial officer of the Company.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes to our financial statements included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors discussed elsewhere in this report.
Certain information included herein contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, such as statements relating to our anticipated revenues, gross margin and operating results, estimates used in the preparation of our financial statements, future performance and operations, plans for future expansion, capital spending, sources of liquidity, and financing sources. Forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ from those expressed in any forward-looking statements made herein. These risks and uncertainties include those relating to our liquidity requirements; the continued growth of the software and IT services industries; the success of our product development, marketing and sales activities; vigorous competition in the software industry; dependence on existing management; leverage and debt service (including sensitivity to fluctuations in interest rates); domestic or global economic conditions; the inherent uncertainty and costs of prolonged arbitration or litigation; and changes in federal or state tax laws or the administration of such laws.
This discussion and analysis excludes the effects of the matters described in Note 9–Subsequent Events.
Overview
We optimize business and IT processes by using systems engineering methodologies, strategic development, and integration to add efficiency and value to our customers’ business processes and to help our customers identify critical success factors in their business.
We provide business IT solutions to the healthcare industry. We are expanding our service offerings into selected other professional industries as those markets develop and as we develop new applications for our integrated system of radio frequency identification (RFID) and software solutions for tracking, management, and diagnostic systems.
Description of Expenses
General and administrative expenses consist of salaries and related costs for accounting, administration, finance, human resources, and information systems for internal use.
Professional fees expenses consist of fees related to legal, outside accounting, auditing, market analysis, and investor relations services.
Selling and marketing expenses consist of advertising, promotional activities, trade shows, travel, and personnel-related expenses.
Research and development expenses consist of payroll and related costs for software engineers, management personnel, and the costs of materials and equipment used by these employees in the development of new or enhanced product offerings.
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In accordance with FASB ASC 985, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed, development costs incurred in the research and development of new software products to be sold, leased, or otherwise marketed are expensed as incurred until technological feasibility in the form of a working model has been established. Internally generated, capitalizable software development costs have not been material to date. We have charged our software development costs to research and development expense in our statements of operations.
Property and equipment are recorded at cost. Maintenance, repairs, and renewals that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. Gains or losses on dispositions of property and equipment are included in the results of operations when realized.
Results of Operations
Comparison of Three and Nine Months Ended September 30, 2012 and 2011
Revenues
Our revenue was $57,579 and $196,395 for the three and nine months ended September 30, 2012, respectively, compared to $78,791 and $495,483 for the three and nine months ended September 30, 2011, respectively, representing a decrease of $21,212, or 27%, and $299,088, or 60%, for the three- and nine-month periods, respectively. The decrease in revenues was due to the discontinuation of pursuing computing hardware sales and associated services as we shifted our focus to the development of new products with greater long-term potential.
Cost of Revenue
Our cost of revenue was $6,321 and $26,117 for the three and nine months ended September 30, 2012, respectively, compared to $25,669 and $257,706 for the three and nine months ended September 30, 2011, respectively, representing a decrease of $19,348, or 75%, and $231,589, or 90%, for the three- and nine-month periods, respectively. The gross margin percentage on revenue was 89% and 87% for the three and nine months ended September 30, 2012, respectively, and 67% and 48% for the three and nine months ended September 30, 2011, respectively. The increase in the gross margin percentage for the three and nine months ended September 30, 2012, from the three and nine months ended September 30, 2011, was due to the discontinuation of pursuing computing hardware sales and associated services. Hardware sales have a significantly lower profit margin than service sales.
Although the net changes and percent changes for our revenues and our cost of revenue for the three and nine months ended September 30, 2012 and 2011, are summarized above, the trends contained therein are limited and should not be viewed as a definitive indication of our future results.
Operating Expenses
General and administrative expenses were $36,942 and $120,789 for the three and nine months ended September 30, 2012, respectively, compared to $40,303 and $195,266 for the three and nine months ended September 30, 2011, respectively, representing a decrease of $3,361, or 8%, and $74,477, or 38%, for the three- and nine-month periods, respectively. The decrease in our general and administrative expenses reflects the decrease in overhead related to a reduction of staff.
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Professional fees expenses were $8,601 and $28,314 for the three and nine months ended September 30, 2012, respectively, compared to $7,734 and $35,161 for the three and nine months ended September 30, 2011, respectively, representing an increase of $867, or 11% for the three-month period and a decrease of $6,847, or 19%, for the nine-month period. The increase in our three-month professional fees expenses reflects additional legal fees in 2012 due to a minor customer dispute. The decrease in our nine-month professional fees expenses reflects the increased audit fees in 2011 due to a physical inventory inspection being required in 2011.
Selling and marketing expenses were $3,337 and $29,664 for the three and nine months ended September 30, 2012, respectively, compared to $4,737 and $55,914 for the three and nine months ended September 30, 2011, respectively, representing a decrease of $1,400, or 30%, and $26,250, or 47%, for the three- and nine-month periods, respectively. The decrease in our selling and marketing expenses reflects the reduction of staff caused by reduced operations.
Research and development expenses were $25,257 and $77,703 for the three and nine months ended September 30, 2012, respectively, compared to $44,407 and $134,290 for the three and nine months ended September 30, 2011, respectively, representing a decrease of $19,150, or 43%, and $56,587, or 42%, for the three- and nine-month periods, respectively. The decrease in our research and development expenses reflects the reduction of staff.
Interest expense was $23,830 and $72,329 for the three and nine months ended September 30, 2012, respectively, as compared to $24,812 and $65,230 for the three and nine months ended September 30, 2011, respectively, representing a decrease of $982, or 4%, for the three-month period and an increase of $7,099, or 11%, for the nine-month period. The decrease in the three-month interest expense was due to fewer fees associated with new related-party loans in 2012. The increase in nine-month interest expense is directly related to our increased use of short-term borrowing.
Liquidity and Capital Resources
At September 30, 2012, our principal source of liquidity consisted of $1,745 of cash, as compared to $18,609 of cash at December 31, 2011. In addition, our stockholders’ deficit was $1,259,975 at September 30, 2012, compared to stockholders’ deficit of $1,101,454 at December 31, 2011, an increase in the deficit of $158,521.
We used $54,799 of net cash during the nine months ended September 30, 2012, as compared to the $104,274 of net cash used during the nine months ended September 30, 2011. The $49,475 decrease in the net cash used resulted primarily from a reduction in staff.
Financing activities for our continuing operations provided net cash of $37,935 during the nine months ended September 30, 2012, compared to providing net cash of $71,770 during the nine months ended September 30, 2011. The decrease of $33,835 of net cash provided in financing activities was the result of reduced borrowing in 2012.
We are focusing our efforts on increasing revenue while we explore external funding alternatives as our current cash is insufficient to fund operations for the next 12 months. We expect that additional sales will enable us to increase our payments on indebtedness and support the development of other products. Although our independent auditors have expressed substantial doubt about our ability to continue as a going concern, we feel that our revenues are sufficient for our IT business solutions segment to continue as a going concern. However, in order to expand our product offerings, we expect that we will require additional investments and sales.
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As we continue development of new products and identify specific commercialization opportunities, we will focus on those product markets and opportunities for which we might be able to get external funding through joint venture agreements, strategic partnerships, or other direct investments.
We have no significant contractual obligations or commercial commitments not reflected on our balance sheet as of this date.
Critical Accounting Policies
We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. The list is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for management’s judgment in its application. The impact and any associated risks related to these policies on our business operations are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see the notes to the December 31, 2011, consolidated financial statements. Note that our preparation of the condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.
Revenue Recognition
Revenue from software licenses and related installation and support services is recognized when earned and realizable. Revenue is earned and realizable when persuasive evidence of an arrangement exists; services, if requested by the customers, have been rendered and are determinable; and ability to collect is reasonably assured. Amounts billed to customers prior to these criteria being met are deferred. Revenue from the sale of software is recognized when delivered to the customer or upon installation of the software if an installation contract exists. Revenue from post-contract telephone support service contracts is recognized as the services are provided, determined on an hourly basis.
Revenue applicable to multiple-element fee arrangements is divided among the software, the installation, and post-contract support service contracts using vendor-specific objective evidence of fair value, as evidenced by the prices charged when the software and the services are sold as separate products or arrangements.
Income Taxes
We account for income taxes under FASB ASC 740-10-25, Income Taxes. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
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Recent Accounting Pronouncements
In June 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. The update gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede some cost guidance included in Subtopic 605-35, Revenue Recognition–Construction-Type and Production-Type Contracts. The update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. This updated guidance is not expected to have a material impact on our results of operations, cash flows, or financial condition.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern, which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is not expected to have a material effect on our consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Interest–Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, to simplify presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU does not affect the recognition and measurement guidance for debt issuance costs. For public companies, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows, or financial condition.
In April 2015, FASB issued ASU No. 2015-05, Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which provides guidance to customers about whether a cloud computing arrangement includes a software license. If such an arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for it as a service contract. For public business entities, the ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early application is permitted. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows, or financial condition.
All other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities.”
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us, in the reports that we file or submit to the SEC under the Exchange Act, is recorded, processed, summarized, and reported within the periods specified by the SEC’s rules and forms and that information is accumulated and communicated to our management, including our principal executive and principal financial officer (whom we refer to in this periodic report as our Certifying Officer), as appropriate to allow timely decisions regarding required disclosure. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management evaluated, with the participation of our Certifying Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2012, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of September 30, 2012, our disclosure controls and procedures were not effective to provide reasonable assurance as of September 30, 2012, because certain deficiencies involving internal controls constituted material weaknesses, as discussed below. The material weaknesses identified did not result in the restatement of any previously reported financial statements or any other related financial disclosure, and management does not believe that the material weaknesses had any effect on the accuracy of our financial statements for the current reporting period.
Limitations on Effectiveness of Controls
A system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the system will meet its objectives. The design of a control system is based, in part, upon the benefits of the control system relative to its costs. Control systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. In addition, the design of any control system is based in part upon assumptions about the likelihood of future events.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control of over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. We have assessed the effectiveness of those internal controls as of September 30, 2012, using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control—Integrated Framework as a basis for our assessment.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance respecting financial statement preparation and presentation. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
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A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects our ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of our annual or interim financial statements that is more than inconsequential will not be prevented or detected.
Based on our evaluation of internal control over financial reporting, our management concluded that our internal control over financial reporting was not effective as of September 30, 2012.
As of September 30, 2012, management identified the following material weaknesses:
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Control Environment—We did not maintain an effective control environment for internal control over financial reporting.
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Segregation of Duties—As a result of limited resources and staff, we did not maintain proper segregation of incompatible duties. The effect of the lack of segregation of duties potentially affects multiple processes and procedures.
●
Entity Level Controls—We failed to maintain certain entity-level controls as defined by the framework issued by COSO. Specifically, our lack of staff does not allow us to effectively maintain a sufficient number of adequately trained personnel necessary to anticipate and identify risks critical to financial reporting. There is a risk that a material misstatement of the financial statements could be caused, or at least not be detected in a timely manner, due to lack of adequate staff with such expertise.
●
Access to Cash—Two executives had debit cards for most of our bank accounts and the ability to transfer from our bank accounts.
These weaknesses are continuing. Management and the board of directors are aware of these weaknesses that result because of limited resources and staff. Management has begun the process of formally documenting our key processes as a starting point for improved internal control over financial reporting. Efforts to fully implement the processes we have designed have been put on hold due to limited resources, but we anticipate a renewed focus on this effort in the near future. Due to our limited financial and managerial resources, we cannot assure when we will be able to implement effective internal controls over financial reporting.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the three months ended September 30, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of October 25, 2011, a loan from one economic development entity was in default. The loan principal was $50,000 with accrued interest of $5,035 through September 30, 2012.
As of September 30, 2012, we were delinquent in payments on two loans to a second economic development entity. We owed this economic entity $22,529 in late payments, with an outstanding balance of $163,791 and accrued interest of $11,203 as of September 30, 2012. Both loans are guaranteed by two of our officers. One loan is secured by liens on intangible software assets and the other loan is secured by the officers’ personal property. We are working with this entity to bring the payments current as soon as funds are available.
23
As of September 30, 2012, we were delinquent in payments on a loan to a third economic development entity. We owed the second economic entity $14,000 in late payments, with an outstanding balance of $85,821 and accrued interest of $2,526 as of September 30, 2012. This loan is secured by a junior lien on all our assets and shares of our founders’ common stock. We are working with this entity to bring the payments current as soon as cash flow permits.
During 2010 through September 2012, we borrowed an aggregate of $320,000 pursuant to convertible notes payable to related parties, which had $34,539 in accrued interest as of September 30, 2012. See Note 6—Convertible Notes Payable to Related Parties. On March 19, 2015, we exchanged the above outstanding convertible notes payable to our officers and directors in the aggregate principal amount of $320,246, plus accrued but unpaid interest of $74,134, for an aggregate of $394,380 as of December 31, 2014, into a single, $394,380 consolidated convertible note dated December 31, 2014. See Note 9–Subsequent Events. This consolidated convertible note is currently held by another person who is an officer, director, and the beneficial owner of a controlling block of our common stock, with an outstanding balance of principal and accrued interest of $11,734, as of June 30, 2015.
ITEM 6. EXHIBITS
The following exhibits are filed as a part of this report:
Exhibit Number*
Title of Document
Location
Item 10
Material Contracts
10.21
Promissory Note dated August 27, 2012
Attached
Item 31
Rule 13a-14(a)/15d-14(a) Certifications
31.01
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13a-14
Attached
Item 32
Section 1350 Certifications
32.01
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer and Chief Financial Officer)
Attached
Item 101
Interactive Data
101
Interactive Data files
Attached
_______________
*
All exhibits are numbered with the number preceding the decimal indicating the applicable SEC reference number in Item 601 and the number following the decimal indicating the sequence of the particular document. Omitted numbers in the sequence refer to documents previously filed as an exhibit.
24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TETRIDYN SOLUTIONS, INC.
Date: August 31, 2015
By:
/s/ Jeremy P. Feakins
Jeremy P. Feakins
Chief Executive Officer and
Chief Financial Officer
25
EX-10.21
2
ex1021q093012.htm
PROMISSORY NOTE DATED AUGUST 27, 2012
ex1021q093012.htm
PROMISSORY NOTE
Pocatello, Idaho
Amount: $5,000
FOR VALUE RECEIVED, TETRIDYN SOLUTIONS, INC., an Idaho corporation of 1651 Alvin Ricken Drive, Pocatello, ID 83201 (“Maker”), promises to pay to the order of DAVID AND ANTOINETTE HEMPSTEAD of Idaho Falls, Idaho (“Payee”) the principal sum of $5,000.00, with interest accruing thereon as described below.
1.
