Ocean Thermal Energy Corp - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - Ocean Thermal Energy Corp	Financial_Report.xls
EX-32.01 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER) - Ocean Thermal Energy Corp	ex3201q093011.htm
EX-10.15 - INCORPORATED BY REFERENCE FROM THE CURRENT REPORT ON FORM 8-K FILED AUGUST 2, 2011. - Ocean Thermal Energy Corp	ex1015q093011.htm
EX-31.01 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A-14 - Ocean Thermal Energy Corp	ex3101q093011.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2011

¨	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.)

1651 Alvin Ricken Drive, Pocatello, ID 83201
(Address of principal executive offices, including zip code)

(208) 232-4200
(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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 14, 2011, issuer had 23,031,863 outstanding shares of common stock, par value $0.001.

TABLE OF CONTENTS

Item	Description	Page

	PART I – FINANCIAL INFORMATION
Item 1	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Operations (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3	Quantitative and Qualitative Disclosures about Market Risk	17
Item 4	Controls and Procedures	17

	PART II – OTHER INFORMATION
Item 3	Defaults Upon Senior Securities	18
Item 6	Exhibits	19
	Signature	19

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TETRIDYN SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

		September 30,		December 31,
		2011		2010
		(Unaudited)
ASSETS
Current Assets
Cash		$	32,503	$	65,007
Accounts receivable			1,679		21,673
Inventory			63,432		63,432
Prepaid expenses			1,992		16,483
Total Current Assets			99,606		166,595
Property and Equipment, net			26,115		37,654
Total Assets		$	125,721	$	204,249

LIABILITIES
Current Liabilities
Accounts payable		$	390,421	$	365,624
Accrued liabilities			150,086		61,789
Customer deposits			13,220		30,943
Notes payable, current portion			95,014		104,162
Total Current Liabilities			648,741		562,518
Long-Term Liabilities
Notes payable, net of current portion			219,268		238,350
Convertible notes payable to related party			250,000		150,000
Total Long-Term Liabilities			469,268		388,350
Total Liabilities			1,118,009		950,868

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
Preferred stock - $0.001 par value
Authorized:	5,000,000 shares
Issued and outstanding:	1,200,000 shares and
	1,200,000 shares, respectively		1,200		1,200
Common stock - $0.001 par value
Authorized:	100,000,000 shares
Issued and outstanding:	23,031,863 shares and
	21,881,863 shares, respectively		23,032		21,882
Additional paid-in capital			2,896,350		2,895,085
Accumulated deficit			(3,912,870)		(3,664,786)
Total Stockholders' Deficit			(992,288)		(746,619)

Total Liabilities and Stockholders' Deficit		$	125,721	$	204,249

See the accompanying notes to condensed consolidated unaudited financial statements.

TETRIDYN SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Revenue	$	78,791	$	168,442	$	495,483	$	441,439
Cost of Revenue		25,669		106,664		257,706		227,030
Gross Profit		53,122		61,778		237,777		214,409
Operating Expenses
General and administrative		40,303		34,254		195,266		179,293
Professional fees		7,734		7,167		35,161		38,300
Selling and marketing		4,737		44,332		55,914		80,959
Research and development		44,407		43,807		134,290		123,517
Total Operating Expenses		97,181		129,560		420,631		422,069
Net Loss from Operations		(44,059)		(67,782)		(182,854)		(207,660)
Other Income (Expenses)
Interest Income		-		12		2		195
Interest Expense		(24,812)		(19,265)		(65,232)		(47,372)
Total Other Income (Expenses)		(24,812)		(19,253)		(65,230)		(47,177)
Net Loss before Provision for Income Taxes		(68,871)		(87,035)		(248,084)		(254,837)
Provision for Income Taxes		-		-		-		-
Net Loss		(68,871)		(87,035)		(248,084)		(254,837)

Total Basic and Diluted Loss Per Common Share	$	-	$	-	$	(0.01)	$	(0.01)

Basic and Diluted Weighted-Average
Common Shares Outstanding		23,031,863		21,881,863		22,405,340		21,881,863

See the accompanying notes to condensed consolidated unaudited financial statements.

