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 June 30, 2015
   
¨
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
x
No
o

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
x
No
o

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 September 18, 2015, issuer had 53,404,140 outstanding shares of common stock, par value $0.001.

 
 

 

TABLE OF CONTENTS


Item
Description
Page
     
 
PART I—FINANCIAL INFORMATION
 
Item 1
Financial Statements
 
 
Condensed Consolidated Balance Sheets (Unaudited)
3
 
Condensed Consolidated Statements of Operations (Unaudited)
4
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
5
 
Notes to the Condensed Consolidated Financial Statements (Unaudited)
6
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15
Item 3
Quantitative and Qualitative Disclosures about Market Risk
20
Item 4
Controls and Procedures
20
     
 
PART II—OTHER INFORMATION
 
Item 3
Defaults upon Senior Securities
21
Item 6
Exhibits
22
 
Signature
22
 
2
 
 

 

PART I–FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
 
TETRIDYN SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
             
    June 30,   December 31,
    2015   2014
    (Unaudited)      
ASSETS
           
   Current Assets
           
      Cash
 
           6,417
 
            178
   Total Current Assets
   
             6,417
   
                178
Total Assets
 
        6,417
 
            178
             
LIABILITIES
           
   Current Liabilities
           
      Accounts payable
 
      416,564
 
      406,705
      Accrued liabilities
   
          293,539
   
          353,749
      Customer deposits
   
                    -
   
             3,445
      Notes payable
   
          299,612
   
          299,612
      Convertible note payable to related party
 
          394,380
   
          320,246
   Total Current Liabilities
   
       1,404,095
   
       1,383,757
Total Liabilities
 
   1,404,095
 
   1,383,757
             
COMMITMENTS AND CONTINGENCIES (Note 7)
         
             
STOCKHOLDERS' DEFICIT
           
   Preferred stock - $0.001 par value
         
      Authorized:
5,000,000 shares
         
      Issued and outstanding:
0 shares and 1,200,000
         
 
shares, respectively
 
                    -
   
             1,200
   Common stock - $0.001 par value
         
      Authorized:
100,000,000 shares
         
      Issued and outstanding:
53,404,140 shares and
         
 
24,031,863 shares, respectively
 
           53,404
   
           24,032
   Additional paid-in capital
   
       3,090,324
   
       3,018,496
   Accumulated deficit
   
      (4,541,406)
   
      (4,427,307)
Total Stockholders' Deficit
   
      (1,397,678)
   
      (1,383,579)
             
Total Liabilities and Stockholders' Deficit
         6,417
 
            178
             
See the accompanying notes to condensed consolidated unaudited financial statements.
 
3
 
 

 


TETRIDYN SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
                       
   
 
 
 
  For the Three Months Ended   For the Six Months Ended
  June 30,   June 30,
  2015   2014   2015   2014
Revenue
        2,073
 
         691
 
      3,763
 
      4,971
Cost of Revenue
 
              40
   
                -
   
              40
   
          3,099
Gross Profit
 
          2,033
   
            691
   
          3,723
   
          1,872
Operating Expenses
                     
   General and administrative
 
        17,435
   
          2,413
   
        26,330
   
        19,601
   Professional fees
 
        33,300
   
            713
   
        68,810
   
          1,570
   Research and development
 
                -
   
                -
   
                -
   
            341
Total Operating Expenses
 
        50,735
   
          3,126
   
        95,140
   
        21,512
Net Loss from Operations
 
       (48,702)
   
        (2,435)
   
       (91,417)
   
       (19,640)
Other Expenses
                     
   Interest Expense
 
       (10,884)
   
       (13,297)
   
       (22,682)
   
       (26,534)
Total Other Expenses
 
       (10,884)
   
       (13,297)
   
       (22,682)
   
       (26,534)
Net Loss from Operations before
                     
   Provision for Income Taxes
 
       (59,586)
   
       (15,732)
   
     (114,099)
   
       (46,174)
Provision for Income Taxes
 
                -
   
                -
   
                -
   
                -
Net Loss
       (59,586)
 
       (15,732)
 
     (114,099)
 
       (46,174)
                       
Total Basic and Diluted Loss Per Common Share
           -
 
           -
 
           -
 
           -
                       
Basic and Diluted Weighted-Average
                     
   Common Shares Outstanding
 
53,404,140
   
24,031,863
   
41,882,418
   
24,031,863
                       
See the accompanying notes to condensed consolidated unaudited financial statements.
 
