NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2012 AND 2011
|
1.
|
NATURE
OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
NATURE
OF OPERATIONS AND BASIS OF PRESENTATION
The
Company was incorporated on December 19, 2001 under the name Catalyst Set Corporation and was dormant until July 14, 2007. On
September 7, 2007, the Company changed its name to Interfacing Technologies, Inc. On March 24, 2008, the name was changed to Attune
RTD.
Attune
RTD (“The Company”, “us”, “we”, “our”) 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 is presented as in the development stage from July 14, 2007 (Inception of Development Stage) through December 31, 2012.
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.
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 at 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.
The
company recognizes expenses in the same period in which they are incurred. The company recognizes revenue in the same period in
which they are 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, invoices are accepted
by vendor and payment is made against the invoice within 60 days upon receipt.
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 at December 31, 2012 or 2011 respectively.
PROPERTY
AND EQUIPMENT
Property
and equipment is recorded at cost less accumulated depreciation. Depreciation and amortization is calculated using the straight-line
method over the expected useful life of the asset, after the asset is placed in service. The Company generally uses the following
depreciable lives for its major classifications of property and equipment:
|
Depreciation
|
|
Useful
Lives
|
|
Vehicles
|
|
5
Years
|
|
Computers
|
|
5
Years
|
|
Equipment
|
|
5
Years
|
CONCENTRATION
OF CREDIT RISK
Financial
instruments, which potentially subject us to concentrations of credit risk, consist principally of cash. Our 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 December 31, 2012 and 2011.
REVENUE
RECOGNITION
We
recognize 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 they are 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, invoices are accepted by vendor and payment is made against the invoice within 60 days upon
receipt.
Revenues
for the year end December 31, 2012 were concentrated solely from one customer.
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 (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, patent No; US 7,777,366 B2, awarded by the “USPTO” on
August 17, 2010.
Trademark
costs are capitalized on our 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. On December 31, 2011, the company evaluated and fully impaired all patents and trademarks due to uncertainty regarding
funding of future cost
IMPAIRMENT
OF LONG-LIVED ASSETS
The
Company accounts for long-lived assets in accordance with “Accounting for the Impairment or Disposal of Long-Lived Assets”
(ASC 360-10). This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to sell.
In
December 2011, the Company assessed its patents and trademarks and based on uncertainty of future funding and commercialization
the Company recognized a loss on all of its trademark and patents in the amount of $62,633, the carrying value at the time of
impairment.
In
December 2012, the Company assessed its software and based on uncertainty of future funding and commercialization, the Company
recognized a loss on it software in the amount of $74,269, the carrying value at the time of impairment.
SOFTWARE
LICENSE
The
Company capitalized its purchase of a software license in March 2011. The license is being amortized over 60 months following
the straight-line method and included in Other Assets on the balance sheet in accordance to ASC 350. During the year ended December
31, 2011, the company recorded $19,545 of amortization expense related to the license. The terms and conditions of the license
arrangement that we have in place with our vendor for software is based on a sixty month buyout agreement for a Perpetual License
payable in equal consecutive monthly installments in the amount of $5,650. The monthly payment includes interest, a one-time software
license fee of $142,669 and associated maintenance fees, “the rider”. This agreement grants Attune the non exclusive,
non transferable right to use the specified software in object code form only on its designated servers. The Rider and the installments
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. Vendor may transfer and assign the Licensee’s payment obligation
hereunder. The “Buyout Fee” is subject to adjustment in the event of upgrades. As of September 30, 2012, under the
terms and conditions of the agreement, the company is in default on the license agreement. The company has been in contact with
IBI over the non-payment situation and as of the date of this filing, IBI has not prevented access to the software and continues
to bill the company. Due to insignificant revenue and lack of future contract, the company has recognized impairment of $74,269
as of the balance sheet date of December 31, 2012. The asset is fully impaired.
DERIVATIVE
FINANCIAL INSTRUMENTS
The
Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may
affect the fair values of its financial instruments. The Company utilizes various types of financing to fund our business needs,
including preferred stock with warrants attached and other instruments not indexed to our stock. The Company is required to record
its derivative instruments at their fair value. Changes in the fair value of derivatives are recognized in earnings in accordance
with ASC 815. The Company utilized multinomial lattice models that value the derivative liability within the notes based on a
probability weighted discounted cash flow model.
