UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2014

 

or

 

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ________ to ________

 

Commission File No. 333-163579

 

ATTUNE RTD, Inc.

(Exact name of registrant as specified in its charter)

 

 

Nevada		32-0212241
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

 

236 West Portal Ave., #320

San Francisco, CA 94127

(Address of principal executive offices, zip code)

 

(855) 274-6928

(Registrant’s telephone number, including area code)

 

 

(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 [  ]

 

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 [  ] No [X]

 

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

 

Large accelerated filer	[  ]		Accelerated filer	[  ]
Non-accelerated filer	[  ]		Smaller reporting company	[X]
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act): Yes [  ] No [X]

 

As of November 19, 2014, there were 73,923,678 shares of the registrant’s Class A common stock, $0.00004897 par value per share, outstanding.

 

 

 

ATTUNE RTD, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2014

 

TABLE OF CONTENTS

 

		Index		Page
Part I.	Financial Information
	Item 1.	Financial Statements		F-1
		Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013		F-1
		Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)		F-2
		Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 (unaudited)		F-3
		Notes to Financial Statements (unaudited)		F-4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		4
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		6
	Item 4.	Controls and Procedures		6
Part II.	Other Information
	Item 1.	Legal Proceedings		8
	Item 1A.	Risk Factors		9
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		9
	Item 3.	Defaults Upon Senior Securities		9
	Item 4.	Mine Safety Disclosures (Not applicable.)		9
	Item 5.	Other Information		9
	Item 6.	Exhibits		9

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q of Attune RTD, Inc., a Nevada corporation (the “Company”), contains “forward-looking statements,” as defined in the United States Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of such terms and other comparable terminology. These forward-looking statements include, without limitation, statements about our market opportunity, our strategies, competition, expected activities and expenditures as we pursue our business plan, and the adequacy of our available cash resources. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Actual results may differ materially from the predictions discussed in these forward-looking statements. The economic environment within which we operate could materially affect our actual results. Additional factors that could materially affect these forward-looking statements and/or predictions include, among other things: our ability to generate meaningful revenues; whether our products will ever be sold on a mass market commercial basis; our ability to protect our intellectual property; our need for and ability to obtain additional financing; the exercise of the majority control our officers and directors collectively hold of our voting securities; other factors over which we have little or no control; and other factors discussed in our filings with the Securities and Exchange Commission.

 

Our management has included projections and estimates in this Form 10-Q, which are based primarily on management’s experience in the industry, assessments of our results of operations, discussions and negotiations with third parties and a review of information filed by our competitors with the SEC or otherwise publicly available. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as required by law.

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONDENSED FINANCIAL STATEMENTS

 

Attune RTD, Inc.

Condensed Balance Sheets

 

		September 30, 2014				December 31, 2013
		(Unaudited)
Assets
Current Assets
Cash		$	-			$	-
Total Current Assets			-				-
Total Assets		$	-			$	-
Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities
Accounts Payable		$	194,293				254,915
Accrued Expenses			739,340				401,456
Royalty Payable			22,000				22,000
Liability to Guarantee Equity Value			90,980				90,980
Convertible Note Payable in default -net of discount of $71,570 and $16,898			172,700				210,502
Related Party Debt			160,098				29,620
Notes Payable			162,350				162,350
Derivative Liability			288,338				169,785
Total Current Liabilities			1,830,099				1,341,608
Total Liabilities			1,830,099				1,341,608
Commitments and Contingencies (See Note 7)
Stockholders’ Equity (Deficit)
Class B Participating Cumulative Preferred Super Voting Stock, $0.0166 par value; 1,000,000 shares authorized; 1,000,000 issued and outstanding; Blank Check Preferred stock, $0.0166 par value; 5,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively			16,600				16,600
Class A Common Stock, $0.0000487 par value; 20,000,000,000 shares authorized; 73,923,678 and 43,312,424 shares issued and outstanding at September 30, 2014 and, December 31, 2013 respectively			3,629				2,121
Class A Common Stock Payable			37,500				37,500
Additional Paid-in Capital			5,066,783				4,842,626
Deficit accumulated during development stage			(6,954,611	)			(6,240,455	)
Total Stockholders’ Equity (Deficit)			(1,830,099	)			(1,341,608	)
Total Liabilities and Stockholders’ Equity (Deficit)		$	-				-

 

The accompanying unaudited notes are an integral part of these Financial Statements.

 

  

Attune RTD, Inc.

Condensed Statements of Operations

(Unaudited)

 

		Three Months Ended   September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
Revenues		$	-			$	-			$	-			$	950
Operating Expenses
General and Administrative Expense			23,098				30,647				321,378				791,704
Change in Fair Value - Derivative			(90,844	)			66,646				89,631				37,426
Payroll Expense			49,788				48,429				239,056				255,136
Total Operating Expenses			(17,958	)			145,722				650,065				1,084,206
Income (Loss) from Operations			17,958				(145,722	)			(650,065	)			(1,083,066	)
Other Income (Expense)
Interest Expense			(22,821	)			(27,755	)			(64,091	)			(46,232	)
Total Other Income (Expense)			(22,821	)			(27,755	)			(64,091	)			(46,232	)
Net Loss			(4,863	)			(173,477	)			(714,156	)			(1,129,548	)
Preferred Stock Dividends			(5,049	)			(5,049	)			10,042	)			(15,091	)
Net Loss Applicable to Common Stock		$	(9,912	)			(178,526	)			(724,198	)			(1,144,639	)
Net Loss per Common Share Applicable to Common Stock:
Basic and Diluted		$	(0.00	)			(0.01	)			(0.01	)			(0.03	)
Weighted Average Number of Common Shares Outstanding:
Basic and Diluted			71,050,010				32,389,794				56,426,377				32,389,794

 

The accompanying unaudited notes are an integral part of these Financial Statements.

 

 

Attune RTD, Inc.

Condensed Statements of Cash Flows

(Unaudited)

 

		Nine Months Ended September 30,
		2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss		$	(714,156	)			(1,129,548	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Class A Common Stock and Preferred Stock Granted for Services			150,000				649,750
Depreciation and Amortization			30,791				48,306
Change in Fair Value-Derivative			89,631				37,426
Changes in Assets and Liabilities:
Accounts Payable and Accrued Expenses			208,356				179,121
NET CASH USED IN OPERATING ACTIVITIES			(163,378	)			(214,945	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Received for Sale of Fixed Assets			-				-
NET CASH USED IN INVESTING ACTIVITIES			-				-
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Class A – Common Stock			-				12,500
Contributed Capital			-				4,647
Borrowings on Debt			33,000				202,500
Loan Payable to Principal Stockholder			130,378				-
Principal Payments on Truck Loans			-				(4,648	)
NET CASH PROVIDED BY FINANCING ACTIVITIES			163,378				214,999
NET INCREASE (DECREASE) IN CASH			-				54
CASH AT BEGINNING OF PERIOD			-				-
CASH AT END OF PERIOD		$	-				54
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period:
Interest Expense		$	64,091				1,122
Income Tax		$	800				13,917
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Shares Issued for Services, Accrued in Prior Period and Issued in Current Period		$	-				30,024
Debt Discount		$	85,463				74,208
Conversion of Debt		$	18,230				47,000
Derivative Adjustment due to Debt Conversion		$	56,541				28,310
Disposal of Trucks		$	-				65,949

 

The accompanying unaudited notes are an integral part of these Financial Statements.

 

 

ATTUNE RTD, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

1.	NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

 

Organization

 

Attune RTD, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on December 19, 2001 under the name Catalyst Set Corporation. The Company was dormant until July 14, 2007. On September 7, 2007, the Company changed its name to Interfacing Technologies, Inc. On March 24, 2008, the Company changed its name to Attune RTD. The Company’s principal executive offices are in San Francisco, California. The Company is a development stage company that was formed in order to provide developed technology related to the operations of energy efficient electronic systems such as swimming pool pumps, sprinkler controllers and heating and air conditioning controllers among others.

 

The Company has been presented as a “development stage enterprise.” The Company is presented as in the development stage from July 14, 2007, inception of development stage, through September 30, 2014. To date, the Company’s business activities during development stage have been corporate formation, raising capital and the development and patenting of its products with the hopes of entering the commercial marketplace in the near future.

 

Basis of Presentation

 

The interim condensed financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to not make the information presented misleading.

 

These statements reflect all adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. It is suggested that these interim condensed financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2013 and notes thereto included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on April 15, 2014. The Company follows the same accounting policies in the preparation of its interim reports as it does for its annual reports.

 

USE OF ESTIMATES

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying financial statements include the estimates of depreciable lives and valuation of property and equipment, allowances for losses on loans receivable, valuation of deferred patent costs, valuation of equity based instruments issued for other than cash, valuation of officer’s contributed services, and the valuation allowance on deferred tax assets.

 

CASH AND CASH EQUIVALENTS

 

For the purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents as of September 30, 2014 and December 31, 2013.

