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EX-32.01 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER) - Ocean Thermal Energy Corpex3201q063012.htm
EX-31.01 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A-14 - Ocean Thermal Energy Corpex3101q063012.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2012
   
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to ___________
   
Commission File Number 033-19411-C
 
TetriDyn Solutions, Inc.
(Exact name of registrant as specified in its charter)
 
Nevada
20-5081381
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
1651 Alvin Ricken Drive, Pocatello, ID  83201
(Address of principal executive offices, including zip code)
 
(208) 232-4200
(Registrant’s telephone number, including area code)
 
n/a
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
x
No
o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
x
No
o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer ¨
Non-accelerated filer o
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
o
No
x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  As of August 20, 2012, issuer had 23,031,863 outstanding shares of common stock, par value $0.001.
 
 
 
 

 
 
TABLE OF CONTENTS


Item
Description
Page
     
 
PART I – FINANCIAL INFORMATION
 
Item 1
Financial Statements
3
 
Condensed Consolidated Balance Sheets (Unaudited)
3
 
Condensed Consolidated Statements of Operations (Unaudited)
4
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
5
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
6
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
12
Item 3
Quantitative and Qualitative Disclosures about Market Risk
17
Item 4
Controls and Procedures
17
     
 
PART II – OTHER INFORMATION
 
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
18
Item 6
Exhibits
18
 
Signature
19

 
2
 
 

 

 
TETRIDYN SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
           
    June 30,   December 31,
    2012   2011
    (Unaudited)      
ASSETS
         
Current Assets
         
Cash
         3,826 
 
        18,609 
Accounts receivable
 
           11,638 
   
             2,563 
Prepaid expenses
 
             4,099 
   
           11,888 
Total Current Assets
 
           19,563 
   
           33,060 
Property and Equipment, net
 
           14,851 
   
           22,319 
Total Assets
       34,414 
 
       55,379 
           
LIABILITIES
         
Current Liabilities
         
Accounts payable
      387,827 
 
      388,298 
Accrued liabilities
 
         214,080 
   
         159,591 
Customer deposits
 
           26,627 
   
           24,663 
Notes payable, current portion
 
         120,953 
   
           99,614 
Total Current Liabilities
 
         749,487 
   
         672,166 
Long-Term Liabilities
         
Notes payable, net of current portion
 
         183,193 
   
         209,667 
Convertible notes payable to related party
 
         315,000 
   
         275,000 
Total Long-Term Liabilities
 
         498,193 
   
         484,667 
Total Liabilities
 
       1,247,680 
   
       1,156,833 
             
COMMITMENTS AND CONTINGENCIES (See Note 8)
         
             
STOCKHOLDERS' DEFICIT
           
Preferred stock - $0.001 par value
         
Authorized:
5,000,000 shares
         
Issued and outstanding:
1,200,000 shares and
         
 
1,200,000 shares, respectively
 
             1,200 
   
             1,200 
Common stock - $0.001 par value
         
Authorized:
100,000,000 shares
         
Issued and outstanding:
23,031,863 shares and
         
 
23,031,863 shares, respectively
 
           23,032 
   
           23,032 
Additional paid-in capital
 
       2,896,351 
   
       2,896,351 
Accumulated deficit
 
     (4,133,849)
   
     (4,022,037)
Total Stockholders' Deficit
   
     (1,213,266)
   
     (1,101,454)
             
Total Liabilities and Stockholders' Deficit
         34,414 
 
       55,379 
             
See the accompanying notes to condensed consolidated unaudited financial statements.