4
 
 

 

TETRIDYN SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
           
  For the Six Months Ended
  June 30,
  2015   2014
Cash Flows from Operating Activities
         
Net Loss
       (114,099)
 
        (46,174)
Adjustments to reconcile net loss to net cash used in operating activities:
         
   Depreciation
 
                        -
   
                2,701
   In-kind contribution of rent
 
                        -
   
                4,350
   In-kind contribution of executive salaries
 
                        -
   
              12,394
Changes in operating assets and liabilities:
         
   Accounts receivable
 
                        -
   
                1,960
   Accrued expenses
 
              13,924
   
              19,349
   Accounts payable
 
                9,859
   
              (3,804)
   Customer deposits
 
              (3,445)
   
              (2,014)
Net Cash Used in Operating Activities
 
            (93,761)
   
            (11,238)
Cash Flows from Financing Activities
         
Proceeds from sale of common stock
 
            100,000
   
                        -
Net Cash Provided by Investing Activities
 
            100,000
   
                        -
Net Increase (Decrease) in Cash
 
                6,239
   
            (11,238)
Cash at Beginning of Period
 
                   178
   
              11,458
Cash at End of Period
            6,417
 
               220
 
                    -
     
Supplemental Disclosure of Cash Flow Information:
         
Cash paid for income taxes
                    -
 
                    -
Cash paid for interest expense and lines of credit
            3,789
 
            7,066
           
Noncash Transactions:
         
   Convertible note payable issued in exchange for existing convertible notes payable
        394,380
 
                    -
   Cancellation of preferred stock
            1,200
 
                    -
       
See the accompanying notes to condensed consolidated unaudited financial statements.
           
5
 
 

 

TETRIDYN SOLUTIONS, INC., AND SUBSIDIARY
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Note 1–Nature of Business and Basis of Presentation

Nature of Business –TetriDyn Solutions, Inc. (the “Company”), optimizes business and information technology (IT) processes by using systems engineering methodologies, strategic planning, and system integration to develop radio-frequency identification products to address location tracking issues in the healthcare industry, including issues surrounding patient care; optimization of business processes for healthcare providers; improved reporting of incidents; and increased revenues for provided services.

Prior to 2015, as the Company’s own marketing efforts were constrained by shortages of capital and management resources, it sought to obtain management and entrepreneurial services as well as new external funding as a bridge to marketing its Silver Key Solutions and ChargeCatcher products to both domestic and international markets. This led to a March 2015 investment by an unrelated firm that purchased a controlling block of the Company’s common stock and assumed management control of the Company to advance its marketing efforts. The Company is pursuing marketing with a residential healthcare provider that is exploring the installation of Silver Key Solutions and ChargeCatcher in its combined rehabilitation services, ancillary senior care services, senior care facilities, and other affiliates as a platform for third-party sales and installations. This provider recently agreed it will carry out a beta trial of the Silver Key product line, including a peer review.

During 2015, the Company also focused on completing a possible acquisition of Ocean Thermal Energy Corporation, a Delaware corporation (“OTE”), which is developing deep-water hydrothermal technologies to provide renewable energy and drinkable water. See Current Report on Form 8-K filed June 8, 2015, which is incorporated herein by reference.

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, 2014, 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 six months ended June 30, 2015 and 2014.

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.
 