 

 

PROPERTY AND EQUIPMENT

 

Property and equipment is recorded at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets of five years. Expenditures for additions and improvements are capitalized while maintenance and repairs are expensed as incurred. There were no properties or equipment as of September 30, 2014 and December 31, 2013.

 

CONCENTRATION OF CREDIT RISK

 

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash. The Company’s cash balances are maintained in accounts held by major banks and financial institutions located in the United States. The Company occasionally maintains amounts on deposit with a financial institution that are in excess of the federally insured limit of $250,000. The risk is managed by maintaining all deposits in high quality financial institutions. The Company had $0 of cash balances in excess of federally insured limits at September 30, 2014 and December 31, 2013.

 

REVENUE RECOGNITION

 

The Company recognizes revenue when the following criteria have been met: persuasive evidence of an arrangement exists, the fees are fixed or determinable, no significant Company obligations remain, and collection of the related receivable is reasonably assured.

 

The Company recognizes revenue in the same period in which it is incurred from its business activities when goods are transferred or services rendered. The Company’s revenue generating process consists of the sale of its proprietary technology or the rendering of professional services consisting of consultation and engineering relating types of activity within the industry. The Company’s current billing process consists of generating invoices for the sale of its merchandise or the rendering of professional services. Typically, the vendor accepts invoices and payment is made against the invoice within 60 days upon receipt.

 

There were no revenues for the nine months ended September 30, 2014.

 

DEFERRED PATENT COSTS AND TRADEMARK

 

Patent costs are stated at cost (inclusive of perfection costs) and will be reclassified to intangible assets and amortized on a straight-line basis over the estimated future periods to be benefited (typically, twenty years) if and once the patent has been granted by the United States Patent and Trademark Office (“USPTO”). The Company will write-off any currently capitalized costs for patents not granted by the USPTO. Currently, the Company has one patent, U.S. Patent No. 7,777,366 B2, which was awarded by the USPTO on August 17, 2010.

 

On December 16, 2008, the Company filed its service mark, BrioWave, in standard characters with the USPTO. The service mark was first used in commerce on August 8, 2008 and filed for opposition by the USPTO on January 5, 2010. Trademark costs are capitalized on the Company’s balance sheet during the period such costs are incurred. The trademark is determined to have an indefinite useful life and is not amortized until such useful life is determined no longer indefinite. The trademark is reviewed for impairment annually. As of December 31, 2011, the Company fully impaired all patents and trademarks cost of $62,633 due to uncertainty regarding funding of future costs.

 

SOFTWARE LICENSE

 

The Company capitalized its purchase of a software license in March 2013. The license is being amortized over 60 months following the straight-line method and is included in “Other Assets” on the Company’s balance sheet in accordance to ASC 350. During the year ended December 31, 2013, the Company recorded $19,545 of amortization expense related to the license. The terms and conditions of the license arrangement that it has in place with its vendor, IBI, for the software is based on a sixty month buyout agreement for a perpetual license, which is payable in equal consecutive monthly installments of $5,650. The monthly payment includes interest, the respective portion of a one-time software license fee of $142,669 and associated maintenance fees. This agreement grants the Company the non-exclusive, non-transferable right to use the specified software in object code form only, on the Company’s designated servers. The fees and the installment payments may not be cancelled. If installments are not made when due, and the default continues for 30 days after notice, the remaining unpaid balance of the one-time license fee shall be immediately due and payable. The Company may prepay the balance of remaining installments at any time, with an appropriate credit, as determined by IBI, for the future portion of the interest. Maintenance will be provided for the balance of the designated period. The vendor may transfer and assign the Company’s payment obligation hereunder. As of December 31, 2013, the Company is in default under the terms and conditions of the license agreement. The Company has been in contact with IBI over the non-payment situation and as of the date of this filing, the vendor has not prevented access to the software and continues to bill the Company for its respective monthly payments. Due to insignificant revenue and possible termination of contract, the Company has recognized impairment of $74,269 related to the software license as of December 31, 2012. The asset is fully impaired.

 

 

ACCOUNTING FOR DERIVATIVES

 

The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. Accordingly, the Company analyzed the derivative financial instruments (see Note 4) in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception, which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument’s contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument’s settlement provisions. The Company utilized multinomial lattice models that value the derivative liability within the notes based on a probability weighted discounted cash flow model. The Company utilized the fair value standard set forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.

 

IMPAIRMENT OF LONG-LIVED ASSETS

 

In accordance with ASC 360, Property Plant and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

 

Long-lived assets held and used by the Company are reviewed for possible impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable or is impaired. Recoverability is assessed using undiscounted cash flows based upon historical results and current projections of earnings before interest and taxes. Impairment is measured using discounted cash flows of future operating results based upon a rate that corresponds to the cost of capital. Impairments are recognized in operating results to the extent that carrying value exceeds discounted cash flows of future operations.

 

The Company recognized an impairment loss of $62,633 in 2011 related to patents and trademarks, due to uncertainty regarding funding and future costs and $74,269 in 2012 related to software assets.

 

RESEARCH AND DEVELOPMENT

 

In accordance generally accepted accounting principles (ASC 730-10), expenditures for research and development of the Company’s products are expensed when incurred, and are included in operating expenses.

 

ADVERTISING

 

The Company conducts advertising for the promotion of its products and services. In accordance with generally accepted accounting principles (ASC 720-35), advertising costs are charged to operations when incurred, and such amounts aggregated $0 and $0 for the nine months ended September 30, 2014 and 2013 respectively.

 

 

STOCK-BASED COMPENSATION

 

Compensation expense associated with the granting of stock based awards to employees and directors and non-employees is recognized in accordance with generally accepted accounting principles (ASC 718-20) which requires companies to estimate and recognize the fair value of stock-based awards to employees and directors. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method.

 

NEW ACCOUNTING PRONOUNCEMENTS

 

In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-10, “Development Stage Entities”. The amendments in this update remove the definition of a development stage entity from the Master Glossary of the ASC thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The amendments in this update are applied retrospectively. The early adoption of ASU 2014-10 is permitted which removed the development stage entity financial reporting requirements from the Company.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required 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 carrying amounts reported in the balance sheets for cash, accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments. The following table presents assets and liabilities that are measured and recognized at fair value as of September 30, 2014, on a recurring basis:

 

Description		Level 1				Level 2				Level 3				Gains (Losses)
Derivative Liability		$	-			$	-			$	288,338				(89,631	)
Total		$	-			$	-			$	-

 

The following table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2013, on a recurring basis:

 

Description		Level 1				Level 2				Level 3				Gains (Losses)
Derivative Liability		$	-			$	-			$	169,785				(21,240	)
Total		$	-			$	-			$	169,785				(21,240	)

 

 

BASIC AND DILUTED NET LOSS PER COMMON SHARE

 

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period and, if dilutive, potential common shares outstanding during the period. Potentially dilutive securities consist of the incremental common shares issuable upon exercise of common stock equivalents such as stock options and convertible debt instruments. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. As a result, the basic and diluted per share amounts for all periods presented are identical.

  

2.	GOING CONCERN

 

The accompanying condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company is a development stage company with limited revenues. For the nine months ended September 30, 2014, the Company had a net loss of $714,156 and used cash in operations of $163,378. In addition, as of September 30, 2014, the Company had a working capital deficit of $1,830,099, and a deficit accumulated during the development stage of $6,954,611.

 

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties.

 

In order to execute its business plan, the Company will need to raise additional working capital and generate revenues. There can be no assurance that the Company will be able to obtain the necessary working capital or generate revenues to execute its business plan.

 

Management’s plan to increase working capital includes completing product development, generating marketing agreements with product distributors and raising additional funds through a private placement offering or offerings of the Company’s common stock.

 

Management believes its business development and capital raising activities will provide the Company with the ability to continue as a going concern.

  

3.	NOTE PAYABLE

 

Secured Promissory Note 1. On June 21, 2013, The Company issued a Secured Promissory note in the amount $55,000 to an investor (the “Secured Promissory Note 1”). Secured Promissory Note 1 has a maturity date of June 23, 2014 and an annual interest rate of 12% per annum. Secured Promissory Note 1 is collateralized with the Company’s Energy Forecasting and Management Device, Patent #7777366, including the associated source code. Under the terms and conditions of the agreement, a portion of the funds received from investor was used to satisfy a debt obligation owed to the Company’s patent filing attorney. As an incentive to induce investor, the Company issued a Warrant grant, giving the investor the right, but not the obligation, to purchase 1,375,000 shares of common stock at a fixed price of $0.04 per share, issued on June 21, 2013 and expiring at midnight on June 23, 2016. During the period ended June 30, 2014, the Company amended the Promissory note to a convertible note for $55,000 plus 12% interest and a fixed conversion price of $0.01. The warrants issued in 2013 and the amended note issued in 2014 are tainted due to the derivative liability, see note 5. On June 2014, the Company issued 10,800,000 shares of Class A Common Stock to the holder of convertible note for the conversion of $1,080 principal of the convertible note. Due to conversion within the term of the note, no gain or loss was recorded. As of September 30, 2014, the Company recorded accrued interest of $8,426.