TETRIDYN SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		For the Nine Months Ended
		September 30,
		2011		2010
Cash Flows from Operating Activities
Net Loss	$	(248,084)	$	(254,837)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		11,539		11,451
Common stock issued for services		2,415		-
Changes in operating assets and liabilities:
Accounts receivable		19,994		43,939
Inventory		-		739
Prepaid expenses		14,491		8,669
Accrued expenses		88,297		(9,139)
Accounts payable		24,797		50,724
Customer deposits		(17,723)		(665)
Net Cash Used in Operating Activities		(104,274)		(149,119)
Cash Flows from Investing Activities
Purchase of property and equipment		-		-
Net Cash Used in Investing Activities		-		-
Cash Flows from Financing Activities
Proceeds from borrowing under related party convertible notes payable		100,000		100,000
Principal payments on notes payable		(28,230)		(41,692)
Net Cash Provided by Financing Activities		71,770		58,308
Net Decrease in Cash		(32,504)		(90,811)
Cash at Beginning of Period		65,007		123,784
Cash at End of Period	$	32,503	$	32,973

Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes	$	-	$	-
Cash paid for interest expense and lines of credit	$	45,827	$	11,900
Supplemental Noncash Investing and Financing:
During the nine months ending September 30, 2010, the Company
received from a former subsidiary inventory worth $63,432 and
equipment worth $10,000, reducing the accounts receivable balance
from the former subsidiary by $73,432

See the accompanying notes to condensed consolidated unaudited financial statements.

TETRIDYN SOLUTIONS, INC., AND SUBSIDIARY

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Basis of Presentation

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, 2010, including the financial statements and notes thereto.

Note 2 – Organization and Summary of Significant Accounting Policies

Nature of Business – TetriDyn Solutions, Inc. (the “Company”), specializes in providing business information technology (IT) solutions to its customers. The Company optimizes business and IT processes by utilizing systems engineering methodologies, strategic planning, and system integration to add efficiency and value to its customers’ business processes and to help its customers identify critical success factors in their business.

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. (“TetriDyn-Idaho”). Intercompany accounts and transactions have been eliminated in consolidation.

Business Segments – The Company has only one business segment for the three and nine months ended September 30, 2010 and 2011.

Use of Estimates – In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates.

Cash and Cash Equivalents – For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

Revenue Recognition – Revenue from software licenses, related installation, and support services is recognized when earned and realizable. Revenue is earned and realizable when persuasive evidence of an arrangement exists; services, if requested by the customers, have been rendered and are determinable; and collectability is reasonably assured. Amounts received from customers prior to these criteria being met are deferred. Revenue from the sale of software is recognized when delivered to the customer or upon installation of the software if an installation contract exists. Revenue from post-contract support service is recognized as the services are provided, which is determined on an hourly basis. The Company recognizes the revenue received for unused support hours under support service contracts that have had no support activity after two years. Revenue applicable to multiple-element fee arrangements is divided among the software, the installation, and post-contract support service contracts using vendor-specific objective evidence of fair value, as evidenced by the prices charged when the software and the services are sold as separate products or arrangements.

The Company had four customers that represented more than 10% of sales for either the three- or nine-month period ended September 30, 2011, and three customers that represented more than 10% of sales for either the three- or nine-month period ended September 30, 2010, as follows:

	Three Months Ended September 30, 2011	Nine Months Ended September 30, 2011	Three Months Ended September 30, 2010	Nine Months Ended September 30, 2010

Customer A	16%	13%	--	--
Customer B	12%	--	--	--
Customer C	22%	--	--	--
Customer D	--	11%	--	--
Customer E	--	--	40%	16%
Customer F	--	--	--	13%
Customer G	--	--	--	12%

Going Concern– The accompanying 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 $68,871 and $248,084 for the three and nine months ended September 30, 2011, respectively. The Company used $104,274 of cash in operating activities for the nine months ended September 30, 2011. The Company had a working capital deficiency of $549,135 and a stockholders’ deficiency of $992,288 as of September 30, 2011. The ability of the Company to continue as a going concern is dependent on its ability to increase sales and obtain external funding for its product development. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.

Income Taxes – The Company accounts for income taxes under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740-10-25, Income Taxes. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Fair Value of Financial Instruments – The carrying amounts of the Company’s current portion of accounts receivable, prepaid expenses, accounts payable, accrued liabilities, customer deposits, notes payable, and related-party convertible note payable 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.