6
 
 

 


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 before 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 service is 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 four and five customers that represented more than 10% of sales for the three- and six-month period ended June 30, 2015, respectively, and four customers that represented more than 10% of sales for either the three- or six-month period ended June 30, 2014, as follows:

 
Three Months Ended
June 30, 2015
Six Months Ended
June 30, 2015
Three Months Ended
June 30, 2014
Six Months Ended
June 30, 2014
         
Customer A
32%
25%
75%
10%
Customer B
27%
18%
--  
26%
Customer C
20%
15%
24%
--  
Customer D
17%
12%
--  
60%
Customer E
--   
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 $59,586 and $114,099 for the three and six months ended June 30, 2015, respectively. The Company used $93,761 of cash in operating activities for the six months ended June 30, 2015. The Company had a working capital deficiency of $1,397,678 and a stockholders’ deficit of $1,397,678 as of June 30, 2015. 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. The Company’s recent equity raises and possibly past restructuring events have resulted in the occurrence of a triggering event as defined in Section 382 of the Internal Revenue Code of 1986, as amended, which could limit the use of the Company’s net operating loss carryforwards. The Company has yet to undertake a study to quantify any limitations on the use of its net operating loss carryforwards.
 
7
 
 

 


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.
     
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 notes 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 ASC 260, Earnings Per Share . As of June 30, 2015 and 2014, 0 and 0, 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 June 30, 2015 and 2014, 15,954,938 and 38,761,100, respectively, of common share equivalents for convertible note payables and 1,033,585 and 0 shares, respectively, issuable upon exercise of a warrant 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.
 
8
 
 

 

Equity instruments issued to other than employees are recorded on the basis of the fair value of the instruments, as required by 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 ASC 505 for its stock-based compensation plan. Under ASC 505, all employee stock-based compensation will be measured at the grant date, based on the fair value of the option or award, and will be recognized as an expense over the requisite service period, which is typically through the date the options or awards vest. Furthermore, compensation costs will also be recognized for the unvested portion over the remaining requisite service period, using the grant-date fair value measured under the provisions of ASC 505 for pro forma and disclosure purposes.

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. This ASU, which would apply to any entity that enters into contracts to provide goods or services, supersedes the revenue recognition requirements in Topic 605, Revenue Recognition , and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update supersedes 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.
 
9
 
 

 


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.

Note 4–Accounts Payable and Accrued Liabilities

As of June 30, 2015, the Company had $416,564 in accounts payable, $261,609 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 names 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 the current president for these liabilities ( see Note 9).

As of June 30, 2015, the Company had $293,539 in accrued liabilities. The accrued liabilities included $213,436 in unpaid salaries to two of its officers, which were assigned by the officers to JPF Venture Group, Inc. (“JPF”), pursuant to an Investment Agreement dated March 12, 2015 ( see Note 8).

Note 5–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. The notes were not paid when due.

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. The notes were not paid when due.
 
10
 
 

 


In 2012, the Company borrowed $45,500 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, 2014. Since the loans were not paid within 60 days, the Company is obligated to pay $4,550 for costs associated with securing the funds. The notes were not paid when due.

On March 19, 2015, the Company exchanged the above 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 payable within 90 days after demand. On March 23, 2015, the officers and directors holding this consolidated note assigned it to JPF pursuant to the Investment Agreement. See Note 8. As of June 30, 2015, this consolidated convertible note had a principal balance of $394,380, plus accrued but unpaid interest of $12,509.

On June 23, 2015, the Company agreed to borrow $50,000 from its principal stockholder, JPF, 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 the rate of one share each for $0.03 of principal amount of the note. 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. This loan was not funded until July 2015, so there is no outstanding balance at June 30, 2015.

Note 6–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 $11,908 through June 30, 2015. The Company plans to work with the entity to arrange for an extension on the loan.

As of June 30, 2015, the Company was delinquent in payments on two loans to a second economic development entity. The Company owed this economic entity $73,470 in late payments, with an outstanding balance of $163,791 and accrued interest of $35,766 as of June 30, 2015. Both loans were 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 June 30, 2015, the Company was delinquent in payments on a loan to a third economic development entity. The Company owed the third economic entity $88,070 in late payments, with an outstanding balance of $85,821 and accrued interest of $19,018 as of June 30, 2015. This loan is secured by a junior lien on all the Company’s assets and shares of the founders’ common stock. The Company is working with this entity to bring the payments current as soon as cash flow permits.
 
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Note 7–Commitments and Contingencies

On March 23, 2015, the Company entered into an Agreement and Plan of Merger dated March 12, 2015 (the “Merger Agreement”) with OTE. Before entering into this agreement, there was no material relationship between the Company and its affiliates and OTE and its affiliates.
 