The loan will have 0% interest if repaid within sixty (60) days of receipt of funds by the Maker. If the loan is not repaid within sixty (60) days of receipt of funds by the Maker, the Maker will be charged 10% to compensate the Payee for fees associated with securing the loan funds.
2.
If the loan is repaid within one year of receipt of funds by the Maker, no annual interest rate will be charged. If the loan is not repaid within one year of receipt of funds, the annual interest rate will be 6% starting at the one-year anniversary date of the loan.
3.
The Payee is authorized to convert part or all of the loan balance and accrued interest to common stock of the Maker at fair market value at any time.
4.
The loan’s due date for full repayment is December 31, 2014.
This Promissory Note shall be governed by and construed in accordance with the laws of the State of Idaho.
In the event this Note is placed with an attorney for collection or enforcement of any of its terms or provisions, whether or not suit is filed, the undersigned promises to pay, in addition to costs provided by statute or rule a reasonable attorney’s fee.
Payment of this Note is unsecured.
DATED this 27th day of August, 2012.
TETRIDYN SOLUTIONS, INC.
By:
/s/ David W. Hempstead
David W. Hempstead, President
By:
/s/ Antoinette Knapp
Antoinette Knapp, Secretary
EX-31.01
3
ex3101q093012.htm
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A-14
ex3101q093012.htm
Exhibit 31.01
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND
PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a-14
I, Jeremy P. Feakins, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of TetriDyn Solutions, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 31, 2015
/s/ Jeremy P. Feakins
Jeremy P. Feakins
Principal Executive Officer and Principal Financial Officer
EX-32.01
4
ex3201q093012.htm
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER)
ex3201q093012.htm
Exhibit 32.01
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of TetriDyn Solutions, Inc. (the “Company”), on Form 10-Q for the quarter ended September 30, 2012, as filed with the Securities and Exchange Commission (the “Report”), I, Jeremy P. Feakins, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Jeremy P. Feakins
Jeremy P. Feakins
Chief Executive Officer
Chief Financial Officer
August 31, 2015
EX-101.INS
5
tdys-20120930.xml
XBRL INSTANCE DOCUMENT
00008270992012-01-012012-09-3000008270992012-09-3000008270992011-12-3100008270992012-07-012012-09-3000008270992011-07-012011-09-3000008270992011-01-012011-09-3000008270992010-12-3100008270992011-09-3000008270992015-08-010000827099tdys:CustomerAMember2012-07-012012-09-300000827099tdys:CustomerAMember2011-07-012011-09-300000827099tdys:CustomerAMember2012-01-012012-09-300000827099tdys:CustomerAMember2011-01-012011-09-300000827099tdys:CustomerBMember2012-07-012012-09-300000827099tdys:CustomerBMember2011-07-012011-09-300000827099tdys:CustomerBMember2012-01-012012-09-300000827099tdys:CustomerBMember2011-01-012011-09-300000827099tdys:CustomerCMember2012-07-012012-09-300000827099tdys:CustomerCMember2011-07-012011-09-300000827099tdys:CustomerCMember2012-01-012012-09-300000827099tdys:CustomerCMember2011-01-012011-09-300000827099tdys:CustomerDMember2012-07-012012-09-300000827099tdys:CustomerDMember2011-07-012011-09-300000827099tdys:CustomerDMember2012-01-012012-09-300000827099tdys:CustomerDMember2011-01-012011-09-300000827099tdys:CustomerEMember2012-07-012012-09-300000827099tdys:CustomerEMember2011-07-012011-09-300000827099tdys:CustomerEMember2012-01-012012-09-300000827099tdys:CustomerEMember2011-01-012011-09-300000827099tdys:CustomerFMember2012-07-012012-09-300000827099tdys:CustomerFMember2011-07-012011-09-300000827099tdys:CustomerFMember2012-01-012012-09-300000827099tdys:CustomerFMember2011-01-012011-09-30iso4217:USDiso4217:USDxbrli:sharesxbrli:sharesxbrli:purefalse--12-312012-09-30NoYesNoSmaller Reporting CompanyTETRIDYN SOLUTIONS INC00008270992012Q310-Q1687325631317118881993533060113822231931317553793973893882982523541595911933324663128413996147974896721661738032096673200002750004938034846671291292115683312001200230322303228963512896351-4180558-4022037-1259975-110145431317553790.0010.00150000005000000120000012000000.0010.0011000000001000000002303186323031863005340414017451860965007325031200000120000023031863230318631702785125853122237777261176321256692577061963955757978791495483-86192-22879-44059-18285425647074137971814206317770325257444071342902966433374737559142831486017734351611207893694240303195266-158521-46709-68871-2480840000-158521-46709-68871-248084-72329-23830-24812-6523072329238302481265230-0.010.000.00-0.0123031863230318632303186322405340024151093711539-54799-104274-5330-17723909124797927638829714310-19994-10571-14491379357177070652823045000100000-16864-32504509714582700<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">TetriDyn Solutions,
Inc. (the “Company”), specializes in providing business information technology (IT) solutions to its customers. The
Company optimizes business and IT processes by using systems engineering methodologies, strategic planning, and system integration
to add efficiency and value to its customers’ business processes and to help its customers identify critical success factors
in their business.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America, or GAAP, and the rules and regulations of the Securities and Exchange Commission for interim
financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial
position and results of operations.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">It is management’s
opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made that are necessary
for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results
to be expected for the year. The interim condensed consolidated financial statements should be read in conjunction with the Company’s
annual report on Form 10-K for the year ended December 31, 2011, including the financial statements and notes thereto.</font></p><p style="margin: 0pt"></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Principles of Consolidation</i>—</b>The condensed consolidated
financial statements include the accounts of the Company and its wholly owned subsidiary, an Idaho corporation also named TetriDyn
Solutions, Inc. Intercompany accounts and transactions have been eliminated in consolidation.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Business Segments</i>—</b>The Company had only one business
segment for the three and nine months ended September 30, 2012 and 2011.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Use of Estimates</i>—</b>In preparing financial statements
in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reported period. Actual results could differ from these estimates.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Cash and Cash Equivalents</i>—</b>For purposes of the
cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the
time of purchase to be cash equivalents.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Revenue Recognition</i>—</b>Revenue from software licenses,
related installation, and support services is recognized when earned and realizable. Revenue is earned and realizable when persuasive
evidence of an arrangement exists; services, if requested by the customers, have been rendered and are determinable; and collectability
is reasonably assured. Amounts received from customers prior to these criteria being met are deferred. Revenue from the sale of
software is recognized when delivered to the customer or upon installation of the software if an installation contract exists.
Revenue from post-contract support service is recognized as the services are provided, which is determined on an hourly basis.
The Company recognizes the revenue received for unused support hours under support service contracts that have had no support activity
after two years. Revenue applicable to multiple-element fee arrangements is divided among the software, the installation, and post-contract
support service contracts using vendor-specific objective evidence of fair value, as evidenced by the prices charged when the software
and the services are sold as separate products or arrangements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">The Company had one customer that represented more than 10% of sales
for the three-month period ended September 30, 2012, and two customers that represented more than 10% of sales for the nine-month
period ended September 30, 2012. The Company had three customers that represented more than 10% of sales for the three-month period
ended September 30, 2011, and two customers that represented more than 10% of the sales for the nine-month period ended September
30, 2011, as follows:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr>
<td style="vertical-align: bottom; width: 15%"> </td>
<td style="vertical-align: bottom; width: 23%; border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Three Months Ended</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>September 30, 2012</b></p></td>
<td style="vertical-align: top; width: 2%"> </td>
<td style="vertical-align: bottom; width: 19%; border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Nine Months Ended</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>September 30, 2012</b></p></td>
<td style="vertical-align: top; width: 2%"> </td>
<td style="vertical-align: bottom; width: 20%; border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Three Months Ended</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>September 30, 2011</b></p></td>
<td style="vertical-align: top; width: 2%"> </td>
<td style="vertical-align: bottom; width: 17%; border-bottom: black 1.5pt solid">
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>Nine Months Ended</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>September 30, 2011</b></p></td></tr>
<tr>
<td style="vertical-align: bottom"> </td>
<td style="vertical-align: bottom"> </td>
<td style="vertical-align: top"> </td>
<td style="vertical-align: bottom"> </td>
<td style="vertical-align: top"> </td>
<td style="vertical-align: bottom"> </td>
<td style="vertical-align: top"> </td>
<td style="vertical-align: bottom"> </td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Customer A</font></td>
<td style="text-align: center"><font style="font-size: 8pt">76%</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">49%</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td></tr>
<tr style="vertical-align: top; background-color: white">
<td><font style="font-size: 8pt">Customer B</font></td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">14%</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Customer C</font></td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">22%</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td></tr>
<tr style="vertical-align: top; background-color: white">
<td><font style="font-size: 8pt">Customer D</font></td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">16%</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">13%</font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF">
<td><font style="font-size: 8pt">Customer E</font></td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">12%</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td></tr>
<tr style="vertical-align: top; background-color: white">
<td><font style="font-size: 8pt">Customer F</font></td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">--</font></td>
<td style="text-align: center"> </td>
<td style="text-align: center"><font style="font-size: 8pt">11%</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Going Concern</i>—</b>The accompanying unaudited condensed
consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern. As reflected
in the accompanying condensed consolidated financial statements, the Company had a net loss of $46,709 and $158,521 for the three
and nine months ended September 30, 2012, respectively. The Company used cash of $54,799 in operating activities for the nine months
ended September 30, 2012. The Company had a working capital deficiency of $777,554 and a stockholders’ deficit of $1,259,975
as of September 30, 2012. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on its ability to increase sales and obtain external funding
for its product development. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Income Taxes</i>—</b>The Company accounts for income
taxes under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740-10-25,
<i>Income Taxes</i>. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Fair Value of Financial Instruments</i>—</b>ASC 820,
<i>Fair Value Measurements and Disclosures</i>, requires an entity to maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent,
objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the
fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes
the inputs into three levels that may be used to measure fair value:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="vertical-align: top">
<td style="text-align: center"><font style="font-size: 8pt">Level 1</font></td>
<td><font style="font-size: 8pt">Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: center"> </td>
<td> </td></tr>
<tr style="vertical-align: top">
<td style="text-align: center"><font style="font-size: 8pt">Level 2</font></td>
<td><font style="font-size: 8pt">Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.</font></td></tr>
<tr style="vertical-align: top">
<td style="text-align: center"><font style="font-size: 8pt">Level 3</font></td>
<td><font style="font-size: 8pt">Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><br />
The Company’s financial instruments consist of accounts receivable, prepaid expenses, accounts payable, accrued liabilities,
customer deposits, notes payable, and related-party convertible note payable. Pursuant to ASC 820, <i>Fair Value Measurements and
Disclosures</i>, and ASC 825, <i>Financial Instruments</i>, the fair value of the Company’s cash equivalents is determined
based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded
values of all of the other financial instruments approximate fair value due to the relatively short period to maturity for these
instruments.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Property and Equipment</i>—</b>Property and equipment
are recorded at cost. Maintenance, repairs, and renewals that neither materially add to the value of the property nor appreciably
prolong its life are charged to expense as incurred. Property and equipment are depreciated using the straight-line method over
the estimated useful life of the asset, which is set at five years for computing equipment and vehicles and seven years for office
equipment. Gains or losses on dispositions of property and equipment are included in the results of operations when realized.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Net Loss per Common Share</i>—</b>Basic and diluted net
loss per common share are computed based upon the weighted-average stock outstanding as defined by FASB ASC 260, <i>Earnings Per
Share</i>. As of September 30, 2012 and 2011, 2,018,000 and 3,383,000, respectively, of common share equivalents for granted stock
options were antidilutive and not used in the calculation of diluted net loss per share. Additionally, as of September 30, 2012
and 2011, 35,452,900 and 54,225,000, respectively, of common share equivalents for convertible note payables were antidilutive
and not used in the calculation of diluted net loss per share.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Stock-Based Compensation</i>—</b>On June 17, 2009, at
the Company’s annual shareholders meeting, the Company’s shareholders approved the 2009 Long-Term Incentive Plan under
which up to 4,000,000 shares of common stock may be issued. The 2009 plan is to be administered either by the board of directors
or by the appropriate committee to be appointed from time to time by the board of directors. Awards granted under the 2009 plan
may be incentive stock options (“ISOs”) (as defined in the Internal Revenue Code), appreciation rights, options that
do not qualify as ISOs, or stock bonus awards that are awarded to employees, officers, and directors who, in the opinion of the
board or the committee, have contributed or are expected to contribute materially to the Company’s success. In addition,
at the discretion of the board of directors or the committee, options or bonus stock may be granted to individuals who are not
employees, officers, or directors, but contribute to the Company’s success.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Equity instruments issued to other than employees are recorded on
the basis of the fair value of the instruments, as required by FASB ASC 505, <i>Share-Based Payment</i>. Emerging Issues Task Force,
or EITF, Issue 96-18,<i> Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services,</i> defines the measurement date and recognition period for such instruments. In general, the
measurement date is when either: (a) a performance commitment, as defined, is reached; or (b) the earlier of: (i) the
nonemployee performance is complete; or (ii) the instruments are vested. The measured value related to the instruments is
recognized over a period based on the facts and circumstances of each particular grant as defined in the EITF.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Effective January 1, 2006, the Company adopted the provisions of
FASB ASC 505 for its stock-based compensation plan. Under FASB ASC 505, all employee stock-based compensation is measured at the
grant date, based on the fair value of the option or award, and is recognized as an expense over the requisite service period,
which is typically through the date the options or awards vest. The Company adopted FASB ASC 505 using the modified prospective
method. Under this method, for all stock-based options and awards granted prior to January 1, 2006, that remain outstanding as
of that date, compensation cost is recognized for the unvested portion over the remaining requisite service period, using the grant-date
fair value measured under the original provisions of FASB ASC 505 for pro forma and disclosure purposes. Furthermore, compensation
costs will also be recognized for any awards issued, modified, repurchased, or cancelled after January 1, 2006.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Reclassifications</i>—</b>Certain amounts in the 2011
information have been reclassified to conform to the 2012 presentation. These reclassifications had no impact on the Company’s
net loss or cash flows.</p>
<p style="margin: 0pt"></p><p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">As of September
30, 2012 and December 31, 2011, the Company had an approximately 40% minority interest in an entity that is developing electronic
livestock tracking systems. The Company has no management or financial control over this entity and therefore accounted for the
investment using the cost method. The value of the investment was $0 as of September 30, 2012 and December 31, 2011, as determined
based on Level 3 inputs.</font></p><p style="margin: 0pt"></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">As of September 30, 2012, the Company had $397,389 in accounts payable,
$352,324 of which was due on multiple revolving credit cards under the name of the Company's former chief executive officer (now
deceased) or the name of the Company's current president. These amounts represent advances to the Company from funds borrowed on
credit cards in the name of these officers as an accommodation to the Company at a time when it was unable to obtain advances on
its own credit The obligations bear varying rates of interest between 5.25% and 29.99%. The Company agreed to reimburse the former
chief executive officer and current president for these liabilities (see Note 9).</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">As of September 30, 2012, the Company had $252,354 in accrued liabilities.