Inventory – Inventory is recorded at cost and the Company utilizes the First-In, First-Out (FIFO) cost flow method. Gains or losses on dispositions of inventory are included in the results of operations when realized.

Net Profit (Loss) per Common Share – Basic and diluted net profit (loss) per common share are computed based upon the weighted-average stock outstanding as defined by FASB ASC 260, “Earnings Per Share.” As of September 30, 2011 and 2010, 3,383,000 and 3,465,000, respectively, of common share equivalents for granted stock options were antidilutive and not used in the calculation of diluted net loss per share. Additionally, as of September 30, 2011 and 2010, 50,000,000 and 5,000,000, respectively, of common share equivalents for convertible note payables were antidilutive and not used in the calculation of diluted net loss per share.

Stock-Based Compensation – On June 17, 2009, at the Company’s annual shareholders meeting, the Company’s shareholders approved the 2009 Long-Term Incentive Plan under which up to 4,000,000 shares of common stock may be issued. The 2009 plan is to be administered either by the board of directors or by the appropriate committee to be appointed from time to time by such board of directors. Awards granted under the 2009 plan may be incentive stock options (“ISOs”) (as defined in the Internal Revenue Code), appreciation rights, options that do not qualify as ISOs, or stock bonus awards that are awarded to employees, officers, and directors who, in the opinion of the board or the committee, have contributed or are expected to contribute materially to the Company’s success. In addition, at the discretion of the board of directors or the committee, options or bonus stock may be granted to individuals who are not employees, officers, or directors, but contribute to the Company’s success.

Equity instruments issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB ASC 505, “Share-Based Payment.” Emerging Issues Task Force, or EITF, Issue 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” defines the measurement date and recognition period for such instruments. In general, the measurement date is when either: (a) a performance commitment, as defined, is reached; or (b) the earlier of: (i) the non-employee performance is complete; or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the EITF.

Effective January 1, 2006, the Company adopted the provisions of FASB ASC 505, “Share-Based Payment,” for its stock-based compensation plan. Under FASB ASC 505, all employee stock-based compensation is measured at the grant date, based on the fair value of the option or award, and is recognized as an expense over the requisite service period, which is typically through the date the options or awards vest. The Company adopted FASB ASC 505 using the modified prospective method. Under this method, for all stock-based options and awards granted prior to January 1, 2006, that remain outstanding as of that date, compensation cost is recognized for the unvested portion over the remaining requisite service period, using the grant-date fair value measured under the original provisions of FASB ASC 505 for pro forma and disclosure purposes. Furthermore, compensation costs will also be recognized for any awards issued, modified, repurchased, or cancelled after January 1, 2006.

Recent Accounting Pronouncements – Accounting Standard Update, or ASU, No. 2011-03; Reconsideration of Effective Control for Repurchase Agreements. In April 2011, the FASB issued ASU No. 2011-03. The amendments in this ASU remove from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. The amendments in this ASU also eliminate the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. The guidance in this ASU is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The Company will adopt the methodologies prescribed by this ASU by the date required and does not anticipate that this ASU will have a material effect on its financial position or results of operations.

ASU No. 2011-04; Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. In May 2011, the FASB issued ASU No. 2011-04. The amendments in this ASU generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and International Financial Reporting Standards, or IFRS. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The Company will adopt the methodologies prescribed by this ASU by the date required and does not anticipate that this ASU will have a material effect on its financial position or results of operations.

ASU No. 2011-05; Amendments to Topic 220, Comprehensive Income. In June 2011, the FASB issued ASU No. 2011-05. Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. Due to the recency of this pronouncement, the Company is evaluating its timing of adoption of ASU 2011-05, but will adopt this ASU retrospectively by the due date. This standard is not expected to have a material impact on the Company’s reported results of operations or financial position.

ASU No. 2011-08, Intangibles – Goodwill and Other. On September 15, 2011, the FASB issued ASU No. 2011-08, which simplifies how an entity is required to test goodwill for impairment. This ASU would allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under the ASU, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The ASU includes a number of factors to consider in conducting the qualitative assessment. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. This standard is not expected to have a material impact on the Company’s reported results of operations or financial position.

Reclassifications – Certain amounts in the 2010 information have been reclassified to conform to the 2011 presentation. These reclassifications had no impact on the Company’s net loss or cash flows.