On March 1, 2015, the Company entered into a lease agreement with a company whose managing partner is the Company’s Chief Executive Officer. Per the agreement, the Company rents space through February 28, 2016. The monthly rent is $2,500 per month and commenced on April 1, 2015, when the Company began occupying the space. Rent expense per this agreement is $7,500 for the six months ended June 30, 2015.

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.

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 Securities Act Section 3(a)(10) exemption, or other action.

If California issues a permit availing the Company of the exemption under 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 and 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.
 
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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 as discussed below, the Company would 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 to its articles of incorporation 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, the Company will pay each record holder of less than 4.6972 shares of the Company’s common stock immediately before the Reverse Split (the “Minority Stockholders”) 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.

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 of 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 as discussed below, JPF now owns 55% of Company’s common stock and is a principal creditor of the Company.

If the Merger is completed, the JPF Stock (as defined below) purchased pursuant to the Investment Agreement will be returned to the Company and cancelled, 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, without giving effect to the conversion of the June 23, 2015, convertible note issued to JPF, and the officers and directors of OTE will be the officers and directors of the post-Merger company. JPF will also continue to be a principal creditor of the Company.
 
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Note 8–Stockholder’s Deficit

Investment Agreement— On March 23, 2015, the Company entered into an Investment Agreement dated March 12, 2015, with JPF and Antoinette Knapp Hempstead and the estate of her late husband, David W. Hempstead (together, the “Hempsteads”). Before entering into this agreement, there was no material relationship between the Company and its affiliates, on the one hand, and JPF and its affiliates, on the other.

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, 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, to advance the Company’s business activities and to bring its regulatory filings current. The terms of the Investment Agreement provide that, if the Merger 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, the Hempsteads, JPF, and Jeremy P. 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.

As required by the Investment Agreement, two designees of JPF, Jeremy P. Feakins and Peter Wolfson, were appointed as directors of the Company to replace incumbent directors Orville J. Hendrickson and Larry J. Ybarrondo, who resigned.

Preferred Stock —Pursuant to the Investment Agreement, 1,200,000 shares of Series A Preferred Stock were cancelled. The Company has filed a Certificate of Withdrawal of Certificate of Designation for the preferred stock with the Nevada Secretary of State.

In-Kind Contribution —The Company had minimal operations during the three and six months ended June 30, 2015, other than the investment on March 23, 2015. The value of any services contributed by management during this period is deemed immaterial.
 
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Note 9–Subsequent Events

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 has expired.

Convertible Note Payable to Related Party

The Company received the $50,000 from JPF referred to in Note 5 subsequent to June 30, 2015.


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 and Section 21E of the Exchange Act, 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 seek to optimize business and IT processes by using systems engineering methodologies, strategic development, and integration to develop radio-frequency identification products to address location tracking issues in the healthcare industry, including issues surrounding patient care; optimization of business processes for healthcare providers; improved reporting of incidents; and increased revenues for provided services.
 
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Prior to 2015, as our own marketing efforts were constrained by shortages of capital and management resources, we sought to obtain management and entrepreneurial services as well as new external funding as a bridge to marketing our Silver Key Solutions and ChargeCatcher products on the East Coast. This led to a March 2015 investment by an unrelated firm that purchased a controlling block of our common stock and assumed our management control to advance our marketing efforts. We are pursuing a possible entrée into this East Coast market with a residential healthcare provider that is exploring the installation of Silver Key Solutions and ChargeCatcher in its combined rehabilitation services, ancillary senior care services, senior care facilities, and other affiliates as a platform for third-party sales and installations. This provider recently initiated a limited beta test of Silver Key Soluti ons.

During 2015, we also focused on completing a possible acquisition of OTE, which is developing deep-water hydrothermal technologies to provide renewable energy and drinkable water. See Current Report on Form 8-K filed June 8, 2015, which is incorporated herein by reference.

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 and auditing services.

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.

In accordance with 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 Six-Month Periods Ended June 30, 2015 and 2014

Revenues

Revenue changes for the three and six months ended June 30, 2015 and 2014, were not materially different. Our revenue was $2,073 and $3,763 for the three and six months ended June 30, 2015, respectively, compared to $691 and $4,971 for the three and six months ended June 30, 2014, respectively, representing an increase of $1,382, or 200%, and a decrease of $1,208, or 24%, for the three- and six-month periods, respectively.
 