The accrued liabilities included $186,733 that represents unpaid salaries (including accrued payroll taxes) for two of its officers.</p>
<p style="margin: 0pt"></p><p style="margin: 0pt"></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">In June 2014, the FASB issued Accounting Standards Update (“ASU”)
No. 2014-09, <i>Revenue from Contracts with Customers</i>. The update gives entities a single comprehensive model to use in reporting
information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. The proposed
ASU, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition
requirements in Topic 605, <i>Revenue Recognition</i>, and most industry-specific guidance throughout the Industry Topics of the
Codification. Additionally, the update would supersede some cost guidance included in Subtopic 605-35, <i>Revenue Recognition–Construction-Type
and Production-Type Contracts</i>. The update removes inconsistencies and weaknesses in revenue requirements and provides a more
robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure
requirements. In addition, the update improves comparability of revenue recognition practices across entities, industries, jurisdictions,
and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity
must refer. The update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within
that reporting period. This updated guidance is not expected to have a material impact on the Company's results of operations,
cash flows, or financial condition.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">In August 2014, the FASB issued ASU No. 2014-15, <i>Presentation
of Financial Statements—Going Concern</i>, which requires management to evaluate, at each annual and interim reporting period,
whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern
within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for
annual periods ending after December 15, 2016, and interim periods thereafter. Early application is permitted. The adoption of
ASU 2014-15 is not expected to have a material effect on the Company's consolidated financial statements.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">In April 2015, the FASB issued ASU No. 2015-03, <i>Interest</i><b>—</b><i>Imputation
of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,</i> to simplify presentation of debt issuance
costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU does not affect the recognition
and measurement guidance for debt issuance costs. For public companies, the ASU is effective for financial statements issued for
fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted.
The Company is currently reviewing the provisions of this ASU to determine if there will be any impact on its results of operations,
cash flows, or financial condition.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">In April 2015, the FASB issued ASU No. 2015-05, <i>Intangibles<b>—</b>Goodwill
and Other<b>—</b>Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing
Arrangement</i>, which provides guidance to customers about whether a cloud computing arrangement includes a software license.
If such an arrangement includes a software license, then the customer should account for the software license element of the arrangement
consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer
should account for it as a service contract. For public business entities, the ASU is effective for annual periods, including interim
periods within those annual periods, beginning after December 15, 2015. Early application is permitted. The Company is currently
reviewing the provisions of this ASU to determine if there will be any impact on its results of operations, cash flows, or financial
condition.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">All other newly issued accounting pronouncements, but not yet effective,
have been deemed either immaterial or not applicable.</p>
<p style="margin: 0pt"></p><p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">In 2010, the
Company borrowed $150,000 in three separate loans from two of its officers and directors, repayable pursuant to various convertible
promissory notes. The terms of the notes are as follows: (a) no interest will accrue if the note is repaid within 60 days;
(b) if the note is not repaid within 60 days, the Company is obligated to pay 10% for costs associated with securing the
funds; (c) if the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid
within one year, the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the
lenders are authorized to convert part or all of the note balance and accrued interest, if any, into the Company’s common
stock at its fair value at any time while the note is outstanding; and (e) the loan’s due date for full repayment is
December 31, 2013. Since the loans were not paid within 60 days, the Company is obligated to pay $15,000 for costs associated
with securing the funds and accrued interest.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">In 2011, the
Company borrowed $125,000 in five separate loans from two of its officers and directors, repayable pursuant to various convertible
promissory notes. The terms of the notes are as follows: (a) no interest will accrue if the note is repaid within 60 days;
(b) if the note is not repaid within 60 days, the Company is obligated to pay 10% for costs associated with securing the
funds; (c) if the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid
within one year, the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the
lenders are authorized to convert part or all of the note balance and accrued interest, if any, into the Company’s common
stock at its fair value at any time while the note is outstanding; and (e) the loan’s due date for full repayment is
December 31, 2014. Since the loans were not paid within 60 days, the Company is obligated to pay $12,500 for costs associated
with securing the funds.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">In February
2012, the Company borrowed $40,000 from two of its officers and directors, repayable pursuant to a convertible promissory note.
The terms of the note are as follows: (a) no interest will accrue if the note is repaid within 60 days; (b) if the note
is not repaid within 60 days, the Company is obligated to pay $4,000 for costs associated with securing the funds; (c) if
the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid within one year,
the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the lenders are
authorized to convert part or all of the note balance and accrued interest, if any, into the Company’s common stock at its
fair value at any time while the note is outstanding; and (e) the loan’s due date for full repayment is December 31,
2014. Since the loan was not paid within 60 days, the Company is obligated to pay $4,000 for costs associated with securing the
funds.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">In August
2012, the Company borrowed $5,000 from two of its officers and directors, repayable pursuant to a convertible promissory note.
The terms of the note are as follows: (a) no interest will accrue if the note is repaid within 60 days; (b) if the note
is not repaid within 60 days, the Company is obligated to pay $500 for costs associated with securing the funds; (c) if the
loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid within one year, the
note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the lenders are authorized
to convert part or all of the note balance and accrued interest, if any, into the Company’s common stock at its fair value
at any time while the note is outstanding; and (e) the loan’s due date for full repayment is December 31, 2014. Since
the loan was not paid within 60 days, the Company is obligated to pay $500 for costs associated with securing the funds.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">As of September
30, 2012, the Company had $320,000 in convertible notes payable due to related parties with $34,539 in accrued interest.</font></p><p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">As of October
25, 2011, a loan from one economic development entity was in default. The loan principal was $50,000 with accrued interest of
$5,035 through September 30, 2012.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">As of September
30, 2012, the Company was delinquent in payments on two loans to a second economic development entity. The Company owed this economic
entity $22,529 in late payments, with an outstanding balance of $163,791 and accrued interest of $11,203 as of September 30, 2012.
Both loans are guaranteed by two of the Company’s officers. One loan is secured by liens on intangible software assets and
the other loan is secured by the officers’ personal property. The Company is working with this entity to bring the payments
current as soon as cash flow permits.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">As of September
30, 2012, the Company was delinquent in payments on a loan to a third economic development entity. The Company owed the third
economic entity $16,000 in late payments, with an outstanding balance of $85,821 and accrued interest of $2,526 as of September
30, 2012. This loan is secured by a junior lien on all the Company’s assets and shares of our founders’ common stock.
The Company is working with this entity to bring the payments current as soon as cash flow permits.</font></p><p style="font: 9pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">In March 2012,
the compensation committee set the annual salaries for the Chief Executive Officer and the Deputy Chief Executive Officer to be
$50,000 and $50,000, respectively, through calendar year 2012 and for subsequent calendar years until otherwise modified in a
subsequent compensation committee resolution.</font></p><p style="margin: 0pt"></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b>Office Relocation</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">In October 2012, the Company moved its offices from 1651 Alvin Ricken
Drive, Pocatello, Idaho to 1585 North Skyline Drive, Idaho Falls, Idaho. The Company did not enter into an operating lease agreement
for the new office space. The office space is owned by one of the Company’s directors. The Company occupies the office space
at no charge to the Company and records the monthly rent expense as in-kind contribution of rent.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b>Sales of Unregistered Securities in 2013</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">On March 25, 2013, the board of directors authorized the issuance
of 1,000,000 shares of the Company’s common stock for compensation as follows:</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 60px; font: 8pt Times New Roman, Times, Serif; text-align: right"><font style="font-size: 8pt">●   </font></td>
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font-size: 8pt">200,000 restricted shares of common stock to existing employees of the Company, excluding directors and officers, as determined by management;</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 60px; font: 8pt Times New Roman, Times, Serif; text-align: right"><font style="font-size: 8pt">●   </font></td>
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font-size: 8pt">275,000 restricted shares of common stock to each outside director on a discretionary basis for past service;</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 60px; font: 8pt Times New Roman, Times, Serif; text-align: right"><font style="font-size: 8pt">●   </font></td>
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font-size: 8pt">150,000 restricted shares of common stock to an outside consultant for technical services; and</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="width: 100%">
<tr style="vertical-align: top">
<td style="width: 60px; font: 8pt Times New Roman, Times, Serif; text-align: right"><font style="font-size: 8pt">●   </font></td>
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font-size: 8pt">100,000 restricted shares of common stock to an outside consultant for marketing and product development services.</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">The issuances were recorded for financial statement purposes at $0.02
per share, the approximate market price for the common stock on the date the issuances were approved, for a total of $20,000.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b>Credit Card Obligations</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">The Company was responsible for reimbursing Dave Hempstead, its chief
executive officer, principal financial officer, and director, for personal credit card account expenditures on its behalf. The
balance due on these credit card accounts was $261,609 as of the date of Mr. Hempstead's death on April 26, 2013. The credit card
companies have not sought collection from assets owned jointly with Mr. Hempstead's surviving spouse, who in turn advised the Company
on July 15, 2015, that she will not seek reimbursement from the Company unless the credit card companies hereafter seek payment.
The full amount of this liability has been recorded and disclosed as part of accounts payable and will continue to be accrued until
the statute of limitations is met.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b>Sale of Southfork Solutions, Inc.</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">On August 26, 2014, the Company sold to Southfork Solutions,
Inc., the variable interest subsidiary engaged in providing IT solutions to the livestock segment, its 39% minority, nonoperating
interest in Southfork Solutions for $75,000. This operation had been discontinued in 2009.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b>Consolidation of Convertible Notes Payable to Related Parties</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">On March 19, 2015, the Company exchanged convertible notes payable
to its officers and directors in the aggregate principal amount of $320,246, plus accrued but unpaid interest of $74,134, for an
aggregate of $394,380 as of December 31, 2014, into a single, $394,380 consolidated convertible note dated December 31, 2014. The
new consolidated convertible note has payment and other terms identical to the notes exchanged, except that the conversion provisions
were changed from a conversion price to be equal to the stock’s fair value as of the conversion date to a fixed conversion
price under the consolidated note of $0.025 per share, the approximate market price of the Company’s common stock as of the
date of the issuance of the consolidated note in March 2015.  The note is due and payble within 90 days after demand. <i>See</i>
Note 6—Convertible Notes Payable to Related Parties.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b>2015 Investment and Merger Agreements</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">On March 23, 2015, the Company entered into an Investment Agreement
dated March 12, 2015, with JPF Venture Group, Inc. (“JPF”) and an Agreement and Plan of Merger dated March 12, 2015
(the “Merger Agreement”) with Ocean Thermal Energy (“OTE”). Before entering into these agreements, there
was no material relationship between the Company and its affiliates and either JPF or OTE and their respective affiliates.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Investment Agreement—</i></b>Under the terms of the Investment
Agreement, JPF purchased for $100,000 in cash 29,372,277 shares of the Company’s common stock at $0.003405 per share (the
“JPF Stock”) and a warrant to purchase up to 1,033,585 shares of the Company’s common stock at an exercise price
of $0.003 per share. JPF is an investment entity that is majority-owned by Jeremy P. Feakins (“Feakins”), the Chairman
and Chief Executive Officer of OTE. The JPF Stock represents a 55% ownership interest by JPF in the Company, without giving effect
to the issuance of additional shares of the Company’s common stock on the conversion of outstanding convertible notes.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">JPF’s investment is being used principally to initiate and
pursue an updated technical and commercialization review of the Company’s intellectual properties with a view toward possible
broadened marketing introduction and, in general, advance the Company’s business activities and to bring its regulatory filings
current. The terms of the Investment Agreement provide that, if the Merger (as defined below) with OTE is consummated, 100% of
the JPF Stock will be cancelled and returned to the status of authorized and unissued shares. The purpose of this intended cancellation
is to ensure that the Company’s current shareholders (excluding JPF) retain a 5% interest in the post-Merger company. If
the Merger is not consummated, the JPF Stock will remain outstanding, and JPF will maintain its position as a 55% stockholder in
the Company.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Concurrently with the execution of the Investment Agreement, Antoinette
Knapp Hempstead and the estate of her late husband, David W. Hempstead (together, the “Hempsteads”), JPF, and Feakins
entered into an agreement whereby, among other things: (i) JPF agreed to execute supplemental guarantees for the Hempsteads
in connection with certain debt obligations to economic development entities owed by the Company and guaranteed by the Hempsteads;
(ii) the Hempsteads transferred to JPF the consolidated convertible note payable by the Company to the Hempsteads with an
outstanding principal balance of $394,380 as of December 31, 2014, together with accrued and unpaid payroll of $213,436, for a
total of $607,816; and (iii) the Hempsteads returned to the Company for cancellation 1,200,000 shares of Series A Preferred
Stock, which were cancelled. The Company has filed a Certificate of Withdrawal of Certificate of Designation for the preferred
stock with the Nevada Secretary of State.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">As required by the Investment Agreement, two designees of JPF, Feakins
and Peter Wolfson, were appointed as directors of the Company to replace incumbent directors Orville J. Hendrickson and Larry J.
Ybarrondo, who resigned. <i>See below.</i></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Agreement and Plan of Merger</i></b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><u>Merger Terms</u>. Under the terms of the Merger Agreement, the
Company would acquire OTE (the “Merger”) as follows: (i) the Company would organize a wholly owned subsidiary
that would merge with and into OTE, with OTE continuing as the surviving corporation and as a wholly owned subsidiary of the Company;
and (ii) each share of OTE common stock outstanding or issuable on the conversion of outstanding notes and exercise of warrants
(other than shares owned by stockholders who dissent to the transaction) immediately before the Merger, would be converted into
the right to receive one newly issued share of the Company’s common stock in accordance with the terms and conditions of
the Merger Agreement.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><u>Conditions to Completion of Merger</u>. The completion of the
Merger would constitute the offer and sale of the Company’s securities to the stockholders of OTE, which can only be effected
if a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), is effective or an
exemption from registration is available. The Company has determined to seek an exemption from registration under the Securities
Act by meeting the requirements of Section 3(a)(10) of this statute, which exempts from registration securities issued when the
terms and conditions of such issuance are approved, after hearing upon the fairness of the terms and conditions meeting certain
requirements by, among others, a duly authorized administrative agency. In an effort to meet these requirements, the Company has
filed an application for a fairness hearing to be held pursuant to the provisions of Section 25142 of the California Securities
Law (the “Fairness Hearing”) so that the issuance of the securities to complete the Merger will be exempt from the
registration requirements of the Securities Act pursuant to the exemption provided by Section 3(a)(10) of the Securities Act.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">The California application for a Fairness Hearing is now pending.