Note 3 – Inventory

The Company’s inventory is comprised of regular inventory and direct materials to be used in the manufacture of new products. The Company had no changes in inventory during the nine months ended September 30, 2011. During the nine months ended September 30, 2010, the Company received direct materials in exchange for reduction of a former variable interest subsidiary’s debt to the Company by $63,462.

Note 4 – Investments

As of September 30, 2010, the Company had an approximately 38% minority interest in an entity that is developing electronic livestock tracking systems. As of June 30, 2011, the Company owned 10,899,120 shares and had an approximately 40% minority interest in this entity. As of September 30, 2011, the Company did not know its exact minority interest percentage because the entity refused to provide the information to the Company; however, the Company still owned 10,899,120 shares. The Company has no management or financial control over this entity and therefore accounted for the investment using the cost method. The value of the investment was $0 as of September 30, 2010 and 2011.

Note 5 – Accounts Payable and Accrued Liabilities

As of September 30, 2011, the Company had $390,421 in accounts payable, $343,803 of which is due under multiple revolving credit arrangements with varying rates of interest between 5.25% and 27.24% per annum.

As of September 30, 2011, the Company had $150,086 in accrued liabilities. The accrued liabilities included $23,491 that represents an overpayment by one customer. The Company is working with the customer to determine if the overpayment should be retained by the Company to be applied to future work or if it will be refunded to the customer.

Note 6 – Convertible Notes Payable to Related Party

In February 2011, the Company borrowed $25,000 from two of its officers and directors, repayable pursuant to a convertible promissory note. The terms of the note are as follows: (a) no interest will accrue if the note is repaid within 60 days; (b) if the note is not repaid within 60 days, the Company is obligated to pay $2,500 for costs associated with securing the funds; (c) if the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid within one year, the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the lenders are authorized to convert part or all of the note balance and accrued interest, if any, into the Company’s common stock at its fair value at any time while the note is outstanding; and (e) the loan’s due date for full repayment is December 31, 2014. Since the loan was not paid within 60 days, the Company is obligated to pay $2,500 for costs associated with securing the funds.

In May 2011, the Company borrowed $25,000 from two of its officers and directors, repayable pursuant to a convertible promissory note. The terms of the note are as follows: (a) no interest will accrue if the note is repaid within 60 days; (b) if the note is not repaid within 60 days, the Company is obligated to pay $2,500 for costs associated with securing the funds; (c) if the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid within one year, the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the lenders are authorized to convert part or all of the note balance and accrued interest, if any, into the Company’s common stock at its fair value at any time while the note is outstanding; and (e) the loan’s due date for full repayment is December 31, 2014. Since the loan was not paid within 60 days, the Company is obligated to pay $2,500 for costs associated with securing the funds.

In June 2011, the Company borrowed $25,000 from two of its officers and directors, repayable pursuant to a convertible promissory note. The terms of the note are as follows: (a) no interest will accrue if the note is repaid within 60 days; (b) if the note is not repaid within 60 days, the Company is obligated to pay $2,500 for costs associated with securing the funds; (c) if the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid within one year, the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the lenders are authorized to convert part or all of the note balance and accrued interest, if any, into the Company’s common stock at its fair value at any time while the note is outstanding; and (e) the loan’s due date for full repayment is December 31, 2014. Since the loan was not paid within 60 days, the Company is obligated to pay $2,500 for costs associated with securing the funds.

In July 2011, the Company borrowed $25,000 from two of its officers and directors, repayable pursuant to a convertible promissory note. The terms of the note are as follows: (a) no interest will accrue if the note is repaid within 60 days; (b) if the note is not repaid within 60 days, the Company is obligated to pay $2,500 for costs associated with securing the funds; (c) if the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid within one year, the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the lenders are authorized to convert part or all of the note balance and accrued interest, if any, into the Company’s common stock at its fair value at any time while the note is outstanding; and (e) the loan’s due date for full repayment is December 31, 2014. Since the loan was not paid within 60 days, the Company is obligated to pay $2,500 for costs associated with securing the funds.

Note 7 – Notes Payable

Effective in May 2011, one economic development lender agreed to suspend all loan payments toward principal and interest for six months on two separate loans. The balances of the two loans were $23,520 and $141,719 as of September 30, 2011.