 

Secured Promissory Note 2. On June 21, 2013, The Company issued a Secured Promissory note in the amount $55,000 to an investor (the “Secured Promissory Note 2”). Secured Promissory Note 2 has a maturity date of June 23, 2014 and an annual interest rate of 12% per annum. Secured Promissory Note 2 is collateralized with the Company’s Energy Forecasting and Management Device”, Patent #7777366, including the associated source code. Under the terms and conditions of the agreement, a portion of the funds received from investor was used to satisfy a debt obligation owed to the Company’s patent filing attorney. As an incentive to induce investor, the Company issued a Warrant grant, giving the investor the right, but not the obligation, to purchase 1, 375,000 shares of common stock at a fixed price of $0.04 per share, issued on June 21, 2013 and expiring at midnight on June 23, 2016. The warrants issued are tainted due to the derivative liability, see note 5. On June 23, 2014, the Company defaulted on Secured Promissory 2. As of the date of this filing, the Company continues to work with the holders of the Secured Promissory Notes. The Company is working with the holders of the Secured Promissory Notes and anticipates the parties will be able to resolve the issue amicably. As of September 30, 2014, the Company recorded accrued interest of $8,426.

 

 

4.	CONVERTIBLE NOTE AND FAIR VALUE MEASUREMENTS

 

Our Derivative Financial Instruments (Convertible Notes) contemplate the issuance of shares of our common stock to satisfy debt obligations, subject to certain restrictions and obligations. Our existing stockholders ownership could be diluted by such conversions. Consequently, the value of your investment may decrease. Our convertible notes provide the issuer with the following conversion terms.

 

Convertible Note 1. On September 28, 2011, the Company issued a convertible promissory note in the amount of $42,500 to an investor (the “Convertible Note 1”). Convertible Note 1 had a maturity date of July 2012 and an annual interest rate of 8% per annum. The holder of Convertible Note 1 has the right to convert any outstanding principal and accrued interest into fully paid and non-assessable shares of Common Stock. The convertible note has a variable conversion price of 58% of the average of the three lowest closing bid stock prices over the last ten days and contains no dilutive reset feature. Due to the indeterminable number of shares to be issued at conversion, the Company recorded convertible note as a derivative liability (See Note 5). As a result of the derivative, the Company recorded a debt discount of $34,430. As of December 31, 2012, the discount was fully amortized. On May 2012, the Company issued 137,931 shares of Class A Common Stock to holder of the convertible note for conversion of $8,000 in principal of the convertible note. During the period ended December 31, 2012, the Company was assessed a penalty of $17,250 due to default. On March 2013, the Company issued 591,133 shares of Class A Common Stock to the holder for the conversion of $12,000 in principal of the convertible note. On July 2013, the Company issued 862,069 shares of the Class A Common Stock to the holder of the convertible note for the conversion of $15,000 in principal of the convertible note. On October 2013, the Company issued 2,000,000 shares of Class A Common Stock to the holder of convertible note for the conversion of $7,600 in principal of the convertible note. On April 16, 2014 the Company issued 2,157,895 shares of Class A Common Stock to the holder of convertible note for the conversion of $8,200 in principal of the convertible note. On July 30, 2014 the Company issued 2,268,750 shares of Class A Common Stock to the holder of the convertible note for the conversion of $5,445 in principal of the convertible note. On August 27, 2014 the Company issued 3,384,615 shares of Class A Common Stock to the holder of the convertible note for the conversion of $3,505 in principal and $895 accrued interest of the convertible note. Due to conversion in accordance with the conversion terms; therefore, no gain of loss was recognized. As of September 30, 2014, the note balance was fully converted.

 

Convertible Note 2. On January 5, 2012, the Company issued a second convertible promissory note in the amount of $42,500 to the same investor (the “Convertible Note 2”). Convertible Note 2 had a maturity date of July 2012 and an annual interest rate of 8% per annum. The holder of Convertible Note 2 has the right to convert any outstanding principal and accrued interest into fully paid and non-assessable shares of Common Stock. Convertible Note 2 has a conversion price of 58% of the average of the three lowest closing bid stock prices over the last ten days and contains no dilutive reset feature. Due to the indeterminable number of shares to be issued at conversion, the Company recorded Convertible Note 2 as a derivative liability (See Note 5). As a result of the derivative the Company recorded a debt discount of $31,748, as of December 31, 2012, the discount was fully amortized. As of December 31, 2012, the Company is in default and was assessed a penalty of $21,250. As of September 30, 2014, the Company has a remaining principal balance due of $63,750 and accrued interest of $13,595.

 

Convertible Note 3. On December 3, 2012, the Company issued a third convertible promissory note in the amount of $3,000 to the same investor (the “Convertible Note 3”). Convertible Note 3 had a maturity date of September 5, 2013 and an annual interest rate of 8% per annum. The holder of Convertible Note 3 has the right to convert any outstanding principal and accrued interest into fully paid and non-assessable shares of Common Stock. Convertible Note 3 has a conversion price of 58% of the average of the three lowest closing bid stock prices over the last ten days and contains no dilutive reset feature. Due to the indeterminable number of shares to be issued at conversion, the Company recorded Convertible Note 3 as a derivative liability (See Note 5). As a result of the derivative the Company recorded a debt discount of $3,000, as of December 31, 2013, the discount was fully amortized. As of December 31, 2013, the Company is in default with the repayment term and was assessed a penalty of $1,500. As of September 30, 2014, the Company has a remaining principal balance due of $4,500 and accrued interest of $535.

 

Convertible Note 4. On February 21, 2013, the Company issued a fourth convertible promissory note in the amount of $50,000 to the same investor (the “Convertible Note 4”). Convertible Note 4 had a maturity date of November 25, 2013 and an annual interest rate of 8% per annum. The holder of Convertible Note 4 has the right to convert any outstanding principal and accrued interest into fully paid and non-assessable shares of Common Stock. Convertible Note 4 has a conversion price of 50% representing a discount rate of 50% of the average of the three lowest closing bid stock prices over the last ten days and contains no dilutive reset feature. Due to the indeterminable number of shares to be issued at conversion, the Company recorded Convertible Note 4 as a derivative liability (See Note 5). As a result of the derivative the Company recorded a debt discount of $38,864, as of December 31, 2013, the discount was fully amortized. As of September 30, 2014, the Company has a remaining principal balance due of $50,000 and accrued interest of $6,422.

 

 

Convertible Note 5. On April 18, 2013, the Company issued a fifth convertible promissory note in the amount of $22,500 to the same investor (the “Convertible Note 5”). Convertible Note 5 had a maturity date of January 22, 2014 and an annual interest rate of 8% per annum. The holder of Convertible Note 5 has the right to convert any outstanding principal and accrued interest into fully paid and non-assessable shares of Common Stock. Convertible Note 5 has a variable conversion price of 45% representing a discount rate of 55% of the average of the three lowest closing bid stock prices over the last ten days and contains no dilutive reset feature. Due to the indeterminable number of shares to be issued at conversion, the Company recorded Convertible Note 5 as a derivative liability (See Note 5). As a result of the derivative the Company recorded a debt discount of $21,824, as of June 30, 2014, the discount was fully amortized and the Company recorded an amortization of discount of 9,368. As of September 30, 2014, the Company has a remaining principal balance due of $22,500 and accrued interest of $2,614.

 

Convertible Note 6. On August 5, 2013, the Company issued a sixth convertible promissory note in the amount of $10,000 to the same investor (the “Convertible Note 6”). Convertible Note 6 has a maturity date of May 7, 2014 and an annual interest rate of 8% per annum. The holder of Convertible Note 6 has the right to convert any outstanding principal and accrued interest into fully paid and non-assessable shares of Common Stock. Convertible Note 6 has a variable conversion price of 35% representing a discount rate of 65% of the average of the three lowest closing bid stock prices over the last ten days and contains no dilutive reset feature. Due to the indeterminable number of shares to be issued at conversion, the Company recorded Convertible Note 6 as a derivative liability (See Note 5). As a result of the derivative the Company recorded a debt discount of $10,000, as of September 30, 2014, the discount was fully amortized and the Company recorded an amortization of discount of $7,556. As of September 30, 2014, the Company has a remaining principal balance due of $10,000 and accrued interest of $923.