The Fairness Hearing and permitting application are significant and quite technical, and the determination of whether the
Merger will meet the California fairness requirements will be subject to the discretion of the hearing officer. No assurance can
be given as to whether or not the hearing will result in the denial of the application, an adjustment of the terms of the Merger,
the issuance of a permit meeting the conditions of the Securities Act Section 3(a)(10) exemption, or other action.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">If California issues a permit availing the Company of the exemption
under the Securities Act Section 3(a)(10) and the other conditions to closing the Merger are met, the Merger will be completed
promptly thereafter. If California does not issue the permit or the other Merger conditions are not satisfied: (i) the Merger
Agreement will terminate; (ii) the Company and OTE will remain as separate companies; and (iii) JPF will continue as
the 55% controlling stockholder of the Company as it seeks to advance commercialization of its technologies or pursue other opportunities.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Completion of the Merger is also conditioned on the continuing accuracy
of the representations and warranties of the respective parties to the Merger Agreement, the satisfaction of certain conditions,
and other covenants, many of which may be waived by either party.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><u>Reverse Split to Facilitate Merger</u><i>.</i> The
Company currently has an authorized capitalization of 100,000,000 shares of common stock and 5,000,000 shares of preferred
stock. With 24.0 million shares outstanding immediately preceding the Merger, after giving effect to JPF’s return
of 24,031,863 shares issued under the Investment Agreement for cancellation immediately preceding the closing of the Merger, the
Company does not have a sufficient number of authorized but unissued shares to convey 95% ownership of its stock to the OTE
stockholders as agreed to complete the Merger, which would require the issuance of 369.9 million shares at closing and the
reservation of about 86.7 shares for issuance on the conversion of outstanding notes and the exercise of
outstanding warrants. Accordingly, immediately preceding the Merger, the Company will effect a 1-for-4.6972
reverse-stock-split of its common stock (the “Reverse Split”) by filing an amendment with the Nevada Secretary of
State. This amendment will also increase the Company’s authorized common stock to 200,000,000 shares.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">As a result of the Reverse Split, each record holder of less than
4.6972 shares of the Company’s common stock immediately before the Reverse Split (the “Minority Stockholders”)
will receive, from the Company, cash in the amount of $0.03 per share of the Company’s common stock, without interest (which
amount includes a 20% premium over the fair market value of $0.025 per share as of March 3, 2015, as determined by the Company’s
board of directors), for each share of the Company’s common stock held immediately before the Reverse Split, and the Minority
Stockholders will no longer be stockholders of the Company. Each record holder of 4.6972 or more shares of the Company’s
common stock immediately before the Reverse Split will own approximately one-fifth of the number of shares of the Company’s
common stock held by such stockholder immediately before the Reverse Split.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><u>Post-Merger Business of OTE and the Company</u>. OTE is developing
deep-water hydrothermal technologies to provide renewable energy and drinkable water. OTE’s Sea Water Air Conditioning (“SWAC”)
technology takes advantage of the difference between cold deep water and warmer surface water to produce hydrothermal energy without
requiring fossil fuels. OTE has recently broken ground on a SWAC project at the upscale Baha Mar Resort in the Bahamas. This project,
believed to be the first large-scale seawater air conditioning system in the Bahamas, is scheduled to be completed and in service
in 2016.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">OTE is interested in the commercial potential of proprietary technologies
being developed by the Company as opportunities for future business diversification. Further, OTE recognizes that the Company’s
status as a company that is subject to the periodic reporting requirements pursuant to Section 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), may enhance its access to the capital markets to fund future projects.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">After the Merger, the combined enterprise intends to continue opportunistically
to develop the lines of business of both the Company and OTE as commercial opportunities are identified for one, the other, or
both, after considering funding availability, potential financial returns, and related risks.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><u>Ownership of the Company Following the Merger and Reverse Split</u>.
As a result of the Investment Agreement, JPF now owns 55% of Company’s common stock and is a principal creditor of the Company,
which owes JPF pursuant to the consolidated convertible note with an outstanding principal balance of $394,380 as of December 31,
2014, and accrued and unpaid payroll of $213,436, for a total of $607,816.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">If the Merger is completed, the JPF Stock purchased pursuant to the
Investment Agreement will be cancelled and returned to the Company, and the former OTE stockholders will own 95% of the Company’s
outstanding common stock (after giving effect to the exercise of OTE warrants and the conversion of OTE notes). The pre-Merger
company shareholders will have a 5% interest in the post-Merger company, and the officers and directors of OTE will be the officers
and directors of the post-Merger company.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Change in Directors and Management</i></b><i>—</i>On
March 23, 2015, in connection with the Investment Agreement, Orville J. Hendrickson and Larry J. Ybarrondo resigned their positions
on the Company’s board of directors, and Feakins and Peter Wolfson (as a nominee of JPF) were appointed by board consent
to the Company’s board. Antoinette Knapp Hempstead, who was a board member before March 23, 2015, continues as a director.
The resignations of Messrs. Hendrickson and Ybarrondo are not the result of any disagreement with the Company on any matter relating
to its operations, policies, or practices.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Change of Office Location</i></b>—In connection with
the above transactions, in March 2015 the Company’s offices were relocated to the facilities of JPF at 800 South Queen Street,
Lancaster, Pennsylvania 17603, telephone number (717) 715-0238, where it shares offices with OTE at no charge to the Company.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b>2015 Convertible Note Payable to Related-Party</b></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">On June 23, 2015, the Company borrowed $50,000 from its principal
stockholder, JPF Venture Group, Inc., pursuant to a promissory note. The terms of the note are as follows: (i) interest is
payable at 6% per annum; (ii) the note is payable 90 days after demand; and (iii) payee is authorized to convert part
or all of the note balance and accrued interest, if any, into shares of the Company’s common stock at their fair market value
at the time of conversion. JPF is an investment entity that is majority-owned by Jeremy P. Feakins, a director, chief executive
officer, and chief financial officer of the Company.</p><p style="margin: 0; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">The condensed
consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, an Idaho corporation also
named TetriDyn Solutions, Inc. Intercompany accounts and transactions have been eliminated in
consolidation.</font></p><p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">The Company
had only one business segment for the three and nine months ended September 30, 2012 and 2011.</font></p><p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">In preparing
financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates.</font></p><p style="margin: 0; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">For purposes
of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less
at the time of purchase to be cash equivalents.</font></p><p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">Revenue from
software licenses, related installation, and support services is recognized when earned and realizable. Revenue is earned and
realizable when persuasive evidence of an arrangement exists; services, if requested by the customers, have been rendered and
are determinable; and collectability is reasonably assured. Amounts received from customers prior to these criteria being met
are deferred. Revenue from the sale of software is recognized when delivered to the customer or upon installation of the software
if an installation contract exists. Revenue from post-contract support service is recognized as the services are provided, which
is determined on an hourly basis. The Company recognizes the revenue received for unused support hours under support service contracts
that have had no support activity after two years. Revenue applicable to multiple-element fee arrangements is divided among the
software, the installation, and post-contract support service contracts using vendor-specific objective evidence of fair value,
as evidenced by the prices charged when the software and the services are sold as separate products or arrangements.</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">The Company
had one customer that represented more than 10% of sales for the three-month period ended September 30, 2012, and two customers
that represented more than 10% of sales for the nine-month period ended September 30, 2012. The Company had three customers that
represented more than 10% of sales for the three-month period ended September 30, 2011, and two customers that represented more
than 10% of the sales for the nine-month period ended September 30, 2011, as follows:</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="font: 8pt Times New Roman, Times, Serif">
<td style="vertical-align: bottom; width: 15%; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; width: 23%; border-bottom: black 1.5pt solid; font: 8pt Times New Roman, Times, Serif"><p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Three
Months Ended</b></font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>September
30, 2012</b></font></p></td>
<td style="vertical-align: top; width: 2%; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; width: 19%; border-bottom: black 1.5pt solid; font: 8pt Times New Roman, Times, Serif"><p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Nine
Months Ended</b></font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>September
30, 2012</b></font></p></td>
<td style="vertical-align: top; width: 2%; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; width: 20%; border-bottom: black 1.5pt solid; font: 8pt Times New Roman, Times, Serif"><p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Three
Months Ended</b></font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>September
30, 2011</b></font></p></td>
<td style="vertical-align: top; width: 2%; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; width: 17%; border-bottom: black 1.5pt solid; font: 8pt Times New Roman, Times, Serif"><p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Nine
Months Ended</b></font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>September
30, 2011</b></font></p></td></tr>
<tr style="font: 8pt Times New Roman, Times, Serif">
<td style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: top; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: top; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: top; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Customer A</font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">76%</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">49%</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td></tr>
<tr style="vertical-align: top; background-color: white; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Customer B</font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">14%</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Customer C</font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">22%</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td></tr>
<tr style="vertical-align: top; background-color: white; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Customer D</font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">16%</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">13%</font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Customer E</font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">12%</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td></tr>
<tr style="vertical-align: top; background-color: white; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Customer F</font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">11%</font></td></tr>
</table><p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">The accompanying
unaudited condensed consolidated financial statements have been prepared on the assumption that the Company will continue as a
going concern. As reflected in the accompanying condensed consolidated financial statements, the Company had a net loss of $46,709
and $158,521 for the three and nine months ended September 30, 2012, respectively. The Company used cash of $54,799 in operating
activities for the nine months ended September 30, 2012. The Company had a working capital deficiency of $777,554 and a stockholders’
deficit of $1,259,975 as of September 30, 2012. These factors raise substantial doubt about the Company’s ability to continue
as a going concern. The ability of the Company to continue as a going concern is dependent on its ability to increase sales and
obtain external funding for its product development. The financial statements do not include any adjustments that may result from
the outcome of this uncertainty.</font></p><p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">The Company
accounts for income taxes under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
740-10-25, <i>Income Taxes</i>. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.</font></p><p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">ASC 820, <i>Fair
Value Measurements and Disclosures</i>, requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence
surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy
is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into
three levels that may be used to measure fair value:</font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="width: 100%; font: 8pt Times New Roman, Times, Serif">
<tr style="vertical-align: top; font: 8pt Times New Roman, Times, Serif">
<td style="width: 14%; font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">Level
1</font></td>
<td style="width: 86%; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.</font></td></tr>
<tr style="vertical-align: top; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: top; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">Level
2</font></td>
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Level 2 applies
to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities
in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which
significant inputs are observable or can be derived principally from, or corroborated by, observable market data.</font></td></tr>
<tr style="vertical-align: top; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: top; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">Level
3</font></td>
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Level 3 applies
to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the
measurement of the fair value of the assets or liabilities.</font></td></tr>
</table>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif"> </font></p>
<p style="margin: 0; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">The Company’s
financial instruments consist of accounts receivable, prepaid expenses, accounts payable, accrued liabilities, customer deposits,
notes payable, and related-party convertible note payable. Pursuant to ASC 820, <i>Fair Value Measurements and Disclosures</i>,
and ASC 825, <i>Financial Instruments</i>, the fair value of the Company’s cash equivalents is determined based on Level
1 inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values
of all of the other financial instruments approximate fair value due to the relatively short period to maturity for these instruments.</font></p><p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><font style="font: 8pt Times New Roman, Times, Serif">Property and
equipment are recorded at cost. Maintenance, repairs, and renewals that neither materially add to the value of the property nor
appreciably prolong its life are charged to expense as incurred. Property and equipment are depreciated using the straight-line
method over the estimated useful life of the asset, which is set at five years for computing equipment and vehicles and seven
years for office equipment. Gains or losses on dispositions of property and equipment are included in the results of operations
when realized.</font></p><p style="margin: 0pt"></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Net Loss per Common Share</i>—</b>Basic and diluted net
loss per common share are computed based upon the weighted-average stock outstanding as defined by FASB ASC 260, <i>Earnings Per
Share</i>. As of September 30, 2012 and 2011, 2,018,000 and 3,383,000, respectively, of common share equivalents for granted stock
options were antidilutive and not used in the calculation of diluted net loss per share. Additionally, as of September 30, 2012
and 2011, 35,452,900 and 54,225,000, respectively, of common share equivalents for convertible note payables were antidilutive
and not used in the calculation of diluted net loss per share.</p>
<p style="margin: 0pt"></p><p style="margin: 0pt"></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><b><i>Stock-Based Compensation</i>—</b>On June 17, 2009, at
the Company’s annual shareholders meeting, the Company’s shareholders approved the 2009 Long-Term Incentive Plan under
which up to 4,000,000 shares of common stock may be issued. The 2009 plan is to be administered either by the board of directors
or by the appropriate committee to be appointed from time to time by the board of directors. Awards granted under the 2009 plan
may be incentive stock options (“ISOs”) (as defined in the Internal Revenue Code), appreciation rights, options that
do not qualify as ISOs, or stock bonus awards that are awarded to employees, officers, and directors who, in the opinion of the
board or the committee, have contributed or are expected to contribute materially to the Company’s success. In addition,
at the discretion of the board of directors or the committee, options or bonus stock may be granted to individuals who are not
employees, officers, or directors, but contribute to the Company’s success.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Equity instruments issued to other than employees are recorded on
the basis of the fair value of the instruments, as required by FASB ASC 505, <i>Share-Based Payment</i>. Emerging Issues Task Force,
or EITF, Issue 96-18,<i> Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services,</i> defines the measurement date and recognition period for such instruments. In general, the
measurement date is when either: (a) a performance commitment, as defined, is reached; or (b) the earlier of: (i) the
nonemployee performance is complete; or (ii) the instruments are vested. The measured value related to the instruments is
recognized over a period based on the facts and circumstances of each particular grant as defined in the EITF.</p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0">Effective January 1, 2006, the Company adopted the provisions of
FASB ASC 505 for its stock-based compensation plan. Under FASB ASC 505, all employee stock-based compensation is measured at the