Note 8 – Stockholders’ Equity

On May 29, 2011, the Company granted 1,150,000 shares of common stock to six employees, directors, and consultants for services provided. The total fair value of the issued stock on the date of grant was $2,415. No general solicitation was used and each of the recipients had the opportunity to discuss the transaction with the Company’s executive officers. These transactions were undertaken in reliance on the exemption from registration provided in Section 4(2) of the Securities Act of 1933.

Note 9 – Subsequent Events

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 $2,708 through the date of filing. The Company is working with the entity to arrange for an extension on the loan.

In November 2011, the Company borrowed $25,000 from two of its officers and directors, repayable pursuant to a convertible promissory note. The terms of the note are as follows: (a) no interest will accrue if the note is repaid within 60 days; (b) if the note is not repaid within 60 days, the Company is obligated to pay $2,500 for costs associated with securing the funds; (c) if the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid within one year, the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the lenders are authorized to convert part or all of the note balance and accrued interest, if any, into the Company’s common stock at its fair value at any time while the note is outstanding; and (e) the loan’s due date for full repayment is December 31, 2014.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes to our financial statements included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors discussed elsewhere in this report.

Certain information included herein contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, such as statements relating to our anticipated revenues, gross margin and operating results, estimates used in the preparation of our financial statements, future performance and operations, plans for future expansion, capital spending, sources of liquidity, and financing sources. Such 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.

Overview

We optimize business and IT processes by utilizing systems engineering methodologies, strategic development, and integration to add efficiency and value to our customers’ business processes and to help our customers identify critical success factors in their business.

We provide business IT solutions to the healthcare industry. We are expanding our service offerings into selected other professional industries as those markets develop and as we develop new applications for our integrated system of radio frequency identification (RFID) and software solutions for tracking, management, and diagnostic systems.

Description of Expenses

General and administrative expenses consist of salaries and related costs for accounting, administration, finance, human resources, and information systems for internal use.

Professional fees consist of fees related to legal, outside accounting, auditing, market analysis, and investor relations services.

Selling and marketing expenses consist of advertising, promotional activities, trade shows, travel, and personnel-related expenses.

Research and development expenses consist of payroll and related costs for software engineers, management personnel, and the costs of materials and equipment used by these employees in the development of new or enhanced product offerings.

In accordance with FASB ASC 985, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,” development costs incurred in the research and development of new software products to be sold, leased, or otherwise marketed are expensed as incurred until technological feasibility in the form of a working model has been established. Internally generated, capitalizable software development costs have not been material to date. We have charged our software development costs to research and development expense in our statements of operations.

Property and equipment are recorded at cost. Maintenance, repairs, and renewals that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. Gains or losses on dispositions of property and equipment are included in the results of operations when realized.

Results of Operations

Comparison of Three and Nine Months Ended September 30, 2011 and 2010

Revenues

Our revenue was $78,791 and $495,483 for the three and nine months ended September 30, 2011, respectively, compared to $168,442 and $441,439 for the three and nine months ended September 30, 2010, respectively, representing a decrease of $89,651, or 53%, for the three-month period and an increase of $54,044, or 12%, for the nine-month period. The three-month period decrease in revenues was due to the discontinuation of pursuing computing hardware sales and associated services. The nine-month period increase in revenues was due to the introduction of our ChargeCatcher product and additional healthcare software sales.

Cost of Revenue

Our cost of revenue was $25,669 and $257,706 for the three and nine months ended September 30, 2011, respectively, compared to $106,664 and $227,030 for the three and nine months ended September 30, 2010, respectively, representing a decrease of $80,995, or 76%, for the three-month period and an increase of $30,676, or 14%, for the nine-month period. The gross margin percentage on revenue was 67% and 48% for the three and nine months ended September 30, 2011, respectively, and 37% and 49% for the three and nine months ended September 30, 2010, respectively. The increase in the gross margin percentage for the three months ended September 30, 2011, from the three months ended September 30, 2010, was due to the discontinuation of pursuing computing hardware sales and associated services. Hardware sales have a significantly lower profit margin than service sales. The change in the gross margin percentage on revenue for the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010, was immaterial.