3
 
 

 


TETRIDYN SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
                         
    For the Three Months Ended   For the Six Months Ended
    June 30,   June 30,
    2012   2011   2012   2011
Revenue
 
    89,739 
 
 205,684 
 
 138,816 
 
416,692 
Cost of Revenue
   
      14,537 
   
    128,814 
   
      19,796 
   
    232,037 
Gross Profit
   
      75,202 
   
      76,870 
   
    119,020 
   
    184,655 
Operating Expenses
                       
General and administrative
   
      38,664 
   
      76,830 
   
      83,847 
   
    154,963 
Professional fees
   
        5,184 
   
      12,918 
   
      19,713 
   
      27,427 
Selling and marketing
   
      20,056 
   
      20,825 
   
      26,327 
   
      51,177 
Research and development
   
      25,984 
   
      45,080 
   
      52,446 
   
      89,883 
Total Operating Expenses
   
      89,888 
   
    155,653 
   
    182,333 
   
    323,450 
Net Loss from Operations
   
     (14,686)
   
     (78,783)
   
     (63,313)
   
   (138,795)
Other Income (Expenses)
                       
Interest Expense
   
     (26,528)
   
     (18,887)
   
     (48,499)
   
     (40,418)
Total Other Income (Expenses)
   
     (26,528)
   
     (18,887)
   
     (48,499)
   
     (40,418)
Net Loss before Provision for Income Taxes
   
     (41,214)
   
     (97,670)
   
   (111,812)
   
   (179,213)
Provision for Income Taxes
   
               - 
   
               - 
   
               - 
   
               - 
Net Loss
 
 (41,214)
 
 (97,670)
 
(111,812)
 
(179,213)
                         
Total Basic and Diluted Loss Per Common Share
 
         - 
 
         - 
 
          - 
 
         - 
                         
Basic and Diluted Weighted-Average
                       
Common Shares Outstanding
   
23,031,863 
   
22,302,293 
   
23,031,863 
   
22,092,078 
                         
See the accompanying notes to condensed consolidated unaudited financial statements.

4
 
 

 

TETRIDYN SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
           
  For the Six Months Ended
  June 30,
  2012   2011
Cash Flows from Operating Activities
         
Net Loss
$
     (111,812)
  $
   (179,213)
Adjustments to reconcile net loss to net cash used in operating activities:
         
Depreciation
 
              7,468 
   
              7,742 
Common stock issued for services
 
                      - 
   
              2,415 
Changes in operating assets and liabilities:
         
Accounts receivable
 
            (9,075)
   
            (7,541)
Prepaid expenses
 
              7,789 
   
            10,995 
Accrued expenses
 
            54,489 
   
            56,892 
Accounts payable
 
               (471)
   
            18,514 
Customer deposits
 
              1,964 
   
          (16,682)
Net Cash Used in Operating Activities
 
          (49,648)
   
       (106,878)
Cash Flows from Investing Activities
         
Purchase of property and equipment
 
                      - 
   
                      - 
Net Cash Used in Investing Activities
 
                      - 
   
                      - 
Cash Flows from Financing Activities
         
Proceeds from borrowing under related party notes payable
 
            40,000 
   
            75,000 
Principal payments on notes payable
 
            (5,135)
   
          (21,402)
Net Cash Provided by Financing Activities
 
            34,865 
   
            53,598 
Net Decrease in Cash
 
          (14,783)
   
          (53,280)
Cash at Beginning of Period
 
            18,609 
   
            65,007 
Cash at End of Period
$
           3,826 
  $
       11,727 
           
Supplemental Disclosure of Cash Flow Information:
         
Cash paid for income taxes
$
                  - 
  $
                   - 
Cash paid for interest expense and lines of credit
$
      35,240 
  $
       33,450 
           
           
See the accompanying notes to condensed consolidated unaudited financial statements.
 
 
5
 
 

 

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

Note 1 – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and the rules and regulations of the Securities and Exchange Commission for interim financial information.  Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.

It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made that are necessary for a fair financial statements presentation.  The results for the interim period are not necessarily indicative of the results to be expected for the year.  The interim condensed consolidated financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2011, including the financial statements and notes thereto.

Note 2 – Organization and Summary of Significant Accounting Policies

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

Principles of Consolidation – The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, an Idaho corporation also named TetriDyn Solutions, Inc. (“TetriDyn-Idaho”).  Intercompany accounts and transactions have been eliminated in consolidation.

Business Segments – The Company has only one business segment for the three and six months ended June 30, 2012 and 2011.

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

Cash and Cash Equivalents – For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.
 