 

Convertible Note 7. On April 11, 2014, the Company issued a seventh convertible promissory note in the amount of $33,000 to the same investor (the “Convertible Note 7”). Convertible Note 7 has a maturity date of January 14, 2015 and an annual interest rate of 8% per annum. The holder of Convertible Note 7 has the right to convert any outstanding principal and accrued interest into fully paid and non-assessable shares of Common Stock. Convertible Note 7 has a variable conversion price of 50% representing a discount rate of 50% of the average of the three lowest closing bid stock prices over the last thirty days and contains no dilutive reset feature. Due to the indeterminable number of shares to be issued at conversion, the Company recorded Convertible Note 7 as a derivative liability (See Note 5). As a result of the derivative the Company recorded a debt discount of $23,863, as of September 30, 2014, the Company recorded an amortization of discount of $9,102. As of September 30, 2014, the Company has a remaining principal balance due of $33,000 and accrued interest of $1,324.

 

Secured Promissory Note 1. On June 21, 2013, The Company issued a Secured Promissory note in the amount $55,000 to an investor (the “Secured Promissory Note 1”). Secured Promissory Note 1 has a maturity date of June 23, 2014 and an annual interest rate of 12% per annum. Secured Promissory Note 1 is collateralized with the Company’s Energy Forecasting and Management Device, Patent #7777366, including the associated source code (see Note 3). As an incentive to induce investor, the Company issued a Warrant grant, giving the investor the right, but not the obligation, to purchase 1,375,000 shares of common stock at a fixed price of $0.04 per share, issued on June 21, 2013 and expiring at midnight on June 23, 2016. The warrants issued in 2013 are tainted due to the derivative liability, see note 5. During the period ended June 30, 2014, the Company amended the Promissory note to a convertible note for $55,000 plus 12% interest and a fixed conversion price of $0.01. Due to the note being tainted as a result of the derivative, the Company recorded a debt discount of $61,600, as of September 30, 2014, the Company recorded amortization of discount of $4,765. As of September 30, 2014, the Company has a remaining principal balance due of $55,000 and accrued interest of $8,426. On June 2014, the Company issued 10,800,000 shares of Class A Common Stock to the holder of convertible note for the conversion of $1,080 principal of the convertible note. Due to conversion within the term of the note, no gain or loss was recorded.

 

Default under Certain Notes. Because the Company has failed to pay the remaining principal balance owed, together with the accrued and unpaid interest, upon the maturity dates of Convertible Notes 1 and 2. The Company is now in default under the respective notes. The same holder holds convertible Notes 1, 2, 3, 4, 5, and 6. On January 30, 2013 the holder of Convertible Notes presented a demand for immediate payment, as provided in the terms of the notes, of an aggregate of $108,875, representing 150% of the remaining outstanding principal balance of Convertible Notes 1 and 2. Because the Company has failed to pay the remaining principal balance, together with accrued and unpaid interest, upon the maturity dates of Convertible Notes 1 and 2 (collectively, the “Convertible Notes”), the Company is in default under the respective Convertible Notes. The same holder holds the Convertible Notes. The excess of $33,625 owed in addition to the principal amount owed under the Convertible Notes 1 and 2 represents penalty on default and is recorded as a loss in the Company’s income statement.

 

Tainted Investor Warrants.

 

The derivative feature of the Convertible Notes taints all existing convertible instruments, and specifically taints the 2,750,000 warrants issued on June 21, 2013 that will mature on June 23, 2016. During the nine months ended September 30, 2014, the Company recognized a gain due to change in fair market value of $7,588.

 

 

5.	FAIR VALUE MEASUREMENTS-DERIVATIVE LIABILITIES

 

As discussed in Note 4 under Convertible Note and Fair Value Measurements, the Company issued convertible notes payable that provide for the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the certain convertible promissory notes is indeterminable. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted and all additional convertible debentures and warrants are included in the value of the derivative. Pursuant to ASC 815-15, Embedded Derivatives, the fair values of the variable conversion option and warrants and shares to be issued were recorded as derivative liabilities on the issuance date.

 

The fair values of the Company’s derivative liabilities were estimated at the issuance date and are revalued at each subsequent reporting date, using a lattice model. The Company recorded current derivative liabilities of $288,338 and $169,785 at September 30, 2014 and December 31, 2013 respectively. The change in fair value of the derivative liabilities resulted in a loss of $89,631 for the nine months ended September 30, 2014 and a loss of $37,426 for the same period in the prior year. The loss of $89,631 for the nine months ended September 30, 2014 consisted of a gain of $7,588 attributable to the fair value of warrants, a $77,495 gain in change in market value of on the convertible notes, and loss of $174,714 due to the value in excess of the face value of the convertible notes.

 

The following table presents the derivative liability value by instrument type at September 30, 2014 and December 31, 2013 respectively:

 

		September 30, 2014				December 31, 2013
Convertible debentures		$	286,754				160,613
Common stock warrants			1,584				9,172
		$	288,338				169,785

 

The following table is a summary of changes in the fair market value of the derivative liabilities during the nine months ended September 30, 2014:

 

		Derivative
		Liability
		Total
Balance, December 31, 2013		$	169,785
Change in fair market value of derivative liabilities due to the mark to market adjustment of warrants			(7,588	)
Change in fair market value of derivative liabilities due to the mark to market adjustment of convertible notes			(77,495	)
Debt Conversion			(56,541	)
Increase in derivative value due to issuance of convertible promissory notes			260,177
Balance, September 30, 2014		$	288,338

 

Key inputs and assumptions used to value the convertible debentures and warrants issued during the nine months ended September 30, 2014 and the year ended December 31, 2013:

 

	●	For the Notes an event of default would occur 10% of the time, increasing 5.00% per quarter to a maximum of 50%
	●	The Convertible Notes as of September 30, 2014 convert as a percentage of market over previous days at an effective rate of 58.30% through 76.29%
	●	The projected volatility curve for each valuation period was based on the annual historical volatility of the company
	●	The Holder would redeem based on availability of alternative financing, increasing 2.0% monthly to a maximum of 10%; and
	●	The Holder would automatically convert the notes at maturity if the registration was effective and the stock is liquid in the market.

 

 

6.	COMMON STOCK

 

On November 28, 2007, upon shareholder approval, the Company amended its Articles of Incorporation to establish two classes of stock. The first class of stock is Class A Common Stock, par value $0.0166, of which 59,000,000 shares were initially authorized, and the holders of the Class A Common Stock are entitled to one vote per share. The second class of stock is Class B Participating Cumulative Preferred Super-voting Stock, par value $0.0166, of which 1,000,000 shares are authorized. On March 4, 2013, stockholders voted to approve an amendment to the Company’s Amended and Restated Articles of Incorporation to (a) increase the number of authorized shares of Common Stock from fifty nine million (59,000,000) shares of Common Stock to twenty billion (20,000,000,000) shares of Common stock; (b) amend the par value of Common Stock from a par value $0.0166 per share to a par value of $0.00004897 per share; (c) amend the Class B Participating Cumulative Preferred Super-voting Stock such that the voting rights of Class B shareholders are increased from one hundred votes per share to twenty thousand votes per share; and (d) authorize the issuance of five million (5,000,000) shares of “blank check” preferred stock, $0.0166 par value per share, to be issued in series, and all properties of such preferred stock to be determined by the Company’s Board of Directors. The amendment became effective on July 10, 2013. All share and per share data in the accompanying financial statements has been retroactively adjusted to reflect the stock split.

 

The holders of the Class B Participating Cumulative Preferred Super-voting Stock are permitted to vote their shares cumulatively as one class with the Class A Common Stock. The Class B Participating Cumulative Preferred Super-voting Stock pays dividends at 6%. For the years ended December 31, 2013, 2012, 2011, 2010, 2009, 2008, and 2007, the Company’s Board of Directors did not declare any dividends. Total undeclared Class B Participating Cumulative Preferred Super-voting Stock dividends as of September 30, 2014, were $146,134.

 

Class A Common Stock

 

Issuances of the Company’s common stock during the years ended December 31, 2013 and the nine months ended September 30, 2014 included the following:

 

Shares Issued for Cash

 

In 2013, 357,143 shares of Class A Common Stock were sold for $12,500 cash at $0.035 per share. These shares were unissued as of September 30, 2014 and are recorded as Stock Payable.

 

During the period ended September 30, 2014, there was no common stock sold for cash.

 

Shares Issued for Services

 

In January 2013, 6,000,000 shares of Class A common stock were issued to related parties for services provided to the Company with a value of $600,000 at $0.10 per share based on market price on the date of grant.

 

In February 2013, 72,500 shares of Class A common stock were issued for services provided to the Company with a value of $7,250 at $0.10 per share, based on market price on the date of grant.

 

In February 2013, 300,000 shares were issued for services provided to the Company with a value of $30,000 based on Fair Market Value on the date of grant.

 

In March 2013, 360,000 shares were issued for services provided to the Company, fulfilling a stock payable of $36,000 that was accrued for at December 31, 2012. The shares were valued based on the market price on the date of grant.

 

In June 2014, 12,000,000 shares were issued to two related parties for services provided to the Company with a value of $150,000, based on market price on the date of grant.

 

Shares Issued in Conversion of Other Liabilities

 

In March 2013, the Company issued 591,133 shares of Class A Common Stock as partial conversion of $12,000 of the principal of the noted dated September 28, 2011 as amended on October 17, 2011. Due to conversion within the terms of the note, no gain or loss was recognized.