grant date, based on the fair value of the option or award, and is recognized as an expense over the requisite service period,
which is typically through the date the options or awards vest. The Company adopted FASB ASC 505 using the modified prospective
method. Under this method, for all stock-based options and awards granted prior to January 1, 2006, that remain outstanding as
of that date, compensation cost is recognized for the unvested portion over the remaining requisite service period, using the grant-date
fair value measured under the original provisions of FASB ASC 505 for pro forma and disclosure purposes. Furthermore, compensation
costs will also be recognized for any awards issued, modified, repurchased, or cancelled after January 1, 2006.</p>
<p style="margin: 0pt"></p><p style="margin: 0; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Certain amounts
in the 2011 information have been reclassified to conform to the 2012 presentation. These reclassifications had no impact on the
Company’s net loss or cash flows.</font></p><table cellspacing="0" cellpadding="0" style="font: 8pt Times New Roman, Times, Serif; width: 100%">
<tr style="font: 8pt Times New Roman, Times, Serif">
<td style="vertical-align: bottom; width: 15%; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; width: 23%; border-bottom: black 1.5pt solid; font: 8pt Times New Roman, Times, Serif"><p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Three
Months Ended</b></font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>September
30, 2012</b></font></p></td>
<td style="vertical-align: top; width: 2%; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; width: 19%; border-bottom: black 1.5pt solid; font: 8pt Times New Roman, Times, Serif"><p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Nine
Months Ended</b></font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>September
30, 2012</b></font></p></td>
<td style="vertical-align: top; width: 2%; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; width: 20%; border-bottom: black 1.5pt solid; font: 8pt Times New Roman, Times, Serif"><p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Three
Months Ended</b></font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>September
30, 2011</b></font></p></td>
<td style="vertical-align: top; width: 2%; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; width: 17%; border-bottom: black 1.5pt solid; font: 8pt Times New Roman, Times, Serif"><p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>Nine
Months Ended</b></font></p>
<p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif"><b>September
30, 2011</b></font></p></td></tr>
<tr style="font: 8pt Times New Roman, Times, Serif">
<td style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: top; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: top; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: top; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="vertical-align: bottom; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Customer A</font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">76%</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">49%</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td></tr>
<tr style="vertical-align: top; background-color: white; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Customer B</font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">14%</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Customer C</font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">22%</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td></tr>
<tr style="vertical-align: top; background-color: white; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Customer D</font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">16%</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">13%</font></td></tr>
<tr style="vertical-align: top; background-color: #CCEEFF; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Customer E</font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">12%</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td></tr>
<tr style="vertical-align: top; background-color: white; font: 8pt Times New Roman, Times, Serif">
<td style="font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif">Customer F</font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">--</font></td>
<td style="text-align: center; font: 8pt Times New Roman, Times, Serif"><font style="font: 8pt Times New Roman, Times, Serif"> </font></td>
<td style="font: 8pt Times New Roman, Times, Serif; text-align: center"><font style="font: 8pt Times New Roman, Times, Serif">11%</font></td></tr>
</table>0.760.000.490.000.000.000.140.000.000.220.000.000.000.160.000.130.000.120.000.000.000.000.000.11777554354529005422500018673335232434539EX-101.SCH
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Customer ACustomer [Axis]Customer BCustomer CCustomer DCustomer ECustomer FDocument And Entity InformationEntity Registrant NameEntity Central Index KeyCurrent Fiscal Year End DateEntity Well-known Seasoned IssuerEntity Voluntary FilersEntity Current Reporting StatusEntity Filer CategoryEntity Common Stock, Shares OutstandingDocument Fiscal Year FocusDocument Fiscal Period FocusDocument TypeAmendment FlagDocument Period End DateStatement of Financial Position [Abstract]ASSETSCurrent AssetsCash and cash equivalentsAccounts receivable, netPrepaid expenses, netTotal Current AssetsProperty and Equipment, netTotal AssetsLIABILITIES AND STOCKHOLDERS' EQUITYLIABILITIESCurrent LiabilitiesAccounts payable, netAccrued liabilitiesCustomer deposits, netNotes payable, current portionTotal Current LiabilitiesLong-Term LiabilitiesNotes payable, net of current portionConvertible notes payable to related partyTotal Long-Term LiabilitiesTotal LiabilitiesCOMMITMENTS AND CONTINGENCIES (See Note 8)STOCKHOLDERS' DEFICITPreferred stock, $0.001 par value, 5,000,000 shares authorized; 1,200,00 and 1,200,000 shares issued and outstanding as of September 30, 2012, and December 31, 2011, respectivelyCommon stock, $0.001 par value, 100,000,000 shares authorized; 23,031,863 and 23,031,863 shares issued and outstanding as of September 30, 2012, and December 31, 2011, respectivelyAdditional paid-in capitalAccumulated deficitTotal Stockholders' DeficitTotal Liabilities and Stockholders' DeficitPreferred Stock, Par ValuePreferred Stock, Shares Authorized (in shares)Preferred Stock, Shares Issued (in shares)Preferred Stock, Shares Outstanding (in shares)Common Stock, Par Value (in dollars per share)Common Stock, Shares Authorized (in shares)Common Stock, Shares Issued (in shares)Common Stock, Shares Outstanding (in shares)Income Statement [Abstract]RevenueCost of RevenueGross ProfitOperating ExpensesGeneral and administrativeProfessional feesSelling and marketingResearch and developmentTotal Operating ExpensesNet Loss from OperationsOther Income (Expenses)Interest and Other IncomeInterest ExpenseTotal Other Income (Expenses)Net Loss before Provision for Income TaxesProvision for Income TaxesNet LossTotal Basic and Diluted Loss Per Common ShareBasic and Diluted Weighted-Average Common Shares OutstandingStatement of Cash Flows [Abstract]Cash flows from operating activities:Net LossAdjustments to reconcile net loss to net cash provided by (used in) operating activities:DepreciationCommon stock issued for servicesIncrease (decrease) from changes in working capital items:Accounts receivablePrepaid expensesAccrued expensesAccounts payableCustomer depositsNet Cash Used in Operating ActivitiesCash Flows from Investing ActivitiesPurchase of property and equipmentNet Cash Used in Investing ActivitiesCash Flows from Financing ActivitiesProceeds from borrowing under related party notes payablePrincipal payments on notes payableNet Cash Provided by Financing ActivitiesNet Decrease in CashCash at Beginning of PeriodCash at End of PeriodSupplemental Disclosure of Cash Flow Information:Cash paid for income taxesCash paid for interest expense and lines of creditNotes To Financial StatementsBasis of PresentationOrganization and Summary of Significant Accounting PoliciesRecent Accounting PronouncementsInvestmentsAccounts Payable and Accrued LiabilitiesConvertible Notes Payable to Related PartyNotes Payable in DefaultCommitments and ContingenciesSubsequent EventsOrganization And Summary Of Significant Accounting Policies PoliciesPrinciples of ConsolidationBusiness SegmentsUse of EstimatesCash and Cash EquivalentsRevenue RecognitionGoing ConcernIncome TaxesFair Value of Financial InstrumentsProperty and EquipmentNet Loss per Common ShareStock-Based CompensationReclassificationsSummary of major customersStatement [Table]Statement [Line Items]Percentage of sale from major customerNet Cash Provided by (Used in) Operating ActivitiesWorking CapitalStockholders' Equity Attributable to ParentAntidilutive Securities Excluded from Computation of Earnings Per ShareInvestment ValueRevolving Credit ArrangementsOfficers' Unpaid Salaries and Accrued Payroll TaxesRelated Party Note Payables Accrued InterestAssets, CurrentAssetsLiabilities, CurrentLiabilities, NoncurrentLiabilitiesLiabilities and EquityGross ProfitOperating Expenses [Default Label]Operating Income (Loss)Interest ExpenseNonoperating Income (Expense)Net Income (Loss) Attributable to ParentIncrease (Decrease) in ReceivablesIncrease (Decrease) in Prepaid ExpensePayments to Acquire Property, Plant, and EquipmentNet Cash Provided by (Used in) Investing ActivitiesRepayments of Long-term DebtNet Cash Provided by (Used in) Financing ActivitiesCash and Cash Equivalents, Period Increase (Decrease)EX-101.PRE
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tdys-20120930_pre.xml
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
EX-101.DEF
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tdys-20120930_def.xml
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
EXCEL
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As of September
30, 2012 and December 31, 2011, the Company had an approximately 40% minority interest in an entity that is developing electronic
livestock tracking systems. The Company has no management or financial control over this entity and therefore accounted for the
investment using the cost method. The value of the investment was $0 as of September 30, 2012 and December 31, 2011, as determined
based on Level 3 inputs.
The entire disclosure for the schedule applicable to insurance companies summarizing investments held as of the most recent audited balance sheet. At a minimum, such summary is by three major categories of investments including: (1) fixed maturities primarily consisting of bonds, including convertibles and bonds with warrants, and redeemable preferred stocks, (2) equity securities primarily consisting of common stocks and nonredeemable preferred stocks, and (3) other investments including mortgage loans on real estate, real estate held for investment, real estate acquired in satisfaction of debt, policy loans, other long-term investments, and short-term investments not otherwise categorized. The information provided with respect to each item within each category includes: (A) the original cost of equity securities and, as to fixed maturity securities, original cost reduced by repayments and adjusted for amortization of premiums or accrual of discounts, (B) fair value as of the reporting date, and (C) the amount at which the item within each category is shown in the statement of financial position; with respect to (C), if the amount at which shown in the statement of financial position is different from the items original [amortized] cost or fair value, an explanation of the difference may be included herein.
In June 2014, the FASB issued Accounting Standards Update (ASU)
No. 2014-09, Revenue from Contracts with Customers. The update gives entities a single comprehensive model to use in reporting
information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. The proposed
ASU, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition
requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the
Codification. Additionally, the update would supersede some cost guidance included in Subtopic 605-35, Revenue RecognitionConstruction-Type
and Production-Type Contracts. The update removes inconsistencies and weaknesses in revenue requirements and provides a more
robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure
requirements. In addition, the update improves comparability of revenue recognition practices across entities, industries, jurisdictions,
and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity
must refer. The update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within
that reporting period. This updated guidance is not expected to have a material impact on the Company's results of operations,
cash flows, or financial condition.
In August 2014, the FASB issued ASU No. 2014-15, Presentation
of Financial StatementsGoing Concern, which requires management to evaluate, at each annual and interim reporting period,
whether there are conditions or events that raise substantial doubt about the entitys ability to continue as a going concern
within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for
annual periods ending after December 15, 2016, and interim periods thereafter. Early application is permitted. The adoption of
ASU 2014-15 is not expected to have a material effect on the Company's consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, InterestImputation
of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, to simplify presentation of debt issuance
costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU does not affect the recognition
and measurement guidance for debt issuance costs. For public companies, the ASU is effective for financial statements issued for
fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted.
The Company is currently reviewing the provisions of this ASU to determine if there will be any impact on its results of operations,
cash flows, or financial condition.
In April 2015, the FASB issued ASU No. 2015-05, IntangiblesGoodwill
and OtherInternal-Use Software (Subtopic 350-40): Customers Accounting for Fees Paid in a Cloud Computing
Arrangement, which provides guidance to customers about whether a cloud computing arrangement includes a software license.
If such an arrangement includes a software license, then the customer should account for the software license element of the arrangement
consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer
should account for it as a service contract. For public business entities, the ASU is effective for annual periods, including interim
periods within those annual periods, beginning after December 15, 2015. Early application is permitted. The Company is currently
reviewing the provisions of this ASU to determine if there will be any impact on its results of operations, cash flows, or financial
condition.
All other newly issued accounting pronouncements, but not yet effective,
have been deemed either immaterial or not applicable.
The entire disclosure of changes in accounting principles, including adoption of new accounting pronouncements, that describes the new methods, amount and effects on financial statement line items.
Carrying value as of the balance sheet date of liabilities incurred (and for which invoices have typically been received) and payable to vendors for goods and services received that are used in an entity's business. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Amount due from customers or clients, within one year of the balance sheet date (or the normal operating cycle, whichever is longer), for goods or services (including trade receivables) that have been delivered or sold in the normal course of business, reduced to the estimated net realizable fair value by an allowance established by the entity of the amount it deems uncertain of collection.
Carrying value as of the balance sheet date of obligations incurred and payable, pertaining to costs that are statutory in nature, are incurred on contractual obligations, or accumulate over time and for which invoices have not yet been received or will not be rendered. Examples include taxes, interest, rent and utilities. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Excess of issue price over par or stated value of the entity's capital stock and amounts received from other transactions involving the entity's stock or stockholders. Includes adjustments to additional paid in capital. Some examples of such adjustments include recording the issuance of debt with a beneficial conversion feature and certain tax consequences of equity instruments awarded to employees. Use this element for the aggregate amount of additional paid-in capital associated with common and preferred stock. For additional paid-in capital associated with only common stock, use the element additional paid in capital, common stock. For additional paid-in capital associated with only preferred stock, use the element additional paid in capital, preferred stock.
Sum of the carrying amounts as of the balance sheet date of all assets that are recognized. Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.
Sum of the carrying amounts as of the balance sheet date of all assets that are expected to be realized in cash, sold, or consumed within one year (or the normal operating cycle, if longer). Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.
Amount of currency on hand as well as demand deposits with banks or financial institutions. Includes other kinds of accounts that have the general characteristics of demand deposits. Also includes short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Excludes cash and cash equivalents within disposal group and discontinued operation.
Represents the caption on the face of the balance sheet to indicate that the entity has entered into (1) purchase or supply arrangements that will require expending a portion of its resources to meet the terms thereof, and (2) is exposed to potential losses or, less frequently, gains, arising from (a) possible claims against a company's resources due to future performance under contract terms, and (b) possible losses or likely gains from uncertainties that will ultimately be resolved when one or more future events that are deemed likely to occur do occur or fail to occur.
Aggregate par or stated value of issued nonredeemable common stock (or common stock redeemable solely at the option of the issuer). This item includes treasury stock repurchased by the entity. Note: elements for number of nonredeemable common shares, par value and other disclosure concepts are in another section within stockholders' equity.
The current portion of money or property received from customers which is either to be returned upon satisfactory contract completion or applied to customer receivables in accordance with the terms of the contract or the understandings.
Sum of the carrying amounts as of the balance sheet date of all liabilities that are recognized. Liabilities are probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or provide services to other entities in the future.
Total obligations incurred as part of normal operations that are expected to be paid during the following twelve months or within one business cycle, if longer.
Amount of long-term debt, after unamortized discount or premium, scheduled to be repaid within one year or the normal operating cycle, if longer. Includes, but not limited to, notes payable, bonds payable, debentures, mortgage loans and commercial paper. Excludes capital lease obligations.
Carrying amount of long-term debt, net of unamortized discount or premium, excluding amounts to be repaid within one year or the normal operating cycle, if longer (current maturities). Includes, but not limited to, notes payable, bonds payable, debentures, mortgage loans and commercial paper. Excludes capital lease obligations.
Aggregate carrying amount, as of the balance sheet date, of current assets not separately disclosed in the balance sheet. Current assets are expected to be realized or consumed within one year (or the normal operating cycle, if longer).
Aggregate par or stated value of issued nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer). This item includes treasury stock repurchased by the entity. Note: elements for number of nonredeemable preferred shares, par value and other disclosure concepts are in another section within stockholders' equity.