6
 
 

 


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

The Company had three customers that represented more than 10% of sales for either the three- or six-month period ended June 30, 2012, and four customers that represented more than 10% of sales for either the three- or six-month period ended June 30, 2011, as follows:

 
Three Months Ended
June 30, 2012
Six Months Ended
June 30, 2012
Three Months Ended
June 30, 2011
Six Months Ended
June 30, 2011
         
Customer A
37%
40%
--
--
Customer B
27%
19%
--
--
Customer C
19%
13%
--
--
Customer D
--
--
14%
--
Customer E
--
--
12%
12%
Customer F
--
--
13%
--
Customer G
--
--
--
12%

Going Concern The accompanying condensed consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern.  As reflected in the accompanying condensed consolidated financial statements, the Company had a net loss $41,214 and $111,812 for the three and six months ended June 30, 2012, respectively.  The Company used $49,648 of cash in operating activities for the six months ended June 30, 2012.  The Company had a working capital deficiency of $722,535 and a stockholders’ deficiency of $1,213,266 as of June 30, 2012.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on its ability to increase sales and obtain external funding for its product development.  The financial statements do not include any adjustments that may result from the outcome of this uncertainty.

Income Taxes The Company accounts for income taxes under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740-10-25, Income Taxes.  Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
 
7
 
 

 


Fair Value of Financial Instruments – The carrying amounts of the Company’s current portion of accounts receivable, prepaid expenses, accounts payable, accrued liabilities, customer deposits, notes payable, and related-party convertible note payable approximate fair value due to the relatively short period to maturity for these instruments.

Property and Equipment – Property and equipment are recorded at cost.  Maintenance, repairs, and renewals that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred.  Property and equipment are depreciated using the straight-line method over the estimated useful life of the asset, which is set at five years for computing equipment and vehicles and seven years for office equipment.  Gains or losses on dispositions of property and equipment are included in the results of operations when realized.

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

Net Profit (Loss) per Common Share – Basic and diluted net profit (loss) per common share are computed based upon the weighted-average stock outstanding as defined by FASB ASC 260, “Earnings Per Share.”  As of June 30, 2012 and 2011, 2,018,000 and 3,457,500, respectively, of common share equivalents for granted stock options were antidilutive and not used in the calculation of diluted net loss per share.  Additionally, as of June 30, 2012 and 2011, 286,363,636 and 45,000,000, respectively, of common share equivalents for convertible note payables were antidilutive and not used in the calculation of diluted net loss per share.

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

Equity instruments issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB ASC 505, “Share-Based Payment.”  Emerging Issues Task Force, or EITF, Issue 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” defines the measurement date and recognition period for such instruments.  In general, the measurement date is when either: (a) a performance commitment, as defined, is reached; or (b) the earlier of: (i) the non-employee performance is complete; or (ii) the instruments are vested.  The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the EITF.
 
8
 
 

 


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

Reclassifications – Certain amounts in the 2011 information have been reclassified to conform to the 2012 presentation.  These reclassifications had no impact on the Company’s net loss or cash flows.

Note 3 – Recent Accounting Pronouncements

In December 2011, FASB issued “Accounting Standards Update 2011-11, Balance Sheet - Disclosures about Offsetting Assets and Liabilities” to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity’s balance sheet.  The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists or that are subject to an enforceable master netting arrangement.  The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013.  The update only requires additional disclosures; as such, the Company does not expect that the adoption of this standard will have a material impact on its results of operations, cash flows, or financial condition.

Note 4 – Investments

As of June 30, 2012 and June 30, 2011, the Company had an approximately 40% minority interest in an entity that is developing electronic livestock tracking systems.  The Company has no management or financial control over this entity and therefore accounted for the investment using the cost method.  The value of the investment was $0 as of June 30, 2012 and 2011.

Note 5 – Accounts Payable and Accrued Liabilities

As of June 30, 2012, the Company had $387,827 in accounts payable, $348,741 of which is due under multiple revolving credit arrangements with varying rates of interest between 5.25% and 29.99%.

As of June 30, 2012, the Company had $214,080 in accrued liabilities.  The accrued liabilities included $160,030 that represents unpaid salaries, including accrued payroll taxes, for two of its officers.
 