 

In July 2013, the Company issued 862,069 shares of Class A Common Stock to convert $15,000 of the convertible note dated October 2011 into equity. Due to conversion within the terms of the note, no gain or loss was recognized.

 

 

In July 2013, the Company issued 1,000,000 shares of Class A Common Stock to convert $20,000 of the convertible note dated June 2013 into equity. Due to conversion within the terms of the note, no gain or loss was recognized.

 

In July 2013, the Company issued 2,000,000 shares of Class A Common Stock to convert $7,600 of the convertible note dated in September 2011 into equity. Due to conversion within the terms of the note, no gain or loss was recognized.

 

On April 16, 2014 the Company issued 2,157,895 shares of Class A Common Stock to the holder of convertible note for the conversion of $8,200 principal of the convertible note. Due to conversion within the terms of the note, no gain or loss was recognized.

 

On June 27, 2014, the Company issued 10,800,000 shares of Class A Common Stock to the holders of the convertible note for conversion of $1,080 principal. Due to conversion within the terms of the note, no gain or loss was recognized.

 

On July 30, 2014, the Company issued 2,268,750 shares of Class A Common Stock to the holder of a convertible note for the conversion of $5,445 in principal of the convertible note. Due to conversion within the terms of the note, no gain or loss was recognized.

 

On August 27, 2014, the Company issued 3,384,615 shares of Class A Common Stock to the holder of a convertible note for the conversion of $3,505 in principal and $895 in interest of the convertible note. Due to conversion within the terms of the note, no gain or loss was recognized.

 

Class B Participating Cumulative Preferred Super-voting Stock

 

Issuances of the Company’s preferred stock during the years ended December 31, 2007, 2008 and 2009 included the following:

 

Shares Issued for Cash

 

In 2007, 133,333 shares of Class B Preferred Stock were issued for $45,000 cash or $0.3375 per share.

 

Shares Issued for Services

 

In 2007, 866,667 shares of Class B Preferred Stock were issued to founders for services rendered during 2007 with a value of $0.3375 per share based on the above contemporaneous sale of Class B Preferred Stock.

 

2010 Equity Incentive Plan

 

In June 2010, the Company registered 4,000,000 shares of Class A Common Stock pursuant to its 2010 Equity Incentive Plan, which was also enacted in June 2010. The Company’s Board of Directors have authorized the issuance of the Class a shares of Common Stock to employees upon effectiveness of an effective registration statement. The 2010 Equity Incentive Plan is intended to compensate employees for services rendered. The employees who will participate in the 2010 Equity Incentive Plan have agreed or will agree in the future to provide their expertise and advice to us for the purposes and consideration set forth in their written agreements pursuant to the 2010 Equity Incentive Plan. The services to be provided by the employees will not be rendered in connection with: (i) capital-raising transactions; (ii) direct or indirect promotion of Class A common stock; (iii) maintaining or stabilizing a market for the Class A common stock. The Board of Directors may at any time alter, suspend or terminate the 2010 Equity Incentive Plan.

 

As of December 31, 2010, the Company’s Board of Directors approved 800,000 shares under this plan for issuance. As of September 30, 2014, none of these shares have been granted or issued.

 

7.	COMMITMENTS AND CONTINGENCIES

 

Employment Agreements

 

On March 26, 2008, the Company entered into certain employment arrangements with Shawn Davis, its Chief Executive Officer, and Thomas Bianco, its Chief Financial Officer. These arrangements established a respective annual salary of $120,000 for Messrs. Davis and Bianco. Because Messrs. Davis and Bianco have been, and are currently, employed by the Company in critical managerial positions, the Company believes it to be in the best interest of the Company to provide Messrs. Davis and Bianco with certain severance protections and accelerated option vesting in certain circumstances. Effective December 3, 2012 through December 31, 2016, the Company entered into new employment agreements and severance agreements with Messrs. Davis and Bianco. The terms of the employment agreements are substantially similar and establish an annual base salary of $185,000 for each of Messrs. Davis and Bianco, and also provide for employee benefits of medical and dental insurance, life insurance, disability insurance, sick pay, paid leave, retirement, annual bonus and other benefits when the Company is financially able to provide for the benefits, or as determined by the Board of Directors.

 

 

The terms of the severance agreements are substantially similar and provide for aggregated severance amounts equal to 300% of Messrs. Davis and Bianco’s annual base salary in effect as of the date of the executive’s respective termination (the “Severance Amount”). In addition to the Severance Amount, the Company agreed to provide Messrs. Davis and Bianco with full medical, dental, and vision benefits from the date of termination through the third full year following the date of termination. The Company also agreed Messrs. Davis and Bianco shall each have one year from the date of termination in which to exercise all options that are vested as of the date of termination, subject to any trading window requirements or other restrictions imposed under the Company’s insider trading policy. The severance agreements state that if during the period of time during which Mr. Davis or Mr. Bianco is employed by the Company, a “change of control,” as defined in the severance agreement, occurs, 100% of the unvested portion of all options held by Messrs. Davis and Bianco as of the date of change of control event shall be deemed vested and the executive shall be entitled to exercise such options.

 

The Company also agreed that if the payments are deemed “golden parachute” payments under the Internal Revenue Code of 1984 and Messrs. Davis and Bianco are obligated to pay an excise tax, the Company shall reimburse Messrs. Davis and Bianco in full for both the amount of the excise tax, or ordinary income taxes owed in connection with the payment.

 

As of September 30, 2014, the Company owed Messrs. Davis and Bianco accrued and deferred compensation in the amounts of $254,659 and $254,713 respectively.

 

On April 2, 2014, we entered into a “Letter of Intent” (the “LOI”) with Beacon Global Partners, LLC, a Wyoming limited liability company (“BGP”). The LOI is precedent to a formal binding Change of Control Agreement. Pursuant to the “LOI”, Shawn Davis, and Thomas Bianco conditionally resigned their positions, as Chief Executive Officer and Chief Financial Officer on the date of filing of the Company’s Form 10-K filed on April 15, 2014. Under the agreement, both Davis and Bianco agree to conditionally suspend their Employment and Severance Agreements. The Company will continue to accrue and defer their payroll until such time that BGP, LLC is able to close, or the “LOI” terminates, whichever comes first. On the date of closing, both Davis and Bianco have agreed to forgive the entire amount of accrued and deferred payroll carried on the Company’s balance sheet through that date.

 

On April 16, 2014, the Board of Directors approved a conditional payroll arrangement for Kenneth Miller, the Companies Chief Executive Officer (the “Executive”). Commencing on April 16, 2014 (the “Commencement Date”) and continuing thereafter, or as determined by the board of directors, the executive’s annual base salary from the Commencement date shall be set at $185,000. Under the arrangement, Miller agrees to accrue and defer payroll beginning on April 16, 2014, the Commencement date. Mr. Miller will not be entitled to realize any monies deferred and accrued on the Company’s balance sheet until such time BGP, LLC is able to close on the “LOI”. On June 10, 2014, Mr. Starr submitted a “letter of Resignation” effective on the same date. If Miller (BGP, LLC) is unable to close the “LOI” on or before the date of termination, default, receivership, bankruptcy, insolvency, liquidation proceeding’s or any change in control, any and all amounts of the officer’s deferred and accrued payroll existing on the balance sheet through that date shall be adjusted to equal $0 dollars. In the event of termination caused by any of the precedent conditions above, BGP, LLC has agreed to, among other things: (a) terminate the “LOI”; (b) forfeit all Company and Board of Director Positions.

 

Amendment to the Amended and Restated Articles of Incorporation

 

On March 4, 2013, stockholders voted in favor to amend the Company’s Amended and Restated Articles of Incorporation to (a) increase the number of authorized shares of common stock from fifty nine million (59,000,000) shares of common stock to twenty billion (20,000,000,000) shares of common stock; (b) amend the par value of Common Stock from a par value $0.0166 per share to a par value of $0.00004897 per share; (c) amend the Class B Preferred Stock such that the voting rights of Class B shareholders are increased from one hundred votes per share to twenty thousand votes per share; and (d) authorize the issuance of five million (5,000,000) shares of “blank check” preferred stock, 0.0166 par value per share, to be issued in series, and all properties of such preferred stock to be determined by the Company’s Board of Directors. The amendment became effective on July 10, 2013.

 

Operating Leases

 

On April 3, 2014 the Company moved out of office space provided by the Coachella Valley Economic Partnerships (CVEP) iHub division. The Company is in the process of relocating to the Silicon Valley in conjunction with BGP’s acquisition of majority-voting control of Attune and locating suitable office space for its current operations. As of the date of this filing, no space has yet been procured.