Amount after accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business to produce goods and services and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures.
Total of all stockholders' equity (deficit) items, net of receivables from officers, directors, owners, and affiliates of the entity which are attributable to the parent. The amount of the economic entity's stockholders' equity attributable to the parent excludes the amount of stockholders' equity which is allocable to that ownership interest in subsidiary equity which is not attributable to the parent (noncontrolling interest, minority interest). This excludes temporary equity and is sometimes called permanent equity.
TetriDyn Solutions,
Inc. (the Company), specializes in providing business information technology (IT) solutions to its customers. The
Company optimizes business and IT processes by using systems engineering methodologies, strategic planning, and system integration
to add efficiency and value to its customers business processes and to help its customers identify critical success factors
in their business.
The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America, or GAAP, and the rules and regulations of the Securities and Exchange Commission for interim
financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial
position and results of operations.
It is managements
opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made that are necessary
for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results
to be expected for the year. The interim condensed consolidated financial statements should be read in conjunction with the Companys
annual report on Form 10-K for the year ended December 31, 2011, including the financial statements and notes thereto.
The entire disclosure for the business description and basis of presentation concepts. Business description describes the nature and type of organization including but not limited to organizational structure as may be applicable to holding companies, parent and subsidiary relationships, business divisions, business units, business segments, affiliates and information about significant ownership of the reporting entity. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS).
Principles of ConsolidationThe condensed consolidated
financial statements include the accounts of the Company and its wholly owned subsidiary, an Idaho corporation also named TetriDyn
Solutions, Inc. Intercompany accounts and transactions have been eliminated in consolidation.
Business SegmentsThe Company had only one business
segment for the three and nine months ended September 30, 2012 and 2011.
Use of EstimatesIn preparing financial statements
in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reported period. Actual results could differ from these estimates.
Cash and Cash EquivalentsFor purposes of the
cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the
time of purchase to be cash equivalents.
Revenue RecognitionRevenue from software licenses,
related installation, and support services is recognized when earned and realizable. Revenue is earned and realizable when persuasive
evidence of an arrangement exists; services, if requested by the customers, have been rendered and are determinable; and collectability
is reasonably assured. Amounts received from customers prior to these criteria being met are deferred. Revenue from the sale of
software is recognized when delivered to the customer or upon installation of the software if an installation contract exists.
Revenue from post-contract support service is recognized as the services are provided, which is determined on an hourly basis.
The Company recognizes the revenue received for unused support hours under support service contracts that have had no support activity
after two years. Revenue applicable to multiple-element fee arrangements is divided among the software, the installation, and post-contract
support service contracts using vendor-specific objective evidence of fair value, as evidenced by the prices charged when the software
and the services are sold as separate products or arrangements.
The Company had one customer that represented more than 10% of sales
for the three-month period ended September 30, 2012, and two customers that represented more than 10% of sales for the nine-month
period ended September 30, 2012. The Company had three customers that represented more than 10% of sales for the three-month period
ended September 30, 2011, and two customers that represented more than 10% of the sales for the nine-month period ended September
30, 2011, as follows:
Three Months Ended
September 30, 2012
Nine Months Ended
September 30, 2012
Three Months Ended
September 30, 2011
Nine Months Ended
September 30, 2011
Customer A
76%
49%
--
--
Customer B
--
14%
--
--
Customer C
--
--
22%
--
Customer D
--
--
16%
13%
Customer E
--
--
12%
--
Customer F
--
--
--
11%
Going ConcernThe accompanying unaudited condensed
consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern. As reflected
in the accompanying condensed consolidated financial statements, the Company had a net loss of $46,709 and $158,521 for the three
and nine months ended September 30, 2012, respectively. The Company used cash of $54,799 in operating activities for the nine months
ended September 30, 2012. The Company had a working capital deficiency of $777,554 and a stockholders deficit of $1,259,975
as of September 30, 2012. These factors raise substantial doubt about the Companys ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on its ability to increase sales and obtain external funding
for its product development. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Income TaxesThe Company accounts for income
taxes under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740-10-25,
Income Taxes. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Fair Value of Financial InstrumentsASC 820,
Fair Value Measurements and Disclosures, requires an entity to maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent,
objective evidence surrounding the inputs used to measure fair value. A financial instruments categorization within the
fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes
the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Companys financial instruments consist of accounts receivable, prepaid expenses, accounts payable, accrued liabilities,
customer deposits, notes payable, and related-party convertible note payable. Pursuant to ASC 820, Fair Value Measurements and
Disclosures, and ASC 825, Financial Instruments, the fair value of the Companys cash equivalents is determined
based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded
values of all of the other financial instruments approximate fair value due to the relatively short period to maturity for these
instruments.
Property and EquipmentProperty and equipment
are recorded at cost. Maintenance, repairs, and renewals that neither materially add to the value of the property nor appreciably
prolong its life are charged to expense as incurred. Property and equipment are depreciated using the straight-line method over
the estimated useful life of the asset, which is set at five years for computing equipment and vehicles and seven years for office
equipment. Gains or losses on dispositions of property and equipment are included in the results of operations when realized.
Net Loss per Common ShareBasic and diluted net
loss per common share are computed based upon the weighted-average stock outstanding as defined by FASB ASC 260, Earnings Per
Share. As of September 30, 2012 and 2011, 2,018,000 and 3,383,000, respectively, of common share equivalents for granted stock
options were antidilutive and not used in the calculation of diluted net loss per share. Additionally, as of September 30, 2012
and 2011, 35,452,900 and 54,225,000, respectively, of common share equivalents for convertible note payables were antidilutive
and not used in the calculation of diluted net loss per share.
Stock-Based CompensationOn June 17, 2009, at
the Companys annual shareholders meeting, the Companys shareholders approved the 2009 Long-Term Incentive Plan under
which up to 4,000,000 shares of common stock may be issued. The 2009 plan is to be administered either by the board of directors
or by the appropriate committee to be appointed from time to time by the board of directors. Awards granted under the 2009 plan
may be incentive stock options (ISOs) (as defined in the Internal Revenue Code), appreciation rights, options that
do not qualify as ISOs, or stock bonus awards that are awarded to employees, officers, and directors who, in the opinion of the
board or the committee, have contributed or are expected to contribute materially to the Companys success. In addition,
at the discretion of the board of directors or the committee, options or bonus stock may be granted to individuals who are not
employees, officers, or directors, but contribute to the Companys success.
Equity instruments issued to other than employees are recorded on
the basis of the fair value of the instruments, as required by FASB ASC 505, Share-Based Payment. Emerging Issues Task Force,
or EITF, Issue 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services, defines the measurement date and recognition period for such instruments. In general, the
measurement date is when either: (a) a performance commitment, as defined, is reached; or (b) the earlier of: (i) the
nonemployee performance is complete; or (ii) the instruments are vested. The measured value related to the instruments is
recognized over a period based on the facts and circumstances of each particular grant as defined in the EITF.
Effective January 1, 2006, the Company adopted the provisions of
FASB ASC 505 for its stock-based compensation plan. Under FASB ASC 505, all employee stock-based compensation is measured at the
grant date, based on the fair value of the option or award, and is recognized as an expense over the requisite service period,
which is typically through the date the options or awards vest. The Company adopted FASB ASC 505 using the modified prospective
method. Under this method, for all stock-based options and awards granted prior to January 1, 2006, that remain outstanding as
of that date, compensation cost is recognized for the unvested portion over the remaining requisite service period, using the grant-date
fair value measured under the original provisions of FASB ASC 505 for pro forma and disclosure purposes. Furthermore, compensation
costs will also be recognized for any awards issued, modified, repurchased, or cancelled after January 1, 2006.
ReclassificationsCertain amounts in the 2011
information have been reclassified to conform to the 2012 presentation. These reclassifications had no impact on the Companys
net loss or cash flows.
The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements.
Total number of common shares of an entity that have been sold or granted to shareholders (includes common shares that were issued, repurchased and remain in the treasury). These shares represent capital invested by the firm's shareholders and owners, and may be all or only a portion of the number of shares authorized. Shares issued include shares outstanding and shares held in the treasury.
The maximum number of nonredeemable preferred shares (or preferred stock redeemable solely at the option of the issuer) permitted to be issued by an entity's charter and bylaws.
Total number of nonredeemable preferred shares (or preferred stock redeemable solely at the option of the issuer) issued to shareholders (includes related preferred shares that were issued, repurchased, and remain in the treasury). May be all or portion of the number of preferred shares authorized. Excludes preferred shares that are classified as debt.
Aggregate share number for all nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer) held by stockholders. Does not include preferred shares that have been repurchased.
For an entity that discloses a concentration risk in relation to quantitative amount, which serves as the "benchmark" (or denominator) in the equation, this concept represents the concentration percentage derived from the division.
This is focus fiscal period of the document report. For a first quarter 2006 quarterly report, which may also provide financial information from prior periods, the first fiscal quarter should be given as the fiscal period focus. Values: FY, Q1, Q2, Q3, Q4, H1, H2, M9, T1, T2, T3, M8, CY.
This is focus fiscal year of the document report in CCYY format. For a 2006 annual report, which may also provide financial information from prior periods, fiscal 2006 should be given as the fiscal year focus. Example: 2006.
The end date of the period reflected on the cover page if a periodic report. For all other reports and registration statements containing historical data, it is the date up through which that historical data is presented. If there is no historical data in the report, use the filing date. The format of the date is CCYY-MM-DD.
The type of document being provided (such as 10-K, 10-Q, 485BPOS, etc). The document type is limited to the same value as the supporting SEC submission type, or the word "Other".
Indicate number of shares or other units outstanding of each of registrant's classes of capital or common stock or other ownership interests, if and as stated on cover of related periodic report. Where multiple classes or units exist define each class/interest by adding class of stock items such as Common Class A [Member], Common Class B [Member] or Partnership Interest [Member] onto the Instrument [Domain] of the Entity Listings, Instrument.
Indicate "Yes" or "No" whether registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. This information should be based on the registrant's current or most recent filing containing the related disclosure.
Indicate whether the registrant is one of the following: (1) Large Accelerated Filer, (2) Accelerated Filer, (3) Non-accelerated Filer, (4) Smaller Reporting Company (Non-accelerated) or (5) Smaller Reporting Accelerated Filer. Definitions of these categories are stated in Rule 12b-2 of the Exchange Act. This information should be based on the registrant's current or most recent filing containing the related disclosure.
Indicate "Yes" or "No" if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Is used on Form Type: 10-K, 10-Q, 8-K, 20-F, 6-K, 10-K/A, 10-Q/A, 20-F/A, 6-K/A, N-CSR, N-Q, N-1A.
Securities (including those issuable pursuant to contingent stock agreements) that could potentially dilute basic earnings per share (EPS) or earnings per unit (EPU) in the future that were not included in the computation of diluted EPS or EPU because to do so would increase EPS or EPU amounts or decrease loss per share or unit amounts for the period presented.
Amount after tax of increase (decrease) in equity from transactions and other events and circumstances from net income and other comprehensive income, attributable to parent entity. Excludes changes in equity resulting from investments by owners and distributions to owners.
Amount of cash inflow (outflow) from operating activities, including discontinued operations. Operating activity cash flows include transactions, adjustments, and changes in value not defined as investing or financing activities.
Total of all stockholders' equity (deficit) items, net of receivables from officers, directors, owners, and affiliates of the entity which are attributable to the parent. The amount of the economic entity's stockholders' equity attributable to the parent excludes the amount of stockholders' equity which is allocable to that ownership interest in subsidiary equity which is not attributable to the parent (noncontrolling interest, minority interest). This excludes temporary equity and is sometimes called permanent equity.
Amount after tax of increase (decrease) in equity from transactions and other events and circumstances from net income and other comprehensive income, attributable to parent entity. Excludes changes in equity resulting from investments by owners and distributions to owners.
The amount of net income or loss for the period per each share in instances when basic and diluted earnings per share are the same amount and reported as a single line item on the face of the financial statements. Basic earnings per share is the amount of net income or loss for the period per each share of common stock or unit outstanding during the reporting period. Diluted earnings per share includes the amount of net income or loss for the period available to each share of common stock or common unit outstanding during the reporting period and to each share or unit that would have been outstanding assuming the issuance of common shares or units for all dilutive potential common shares or units outstanding during the reporting period.
The aggregate total of expenses of managing and administering the affairs of an entity, including affiliates of the reporting entity, which are not directly or indirectly associated with the manufacture, sale or creation of a product or product line.
The aggregate amount of income or expense from ancillary business-related activities (that is to say, excluding major activities considered part of the normal operations of the business).
Generally recurring costs associated with normal operations except for the portion of these expenses which can be clearly related to production and included in cost of sales or services. Includes selling, general and administrative expense.
A fee charged for services from professionals such as doctors, lawyers and accountants. The term is often expanded to include other professions, for example, pharmacists charging to maintain a medicinal profile of a client or customer.
The aggregate costs incurred (1) in a planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service, a new process or technique, or in bringing about a significant improvement to an existing product or process; or (2) to translate research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or the entity's use, during the reporting period charged to research and development projects, including the costs of developing computer software up to the point in time of achieving technological feasibility, and costs allocated in accounting for a business combination to in-process projects deemed to have no alternative future use.
Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss).
As of October
25, 2011, a loan from one economic development entity was in default. The loan principal was $50,000 with accrued interest of
$5,035 through September 30, 2012.
As of September
30, 2012, the Company was delinquent in payments on two loans to a second economic development entity. The Company owed this economic
entity $22,529 in late payments, with an outstanding balance of $163,791 and accrued interest of $11,203 as of September 30, 2012.
Both loans are guaranteed by two of the Companys officers. One loan is secured by liens on intangible software assets and
the other loan is secured by the officers personal property. The Company is working with this entity to bring the payments
current as soon as cash flow permits.
As of September
30, 2012, the Company was delinquent in payments on a loan to a third economic development entity. The Company owed the third
economic entity $16,000 in late payments, with an outstanding balance of $85,821 and accrued interest of $2,526 as of September
30, 2012. This loan is secured by a junior lien on all the Companys assets and shares of our founders common stock.
The Company is working with this entity to bring the payments current as soon as cash flow permits.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
In 2010, the
Company borrowed $150,000 in three separate loans from two of its officers and directors, repayable pursuant to various convertible
promissory notes. The terms of the notes are as follows: (a) no interest will accrue if the note is repaid within 60 days;
(b) if the note is not repaid within 60 days, the Company is obligated to pay 10% for costs associated with securing the
funds; (c) if the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid
within one year, the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the
lenders are authorized to convert part or all of the note balance and accrued interest, if any, into the Companys common
stock at its fair value at any time while the note is outstanding; and (e) the loans due date for full repayment is
December 31, 2013. Since the loans were not paid within 60 days, the Company is obligated to pay $15,000 for costs associated
with securing the funds and accrued interest.