9
 
 

 


Note 6 – Convertible Notes Payable to Related Party

In February 2012, the Company borrowed $40,000 from two of its officers and directors, repayable pursuant to a convertible promissory note.  The terms of the note are as follows: (a) no interest will accrue if the note is repaid within 60 days; (b) if the note is not repaid within 60 days, the Company is obligated to pay $4,000 for costs associated with securing the funds; (c) if the loan is repaid within one year, no annual interest rate will be charged; however, if the loan is not repaid within one year, the note will accrue interest at 6% per annum, beginning on the one-year anniversary date of the note; (d) the lenders are authorized to convert part or all of the note balance and accrued interest, if any, into the Company’s common stock at its fair value at any time while the note is outstanding; and (e) the loan’s due date for full repayment is December 31, 2014.  Since the loan was not paid within 60 days, the Company is obligated to pay $4,000 for costs associated with securing the funds.

In connection with the Company’s convertible notes payable due to related parties, management has determined that the conversion feature of the notes results in the number of required common shares to exceed the currently authorized shares.  The terms of the notes provide the holder with the option to convert the balance due, including interest, to common shares at the fair market value of the Company’s common stock on the date of conversion.  In accordance with ASC 480-10, the conversion feature of these instruments does not result in a separately valued derivative liability because the value of the liability is fixed.  Additionally, in accordance with ASC 815-40, If the contract provides the counterparty with a choice of net cash settlement or settlement in shares, this Subtopic assumes net cash settlement.”  As of June 30, 2012, the conversion feature of the related-party notes payable would result in 314,151,818 shares of common stock being necessary to meet the conversion feature of the related-party notes, but the Company only has 100,000,000 shares authorized.  Additionally, the Company has 2,018,000 outstanding options currently issued to employees, directors, and officers.  The Company has also evaluated the guidance contained in ASC 815-40 and determined that no additional valuation is necessary. 

As of June 30, 2012, the Company had $315,000 in convertible notes payable to related parties with $30,567 in accrued interest.

Note 7 – Notes Payable

As of October 25, 2011, a loan from one economic development entity was in default.  The loan principal was $50,000 with accrued interest of $4,410 through June 30, 2012.

As of June 30, 2012, the Company was delinquent in payments on two loans to a second economic development entity.  The Company owed this economic entity $12,625 in late payments with an outstanding balance of $163,791 and accrued interest of $8,491 as of June 30, 2012.  Both loans are guaranteed by two of the Company’s officers.  One loan is secured by liens on intangible software assets and the other loan is secured by the officers’ personal property.  The Company is working with this entity to bring the payments current as soon as cash flow permits.

As of June 30, 2012, the Company was delinquent in payments on a loan to a third economic development entity.  The Company owed the third economic entity $8,000 in late payments with an outstanding balance of $85,821 and accrued interest of $1,012 as of June 30, 2012.  This loan is secured by a junior lien on all the Company’s assets and shares of founders’ common stock.  The Company is working with this entity to bring the payments current as soon as cash flow permits.
 
10
 
 

 


Note 8 – Commitments and Contingencies

In March 2012, the executive compensation committee set the annual salaries for the Chief Executive Officer and the Deputy Chief Executive Officer to be $50,000 and $50,000, respectively, through calendar year 2012 and for subsequent calendar years until otherwise modified in a subsequent Executive Compensation Committee resolution.



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

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

Certain information included herein contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, such as statements relating to our anticipated revenues, gross margin and operating results, estimates used in the preparation of our financial statements, future performance and operations, plans for future expansion, capital spending, sources of liquidity, and financing sources.  Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ from those expressed in any forward-looking statements made herein.  These risks and uncertainties include those relating to our liquidity requirements, the continued growth of the software and IT services industries, the success of our product development, marketing and sales activities, vigorous competition in the software industry, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), domestic or global economic conditions, the inherent uncertainty and costs of prolonged arbitration or litigation, and changes in federal or state tax laws or the administration of such laws.

Overview

We optimize business and IT processes by utilizing systems engineering methodologies, strategic development, and integration to add efficiency and value to our customers’ business processes and to help our customers identify critical success factors in their business.
 