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Cost of Revenue

Cost of revenue changes for the three and six months ended June 30, 2015 and 2014, were not materially different. Our cost of revenue was $40 and $40 for the three and six months ended June 30, 2015, respectively, compared to $0 and $3,099 for the three and six months ended June 30, 2014, respectively, representing an increase of $40, or 100%, and a decrease of $3,059, or 99%, for the three-and the six-month periods, respectively. The gross margin percentage on revenue was 98% and 99% for the three and six months ended June 30, 2015, respectively, and 100% and 38% for the three and six months ended June 30, 2014, respectively.

Although the net changes and percent changes for our revenues and cost of revenue for the three and six months ended June 30, 2014 and 2013, 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 $17,435 and $26,330 for the three and six months ended June 30, 2015, respectively, compared to $2,413 and $19,601 for the three and six months ended June 30, 2014, respectively, representing an increase of $15,022, or 623%, and $6,729, or 34%, for the three- and six-month periods, respectively. The increase in general and administrative expenses reflects additional costs related to corporate transactions, increased marketing efforts, and related matters.

Professional fees expenses were $33,300 and $68,810 for the three and six months ended June 30, 2015, respectively, compared to $713 and $1,570 for the three and six months ended June 30, 2014, respectively, representing an increase of $32,587 and $67,240 for the three- and six-month periods, respectively. The increase in professional fees expenses was a result of legal fees related to the Merger.

Research and development expenses were $0 for both the three and six months ended June 30, 2015, respectively, compared to $0 and $341 for the three and six months ended June 30, 2014, respectively, representing a decrease of $0 and $341, for the three- and six-month periods, respectively. The change in research and development expenses was immaterial.

Interest expense was $10,884 and $22,682 for the three and six months ended June 30, 2015, respectively, as compared to $13,297 and $26,534 for the three and six months ended June 30, 2014, respectively, representing a decrease of $2,413, or 18% for the three-month period and a decrease of $3,852, or 15%, for the six-month period. The change in interest expense for the three- and six-month periods was immaterial.

Liquidity and Capital Resources

At June 30, 2015, our principal source of liquidity consisted of $6,417 of cash, as compared to $178 of cash at December 31, 2014. In addition, our stockholders’ deficit was $1,397,678 at June 30, 2015, compared to stockholders’ deficit of $1,383,579 at December 31, 2014, an increase in the deficit of $14,099.

Our operations used net cash of $93,761 during the six months ended June 30, 2015, as compared to using net cash of $11,238 during the three months ended June 30, 2014. The $82,523 increase in the net cash used in operating activities was primarily due to Merger activities.

Investing activities for the six months ended June 30, 2015 and 2014, used no net cash.

Financing activities provided cash of $100,000 and $0 for our operations during the six months ended June 30, 2015 and 2014, respectively, due to common stock sold for cash in 2015.
 
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We are focusing our efforts on a beta test of our products, leading to market launch of our products to increase 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 and external funding 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.

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 is 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, 2014, 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 before 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 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 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. This ASU, which would apply to any entity that enters into contracts to provide goods or services, supersedes the revenue recognition requirements in Topic 605, Revenue Recognition , and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update supersedes 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 June 30, 2015, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of June 30, 2015, our disclosure controls and procedures were not effective to provide reasonable assurance as of June 30, 2015, 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 Exchange Act. We have assessed the effectiveness of those internal controls as of June 30, 2015, 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.

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.
 
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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 June 30, 2015.

As of June 30, 2015, management identified the following material weaknesses that existed during a portion of the interim period ended June 30, 2015:

Control Environment —We did not maintain an effective control environment for internal control over financial reporting.

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 —One executive 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 and assigning additional staff to segregate duties, establish entity-level controls, and restrict access to cash. Efforts to fully implement the processes we have designed have slowed 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 June 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 

PART II–OTHER INFORMATION

ITEM 3. DEFAULTS ON 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 $11,908 through June 30, 2015. We plan to work with the entity to arrange for an extension on the loan.