 

 

Legal Matters

 

Dispute with Vendor

 

In March 2010, the Company engaged the services of a vendor to complete certain services. Pursuant to the agreement, the Company paid the vendor a total of $70,618 towards the completion of services. The agreement contained a “not to exceed cost” of $89,435. On or about September 21, 2010, the Company issued the vendor 250,000 shares of the Company’s restricted Class A Common Stock as an incentive for the vendor to deliver services no later than March 1, 2011. The vendor agreed to incrementally deliver work in progress; however, no work was received from the vendor. The vendor requested an additional payment of $18,818, which the Company did not pay. On or about October 4, 2010, the vendor repudiated the agreement. On February 23, 2011, the Company engaged the services of legal counsel and made written demand for the return of the stock certificate and attempted to initiate settlement negotiations. The vendor did not acknowledge receipt of the Company’s demand.

 

On September 25, 2011, the Company received notice of a Chapter 7 bankruptcy case filed personally by the vendor. The Company has placed a stop order on the certificate it issued on or about September 21, 2010 to the vendor. As of this date hereof, the Company is currently conferring with counsel regarding possible litigation to cancel the stock certificate. The Company’s alleged damages resulting from the vendor’s failure to perform and subsequent repudiation of the contract, including the Company’s lost opportunity costs, should it pursue litigation against the vendor, will need to be established by an economic expert. The vendor could conceivably pursue litigation against the Company for the $18,818 payment; however, the Company believes it is not probable and therefore, a contingent liability for the amount is not warranted.

 

Dispute with Wakabayashi Fund, LLC

 

On or about July 30, 2013, Wakabayashi Fund, LLC sent an email advertisement to the Company advertising certain financial services, and the Company responded to request further information. In subsequent telephone conversations, Mr. Stone of Wakabayashi Fund, LLC (the “Fund”) stated that he was a finance professional that previously held a high position in a well-known securities firm and regularly provides services for the purpose of funding public companies, and/or finding good companies for his clients to invest in. After several weeks, and during two telephone conversations with the Company’s executive officers, Mr. Stone stated that several of his close colleagues with whom he had a pre-existing relationship had reviewed the Company’s corporate information, agreed to invest immediately in the Company, and were imminently prepared to send checks to the Company, but that he would not advise them to do so until after the Company issued and delivered a stock certificate for 750,000 shares of the Company’s common stock to the Fund. After Mr. Stone assured the Company’s executive officers that the investment was assured, imminent and forthcoming, and that the Company would be receiving the first of many investment checks from accredited investors within a certain time period after the Fund received the stock certificate, the Company agreed to process the now pending stock certificate. The Company negotiated the size of the stock certificate based on the amount of money Mr. Stone claimed the Fund would deliver in the time period and based on promises he allegedly secured from pre-existing relationships, amounting to an aggregate of $100,000 - $200,000 in funds that he stated would begin arriving at the Company within the first few weeks. The Company indicated an urgent need for capital and believed Mr. Stone would fulfill the promise that was bargained for. As of the date of this report, no funds or offers to provide funds for the Company have been forthcoming from any person claiming any relationship with the Fund or Mr. Stone. The Company believes Mr. Stone’s statements were false and made to induce management into delivering the stock certificate. On May 17, 2013, its transfer agent notified the Company that the Fund was attempting to clear a stock certificate. The Company notified its transfer agent to place a stop order on the transaction. On or about July 2, 2013, the Company received an email from its transfer agent with a letter from the Fund’s counsel. On or about July 10, 2013, the Company responded to the Fund’s counsel detailing the facts set forth above and indicated the Company would not process the certificate for 750,000 shares of the Company’s common stock, but in an effort to resolve this matter quickly and efficiently, the Company offered to issue the Fund 50,000 shares of common stock. On September 24, 2013, the Company received a letter from its transfer agent’s counsel in regards to a civil complaint filed by the Fund, naming the Company’s transfer agent as a defendant, requesting issuance of the stock certificate for 750,000 unrestricted shares of the Company’s common stock. The Company has not been named in the suit. As of September 30, 2014 the 750,000 shares remain issued and outstanding.

 

Default on Convertible Promissory Note

 

On January 30, 2013, the holder of Convertible Notes presented a demand for immediate payment, as provided in the terms of the notes, of an aggregate of $108,875, representing 150% of the remaining outstanding principal balance of Convertible Notes 1 and 2. Because the Company has failed to pay the remaining principal balance, together with accrued and unpaid interest, upon the maturity dates of Convertible Notes 1, 2, 3, 4, 5 and 6 (collectively, the “Convertible Notes”), the Company is in default under the respective Convertible Notes. The same holder holds the Convertible Notes. As of the date of this filing, the Company continues to work with the holder of the Convertible Notes. The Company anticipates the parties will be able to resolve the issue amicably. The holder of the Convertible Notes has continued to support the Company and has advanced certain additional funds to the Company beyond the date of the issuance of its demand letter. The holder of the notes could pursue litigation, however, as of the date of this filing has not threatened to do so.

 

 

On July 15, 2014, the same holder of Convertible Notes 1 and 2 presented a demand for immediate payment, as provided in the terms of the notes, of an aggregate of $128,250, representing 150% of the remaining outstanding principal balance of Convertible Notes 3, 4, 5 and 6. Because the Company has failed to pay the remaining principal balance, together with accrued and unpaid interest, upon the maturity dates of Convertible Notes 3, 4, 5 and 6 (collectively, the “Convertible Notes”), the Company is in default under the respective Convertible Notes. As of the date of this filing, the Company continues to work with the holder of the Convertible Notes. The Company anticipates the parties will be able to resolve the issue amicably. The holder of the notes could pursue litigation, however, as of the date of this filing has not threatened to do so.

 

Default of Agreement with vendor for Software

 

As of September 30, 2014, the Company remains in default under the terms and conditions of an agreement with a software vendor. The vendor has not previously prevented access to the software and continues to bill the Company for its respective monthly payments. The Company is not currently using the software. Due to insignificant revenue and lack of future contract, the Company recognized full impairment of $74,269 related to the software license as of the balance sheet date of December 31, 2012.

 

8.	RELATED PARTY TRANSACTIONS

 

As part of the LOI, BGP has agreed to a Stock Purchase Agreement in the amount of $400,000 (the “SPA”) to each of Messrs. Davis and Bianco for the purchase of 3,000,000 shares of Class A Common Stock from each of the executives’ personal stock holdings. BGP will be responsible for the payment of any gross-up or tax payments resulting from the sales, and these additional payments will be owed to each of Messrs. Davis and Bianco in addition to the compensation amount and any other agreed-upon compensation due to Messrs. Davis and Bianco. As of the date of this filing, no funds have been received towards the “SPA” by either Davis or Bianco. Pursuant to the LOI, Messrs. Davis and Bianco have agreed to suspend their existing respective employment and severance agreements with the Company. The parties have agreed that BGP will continue to pay an annualized consultancy compensation of $120,000 to each of Messrs. Davis and Bianco until the earlier of the Closing Date or the date when the terms and conditions of the LOI are satisfied. As of the date of this filing, Davis and Bianco have each received $59,000 in compensation each towards this amount. Such annualized consultancy compensation may be deferred, but must be paid in full on, or before, BGP assumes control of the Company. At such time as when the terms and conditions of the LOI have been satisfied, Messrs. Davis and Bianco have agreed to terminate their existing respective employment and severance “Agreements’ with the Company and forgive the entire amounts of their accrued deferred compensation as of the date of the LOI, excluding the annualized Consultancy compensation of $120,000 discussed in the LOI.

 

During the period, the Company received $130,378 in advances for Company related expenses at 12% with no stated date of maturity. In the event of default, all payments made by the related party to cover Company expenses will be converted into the Company’s common stock at a conversion price of $0.13 per share. As of September 30, 2014, the Company is not in default. As of the period ended September 30, 2014, the Company recorded $12,567 in accrued interest.

 

As of September 30, 2014, the Company owed Shawn Davis, the Company’s predecessor Chief Executive Officer, and Thomas Bianco, the Company’s predecessor Chief Financial Officer accrued and deferred compensation in the amounts of $254,659 and $254,713 respectively.

 

In June 2014, 12,000,000 shares were issued to two related parties for services provided to the Company with a value of $150,000, based on market price on the date of grant.

 

9.	SUBSEQUENT EVENTS

 

In accordance with ASC 855-10 Company management reviewed all material events through the date of this report and there are no material subsequent events to report.

 

 

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

 

Our Business

 

ATTUNE RTD is a Nevada corporation, which was originally incorporated as Catalyst Set Corporation on December 19, 2001 and changed its name in September 2007 to Interfacing Technologies, Inc., and then changed to our current name in March 2008.

 

We are a development stage company that was formed in order to provide developed technology related to the operations of energy efficient electronic systems such as swimming pool pumps, sprinkler controllers and heating and air conditioning controllers among others.

 

Rising retail electricity prices, coupled with inelastic demand, create a significant and growing market opportunity for lower cost retail energy. Attune RTD designed and developed its patented BrioWave technology that reduces electrical consumption associated with residential pools and central HVAC systems. Additionally, the technology represents an effective demand response solution for utilities to leverage savings and works collaboratively with solar power systems.