11
 
 

 


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

Description of Expenses

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

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

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

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

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

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

Results of Operations

Comparison of Three and Six Months Ended June 30, 2012 and 2011

Revenues

Our revenue was $89,739 and $138,816 for the three and six months ended June 30, 2012, respectively, compared to $205,684 and $416,692 for the three and six months ended June 30, 2011, respectively, representing a decrease of $115,945, or 56%, and $277,876, or 67%, for the three- and six-month periods, respectively.  The decrease in revenues was due to the discontinuation of pursuing computing hardware sales and associated services.
 
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Cost of Revenue

Our cost of revenue was $14,537 and $19,796 for the three and six months ended June 30, 2012, respectively, compared to $128,814 and $232,037 for the three and six months ended June 30, 2011, respectively, representing a decrease of $114,277, or 89%, and $212,241, or 91%, for the three- and six-month periods, respectively.  The gross margin percentage on revenue was 84% and 86% for the three and six months ended June 30, 2012, respectively, and 37% and 44% for the three and six months ended June 30, 2011, respectively.  The increase in the gross margin percentage for the three and six months ended June 30, 2012, from the three and six months ended June 30, 2011, was due to the discontinuation of pursuing computing hardware sales and associated services.  Hardware sales have a significantly lower profit margin than service sales.

Although the net changes and percent changes with respect to our revenues and our cost of revenue for the three and six months ended June 30, 2012 and 2011, are summarized above, the trends contained therein are limited and should not be viewed as a definitive indication of our future results.

Operating Expenses

General and administrative expenses, including noncash compensation expense, were $38,664 and $83,847 for the three and six months ended June 30, 2012, respectively, compared to $76,830 and $154,963 for the three and six months ended June 30, 2011, respectively, representing a decrease of $38,166, or 50%, and $71,116, or 46%, for the three- and six-month periods, respectively.  The decrease in our general and administrative expenses reflects the decrease in overhead related to a reduction of staff.

Professional fees expenses were $5,184 and $19,713 for the three and six months ended June 30, 2012, respectively, compared to $12,918 and $27,427 for the three and six months ended June 30, 2011, respectively, representing a decrease of $7,734, or 60%, and $7,714, or 28%, for the three- and six-month periods, respectively.  The decrease in our professional fees expenses reflects the increased audit fees in 2011 due to a physical inventory inspection being required in 2011.

Selling and marketing expenses, including noncash compensation expense, were $20,056 and $26,327 for the three and six months ended June 30, 2012, respectively, compared to $20,825 and $51,177 for the three and six months ended June 30, 2011, respectively, representing a decrease of $769, or 4%, and $24,850, or 49%, for the three- and six-month periods, respectively.  The decrease in our selling and marketing expenses reflects the decrease in reduction of staff caused by reduced operations.

Research and development expenses were $25,984 and $52,446 for the three and six months ended June 30, 2012, respectively, compared to $45,080 and $89,883 for the three and six months ended June 30, 2011, respectively, representing a decrease of $19,096, or 42%, and $37,437, or 42%, for the three- and six-month periods, respectively.  The decrease in our research and development expenses reflects the decrease in reduction of staff.

Interest expense was $26,528 and $48,499 for the three and six months ended June 30, 2012, respectively, as compared to $18,887 and $40,418 for the three and six months ended June 30, 2011, respectively, representing an increase of $7,641, or 40%, and $8,081, or 20%, for the three- and six-month periods, respectively.  The increase in interest expense is directly related to our increased use of short-term borrowing.
 
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Liquidity and Capital Resources

At June 30, 2012, our principal source of liquidity consisted of $3,826 of cash, as compared to $18,609 of cash at December 31, 2011.  In addition, our stockholders’ deficit was $1,213,266 at June 30, 2012, compared to stockholders’ deficit of $1,101,454 at December 31, 2011, an increase in the deficit of $111,812.

We used $49,648 of net cash during the six months ended June 30, 2012, as compared to the $106,878 of net cash used during the six months ended June 30, 2011.  The $57,230 decrease in the net cash used resulted primarily from a general decrease in expenses due to reduction in staff.

Financing activities for our continuing operations provided net cash of $34,865 during the six months ended June 30, 2012, compared to providing net cash of $53,598 during the six months ended June 30, 2011.  The decrease of $18,733 of net cash provided in financing activities was the result of reduced borrowing in 2012.