As of June 30, 2015, we were delinquent in payments on two loans to a second economic development entity. We owed this economic entity $73,470 in late payments with an outstanding balance of $163,791 and accrued interest of $39,766 as of June 30, 2015. 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 cash flow permits.

As of June 30, 2015, we were delinquent in payments on a loan to a third economic development entity. We owed the third economic entity $88,070 in late payments with an outstanding balance of $85,821 and accrued interest of $19,018 as of June 30, 2015. This loan is secured by a junior lien on all our assets and shares of founders’ common stock. We are working with this entity to bring the payments current as soon as cash flow permits.
 
21
 
 

 

ITEM 6. EXHIBITS

The following exhibits are filed as a part of this report:
 

Exhibit
Number*
 
Title of Document
 
Location
         
Item 3
 
Articles of Incorporation and Bylaws
   
3.04
 
Certificate of Withdrawal of Certificate of Designation
 
Incorporated by reference from the current report on Form 8-K filed June 8, 2015.
         
Item 10
 
Material Contracts
   
10.22
 
Amendment to Merger Agreement
 
Attached.
         
10.23
 
Promissory Note dated June 23, 2015
 
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 of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
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.

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.
 
  (Registrant)  
       
       
Date: October 1, 2015
By:
/s/ Jeremy P. Feakins
 
   
Jeremy P. Feakins
 
   
Chief Executive Officer and
 
   
Chief Financial Officer
 

22

AMENDMENT TO

AGREEMENT AND PLAN OF MERGER


THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this “ Amendment ”), is entered into as of June 17, 2015, by and between TETRIDYN SOLUTIONS, INC. , a Nevada corporation (“ TetriDyn ”), and OCEAN THERMAL ENERGY CORPORATION, a Delaware corporation (“ OTE ”). TetriDyn and OTE are sometimes hereinafter together referred to as the “ Parties, ” on the following:

PREMISES

The Parties previously entered into that certain Agreement and Plan of Merger (the “Agreement”) dated as of March 12, 2015, which provides for the acquisition by TetriDyn of OTE on the terms and condition set forth in the Agreement. Section 7.01 of the Agreement provides for certain rights of termination of the Agreement if the Merger (as defined therein) was not completed on or before May 15, 2015. The Merger was not completed by such date, and the Parties now desire to amend the Agreement to extend the date set forth in Section 7.01 thereof.

AGREEMENT

NOW THEREFORE, UPON THE FOREGOING PREMISES, which are incorporated herein by reference, the Parties hereby agree as follows:

1.           Section 7.01 of the Agreement is hereby amended by striking the date of May 15, 2015, each and every time that it appears therein and inserting in the resulting space the date of [August 14, 2015].

2.           Each of the Parties hereby waives any right of termination of the Agreement existing as of the date of this Amendment and ratifies and confirms each and every term, covenant, and condition of the Agreement.

3.           Except as set forth above, all the terms and provisions of the Agreement shall continue in full force and effect.

4.           This Amendment may be executed in multiple counterparts, and by the Parties in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

IN WITNESS WHEREOF , the Parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers, thereunto duly authorized.
 
 
  TETRIDYN SOLUTIONS, INC.

By: /s/ Antoinette Knapp Hempstead
Antoinette Knapp Hempstead
President
 
 
OCEAN THERMAL ENERGY CORPORATION

By: Jeremy P. Feakins
Jeremy P. Feakins
President
 

 

PROMISSORY NOTE

$50,000
Lancaster, PA
June 23, 2015

FOR VALUE RECEIVED, the undersigned, TETRIDYN SOLUTIONS, INC. (“ Maker ”), a Nevada corporation whose mailing address and principal office is 800 South Queen Street, Lancaster, PA 17603, USA, hereby promises to pay to JPF VENTURE GROUP, INC., a Delaware corporation (“ Payee ”), whose mailing address is 800 South Queen Street, Lancaster, PA 17603, the principal sum of FIFTY THOUSAND DOLLARS AND NO CENTS ($50,000), in lawful money of the United States of America for payment of private debts, together with interest (calculated on the basis of the actual number of days elapsed but computed as if each year consisted of 360 days) on the unpaid principal balance from time to time outstanding at a rate, except as otherwise provided in this Note, of six percent (6%) per annum.