Although the net changes and percent changes with respect to our revenues and our cost of revenue for the three and nine months ended September 30, 2011 and 2010, 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, including noncash compensation expense, were $40,303 and $195,266 for the three and nine months ended September 30, 2011, respectively, compared to $34,254 and $179,293 for the three and nine months ended September 30, 2010, respectively, representing an increase of $6,049, or 18%, and $15,973, or 9%, for the three- and nine-month periods, respectively. The increase in our general and administrative expenses for the three- and nine-month periods ended September 30, 2011, as compared to the three and nine months ended September 30, 2010, reflects the recognition of unpaid salaries for our executives as an expense as of September 30, 2011, as well as an increase in healthcare premiums, while we experienced a reduction of staff in 2011.

Professional fees were $7,734 and $35,161 for the three and nine months ended September 30, 2011, respectively, compared to $7,167 and $38,300 for the three and nine months ended September 30, 2010, respectively, representing an increase of $567, or 8%, for the three-month period and a decrease of $3,139, or 8%, for the nine-month period. The increase in our professional fees for the three-month period ended September 30, 2011, as compared to the three months ended September 30, 2010, was because our 2009 income tax preparation expense was accrued in the fourth quarter of 2010 while our 2010 income tax preparation expense was accrued in the third quarter of 2011 due to the timing of receipt of the bill for the services. The decrease in our professional fees for the nine-month period ended September 30, 2011, as compared to the nine months ended September 30, 2010, reflects the additional legal fees in 2010 associated with the issuance of our preferred stock.

Selling and marketing expenses, including noncash compensation expense, were $4,737 and $55,914 for the three and nine months ended September 30, 2011, respectively, compared to $44,332 and $80,959 for the three and nine months ended September 30, 2010, respectively, representing a decrease of $39,595, or 89%, and $25,045, or 31%, for the three- and nine-month periods, respectively. The decrease in our selling and marketing expenses for the three- and nine-month periods ended September 30, 2011, as compared to the three and nine months ended September 30, 2010, reflects reduction in staff in 2011 directly related to the discontinuation of pursuing computing hardware sales and associated services.

Research and development expenses were $44,407 and $134,290 for the three and nine months ended September 30, 2011, respectively, compared to $43,807 and $123,517 for the three and nine months ended September 30, 2010, respectively, representing an increase of $600, or 1%, and $10,773, or 9%, for the three- and nine-month periods, respectively. The increase in research and development expenses reflects the recognition of unpaid salaries for our executives as an expense as of September 30, 2011.

Interest expense was $24,812 and $65,232 for the three and nine months ended September 30, 2011, respectively, as compared to $19,265 and $47,372 for the three and nine months ended September 30, 2010, respectively, representing an increase of $5,547, or 29%, and $17,860, or 38%, for the three- and nine-month periods, respectively The increase in interest expense is directly related to our increased use of short-term borrowing while we build up our revenues to cover operations.

Liquidity and Capital Resources

At September 30, 2011, our principal source of liquidity consisted of $32,503 of cash, as compared to $65,007 of cash at December 31, 2010. In addition, our stockholders’ deficit was $992,288 at September 30, 2011, compared to stockholders’ deficit of $746,619 at December 31, 2010, an increase in the deficit of $245,669.

We used $104,274 of net cash during the nine months ended September 30, 2011, as compared to the $149,119 of net cash used during the nine months ended September 30, 2010. The $44,845 decrease in the net cash used resulted primarily from the increase in accrued expenses in 2011, including the accrued salaries for our executive officers and the overpayment by one customer.

Investing activities for the nine months ended September 30, 2011 and September 30, 2010, used no net cash. However, we had noncash investing activities of $10,000 for equipment in the nine-month period ended September 30, 2010. We also had noncash operating activities of $63,432 for direct materials inventory in the nine-month period ended September 30, 2010. The noncash activities were a result of exchanging equipment and materials for debt reduction with a former variable interest subsidiary.

Financing activities for our continuing operations provided net cash of $71,770 during the nine months ended September 30, 2011, compared to providing net cash of $58,308 during the nine months ended September 30, 2010. The increase of $13,462 of net cash provided in financing activities is the result of paying down less principal in 2011 and additional funding provided by the two officers.