In 2011, the
Company borrowed $125,000 in five separate loans from two of its officers and directors, repayable pursuant to various convertible
promissory notes. The terms of the notes are as follows: (a) no interest will accrue if the note is repaid within 60 days;
(b) if the note is not repaid within 60 days, the Company is obligated to pay 10% for costs associated with securing the
funds; (c) if the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid
within one year, the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the
lenders are authorized to convert part or all of the note balance and accrued interest, if any, into the Companys common
stock at its fair value at any time while the note is outstanding; and (e) the loans due date for full repayment is
December 31, 2014. Since the loans were not paid within 60 days, the Company is obligated to pay $12,500 for costs associated
with securing the funds.
In February
2012, the Company borrowed $40,000 from two of its officers and directors, repayable pursuant to a convertible promissory note.
The terms of the note are as follows: (a) no interest will accrue if the note is repaid within 60 days; (b) if the note
is not repaid within 60 days, the Company is obligated to pay $4,000 for costs associated with securing the funds; (c) if
the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid within one year,
the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the lenders are
authorized to convert part or all of the note balance and accrued interest, if any, into the Companys common stock at its
fair value at any time while the note is outstanding; and (e) the loans due date for full repayment is December 31,
2014. Since the loan was not paid within 60 days, the Company is obligated to pay $4,000 for costs associated with securing the
funds.
In August
2012, the Company borrowed $5,000 from two of its officers and directors, repayable pursuant to a convertible promissory note.
The terms of the note are as follows: (a) no interest will accrue if the note is repaid within 60 days; (b) if the note
is not repaid within 60 days, the Company is obligated to pay $500 for costs associated with securing the funds; (c) if the
loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid within one year, the
note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the lenders are authorized
to convert part or all of the note balance and accrued interest, if any, into the Companys common stock at its fair value
at any time while the note is outstanding; and (e) the loans due date for full repayment is December 31, 2014. Since
the loan was not paid within 60 days, the Company is obligated to pay $500 for costs associated with securing the funds.
As of September
30, 2012, the Company had $320,000 in convertible notes payable due to related parties with $34,539 in accrued interest.
The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.
Amount, after adjustment, of cost-method investment. Adjustments include, but are not limited to, dividends received in excess of earnings after date of investment that are considered a return of investment and other than temporary impairments.
The condensed
consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, an Idaho corporation also
named TetriDyn Solutions, Inc. Intercompany accounts and transactions have been eliminated in
consolidation.
In preparing
financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates.
For purposes
of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less
at the time of purchase to be cash equivalents.
Revenue from
software licenses, related installation, and support services is recognized when earned and realizable. Revenue is earned and
realizable when persuasive evidence of an arrangement exists; services, if requested by the customers, have been rendered and
are determinable; and collectability is reasonably assured. Amounts received from customers prior to these criteria being met
are deferred. Revenue from the sale of software is recognized when delivered to the customer or upon installation of the software
if an installation contract exists. Revenue from post-contract support service is recognized as the services are provided, which
is determined on an hourly basis. The Company recognizes the revenue received for unused support hours under support service contracts
that have had no support activity after two years. Revenue applicable to multiple-element fee arrangements is divided among the
software, the installation, and post-contract support service contracts using vendor-specific objective evidence of fair value,
as evidenced by the prices charged when the software and the services are sold as separate products or arrangements.
The Company
had one customer that represented more than 10% of sales for the three-month period ended September 30, 2012, and two customers
that represented more than 10% of sales for the nine-month period ended September 30, 2012. The Company had three customers that
represented more than 10% of sales for the three-month period ended September 30, 2011, and two customers that represented more
than 10% of the sales for the nine-month period ended September 30, 2011, as follows:
The accompanying
unaudited condensed consolidated financial statements have been prepared on the assumption that the Company will continue as a
going concern. As reflected in the accompanying condensed consolidated financial statements, the Company had a net loss of $46,709
and $158,521 for the three and nine months ended September 30, 2012, respectively. The Company used cash of $54,799 in operating
activities for the nine months ended September 30, 2012. The Company had a working capital deficiency of $777,554 and a stockholders
deficit of $1,259,975 as of September 30, 2012. These factors raise substantial doubt about the Companys ability to continue
as a going concern. The ability of the Company to continue as a going concern is dependent on its ability to increase sales and
obtain external funding for its product development. The financial statements do not include any adjustments that may result from
the outcome of this uncertainty.
The Company
accounts for income taxes under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
740-10-25, Income Taxes. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 820, Fair
Value Measurements and Disclosures, requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence
surrounding the inputs used to measure fair value. A financial instruments categorization within the fair value hierarchy
is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into
three levels that may be used to measure fair value:
Level
1
Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level
2
Level 2 applies
to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities
in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which
significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level
3
Level 3 applies
to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the
measurement of the fair value of the assets or liabilities.
The Companys
financial instruments consist of accounts receivable, prepaid expenses, accounts payable, accrued liabilities, customer deposits,
notes payable, and related-party convertible note payable. Pursuant to ASC 820, Fair Value Measurements and Disclosures,
and ASC 825, Financial Instruments, the fair value of the Companys cash equivalents is determined based on Level
1 inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values
of all of the other financial instruments approximate fair value due to the relatively short period to maturity for these instruments.
Property and
equipment are recorded at cost. Maintenance, repairs, and renewals that neither materially add to the value of the property nor
appreciably prolong its life are charged to expense as incurred. Property and equipment are depreciated using the straight-line
method over the estimated useful life of the asset, which is set at five years for computing equipment and vehicles and seven
years for office equipment. Gains or losses on dispositions of property and equipment are included in the results of operations
when realized.
Net Loss per Common ShareBasic and diluted net
loss per common share are computed based upon the weighted-average stock outstanding as defined by FASB ASC 260, Earnings Per
Share. As of September 30, 2012 and 2011, 2,018,000 and 3,383,000, respectively, of common share equivalents for granted stock
options were antidilutive and not used in the calculation of diluted net loss per share. Additionally, as of September 30, 2012
and 2011, 35,452,900 and 54,225,000, respectively, of common share equivalents for convertible note payables were antidilutive
and not used in the calculation of diluted net loss per share.
Stock-Based CompensationOn June 17, 2009, at
the Companys annual shareholders meeting, the Companys shareholders approved the 2009 Long-Term Incentive Plan under
which up to 4,000,000 shares of common stock may be issued. The 2009 plan is to be administered either by the board of directors
or by the appropriate committee to be appointed from time to time by the board of directors. Awards granted under the 2009 plan
may be incentive stock options (ISOs) (as defined in the Internal Revenue Code), appreciation rights, options that
do not qualify as ISOs, or stock bonus awards that are awarded to employees, officers, and directors who, in the opinion of the
board or the committee, have contributed or are expected to contribute materially to the Companys success. In addition,
at the discretion of the board of directors or the committee, options or bonus stock may be granted to individuals who are not
employees, officers, or directors, but contribute to the Companys success.
Equity instruments issued to other than employees are recorded on
the basis of the fair value of the instruments, as required by FASB ASC 505, Share-Based Payment. Emerging Issues Task Force,
or EITF, Issue 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services, defines the measurement date and recognition period for such instruments. In general, the
measurement date is when either: (a) a performance commitment, as defined, is reached; or (b) the earlier of: (i) the
nonemployee performance is complete; or (ii) the instruments are vested. The measured value related to the instruments is
recognized over a period based on the facts and circumstances of each particular grant as defined in the EITF.
Effective January 1, 2006, the Company adopted the provisions of
FASB ASC 505 for its stock-based compensation plan. Under FASB ASC 505, all employee stock-based compensation is measured at the
grant date, based on the fair value of the option or award, and is recognized as an expense over the requisite service period,
which is typically through the date the options or awards vest. The Company adopted FASB ASC 505 using the modified prospective
method. Under this method, for all stock-based options and awards granted prior to January 1, 2006, that remain outstanding as
of that date, compensation cost is recognized for the unvested portion over the remaining requisite service period, using the grant-date
fair value measured under the original provisions of FASB ASC 505 for pro forma and disclosure purposes. Furthermore, compensation
costs will also be recognized for any awards issued, modified, repurchased, or cancelled after January 1, 2006.
Certain amounts
in the 2011 information have been reclassified to conform to the 2012 presentation. These reclassifications had no impact on the
Companys net loss or cash flows.
Disclosure of accounting policy for cash and cash equivalents, including the policy for determining which items are treated as cash equivalents. Other information that may be disclosed includes (1) the nature of any restrictions on the entity's use of its cash and cash equivalents, (2) whether the entity's cash and cash equivalents are insured or expose the entity to credit risk, (3) the classification of any negative balance accounts (overdrafts), and (4) the carrying basis of cash equivalents (for example, at cost) and whether the carrying amount of cash equivalents approximates fair value.
Disclosure of accounting policy regarding (1) the principles it follows in consolidating or combining the separate financial statements, including the principles followed in determining the inclusion or exclusion of subsidiaries or other entities in the consolidated or combined financial statements and (2) its treatment of interests (for example, common stock, a partnership interest or other means of exerting influence) in other entities, for example consolidation or use of the equity or cost methods of accounting. The accounting policy may also address the accounting treatment for intercompany accounts and transactions, noncontrolling interest, and the income statement treatment in consolidation for issuances of stock by a subsidiary.
Disclosure of accounting policy for computing basic and diluted earnings or loss per share for each class of common stock and participating security. Addresses all significant policy factors, including any antidilutive items that have been excluded from the computation and takes into account stock dividends, splits and reverse splits that occur after the balance sheet date of the latest reporting period but before the issuance of the financial statements.
Disclosure of accounting policy for income taxes, which may include its accounting policies for recognizing and measuring deferred tax assets and liabilities and related valuation allowances, recognizing investment tax credits, operating loss carryforwards, tax credit carryforwards, and other carryforwards, methodologies for determining its effective income tax rate and the characterization of interest and penalties in the financial statements.
Disclosure of accounting policy for long-lived, physical assets used in the normal conduct of business and not intended for resale. Includes, but is not limited to, basis of assets, depreciation and depletion methods used, including composite deprecation, estimated useful lives, capitalization policy, accounting treatment for costs incurred for repairs and maintenance, capitalized interest and the method it is calculated, disposals and impairments.
Disclosure of accounting policy for revenue recognition. If the entity has different policies for different types of revenue transactions, the policy for each material type of transaction is generally disclosed. If a sales transaction has multiple element arrangements (for example, delivery of multiple products, services or the rights to use assets) the disclosure may indicate the accounting policy for each unit of accounting as well as how units of accounting are determined and valued. The disclosure may encompass important judgment as to appropriateness of principles related to recognition of revenue. The disclosure also may indicate the entity's treatment of any unearned or deferred revenue that arises from the transaction.
Disclosure of accounting policy for stock option and stock incentive plans. This disclosure may include (1) the types of stock option or incentive plans sponsored by the entity (2) the groups that participate in (or are covered by) each plan (3) significant plan provisions and (4) how stock compensation is measured, and the methodologies and significant assumptions used to determine that measurement.
The entire disclosure when substantial doubt is raised about the ability to continue as a going concern. Includes, but is not limited to, principal conditions or events that raised substantial doubt about the ability to continue as a going concern, management's evaluation of the significance of those conditions or events in relation to the ability to meet its obligations, and management's plans that alleviated or are intended to mitigate the conditions or events that raise substantial doubt about the ability to continue as a going concern.
Disclosure of accounting policy for the use of estimates in the preparation of financial statements in conformity with generally accepted accounting principles.
In March 2012,
the compensation committee set the annual salaries for the Chief Executive Officer and the Deputy Chief Executive Officer to be
$50,000 and $50,000, respectively, through calendar year 2012 and for subsequent calendar years until otherwise modified in a
subsequent compensation committee resolution.
In October 2012, the Company moved its offices from 1651 Alvin Ricken
Drive, Pocatello, Idaho to 1585 North Skyline Drive, Idaho Falls, Idaho. The Company did not enter into an operating lease agreement
for the new office space. The office space is owned by one of the Companys directors. The Company occupies the office space
at no charge to the Company and records the monthly rent expense as in-kind contribution of rent.
Sales of Unregistered Securities in 2013
On March 25, 2013, the board of directors authorized the issuance
of 1,000,000 shares of the Companys common stock for compensation as follows:
●
200,000 restricted shares of common stock to existing employees of the Company, excluding directors and officers, as determined by management;
●
275,000 restricted shares of common stock to each outside director on a discretionary basis for past service;
●
150,000 restricted shares of common stock to an outside consultant for technical services; and
●
100,000 restricted shares of common stock to an outside consultant for marketing and product development services.
The issuances were recorded for financial statement purposes at $0.02
per share, the approximate market price for the common stock on the date the issuances were approved, for a total of $20,000.
Credit Card Obligations
The Company was responsible for reimbursing Dave Hempstead, its chief
executive officer, principal financial officer, and director, for personal credit card account expenditures on its behalf. The
balance due on these credit card accounts was $261,609 as of the date of Mr. Hempstead's death on April 26, 2013. The credit card
companies have not sought collection from assets owned jointly with Mr. Hempstead's surviving spouse, who in turn advised the Company
on July 15, 2015, that she will not seek reimbursement from the Company unless the credit card companies hereafter seek payment.
The full amount of this liability has been recorded and disclosed as part of accounts payable and will continue to be accrued until
the statute of limitations is met.
Sale of Southfork Solutions, Inc.
On August 26, 2014, the Company sold to Southfork Solutions,
Inc., the variable interest subsidiary engaged in providing IT solutions to the livestock segment, its 39% minority, nonoperating
interest in Southfork Solutions for $75,000. This operation had been discontinued in 2009.
Consolidation of Convertible Notes Payable to Related Parties
On March 19, 2015, the Company exchanged convertible notes payable
to its officers and directors in the aggregate principal amount of $320,246, plus accrued but unpaid interest of $74,134, for an
aggregate of $394,380 as of December 31, 2014, into a single, $394,380 consolidated convertible note dated December 31, 2014. The
new consolidated convertible note has payment and other terms identical to the notes exchanged, except that the conversion provisions
were changed from a conversion price to be equal to the stocks fair value as of the conversion date to a fixed conversion
price under the consolidated note of $0.025 per share, the approximate market price of the Companys common stock as of the
date of the issuance of the consolidated note in March 2015. The note is due and payble within 90 days after demand. See
Note 6Convertible Notes Payable to Related Parties.