1.            Payments . All unpaid principal and all accrued and unpaid interest shall be due and payable within 90 days after demand.

2.            Time and Place of Payment . If any payment falls due on a day that is considered a legal holiday in the state of Delaware, Maker shall be entitled to delay such payment until the next succeeding regular business day, but interest shall continue to accrue until the payment is in fact made. Each payment or prepayment hereon must be paid at the office of Payee set forth above or at such other place as the Payee or other holder hereof may, from time to time, designate in writing.

3.            Prepayment . Maker reserves the right and privilege of prepaying this Note in whole or in part, at any time or from time to time, upon 30 days’ written notice, without premium, charge, or penalty. Prepayments on this Note shall be applied first to accrued and unpaid interest to the date of such prepayment, next to expenses for which Payee is due to be reimbursed under the terms of this Note, and then to the unpaid principal balance hereof.

4.            Conversion . Subject to and in compliance with the provisions contained herein, Payee is entitled, at its option, at any time prior to maturity, or in the case this Note or some portion hereof shall have been called for prepayment before such date, then for this Note or such portion hereof, until and including, but not after, the close of business within 30 days after the date of notice of prepayment, to convert this Note (or any portion of the principal amount hereof or accrued and unpaid interest hereon) into fully paid and nonassessable shares (calculated as to each conversion to the nearest share) of common stock, par value $0.0001 per share, of Maker (the “Shares”) at the rate of one share for each $0.03 of principal amount of this Note, by surrender of this Note, duly endorsed (if so required by Maker) or assigned to Maker or in blank, to Maker at its offices, accompanied by written notice to Maker, in the form set forth below, that Payee elects to convert this Note or, if less than the entire principal amount hereof is to be converted, the portion thereof to be converted. On conversion, Payee shall be entitled to payment of accrued interest on this Note through the date of conversion. No fractions of Shares will be issued on conversion, but instead of any fractional interest, Maker will pay cash adjustments as provided herein. Payee is entitled, at its option, to require that the exercise price be appropriately adjusted in the event of any stock splits, reverse-split, merger, consolidation, conversion, or any similar change in Maker’s common stock. Payee is also entitled, at its option, to require that the conversion price and number of shares issuable on conversion of this Note be appropriately adjusted in the event of any stock splits, reverse-split, merger, consolidation, conversion, or similar change in Maker’s common stock.  For the avoidance of doubt, it is explicitly agreed that if the Payee does not exercise these options, the exercise price, conversion price and number of shares shall remain unchanged after any stock splits, reverse-split, merger, consolidation, conversion, or any similar change in Maker’s common stock.

 
 

 


5.            Default .

(a)           Without notice or demand (which are hereby waived), the entire unpaid principal balance of, and all accrued interest on, this Note shall immediately become due and payable at Payee’s option upon the occurrence of one or more of the following events of default (“ Events of Default ”):

(i)           the failure or refusal of Maker to pay principal or interest on this Note within 10 days of when the same becomes due in accordance with the terms hereof;

(ii)           the failure or refusal of Maker punctually and properly to perform, observe, and comply with any covenant or agreement contained herein, and such failure or refusal continues for a period of 30 days after Maker has (or, with the exercise of reasonable investigation, should have) notice hereof;

(iii)           Maker shall: (1) voluntarily seek, consent to, or acquiesce in the benefit or benefits of any Debtor Relief Law (defined hereinafter); or (2) become a party to (or be made the subject of) any proceeding provided for by any Debtor Relief Law, other than as a creditor or claimant, that could suspend or otherwise adversely affect the Rights (defined hereinafter) of Payee granted herein (unless, in the event such proceeding is involuntary, the petition instituting same is dismissed within 60 days of the filing of same). “ Debtor Relief Law ” means the Bankruptcy Code of the United States of America and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, or similar Laws from time to time in effect affecting the Rights of creditors generally. “ Rights ” means rights, remedies, powers, and privileges. “ Laws ” means all applicable statutes, laws, ordinances, regulations, orders, writs, injunctions, or decrees of any state, commonwealth, nation, territory, possession, county, parish, municipality, or Tribunal. “ Tribunal ” means any court or governmental department, commission, board, bureau, agency, or instrumentality of the United States or of any state, commonwealth, nation, territory, possession, county, parish, or municipality, whether now or hereafter constituted and/or existing;