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; such amounts aggregated $36,700 and $607 for
the years ended December 31, 2012 and 2011, 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.
INCOME
TAXES
The Company
accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
In
July, 2006, the FASB issued ASC 740, Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty
in tax positions taken or expected to be taken in a return. ASC 740 provides guidance on the measurement, recognition, classification
and disclosure of tax positions, along with accounting for the related interest and penalties. ASC 740 became effective as of
January 1,2007 and had no impact on the Company’s financial statements.
The charge
for taxation is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated
using tax rates that have been enacted or substantively enacted
by
the balance sheet date.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
In
accordance with ASC 820, the carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates
fair value due to the short-term maturity of these instruments. ASC 820 clarifies the definition of fair value, prescribes methods
for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level
1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level
2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived
from or corroborated by observable market data.
Level
3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants
would use in pricing the asset or liability based on the best available information.
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 December 31, 2012, on a recurring basis:
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Derivative Liability
|
|
|
|
|
|
|
|
|
|
$
|
(110,828
|
)
|
|
$
|
(110,828
|
)
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
(110,828
|
)
|
|
$
|
(110,828
|
)
|
The following
table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2011, on a recurring basis:
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Derivative Liability
|
|
|
|
|
|
|
|
|
|
$
|
(121,546
|
)
|
|
$
|
(121,546
|
)
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
(121,546
|
)
|
|
$
|
(121,546
|
)
|
A
financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant
to the fair value measurement. The following is a description of the valuation methodology used to measure fair value, as well
as the general classification of such instruments pursuant to the valuation hierarchy.
The
method described above may produce a current fair value calculation that may not be indicative of net realizable value or reflective
of future fair values. If a readily determined market value became available or if actual performance were to vary appreciably
from assumptions used, assumptions may need to be adjusted, which could result in material differences from the recorded carrying
amounts. The Company believes its method of determining fair value is appropriate and consistent with other market participants.
However, the use of different methodologies or different assumptions to value certain financial instruments could result in a
different estimate of fair value.
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 of December
31, 2012 and 2011, there were no potentially dilutive securities. As a result, the basic and diluted per share amounts for all
periods presented are identical.
NEW
ACCOUNTING PRONOUNCEMENTS
In
October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical
Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range
of Topics in the Accounting Standards Codification.
These
amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related
to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012.
The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In
August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs
Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114. , Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections
Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update
amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material
impact on our financial position or results of operations.
In
July 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible
Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles - Goodwill
and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative
factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining
whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill
and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed
for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment
tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual
or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption
of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
In
December 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-12, Comprehensive Income. ASU 2011-12
deferred the new presentation requirements outlined by ASU 2011-05 regarding reclassification of items out of accumulated other
comprehensive income. This standard is effective for all annual period beginning after December 15, 2011. This standard is not
expected to have a material impact on the Company’s financial statements.
In
December 2011, the FASB issued ASU 2011-11, Balance Sheet: Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires
entities to disclose both the gross and net information about both instruments and transactions subject to an agreement similar
to a master netting arrangement and includes derivatives, sale and repurchase agreements, and securities borrowing and securities
lending arrangements. This standard is effective for all fiscal periods beginning on or after January 1, 2013. This standard is
not expected to have a material impact on the Company’s financial statements.
In
June 2011, the FASB issued ASU 2011-05, Comprehensive Income: Presentation of Comprehensive Income. ASU 2011- 05 eliminates the
option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and
items reclassified to the statement of operations are required to be presented separately on the face of the financial statements.
This standard is effective for fiscal years beginning after December 15, 2011. This standard is not expected to have a material
impact on the Company’s financial statements.
In
June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”,
which is effective for annual reporting periods beginning after December 15, 2011. ASU 2011-05 will become effective for the Company
on January 1, 2012. This guidance eliminates the option to present the components of other comprehensive income as part of the
statement of changes in stockholders’ equity. In addition, items of other comprehensive income that are reclassified to
profit or loss are required to be presented separately on the face of the financial statements. This guidance is intended to increase
the prominence of other comprehensive income in financial statements by requiring that such amounts be presented either in a single
continuous statement of income and comprehensive income or separately in consecutive statements of income and comprehensive income.