We are focusing our efforts on increasing revenue while we explore external funding alternatives. We currently have contracts in place for future deliveries of our consulting services, our ChargeCatcher product, and other solutions that we believe will cover our minimum expenditures for operating costs and minimum installments due on our other indebtedness to nonaffiliates during the next 12 months. We expect that additional sales will enable us to increase our payments on indebtedness and support the development of other products. Although our independent auditors have expressed substantial doubt about our ability to continue as a going concern, we believe our growing revenues will enable us to continue as a going concern. However, in order to expand our product offerings, we expect that we will require additional investments and sales.

We have decided to discontinue pursuing computing hardware sales and associated servers because the overhead associated with hardware sales exceeds the associated low profit margin. We have decided to concentrate our efforts on software sales and services to our customers.

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, 2010, consolidated financial statements. Note that our preparation of the condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

Revenue Recognition

Revenue from software licenses and related installation and support services is recognized when earned and realizable. Revenue is earned and realizable when persuasive evidence of an arrangement exists; services, if requested by the customers, have been rendered and are determinable; and ability to collect is reasonably assured. Amounts billed to customers prior to these criteria being met are deferred. Revenue from the sale of software is recognized when delivered to the customer or upon installation of the software if an installation contract exists. Revenue from post-contract telephone support service contracts is recognized as the services are provided, determined on an hourly basis.

Revenue applicable to multiple-element fee arrangements is divided among the software, the installation, and post-contract support service contracts using vendor-specific objective evidence of fair value, as evidenced by the prices charged when the software and the services are sold as separate products or arrangements.

Income Taxes

We account for income taxes under FASB ASC 740-10-25, Income Taxes. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Recent Accounting Pronouncements

ASU No. 2011-03; Reconsideration of Effective Control for Repurchase Agreements. In April 2011, the FASB issued ASU No. 2011-03. The amendments in this ASU remove from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. The amendments in this ASU also eliminate the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. The guidance in this ASU is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. We will adopt the methodologies prescribed by this ASU by the date required and do not anticipate that this ASU will have a material effect on our financial position or results of operations.

ASU No. 2011-04; Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. In May 2011, the FASB issued ASU No. 2011-04. The amendments in this ASU generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRS. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. We will adopt the methodologies prescribed by this ASU by the date required and do not anticipate that this ASU will have a material effect on our financial position or results of operations.

ASU No. 2011-05; Amendments to Topic 220, Comprehensive Income. In June 2011, the FASB issued ASU No. 2011-05. Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. Due to the recency of this pronouncement, we are evaluating our timing of adoption of ASU 2011-05, but will adopt this ASU retrospectively by the due date. This standard is not expected to have a material impact on our reported results of operations or financial position.

ASU No. 2011-08, Intangibles – Goodwill and Other. On September 15, 2011, the FASB issued ASU No. 2011-08 which simplifies how an entity is required to test goodwill for impairment. This ASU would allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under the ASU, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The ASU includes a number of factors to consider in conducting the qualitative assessment. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. This standard is not expected to have a material impact on our reported results of operations or financial position.

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.”

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 Securities and Exchange Commission under the Securities Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’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 Securities Exchange Act) as of September 30, 2011, pursuant to Rule 13a-15(b) under the Securities Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of September 30, 2011, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Report on Internal Control over Financial Reporting

Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. There has been no change in our internal control over financial reporting during the three months ended September 30, 2011, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our management, including our Certifying Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of the controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Our Certifying Officer conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, he concluded that our internal control over financial reporting was effective as of September 30, 2011.

PART II – OTHER INFORMATION

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

As of October 25, 2011, a loan from one economic development entity was in default. The loan principal is $50,000 with accrued interest of $2,708 through the date of filing. We are working with the entity to arrange for an extension on the loan.

ITEM 6. EXHIBITS

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

Exhibit Number*	Title of Document	Location

Item 10	Material Contracts
10.14	Promissory Note dated July 28, 2011	Incorporated by reference from the current report on Form 8-K filed August 2, 2011.
10.15	Promissory Note dated November 9, 2011	Attached

Item 31	Rule 13a-14(a)/15d-14(a) Certifications
31.01	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13a-14	Attached

Item 32	Section 1350 Certifications
32.01	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer and Chief Financial Officer)	Attached

Item 101	Interactive Data File
101	Interactive Data File	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: November 14, 2011	By:	/s/ David W. Hempstead
		David W. Hempstead, President, Chief Executive Officer, and Principal Financial Officer

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