Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Nature of Business; Basis of Presentation
TetriDyn Solutions, Inc. optimizes business and information technology (IT) processes by using systems engineering methodologies, strategic planning, and system integration to develop radio-frequency identification products to address location tracking issues in the healthcare industry, including issues surrounding patient care; optimization of business processes for healthcare providers; improved reporting of incidents; and increased revenues for provided services.
The condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiary, an Idaho corporation also named TetriDyn Solutions, Inc. Intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, our financial statements reflect all adjustments that are of a normal recurring nature necessary for presentation of financial statements for interim periods in accordance with U.S. generally accepted accounting principles (GAAP) and with the instructions to Form 10-Q in Article 10 of SEC Regulation S-X. As used in this report, the terms “we,” “us,” and “our” mean TetriDyn Solutions, Inc., and its subsidiary, unless the context indicates otherwise.
We condensed or omitted certain information and footnote disclosures normally included in our annual audited financial statements, which we prepared in accordance with GAAP. Our interim financial statements should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2015, and our quarterly reports on Form 10-Q for the quarters ended March 31, 2016 and June 30, 2016. The results of the interim period are not indicative of the results expected for the year ended December 31, 2016.
In preparing financial statements in conformity with GAAP, we are 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.
Note 2: Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared on the assumption that we will continue as a going concern. As reflected in the accompanying condensed consolidated financial statements, we had a net loss of $407,583 and used $122,344 of cash in operating activities for the nine months ended September 30, 2016. We had a working capital deficiency and a stockholders’ deficit of $1,457,776 as of September 30, 2016. These factors raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to increase sales and obtain external funding for our product development. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Note 3: Income Taxes
No income tax expense was recognized for the three- and nine-month periods ended September 30, 2016 and 2015, and the three-month period ended September 30, 2015, due to net losses being incurred in these periods. We are subject to audit by the Internal Revenue Service and various states for the prior three years. There has not been a change in our unrecognized tax positions since December 31, 2015, and we do not believe there will be any material changes in our unrecognized tax positions over the next 12 months. Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. We do not have any accrued interest or penalties associated with any unrecognized tax benefits, and no interest expense related to unrecognized tax benefits was recognized during the nine months ended September 30, 2016.
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Our recent equity raises and past restructuring events have resulted in the occurrence of a triggering event as defined in Section 382 of the Internal Revenue Code of 1986, as amended, which could limit the use of the our net operating loss carryforwards. We have yet to undertake a study to quantify any limitations on their use.
Note 4: Fair Value of Financial Instruments
The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The accounting standard establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required as well as the assets and liabilities that we value using those levels of inputs.
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Level 1
: Unadjusted quoted prices in active markets for identical assets and liabilities.
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Level 2
: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
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Level 3
: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
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A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. We did not have any significant nonfinancial assets or nonfinancial liabilities that would be recognized or disclosed at fair value on a recurring basis as of September 30, 2016, nor did we have any assets or liabilities measured at fair value on a nonrecurring basis to report in the first nine months of 2016.
Note 5: Net Loss per Common Share
Basic earnings per share is computed by dividing the net income applicable to common shares by the weighted average number of common shares outstanding. We recorded a net loss for each of the three- and nine-month periods ended September 30, 2016 and 2015, so there are no diluted earnings per share calculated for those periods. Basic and diluted earnings per share were essentially the same for all periods presented.
As of both September 30, 2016 and 2015, 1,033,585 outstanding common share equivalents for granted stock warrants were antidilutive and not used in the calculation of diluted net loss per share. Additionally, as of September 30, 2016 and 2015, 23,796,172 and 18,296,754, respectively, of common share equivalents for convertible note payables were antidilutive and not used in the calculation of diluted net loss per share.
Note 6: Recent Accounting Pronouncements
In August 2016, the Financial Accounting Standards Board issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.
Historically, there has been a diversity in practice in how certain cash receipts/payments are presented and classified in the statement of cash flows under Topic 230. The purpose of the update is to reduce the existing diversity in practice by clarifying the presentation of certain types of transactions. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We note that this guidance applies to our reporting requirements and will implement the new guidance accordingly.
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We have reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on our consolidated results of operations, financial position, and cash flows. Based on that review, we believe that none of these pronouncements will have a significant effect on current or future earnings or operations.
Note 7: Accounts Payable and Accrued Liabilities
As of June 30, 2016, we had $261,609 included in our accounts payable which was related to balances due for multiple revolving credit cards under the name of our former chief executive officer (now deceased). These amounts represent advances to us from funds borrowed on credit cards in the name of this officer as an accommodation to us at a time when we were unable to obtain advances on our own credit. Upon his death, these obligations became debts of his estate. Previously, we had agreed to carry these as liabilities on our financial statements until such time as the statute of limitations for collection by the credit card companies expired. Subsequent to September 30, 2016, we were notified by the executor of our former officer’s estate, who is also one of our former directors, that the estate would not pursue any future repayment by us. Accordingly, we have removed these obligations from our balance sheet. Since our former director is one of our affiliates, the removal of the obligations resulted in an increase in our additional paid-in capital.
In addition, as of June 30, 2016, we also had $30,518 included in our accounts payable that was related to balances due for services rendered by the same former director. Subsequent to September 30, this amount was also forgiven by our former director, resulting in a further increase in our additional paid-in capital.
As of September 30, 2016, we had $186,330 in accounts payable, the majority of which is for professional services performed for us in prior periods, and other obligations to former directors.