The adoption of ASU 2011-05 is not expected to have a material impact on our financial position or results of operations.
In
May 2011, the FASB issued ASU 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measure and Disclosure
Requirements in US GAAP and IFRS. ASU 2011-04 amended the definition of fair value measurement to be more closely aligned with
IFRS including: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description
of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes
in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest
and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure
of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure
of all transfers between Level 1 and Level 2 of the fair value hierarchy. This standard is effective for all fiscal periods beginning
after December 15, 2011. This standard is not expected to have a material impact on the Company’s financial statements.
In
April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring
is a Troubled Debt Restructuring”. This amendment explains which modifications constitute troubled debt restructurings (“TDR”).
Under the new guidance, the definition of a troubled debt restructuring remains essentially unchanged, and for a loan modification
to be considered a TDR, certain basic criteria must still be met. For public companies, the new guidance is effective for interim
and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructuring occurring on or after the
beginning of the fiscal year of adoption. The Company does not expect that the guidance effective in future periods will have
a material impact on its financial statements.
In
September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-08, Intangibles
– Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The guidance in ASU 2011-08 is intended to reduce complexity
and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine
whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon
the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether
it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Also, the amendments improve
the examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount should
consider in determining whether to measure an impairment loss, if any, under the second step of the goodwill impairment test.
The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning
after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as
of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have
not yet been issued. The adoption of this guidance is not expected to have a material impact on the Company’s financial
position or results of operations.
The
accompanying 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. For the years ended December 31, 2012 and
2011 the Company had a net loss of $953,445 and $1,379,285, respectively, and net cash used in operations of $434,260 and $1,096,024
respectively, and was a development stage company with little to no revenues. In addition, as of December 31, 2012 the Company
had a working capital deficit of $736,606 and a deficit accumulated during the development stage of $4,879,859.
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 in this regard, includes completing product development, generating marketing agreements with product distributors and raising
additional funds through a private placement offering 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.
Patents
and Trademarks consists of the following:
Total
amortization expense relating to the Company’s patents was $0 and $257 for the years ended December 31, 2011 and 2010, respectively.
In
December 2011, the Company assessed its patents and trademarks and due to uncertainty of future funding and commercialization
the Company recognized a loss on its trademark and patents in the amount of $62,634, the carrying value at the time of impairment.
In
December 2011, the Company recognized a loss on its trademark and patents in the amount of $62,634, the carrying value at the
time of impairment.
In
December 2012, the Company assessed its software and due to uncertainty of future funding and commercialization the Company recognized
a loss on its software in the amount of $74,269, the carrying value at the time of impairment.
|
4.
|
PROPERTY
AND EQUIPMENT
|
Property
and equipment consists of the following:
|
|
|
Est.
Useful
Lives
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
Computer equipment
|
|
5 Years
|
|
$
|
10,227
|
|
|
$
|
10,227
|
|
|
Office Equipment
|
|
5 Years
|
|
|
5,606
|
|
|
|
5,605
|
|
|
Vehicles
|
|
5 Years
|
|
|
114,190
|
|
|
|
114,190
|
|
|
|
|
|
|
|
130,023
|
|
|
|
130,022
|
|
|
Less total Accumulated depreciation
|
|
|
|
|
(51,526
|
)
|
|
|
(22,811
|
)
|
|
|
|
|
|
$
|
78,497
|
|
|
$
|
107,211
|
|
Total
depreciation expense for the years ended December 31, 2012 and 2011 was $28,715 and $18,924, respectively.
Capital
Lease obligations consisted of the following at December 31, 2012:
|
|
|
2012
|
|
|
2011
|
|
|
Capital lease payable – payable in monthly installments
for principal and interest of $189 through October 2011. The debt is personally guaranteed by an officer of the Company.
|
|
$
|
(1,384
|
)
|
|
$
|
(1,932
|
)
|
|
Less current portion:
|
|
|
1,384
|
|
|
|
1,932
|
|
|
Long-term capital lease obligation
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest
expense on the above capital lease was $0 and $389 during the years ended December 31, 2012 and 2011 respectively.