 

Our Approach

 

We have developed an integrated approach that allows our customer’s access to Solar Power Systems in a simple and cost-efficient manner. The key elements of our integrated approach are:

 

Sales. Develop a structured sales organization to efficiently engage prospective customers, from initial interest through customized proposals and, ultimately, signed contracts.

 

Financing. To provide pricing options to our customers to help make renewable, distributed energy and BrioWave technology affordable.

 

Engineering. We have developed hardware and software that potentially optimizes the energy production of each solar energy system.

 

Installation. We obtain all necessary building permits and handle the installation of our solar energy systems. By managing these logistics, we make the installation process simple for our customers.

 

Monitoring and Maintenance. We utilize our own software and other software from third party vendors to provide Attune RTD and our customers with a real-time view of their energy generation, consumption and carbon offset through an easy-to-read application available on any device with a web browser.

 

Complementary Products and Services. Using our proprietary software, we analyze our customers’ energy usage and identify opportunities for energy efficiency improvements.

 

Our Strategy

 

Our goal is to become a competitive provider of efficient solutions, demand response technology and of clean distributed energy in the world. We plan to achieve this disruptive strategy by providing every home and business an alternative to their energy bill that is cleaner and less costly than their current energy provider coupled with our own proprietary BrioWave hardware and software. We intend to:

 

	●	Rapidly grow our customer base. We intend to invest significantly in sales, marketing and operations personnel and leverage strategic relationships with new and existing industry leaders to further expand our business and customer base.
	●	To offer lower priced energy solutions. We plan on reducing costs by continuing to leverage our proprietary hardware and software to further ensure that our integrated team operates as efficiently as possible, and working with fund investors to develop innovative financing solutions to lower our cost of capital and offer lower-priced energy to our customers.
	●	Leverage our brand and long-term customer relationships to provide complementary products. We plan to continue to invest in and develop complementary energy products, software and services, such as our BrioWave and BrioWEMS energy management technologies, to offer further cost-savings to our customers.
	●	Expand into new locations. We intend to continue to expand into new locations, initially targeting those markets where climate, government regulations and incentives position solar energy as an economically compelling alternative to utilities.

 

 

Results of Operations for the Three Months Ended September 30, 2014 Compared to the Three Months Ended September 30, 2013

 

Revenue. For the three months ended September 30, 2014 and 2013, we had revenue of $0 and $0, respectively.

 

Gross Profit. Since we have yet to record and or achieve any significant revenues, we do not have any costs associated with sales, and therefore, there are no gross profits to report.

 

Operating Expenses. Total operating expense was $(17,958) for the three months ended September 30, 2014, a decrease of $163,680 as compared to the same period in the prior year. A change in the derivative valuation $157,490 was primarily responsible for the decrease.

 

Net Loss. We generated a net loss of $4,863 for the three months ended September 30, 2014 a decrease of $168,614 as compared to a net loss of $173,477 reported for the same period in the prior year.

 

Results of Operations for the Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013

 

Revenue. For the nine months ended September 30, 2014 and 2013, we had revenue of $0 and $950, respectively. We are in the development stage and have limited revenues, as we have been involved in the rollout and testing of our first products into the Texas market.

 

Gross Profit. Since we have yet to record and or achieve any significant revenues, we do not have any costs associated with sales, and therefore, there are no gross profits to report.

 

Operating Expenses. Total operating expense was $650,065 for the nine months ended September 30, 2014, a decrease of 434,141 as compared to the same period in the prior year. The decrease for the nine months ended September 30, 2014 was due to a decrease in common stock granted for service of $499,750. Payroll expenses for the nine months ended September 30, 2014 also decreased by 16,080, while consulting expenses increased for the period by $96,083. The derivative valuation loss amounted to an increase of $52,205. Product development expense decreased by $33,820.

 

Net Loss. We generated a net loss of $714,156 for the nine months ended September 30, 2014 a decrease of $415,392 as compared to a net loss of $1,129,548 reported for the same period in the prior year.

 

Liquidity and Capital Resources

 

At September 30, 2014, we had no cash or cash equivalents. We have historically met our cash needs through a combination of proceeds from private placements of our securities and from loans. Our cash requirements are generally for operating activities.

 

Our operating activities used cash in operations is $163,378 for the nine months ended September 30, 2014, and we used cash in operations of $214,945 for the same comparable period in the prior year. The principal elements of cash flow from operations for the nine months ended September 30, 2014 included a net loss of $714,156 decreased by change in fair value of derivative of $89,631, amortization expense of $30,791.

 

Cash provided by financing activities was $163,378 for the nine months ended September 30, 2014, compared to cash provided by financing activities of $214,999 during the same period in the prior year.

 

As of September 30, 2014, current liabilities exceeded current assets by $1,830,099, compared to December 31, 2013, where current liabilities exceeded current assets by $1,341,608. Current assets were $0 in both periods, while current liabilities increased $488,491 to $1,830,099 in September 30, 2014 from $1,341,608 at December 31, 2013. As a result, our working capital deficit increased from $1,341,608 in December 31, 2013 to $1,830,099 at September 30, 2014.

 

We do not have sufficient capital to meet our current cash needs. In the future, we will need to raise additional capital from external sources in order to continue the longer term efforts contemplated under our business plan. We expect to continue incurring losses for the foreseeable future and will need to raise additional capital to pursue our business plan and continue as a going concern. We cannot provide any assurances that we will be able to raise additional capital. Our management believes that we have access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations or other means, if needed; however we have not secured a final commitment for such financing or financings at this time.

 

 

Off-Balance Sheet Arrangements

 

We currently have an off-balance sheet arrangement in place, in the form of an LOI with BGP for the acquisition of Majority-Voting Control of Attune that could have or is reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Going Concern Qualification

 

We have incurred significant losses from operations, and we expect to continue incurring such losses for the foreseeable future. Our auditors have included a “Going Concern Qualification” in their report for the year ended December 31, 2013. In addition, we have limited working capital. The foregoing raises substantial doubt about our ability to continue as a going concern.

 

Our management’s plans include the Change of Majority-Voting Control of Attune, which will result in the injection of working capital contingent on the closing of the transaction, as well as seeking additional capital through possible public or private equity offerings, debt financings, corporate collaborations or other means.

 

There is no guarantee that additional capital or debt financing will be available when and to the extent required, or that if available, it will be on terms acceptable to us. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The “Going Concern Qualification” included in our auditor’s report might make it substantially more difficult to raise capital, without the acquisition of Majority-Voting Control of Attune by BGP.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are electing scaled disclosure reporting obligations and therefore we are not required to provide the information called for by this Item 3.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Changes in Internal Control Over Financial Reporting

 

None.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as the Securities and Exchange Commission (“SEC”) defines such term. We have designed these controls and procedures to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized, and reported within the periods specified in the SEC’s rules and forms. We have also designed our disclosure controls to provide reasonable assurance that such information is accumulated and communicated to our Chief Executive Officer, as appropriate, to allow them to make timely decisions regarding our required disclosures.

 

Our management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of September 30, 2104. Based on this evaluation, our Chief Executive Officer has concluded that our Company’s disclosure controls and procedures, including the accumulation and communication of disclosures to our Chief Executive Officer as appropriate to allow timely decisions regarding required disclosure, were not effective as of September 30, 2014 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Based on this evaluation, we have concluded that there are material weaknesses in our disclosure controls and procedures and they were not effective for the following reasons:

 

	1.	We do not have an audit committee – While we are not legally obligated to have an audit committee, it is the management’s view that such a committee, including an audit committee financial expert, is important for control purposes. Currently, the Board of Directors acts in the capacity of the audit committee, and does not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities.
	2.	We did not maintain appropriate cash controls – As of September 30, 2014, we have not maintained sufficient internal controls over financial reporting for the cash process, including failure to segregate cash handling and accounting functions, and we did not require dual signature on our Company’s bank accounts. Alternatively, the effects of poor cash controls were mitigated by the fact that we had limited transactions in our bank accounts.

 

 

	3.	We did not implement appropriate information technology controls – As of September 30, 2014, we retained copies of all financial data and material agreements; however, there is no formal procedure or evidence of normal backup of our data or off-site storage of data in the event of theft, misplacement, or loss due to unmitigated factors.
	4.	Due to our small size, we do not have segregation of accounting or management duties, which is a deficiency in our disclosure controls. We are currently working on acquiring certain resources to cure this deficiency.

 

Accordingly, we concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by our internal controls.

 

As a result of the material weaknesses described above, management has concluded that we did not maintain effective internal control over financial reporting as of September 30, 2014 based on criteria established in Internal Control—Integrated Framework issued by COSO.