We are focusing our efforts on increasing revenue while we explore external funding alternatives as our current cash is insufficient to fund operations for the next 12 months.  We expect that additional sales will enable us to increase our payments on indebtedness and support the development of other products.  Although our independent auditors have expressed substantial doubt about our ability to continue as a going concern, we feel that our revenues are sufficient for our IT business solutions segment to continue as a going concern.  However, in order to expand our product offerings, we expect that we will require additional investments and sales.

As we continue development of new products and identify specific commercialization opportunities, we will focus on those product markets and opportunities for which we might be able to get external funding through joint venture agreements, strategic partnerships, or other direct investments.

We have no significant contractual obligations or commercial commitments not reflected on our balance sheet as of this date.

Critical Accounting Policies

We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations.  The list is not intended to be a comprehensive list of all of our accounting policies.  In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for management’s judgment in its application.  The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported and expected financial results.  For a detailed discussion on the application of these and other accounting policies, see the notes to the December 31, 2011, consolidated financial statements.  Note that our preparation of the condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period.  There can be no assurance that actual results will not differ from those estimates.
 
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Revenue Recognition

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

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

Income Taxes

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

Recent Accounting Pronouncements

In December 2011, FASB issued “Accounting Standards Update 2011-11, Balance Sheet - Disclosures about Offsetting Assets and Liabilities” to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity’s balance sheet.  The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists or that are subject to an enforceable master netting arrangement.  The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013.  The update only requires additional disclosures; as such, we do not expect that the adoption of this standard will have a material impact on our results of operations, cash flows, or financial condition.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities.”


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.
 
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ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission under the Securities Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive and principal financial officer (whom we refer to in this periodic report as our Certifying Officer), as appropriate to allow timely decisions regarding required disclosure.  Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Our management evaluated, with the participation of our Certifying Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act) as of June 30, 2012, pursuant to Rule 13a-15(b) under the Securities Exchange Act.  Based upon that evaluation, our Certifying Officer concluded that, as of June 30, 2012, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the three months ended June 30, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
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PART II – OTHER INFORMATION

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

As of October 25, 2011, a loan from one economic development entity was in default.  The loan principal was $50,000 with accrued interest of $4,410 through June 30, 2012.

As of June 30, 2012, we were delinquent in payments on two loans to a second economic development entity.  We owed this economic entity $12,625 in late payments with an outstanding balance of $163,791 and accrued interest of $8,491 as of June 30, 2012.  Both loans are guaranteed by two of our officers.  One loan is secured by liens on intangible software assets and the other loan is secured by the officers’ personal property.  We are working with this entity to bring the payments current as soon as cash flow permits.

As of June 30, 2012, we were delinquent in payments on a loan to a third economic development entity.  We owed the second economic entity $8,000 in late payments with an outstanding balance of $85,821 and accrued interest of $1,012 as of June 30, 2012.  This loan is secured by a junior lien on all our assets and shares of founders’ common stock.  We are working with this entity to bring the payments current as soon as cash flow permits.

ITEM 6.  EXHIBITS

The following exhibits are filed as a part of this report:
 
Exhibit Number*
 
Title of Document
 
Location
         
Item 31
 
Rule 13a-14(a)/15d-14(a) Certifications
   
31.01
 
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13a-14
 
 
Attached
Item 32
 
Section 1350 Certifications
   
32.01
 
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer and Chief Financial Officer)
 
Attached
         
Item 101
 
Interactive Data
   
101
 
Interactive Data files
 
To be filed within 30 days from the filing date of this report pursuant to the grace period provided for the filing of the first detail tagged submission.
 
_______________
*
All exhibits are numbered with the number preceding the decimal indicating the applicable SEC reference number in Item 601 and the number following the decimal indicating the sequence of the particular document.
 
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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
TETRIDYN SOLUTIONS, INC.
   
(Registrant)
     
     
Date: August 20, 2012
By:
/s/ David W. Hempstead
   
David W. Hempstead, President,
Chief Executive Officer, and
Principal Financial Officer

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