Long Term
Debt consists of the following:
|
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
Note payable related to software license, with monthly payments
of $5,650 including interest
|
|
$
|
93,754
|
|
|
$
|
101,958
|
|
|
|
|
|
|
|
|
|
|
|
|
Note Payable related to the purchase of 2 Company trucks, bearing interest
at 1.9%, payable in monthly installments of $755.11 each
|
|
|
77,353
|
|
|
|
93,160
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
171,107
|
|
|
|
195,119
|
|
|
Less Current Portion
|
|
|
40,401
|
|
|
|
42,349
|
|
|
Total Long Term Debt
|
|
|
130,706
|
|
|
|
152,770
|
|
|
7.
|
CONVERTIBLE
NOTE AND FAIR VALUE MEASUREMENTS
|
On
October 2011, the Company issued convertible promissory note in the amount of $42,500. The convertible note has a maturity date
of July 2012 and an annual interest rate of 8% per annum. The holder of the note has the right to convert any outstanding principal
and accrued interest into fully paid and non-assessable shares of Common Stock. The note 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 a derivative liability. On May 16, 2012, the Company
issued 137,931 shares of Class A Common Stock to convert $8,000 of the convertible note into equity. The note was converted in
accordance with the conversion terms; therefore, no gain of loss was recognized. As of December 31, 2012, this convertible note
is in default under the terms of the note agreement.
On
January 5, 2012, the Company issued convertible promissory note in the amount of $42,500. The convertible note has a maturity
date of July 2012 and an annual interest rate of 8% per annum. The holder of the note has the right to convert any outstanding
principal and accrued interest into fully paid and non-assessable shares of Common Stock. The note 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 a derivative liability. As of December
31, 2012, this convertible note is in default under the terms of the note agreement.
On
December 3, 2012, the Company issued convertible promissory note in the amount of $3,000. The convertible note has a maturity
date of September 5, 2013 and an annual interest rate of 8% per annum. The holder of the note has the right to convert any outstanding
principal and accrued interest into fully paid and non-assessable shares of Common Stock. The note 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. The
holder of the note has the right to convert any outstanding principal and accrued interest into fully paid and non-assessable
shares of Common Stock. The note 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 a derivative liability.
Because
the company has failed to pay the remaining principal balance together with accrued and unpaid interest upon the maturity dates,
the company is now in default under the notes with maturity dates July 3, 2012 and September 12, 2012. On January 30, 2013 demand
for immediate payment as provided in the notes of $120,000, representing 150% of the remaining outstanding principal balance,
together with default interest was made by vendors counsel. As of the date of this filing, the company continues to work with
the investor who has advanced additional funds beyond the date of the demand letter. The excess of $43,000 represent penalty on
default and recorded as a loss in the income statement.
Due
to the indeterminable number of shares to be issued at conversion, the company recorded a derivative liability. The derivative
feature of the notes taints all existing convertible instruments, specifically the 900,000 warrants (term of 3 years) the company
issued on April 2010 with an exercise price of $0.40.
Fair
Value Measurements – Derivative liability:
The
Company evaluated the conversion feature embedded in the convertible notes to determine if such conversion feature should be bifurcated
from its host instrument and accounted for as a freestanding derivative. Due to the note not meeting the definition of a conventional
debt instrument because it contained a conversion rate that fluctuated with the Company’s stock price, the convertible note
and other dilutive securities were accounted for in accordance with ASC 815. According to ASC 815, the derivatives associated
with the convertible notes were recognized as a discount to the debt instrument, and the discount is being amortized over the
life of the note and any excess of the derivative value over the note payable value is recognized as additional interest expense
at issuance date.
Further,
and in accordance with ASC 815, the embedded derivatives are revalued at each balance sheet date and marked to fair value with
the corresponding adjustment as a “gain or loss on change in fair value of derivatives” in the statement of operations.