 

We are working to develop sustainable processes of our own and have made progress towards completion of this effort; however, the lack of capital and our relatively small size has made it difficult for us to quickly design, implement and test sustainable processes adequate to remediate the notated material weaknesses. To address and remediate the material weaknesses in internal control over financial reporting described above, we have taken the following steps:

 

	1.	Appropriate Cash Controls. We are working on maintaining appropriate cash controls and we now require two signatures when signing and issuing checks.
	2.	Segregation of Accounting and Management Duties; Implementation of Appropriate Technology Controls. We have begun to break up auxiliary patterns, dividing functions such as bookkeeping and accounting into separate steps. Additionally, we have begun the process of implementing a process intended to segregate the accounting and bookkeeping duties from management duties. First, we have implemented a cloud computing accounting software system. Our Chief Executive Officer provides the documentation for sales or other transactions, and upload the documents to a cloud computing accounting software system for processing by a third party vendor. Our Chief Executive Officer still maintains oversight. We have also begun the process to reconcile other discrepancies through audit and assistance from our auditors.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.

 

Because of its 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 of achieving their control objectives. Our management, including our Chief Executive Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or 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. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

 

Our management, with the participation of our Chief Executive Officer, evaluated the effectiveness of our internal control over financial reporting as of September 30, 2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework. As a result of its review, management identified material weaknesses in our internal control over financial reporting as described above. Based on this evaluation, our management concluded that, as of September 30, 2014, our internal control over financial reporting was not effective. Management acknowledges that as a smaller reporting entity, it is difficult to have adequate accounting staff to perform appropriate additional reviews of the financial statements.

 

Changes in Internal Control over Financial Reporting

 

Other than as described above, there have been no changes in our internal control over financial reporting, that occurred during our second fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Dispute with Vendor

 

In March 2010, the Company engaged the services of a vendor to complete certain services. Pursuant to the agreement, the Company paid the vendor a total of $70,618 towards the completion of services. The agreement contained a “not to exceed cost” of $89,435. On or about September 21, 2010, the Company issued the vendor 250,000 shares of the Company’s restricted Class A Common Stock as an incentive for the vendor to deliver services no later than March 1, 2011. The vendor agreed to incrementally deliver work in progress; however, no work was received from the vendor. The vendor requested an additional payment of $18,818, which the Company did not pay. On or about October 4, 2011, the vendor repudiated the agreement. On February 23, 2012, the Company engaged the services of legal counsel and made written demand for the return of the stock certificate and attempted to initiate settlement negotiations. The vendor did not acknowledge receipt of the Company’s demand.

 

On September 25, 2012, the Company received notice of a Chapter 7 bankruptcy case filed personally by the vendor. The Company has placed a stop order on the certificate it issued on or about September 21, 2010 to the vendor. As of this date hereof, the Company is currently conferring with counsel regarding possible litigation to cancel the stock certificate. The Company’s alleged damages resulting from the vendor’s failure to perform and subsequent repudiation of the contract, including the Company’s lost opportunity costs, should it pursue litigation against the vendor, will need to be established by an economic expert. The vendor could conceivably pursue litigation against the Company for the $18,818 payment; however, the Company believes it is not probable and therefore, a contingent liability for the amount is not warranted.

 

Dispute with Wakabayashi Fund, LLC

 

On or about July 30, 2013, Wakabayashi Fund, LLC sent an email advertisement to the Company advertising certain financial services, and the Company responded to request further information. In subsequent telephone conversations, Mr. Stone of Wakabayashi Fund, LLC (the “Fund”) stated that he was a finance professional that previously held a high position in a well-known securities firm and regularly provides services for the purpose of funding public companies, and/or finding good companies for his clients to invest in. After several weeks, and during two telephone conversations with the Company’s executive officers, Mr. Stone stated that several of his close colleagues with whom he had a pre-existing relationship had reviewed the Company’s corporate information, agreed to invest immediately in the Company, and were imminently prepared to send checks to the Company, but that he would not advise them to do so until after the Company issued and delivered a stock certificate for 750,000 shares of the Company’s common stock to the Fund. After Mr. Stone assured the Company’s executive officers that the investment was assured, imminent and forthcoming, and that the Company would be receiving the first of many investment checks from accredited investors within a certain time period after the Fund received the stock certificate, the Company agreed to process the now pending stock certificate. The Company negotiated the size of the stock certificate based on the amount of money Mr. Stone claimed the Fund would deliver in the time period and based on promises he allegedly secured from pre-existing relationships, amounting to an aggregate of $100,000 - $200,000 in funds that he stated would begin arriving at the Company within the first few weeks. The Company indicated an urgent need for capital and believed Mr. Stone would fulfill the promise that was bargained for. As of the date of this report, no funds or offers to provide funds for the Company have been forthcoming from any person claiming any relationship with the Fund or Mr. Stone. The Company believes Mr. Stone’s statements were false and made to induce management into delivering the stock certificate. On May 17, 2013, its transfer agent notified the Company that the Fund was attempting to clear a stock certificate. The Company notified its transfer agent to place a stop order on the transaction. On or about July 2, 2013, the Company received an email from its transfer agent with a letter from the Fund’s counsel. On or about July 10, 2013, the Company responded to the Fund’s counsel detailing the facts set forth above and indicated the Company would not process the certificate for 750,000 shares of the Company’s common stock, but in an effort to resolve this matter quickly and efficiently, the Company offered to issue the Fund 50,000 shares of common stock. On September 24, 2013, the Company received a letter from its transfer agent’s counsel in regards to a civil complaint filed by the Fund, naming the Company’s transfer agent as a defendant, requesting issuance of the stock certificate for 750,000 unrestricted shares of the Company’s common stock. The Company has not been named in the suit, but it is prepared to litigate the matter if necessary. As of December 31, 2013 the 750,000 shares remains issued and outstanding.

 

 

Default on Convertible Promissory Note

 

On January 30, 2013, the holder of Convertible Notes presented a demand for immediate payment, as provided in the terms of the notes, of an aggregate of $81,785, representing 150% of the remaining outstanding principal balance of Convertible Notes 1 and 2. Because the Company has failed to pay the remaining principal balance, together with accrued and unpaid interest, upon the maturity dates of Convertible Notes 1 and 2 (collectively, the “Convertible Notes”), the Company is in default under the respective Convertible Notes. The same holder holds the Convertible Notes. The excess of $33,625 owed in addition to the principal amount owed under the Convertible Notes 1 and 2 represents penalty on default and is recorded as a loss in the Company’s income statement.

 

On July 15, 2014, the same holder of Convertible Notes 1 and 2 presented a demand for immediate payment, as provided in the terms of the notes, of an aggregate of $128,250, representing 150% of the remaining outstanding principal balance of Convertible Notes 3, 4, 5 and 6. Because the Company has failed to pay the remaining principal balance, together with accrued and unpaid interest, upon the maturity dates of Convertible Notes 3, 4, 5 and 6 (collectively, the “Convertible Notes”), the Company is in default under the respective Convertible Notes. The same holder holds the Convertible Notes 1, 2, 3, 4, 5 and 6. As of the date of this filing, the Company continues to work with the holder of the Convertible Notes. The Company anticipates the parties will be able to resolve the issue amicably. The holder of the notes could pursue litigation, however, as of the date of this filing has not threatened to do so.

 

Default of Agreement with vendor for Software

 

As of September 30, 2014, the Company remains in default under the terms and conditions of an agreement with a software vendor. The vendor has not previously prevented access to the software and continues to bill the Company for its respective monthly payments. The Company is not currently using the software. Due to insignificant revenue and lack of future contract, the Company recognized full impairment of $74,269 related to the software license as of the balance sheet date of December 31, 2012.

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are electing scaled disclosure reporting obligations and therefore we are not required to provide the information called for by this Item 1A.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

We relied on the Section 4(2) exemption from securities registration under the federal securities laws for transactions not involving any public offering. No advertising or general solicitation was employed in offering the securities. The securities were issued to accredited investors. The securities were offered for investment purposes only and not for the purpose of resale or distribution, and we thereof appropriately restricted the transfers.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

We did not default upon any senior securities during the quarter ended September 30, 2014.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit No.		Description
3.1		Amendment to the Articles of Incorporation*
3.2		Bylaws**
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.***
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.***
32.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.***
32.2		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.***
101.INS		XBRL Instance Document#
101.SCH		XBRL Taxonomy Extension Schema Document#
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document#
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document#
101.LAB		XBRL Taxonomy Extension Label Linkbase Document#
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document#

 

*	Filed with and incorporated by reference to the company’s Form 10-K (File No. 000-54518), as filed with the Securities and Exchange Commission on April 8, 2013.
**	Filed with and incorporated by reference to the Company’s Registration Statement on Form S-1, as amended (File No. 333-163570), as filed with the Securities and Exchange Commission on December 8, 2009.
***	Filed herewith.
#	Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

 

SIGNATURES

 

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.

 

	ATTUNE RTD, INC.
Date: November 19, 2014	By:	/s/ Kenneth J. Miller Jr.
		Kenneth J. Miller, Jr.
		Chief Executive Officer and Principal Financial Officer