2015 Investment and Merger Agreements
On March 23, 2015, the Company entered into an Investment Agreement
dated March 12, 2015, with JPF Venture Group, Inc. (JPF) and an Agreement and Plan of Merger dated March 12, 2015
(the Merger Agreement) with Ocean Thermal Energy (OTE). Before entering into these agreements, there
was no material relationship between the Company and its affiliates and either JPF or OTE and their respective affiliates.
Investment AgreementUnder the terms of the Investment
Agreement, JPF purchased for $100,000 in cash 29,372,277 shares of the Companys common stock at $0.003405 per share (the
JPF Stock) and a warrant to purchase up to 1,033,585 shares of the Companys common stock at an exercise price
of $0.003 per share. JPF is an investment entity that is majority-owned by Jeremy P. Feakins (Feakins), the Chairman
and Chief Executive Officer of OTE. The JPF Stock represents a 55% ownership interest by JPF in the Company, without giving effect
to the issuance of additional shares of the Companys common stock on the conversion of outstanding convertible notes.
JPFs investment is being used principally to initiate and
pursue an updated technical and commercialization review of the Companys intellectual properties with a view toward possible
broadened marketing introduction and, in general, advance the Companys business activities and to bring its regulatory filings
current. The terms of the Investment Agreement provide that, if the Merger (as defined below) with OTE is consummated, 100% of
the JPF Stock will be cancelled and returned to the status of authorized and unissued shares. The purpose of this intended cancellation
is to ensure that the Companys current shareholders (excluding JPF) retain a 5% interest in the post-Merger company. If
the Merger is not consummated, the JPF Stock will remain outstanding, and JPF will maintain its position as a 55% stockholder in
the Company.
Concurrently with the execution of the Investment Agreement, Antoinette
Knapp Hempstead and the estate of her late husband, David W. Hempstead (together, the Hempsteads), JPF, and Feakins
entered into an agreement whereby, among other things: (i) JPF agreed to execute supplemental guarantees for the Hempsteads
in connection with certain debt obligations to economic development entities owed by the Company and guaranteed by the Hempsteads;
(ii) the Hempsteads transferred to JPF the consolidated convertible note payable by the Company to the Hempsteads with an
outstanding principal balance of $394,380 as of December 31, 2014, together with accrued and unpaid payroll of $213,436, for a
total of $607,816; and (iii) the Hempsteads returned to the Company for cancellation 1,200,000 shares of Series A Preferred
Stock, which were cancelled. The Company has filed a Certificate of Withdrawal of Certificate of Designation for the preferred
stock with the Nevada Secretary of State.
As required by the Investment Agreement, two designees of JPF, Feakins
and Peter Wolfson, were appointed as directors of the Company to replace incumbent directors Orville J. Hendrickson and Larry J.
Ybarrondo, who resigned. See below.
Agreement and Plan of Merger
Merger Terms. Under the terms of the Merger Agreement, the
Company would acquire OTE (the Merger) as follows: (i) the Company would organize a wholly owned subsidiary
that would merge with and into OTE, with OTE continuing as the surviving corporation and as a wholly owned subsidiary of the Company;
and (ii) each share of OTE common stock outstanding or issuable on the conversion of outstanding notes and exercise of warrants
(other than shares owned by stockholders who dissent to the transaction) immediately before the Merger, would be converted into
the right to receive one newly issued share of the Companys common stock in accordance with the terms and conditions of
the Merger Agreement.
Conditions to Completion of Merger. The completion of the
Merger would constitute the offer and sale of the Companys securities to the stockholders of OTE, which can only be effected
if a registration statement under the Securities Act of 1933, as amended (the Securities Act), is effective or an
exemption from registration is available. The Company has determined to seek an exemption from registration under the Securities
Act by meeting the requirements of Section 3(a)(10) of this statute, which exempts from registration securities issued when the
terms and conditions of such issuance are approved, after hearing upon the fairness of the terms and conditions meeting certain
requirements by, among others, a duly authorized administrative agency. In an effort to meet these requirements, the Company has
filed an application for a fairness hearing to be held pursuant to the provisions of Section 25142 of the California Securities
Law (the Fairness Hearing) so that the issuance of the securities to complete the Merger will be exempt from the
registration requirements of the Securities Act pursuant to the exemption provided by Section 3(a)(10) of the Securities Act.
The California application for a Fairness Hearing is now pending.
The Fairness Hearing and permitting application are significant and quite technical, and the determination of whether the
Merger will meet the California fairness requirements will be subject to the discretion of the hearing officer. No assurance can
be given as to whether or not the hearing will result in the denial of the application, an adjustment of the terms of the Merger,
the issuance of a permit meeting the conditions of the Securities Act Section 3(a)(10) exemption, or other action.
If California issues a permit availing the Company of the exemption
under the Securities Act Section 3(a)(10) and the other conditions to closing the Merger are met, the Merger will be completed
promptly thereafter. If California does not issue the permit or the other Merger conditions are not satisfied: (i) the Merger
Agreement will terminate; (ii) the Company and OTE will remain as separate companies; and (iii) JPF will continue as
the 55% controlling stockholder of the Company as it seeks to advance commercialization of its technologies or pursue other opportunities.
Completion of the Merger is also conditioned on the continuing accuracy
of the representations and warranties of the respective parties to the Merger Agreement, the satisfaction of certain conditions,
and other covenants, many of which may be waived by either party.
Reverse Split to Facilitate Merger. The
Company currently has an authorized capitalization of 100,000,000 shares of common stock and 5,000,000 shares of preferred
stock. With 24.0 million shares outstanding immediately preceding the Merger, after giving effect to JPFs return
of 24,031,863 shares issued under the Investment Agreement for cancellation immediately preceding the closing of the Merger, the
Company does not have a sufficient number of authorized but unissued shares to convey 95% ownership of its stock to the OTE
stockholders as agreed to complete the Merger, which would require the issuance of 369.9 million shares at closing and the
reservation of about 86.7 shares for issuance on the conversion of outstanding notes and the exercise of
outstanding warrants. Accordingly, immediately preceding the Merger, the Company will effect a 1-for-4.6972
reverse-stock-split of its common stock (the Reverse Split) by filing an amendment with the Nevada Secretary of
State. This amendment will also increase the Companys authorized common stock to 200,000,000 shares.
As a result of the Reverse Split, each record holder of less than
4.6972 shares of the Companys common stock immediately before the Reverse Split (the Minority Stockholders)
will receive, from the Company, cash in the amount of $0.03 per share of the Companys common stock, without interest (which
amount includes a 20% premium over the fair market value of $0.025 per share as of March 3, 2015, as determined by the Companys
board of directors), for each share of the Companys common stock held immediately before the Reverse Split, and the Minority
Stockholders will no longer be stockholders of the Company. Each record holder of 4.6972 or more shares of the Companys
common stock immediately before the Reverse Split will own approximately one-fifth of the number of shares of the Companys
common stock held by such stockholder immediately before the Reverse Split.
Post-Merger Business of OTE and the Company. OTE is developing
deep-water hydrothermal technologies to provide renewable energy and drinkable water. OTEs Sea Water Air Conditioning (SWAC)
technology takes advantage of the difference between cold deep water and warmer surface water to produce hydrothermal energy without
requiring fossil fuels. OTE has recently broken ground on a SWAC project at the upscale Baha Mar Resort in the Bahamas. This project,
believed to be the first large-scale seawater air conditioning system in the Bahamas, is scheduled to be completed and in service
in 2016.
OTE is interested in the commercial potential of proprietary technologies
being developed by the Company as opportunities for future business diversification. Further, OTE recognizes that the Companys
status as a company that is subject to the periodic reporting requirements pursuant to Section 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), may enhance its access to the capital markets to fund future projects.
After the Merger, the combined enterprise intends to continue opportunistically
to develop the lines of business of both the Company and OTE as commercial opportunities are identified for one, the other, or
both, after considering funding availability, potential financial returns, and related risks.
Ownership of the Company Following the Merger and Reverse Split.
As a result of the Investment Agreement, JPF now owns 55% of Companys common stock and is a principal creditor of the Company,
which owes JPF pursuant to the consolidated convertible note with an outstanding principal balance of $394,380 as of December 31,
2014, and accrued and unpaid payroll of $213,436, for a total of $607,816.
If the Merger is completed, the JPF Stock purchased pursuant to the
Investment Agreement will be cancelled and returned to the Company, and the former OTE stockholders will own 95% of the Companys
outstanding common stock (after giving effect to the exercise of OTE warrants and the conversion of OTE notes). The pre-Merger
company shareholders will have a 5% interest in the post-Merger company, and the officers and directors of OTE will be the officers
and directors of the post-Merger company.
Change in Directors and ManagementOn
March 23, 2015, in connection with the Investment Agreement, Orville J. Hendrickson and Larry J. Ybarrondo resigned their positions
on the Companys board of directors, and Feakins and Peter Wolfson (as a nominee of JPF) were appointed by board consent
to the Companys board. Antoinette Knapp Hempstead, who was a board member before March 23, 2015, continues as a director.
The resignations of Messrs. Hendrickson and Ybarrondo are not the result of any disagreement with the Company on any matter relating
to its operations, policies, or practices.
Change of Office LocationIn connection with
the above transactions, in March 2015 the Companys offices were relocated to the facilities of JPF at 800 South Queen Street,
Lancaster, Pennsylvania 17603, telephone number (717) 715-0238, where it shares offices with OTE at no charge to the Company.
2015 Convertible Note Payable to Related-Party
On June 23, 2015, the Company borrowed $50,000 from its principal
stockholder, JPF Venture Group, Inc., pursuant to a promissory note. The terms of the note are as follows: (i) interest is
payable at 6% per annum; (ii) the note is payable 90 days after demand; and (iii) payee is authorized to convert part
or all of the note balance and accrued interest, if any, into shares of the Companys common stock at their fair market value
at the time of conversion. JPF is an investment entity that is majority-owned by Jeremy P. Feakins, a director, chief executive
officer, and chief financial officer of the Company.
The entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business.
The entire disclosure for any concentrations existing at the date of the financial statements that make an entity vulnerable to a reasonably possible, near-term, severe impact. This disclosure informs financial statement users about the general nature of the risk associated with the concentration, and may indicate the percentage of concentration risk as of the balance sheet date.
Amount of currency on hand as well as demand deposits with banks or financial institutions. Includes other kinds of accounts that have the general characteristics of demand deposits. Also includes short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Excludes cash and cash equivalents within disposal group and discontinued operation.
Amount of increase (decrease) in cash and cash equivalents. Cash and cash equivalents are the amount of currency on hand as well as demand deposits with banks or financial institutions. Includes other kinds of accounts that have the general characteristics of demand deposits. Also includes short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Includes effect from exchange rate changes.
Amount after tax of increase (decrease) in equity from transactions and other events and circumstances from net income and other comprehensive income, attributable to parent entity. Excludes changes in equity resulting from investments by owners and distributions to owners.
The amount of expense recognized in the current period that reflects the allocation of the cost of tangible assets over the assets' useful lives. Includes production and non-production related depreciation.
The amount of cash paid during the current period to foreign, federal, state, and local authorities as taxes on income, net of any cash received during the current period as refunds for the overpayment of taxes.
The increase (decrease) during the reporting period in the aggregate amount of liabilities incurred (and for which invoices have typically been received) and payable to vendors for goods and services received that are used in an entity's business.
The increase (decrease) during the period in the amount of customer money held in customer accounts, including security deposits, collateral for a current or future transactions, initial payment of the cost of acquisition or for the right to enter into a contract or agreement.
The increase (decrease) during the reporting period in the amount of outstanding money paid in advance for goods or services that bring economic benefits for future periods.
The increase (decrease) during the reporting period in the total amount due within one year (or one operating cycle) from all parties, associated with underlying transactions that are classified as operating activities.
Amount of cash inflow (outflow) from financing activities, including discontinued operations. Financing activity cash flows include obtaining resources from owners and providing them with a return on, and a return of, their investment; borrowing money and repaying amounts borrowed, or settling the obligation; and obtaining and paying for other resources obtained from creditors on long-term credit.
Amount of cash inflow (outflow) from operating activities, including discontinued operations. Operating activity cash flows include transactions, adjustments, and changes in value not defined as investing or financing activities.
The cash inflow from a long-term borrowing made from related parties where one party can exercise control or significant influence over another party; including affiliates, owners or officers and their immediate families, pension trusts, and so forth. Alternate caption: Proceeds from Advances from Affiliates.
The aggregate amount of noncash, equity-based employee remuneration. This may include the value of stock or unit options, amortization of restricted stock or units, and adjustment for officers' compensation. As noncash, this element is an add back when calculating net cash generated by operating activities using the indirect method.
As of September 30, 2012, the Company had $397,389 in accounts payable,
$352,324 of which was due on multiple revolving credit cards under the name of the Company's former chief executive officer (now
deceased) or the name of the Company's current president. These amounts represent advances to the Company from funds borrowed on
credit cards in the name of these officers as an accommodation to the Company at a time when it was unable to obtain advances on
its own credit The obligations bear varying rates of interest between 5.25% and 29.99%. The Company agreed to reimburse the former
chief executive officer and current president for these liabilities (see Note 9).
As of September 30, 2012, the Company had $252,354 in accrued liabilities.
The accrued liabilities included $186,733 that represents unpaid salaries (including accrued payroll taxes) for two of its officers.
Carrying value as of the balance sheet date of liabilities incurred (and for which invoices have typically been received) and payable to vendors for goods and services received that are used in an entity's business. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Carrying value as of the balance sheet date of obligations incurred and payable, pertaining to costs that are statutory in nature, are incurred on contractual obligations, or accumulate over time and for which invoices have not yet been received or will not be rendered. Examples include taxes, interest, rent and utilities. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Total of the carrying values as of the balance sheet date of obligations incurred through that date and payable for obligations related to services received from employees, such as accrued salaries and bonuses, payroll taxes and fringe benefits. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
The carrying value as of the balance sheet date of the noncurrent portion of long-term obligations drawn from a line of credit, which is a bank's commitment to make loans up to a specific amount. Examples of items that might be included in the application of this element may consist of letters of credit, standby letters of credit, and revolving credit arrangements, under which borrowings can be made up to a maximum amount as of any point in time conditional on satisfaction of specified terms before, as of and after the date of drawdowns on the line. Includes short-term obligations that would normally be classified as current liabilities but for which (a) postbalance sheet date issuance of a long term obligation to refinance the short term obligation on a long term basis, or (b) the enterprise has entered into a financing agreement that clearly permits the enterprise to refinance the short-term obligation on a long term basis and the following conditions are met (1) the agreement does not expire within 1 year and is not cancelable by the lender except for violation of an objectively determinable provision, (2) no violation exists at the BS date, and (3) the lender has entered into the financing agreement is expected to be financially capable of honoring the agreement.