As of December 31, 2012, the fair value of the embedded derivatives included on the accompanying balance sheet was $110,828. During
the year ended December 31, 2012, the Company recognized a gain on change in fair value of derivative liability totaling $38,946.
Key
assumptions used in the valuation of derivative liabilities associated with the convertible notes were as follows:
|
|
-
|
The
existing derivative instrument was valued as of 12/31/12. The following assumptions were used for the valuation of the derivative
liability related to the Notes:
|
|
|
-
|
The
Note #1 & #2 face amount as of 12/31/12 is $77,000 with an initial conversion price of 58% of the 3 lowest lows out of
the 10 previous days (effective rate of 56.96%). Both notes are in default and obligated to pay the 50% penalty and accrued
interest – we therefore assumed the note balances of $53,766 and $66,234 (total $120,000) and no additional interest
is being accrued.
|
|
|
-
|
The
Note #3 face amount as of 12/31/12 is $3,000 with an initial conversion price of 50% of the 3 lowest lows out of the 10 previous
days (effective rate of 49.10%).
|
|
|
-
|
The
projected volatility curve for each valuation period was based on the annual historical volatility of the company:
|
1
Year
12/31/12
157%
|
|
-
|
For
Notes #1 & #2 an event of default would occur 10% of the time, increasing 5.00% per quarter to a maximum of 50%; for Note
#3 an event of default would occur 1% of the time, increasing 1.00% per quarter to a maximum of 10%;
|
|
|
-
|
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 company was not in default.
|
The
3 year warrants with an exercise price of $0.40 and no reset features were valued using the Black Scholes model and the following
assumptions: stock price at valuation, $0.10; strike price, $0.40; risk free rate 0.14%; 3 year term; and volatility of 157% resulting
in a relative fair value of $49,229 relating to these warrants. The accounting guidance 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 guidance
established a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. This hierarchy
prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for
identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs
that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially
the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions
used to measure assets and liabilities at fair value. An asset or liability’s classification within the hierarchy is determined
based on the lowest level input that is significant to the fair value measurement. Assets and liabilities measured at fair value
on a recurring and non-recurring basis consisted of the following at December 31, 2012:
|
|
|
Carrying Value at
|
|
|
Fair value Measurements at December 31, 2012
|
|
|
|
|
December 31, 2012
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Derivative Liability
|
|
$
|
110,828
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
110,828
|
|
The following
is a summary of activity of Level 3 liabilities for the period ended December 31, 2012:
|
Balance at December 31, 2011
|
|
$
|
121,546
|
|
|
Increase in liability due to debt
|
|
$
|
35,002
|
|
|
Derivative Loss – Convertible note
|
|
$
|
1,552
|
|
|
Derivative Gain – Tainted Warrants
|
|
$
|
(40,498
|
)
|
|
Note Conversion
|
|
$
|
(6,774
|
)
|
|
Balance December 31, 2012
|
|
$
|
110,828
|
|
Changes
in fair value of the embedded conversion option liability are included in Operating expense in the accompanying statements of
operations.
The
Company estimates the fair value of the tainted warrant utilizing the Black-Scholes pricing model, which is dependent upon several
variables such as the expected term (based on contractual term), expected volatility of our stock price over the expected term
(based on historical volatility), expected risk-free interest rate over the expected term, and the expected dividend yield rate
over the expected term. The Company believes this valuation methodology is appropriate for estimating the fair value of the derivative
liability. The following table summarizes the assumptions the Company utilized to estimate the fair value of the embedded conversion
option at December 31, 2012:
|
Assumptions
|
|
|
December
31, 2012
|
|
|
Expected term
|
|
|
1.0
|
|
|
Expected Volatility
|
|
|
157
|
%
|
|
Risk free rate
|
|
|
0.14
|
%
|
|
Dividend Yield
|
|
|
0.00
|
%
|
There
were no changes in the valuation techniques during 2012.
The weighted average interest rate for short term notes as of
December 31, 2012 was 9.62%.