(iv)           the failure to have discharged within a period of 30 days after the commencement thereof any attachment, sequestration, or similar proceeding against any of the assets of Maker, or the loss, theft, or destruction of, or occurrence of substantial damage to, a material part of the assets of Maker, except to the extent adequately covered by insurance; and

(v)           Maker fails to pay any money judgment against it at least 10 days prior to the date on which any of Maker’s assets may be lawfully sold to satisfy such judgment.

(b)           If any one or more of the Events of Default specified above shall have happened, Payee may, at its option: (i) declare the entire unpaid balance of principal and accrued interest on this Note to be immediately due and payable without notice or demand; (ii) offset against this Note any sum or sums owed by Payee to Maker; (iii) reduce any claim to judgment; (iv) foreclose all liens and security interests securing payment thereof or any part thereof; and (v) proceed to protect and enforce its rights by suit in equity, action of law, or other appropriate proceedings, whether for the specific performance of any covenant or agreement contained in this Note, in aid of the exercise granted by this Note of any right, or to enforce any other legal or equitable right or remedy of Payee.

 
 

 


6.            Cumulative Rights . No delay on Payee’s part in the exercise of any power or right, or single partial exercise of any such power or right, under this Note or under any other instrument executed pursuant hereto shall operate as a waiver thereof. Enforcement by Payee of any security for the payment hereof shall not constitute any election by it of remedies, so as to preclude the exercise of any other remedy available to it.

7.            Collection Costs . If this Note is placed in the hands of an attorney for collection, or if it is collected through any legal proceeding at law or in equity or in bankruptcy, receivership, or other court proceedings, Maker agrees to pay all costs of collection, including Payee’s court costs and reasonable attorney’s fees.

8.            Waiver . Maker, and each surety, endorser, guarantor, and other party liable for the payment of any sums of money payable on this Note, jointly and severally waive presentment and demand for payment, protest, and notice of protest and nonpayment, or other notice of default, except as specified herein, and agree that their liability on this Note shall not be affected by any renewal or extension in the time of payment hereof, indulgences, partial payment, release, or change in any security for the payment of this Note, before or after maturity, regardless of the number of such renewals, extensions, indulgences, releases, or changes.

9.            Notices . Any notice, demand, request, or other communication permitted or required under this Note shall be in writing and shall be deemed to have been given as of the date so delivered, if personally served; as of the date so sent, if transmitted by facsimile and receipt is confirmed by the facsimile operator of the recipient; as of the date so sent, if sent by electronic mail and receipt is acknowledged by the recipient; one day after the date so sent, if delivered by overnight courier service; or three days after the date so mailed, if mailed by certified mail, return receipt requested, addressed to Maker at its address on the first page.

10.            Successor and Assigns . All of the covenants, stipulations, promises, and agreements in this Note contained by or on behalf of Maker shall bind its successors and assigns, whether so expressed or not; provided , however , that neither Maker nor Payee may, without the prior written consent of the other, assign any rights, powers, duties, or obligations under this Note.

11.            Headings . The headings of the sections of this Note are inserted for convenience only and shall not be deemed to constitute a part hereof.

12.            Applicable Law . This Note is being executed and delivered, and is intended to be performed, in the state of Delaware, and the substantive laws of such state shall govern the validity, construction, enforcement, and interpretation of this Note, except insofar as federal laws shall have application.

13.            Security . This Note is unsecured.

EXECUTED effective the year and date first above written.
 
 
 
TETRIDYN SOLUTIONS, INC.
 
 
By: /s/ Antoinette K. Hempstead
Antoinette K. Hempstead, President
 
 

 
 

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: October 1, 2015


/s/ Jeremy P. Feakins
Jeremy P. Feakins
Principal Executive Officer and Principal Financial Officer


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 June 30, 2015, 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
October 1, 2015

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.