As of September 30, 2016, we had $372,277 in accrued liabilities. The accrued liabilities included $213,436 in unpaid salaries to two of our former officers, which were assigned by the officers to
JPF Venture Group, Inc.,
pursuant to an
Investment Agreement dated March 12, 2015
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Note 8: Related-Party Transactions
On March 19, 2015, we exchanged convertible notes issued in 2010, 2011, and 2012, payable to our former officers and directors, in the aggregate principal amount of $320,246, plus accrued but unpaid interest of $74,134, into a single, $394,380 consolidated convertible note. The consolidated convertible note was assigned to JPF Venture Group, Inc. (“JPF”), our principal stockholder and an investment entity that is majority-owned by Jeremy Feakins, our director, chief executive officer, and chief financial officer. The new consolidated note is convertible to common stock at $0.025 per share, the approximate market price of our common stock as of the date of issuance. The note bears interest at 6% per annum and is due and payable within 90 days after demand. As of September 30, 2016, accrued but unpaid interest on this note was $36,616.
On September 23, 2015, we borrowed $50,000 from our principal stockholder, JPF, pursuant to a promissory note. We received $25,000 on July 31, 2015, and the remaining $25,000 on August 18, 2015. The terms of the note are as follows: (i) interest is payable at 6% per annum; (ii) the note is payable 90 days after demand; and (iii) the payee is authorized to convert part or all of the note balance and accrued interest, if any, into shares of our common stock at the rate of one share each for $0.03 of principal amount of the note. As of September 30, 2016, the outstanding balance was $50,000, plus accrued interest of $3,484. We recorded a debt discount of $50,000 for the fair value of the beneficial conversion feature. As of September 30, 2016, we had amortized all of the debt discount.
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On November 23, 2015, we borrowed $50,000 from our principal stockholder, JPF, pursuant to a promissory note. We received $37,500 before December 31, 2015, and the remaining $12,500 was received in 2016. The terms of the note are as follows: (i) interest is payable at 6% per annum; (ii) the note is payable 90 days after demand; and (iii) the payee is authorized to convert part or all of the note balance and accrued interest, if any, into shares of our common stock at the rate of one share each for $0.03 of principal amount of the note. As of September 30, 2016, the outstanding balance was $50,000, plus accrued interest of $2,336. We recorded a debt discount of $28,000 for the fair value of the beneficial conversion feature. As of September 30, 2016, we had amortized all of the debt discount.
On February 25, 2016, we borrowed $50,000 from our principal stockholder, JPF, pursuant to a promissory note. The terms of the note are as follows: (i) interest is payable at 6% per annum; (ii) the note is payable 90 days after demand; and (iii) the payee is authorized to convert part or all of the note balance and accrued interest, if any, into shares of our common stock at the rate of one share for each $0.03 of principal amount of the note. As of September 30, 2016, the outstanding balance was $50,000, plus accrued interest of $1,875. No beneficial conversion feature existed as the stock price on the date of issuance was equal to the conversion price.
On May 20, 2016, we issued a promissory note in the amount of $50,000 to our principal stockholder, JPF. The terms of the note are as follows: (i) interest is payable at 6% per annum; (ii) the note is payable 90 days after demand; and (iii) the payee is authorized to convert part or all of the note balance and accrued interest, if any, into shares of our common stock at the rate of one share for each $0.03 of principal amount of the note. As of September 30, 2016, the outstanding balance was $50,000, plus accrued interest of $967. No beneficial conversion feature existed as the stock price on the date of issuance was equal to the conversion price. In addition, we received an additional $10,000 from JPF during the third quarter of 2016, which became part of a new $50,000 promissory note issued in October 2016.
As of September 30, 2016, we had $604,380 in convertible notes payable due to related parties, with $45,296 of accrued interest, included in our accrued liabilities.
On March 1, 2015, we entered into a lease agreement with a company whose managing partner is our chief executive officer and rent space on a month-to-month basis with no long-term commitment. The monthly rent is $2,500 per month. Rent expense per this agreement is $7,500 and $22,500 for the three and nine months ended September 30, 2016, respectively.
Note 9: Notes Payable in Default
As of October 25, 2011, a loan from one economic development entity was in default. The loan principal was $50,000 with accrued interest of $15,049 through September 30, 2016. If we receive payment demands, we plan to work with this creditor to arrange for restructured payment terms. JPF has agreed to guarantee this obligation.
As of September 30, 2016, we were delinquent in payments on two loans from a second economic development entity. We owed this economic entity $73,470 in late payments, with an outstanding balance of $160,078 and accrued interest of $33,763 as of September 30, 2016. Both loans were guaranteed by two of our former officers. One loan is secured by liens on intangible software assets, and the other loan is secured by the officers’ personal property. If we receive payment demands, we plan to work with this creditor to arrange for restructured payment terms. JPF has agreed to guarantee this obligation.
As of September 30, 2016, we were delinquent in payments on a loan from a third economic development entity. We owed the third economic entity $82,070 in late payments, with an outstanding balance of $85,821 and accrued interest of $25,718 as of September 30, 2016. This loan is secured by a junior lien on all our assets and shares of founders’ common stock. If we receive payment demands, we plan to work with this creditor to arrange for restructured payment terms. JPF has agreed to guarantee this obligation.
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Note 10: Share-Based Compensation
On April 6, 2016, our board of directors approved the 2016 Long-Term Incentive Plan under which up to 12,000,000 shares of common stock may be issued. On April 6, 2016, 7,000,000 shares of common stock were issued to officers and advisors in accordance with the 2016 Long-Term Incentive Plan with a fair value of $210,000. We recorded that amount as compensation expense during the first nine months of 2016.
Note 11: Commitments and Contingencies
Due to the nature of our business, certain legal or administrative proceedings may arise from time to time in the ordinary course of business. In our opinion, there are no material pending legal proceedings to which we are a party, of which any of our property is the subject, or for which an outcome adverse to us would have a material adverse effect on our financial condition, results of operations, or cash flows.