Upon
formation, the Company was authorized to issue 50,000 shares of common stock with no par value. On September 7, 2007, the Company
amended its articles of incorporation to increase the number of authorized common shares to 1,000,000. On September 7, 2007, the
Company enacted a 280 for 1 forward stock split pursuant to an Amended and Restated Articles of Incorporation filed with the Secretary
of State of the State of Nevada. All share and per share data in the accompanying financial statements has been retroactively
adjusted to reflect the stock split. On November 28, 2007, the Company again 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 are 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. Each share of Class B preferred
stock entitles the holder to one hundred votes, either in person or by proxy, at meetings of shareholders. The holders are permitted
to vote their shares cumulatively as one class with the common stock. The Class B Participating Cumulative Preferred Super-voting
Stock pays dividends at 6%. For the years ended December 31, 2012, 2011, 2010, 2009, 2008, and 2007, the board of directors did
not declare any dividends. Total undeclared Class B Participating Cumulative Preferred Super-voting Stock dividends as of December
31, 2012, 2011, 2010, 2009, 2008, and 2007 were $110,737, $90,487, $70,237, $49,987 and $29,737, and $9,487, respectively.
Class
A Common Stock
Issuances
of the Company’s common stock during the years ended December 31, 2007, 2008, 2009, 2010, 2011 and 2012 included the
following:
Shares
Issued for Cash
During
2007, 224,000 shares of Class A common stock were issued for $36,000 cash with various prices per share ranging from $0.15 to
$0.25. Additionally, the Company paid cash offering costs of $2,500.
During
2008, 2,352,803 shares of Class A common stock were issued for $360,250 cash with various prices per share ranging from $0.13
to $0.25. Additionally, the Company paid cash offering costs of $1,500.
In
2009, 3,688,438 shares of Class A common stock were issued for $437,435 cash with various prices per share ranging from $0.04
to $0.35. Additionally, the company paid cash offering costs of $7,000.
In
2010, 2,138,610 shares of Class A common stock were issued for $442,181 cash with various prices per share ranging from $.18 to
$.35.
In
2011, 6,349,750 shares of Class A common stock were issued for $1,318,750 cash with various prices per share ranging from $.20
to $.35.
In
2012, 1,530,000 shares of Class A common stock were issued for $153,000 cash with $.10 price per share.
Shares
Issued for Services
In
2007, 14,000,000 vested shares of Class A common stock were issued to founders having a fair value of $232,400, based on a nominal
value of $0.0166 per share. The $232,400 was expensed upon issuance as the shares were fully vested.
In
2007, 50,000 shares of Class A common stock were issued for legal services provided to the company with a value of $7,500 or $0.15
per share, based on a Fair Market Value sales price.
In
2008, 169,000 shares of Class A common stock were issued for services having a fair value of $34,530 ranging from $0.13 to $0.25
per share, based on Fair Market Value sales prices.
In
March 2009, 8,000 shares of Class A common stock were issued for services provided to the Company with a value of $2,400 or $0.07
per share, based on a Fair Market Value sales price.
In
June 2009, 17,333 shares of Class A common stock were issued for services provided to the Company with a value of $2,600 or $0.15
per share, based on a Fair Market Value sales price.
In
August 2009, 41,000 shares of Class A common stock were issued for services provided to the Company with a value of $6,150 or
$0.15 per share, based on a Market Value sales price.
In
February 2009, 500,000 shares of contingently returnable Class A common stock were issued to a consultant pursuant to an agreement
whereby the consultant must establish a contract with a specific distributor and produce a sale of the Company’s product
through such distribution channel. As of the date of this filing, no sales have occurred under the contract and the shares are
not considered issued or outstanding for accounting purposes.
In
January 2010, 21,000 shares of Class A common stock were issued for services provided to the Company with a value of $5,250 or
$0.25 per share, based on a Fair Market Value sales price.
In
June 2010, 750,000 shares of Class A common stock were issued for services provided to the Company with a value of $270,200 at
values ranging from $0.20 to $0.50 per share, based on a Fair Market Value sales price.
In
July 2010, 250,000 shares of Class A common stock were issued for services provided to the Company with a value of 37,500 or $0.15
per share, based on a Fair Market Value sales price.
In
December 2010, 55,000 shares of Class A common stock were issued to 2 vendors for services with a value of $28,050, based on based
on a Fair Market Value sales price.
In
June 2011, 815,000 shares of Class A common stock were issued for services provided to the Company with a value of $220,050 at
$0.27 per share, based on a Fair Market Value sales price.
In
August 2011, 50,000 shares of Class A common stock were issued for services provided to the Company with a value of $10,000 at
$.20 per share, based on a Fair Market Value sales price.
In
November 2011, 100,000 Shares of Class A common stock were issued for services provided to the Company with a value of $20,000
at $0.20 per share, based on a Fair Market Value sales price.
In
March 2012, 125,000 shares of Class A common stock were issued for services provided to the Company with a value of $12,500 at
$.10 per share, based on a Fair Market Value sales price.
In
June 2012, 125,000 shares of Class A common stock were issued for services provided to the Company with a value of $12,500 at
$.10 per share, based on a Fair Market Value sales price.
In
July 2012, 888,900 shares of Class A common stock were issued for services provided to the Company with a value of $88,890 at
$.10 per share, based on a Fair Market Value sales price.
In
September 2012, 275,000 shares of Class A common stock were issued for services provided to the Company with a value of $33,500
at $.10 per share, based on a Fair Market Value sales price.
In
October 2012, 360,000 shares of Class A common stock were authorized for services provided to the Company with a value of $36,000
at $.10 per share, based on a Fair Market Value sales price. As of December 31, 2012, the shares have not been issued and are
recorded as stock payable.
In
December 2012, 125,000 shares of Class A common stock were authorized for services provided to the Company with a value of $12,500
at $.10 per share, based on a Fair Market Value sales price. As of December 31, 2012, the shares have not been issued and are
recorded as stock payable.
Shares
Issued in Conversion of Other Liabilities
During
2008, 100,000 shares of Class A common stock were issued upon conversion of a $35,000 liability to a vendor. The shares were valued
at $0.15 per share or $15,000, based on a contemporaneous cash sales price and the Company recorded a $20,000 gain on conversion
of debt.
In
July 2009, 139,944 shares of Class A common stock were issued upon conversion of a $48,980 liability from a vendor. The shares
were valued at $16,793 or $0.12, based on a contemporaneous cash sales price. The Company agreed with the vendor, prior to conversion,
that it would guarantee the value of the stock, when sold by the vendor, up to the dollar value for the 2009 liability converted
($48,980) and the above mentioned 2008 conversion as it was the same vendor ($35,000) and any difference in value, if less than
the liability, would be paid in cash by the Company. As a result, the Company recorded the $48,980 conversion as a liability along
with the prior year conversion of $35,000 which resulted in an additional loss on conversion of $35,000. The total cumulative
liability to guarantee equity value from fiscal 2009 totaled $83,980 as relating to the above shares at December 31, 2009. These
shares were actually issued in 2010; however the liability was recorded in 2009 based on this guarantee
In
August 2009, the Company converted $55,200 of loans due to a shareholder into 788,571 shares of common stock, which were valued
at $118,286 or $0.15 per share, based on contemporaneous cash sales prices of the Company’s common stock. The Company recognized
a loss on conversion of $62,637 and charged $449 to interest expense.
During
2010, 247,249 shares of Class A common stock were issued upon conversion of $39,272 of vendor liabilities. The shares were valued
from $0.10 to $.36 per share, based on a contemporaneous cash sales price and the Company recorded a $49,615 loss on conversion
of debt
In
2010 the Company issued 900,000 warrants to several investors in the Company. These warrants are attached to issuances of common
stock.
Warrant
Activity for the year ended December 31, 2010 is as follows:
|
|
|
Warrant Shares
|
|
|
Exercise Price
|
|
|
Value if Exercised
|
|
|
Expiration Date
|
|
April
15, 2010
|
|
|
900,000
|
|
|
$
|
.040
|
|
|
$
|
360,000
|
|
|
April
15, 2013
|
On
October 2011, the Company issued a Convertible Note which as a result taints all convertible instruments outstanding. As such
the Company recorded a derivative liability of $40,498 for warrant outstanding, refer to Note 8.
On
May 16, 2012, the Company issued 137,931 shares of Class A Common Stock to convert $8,000 of the convertible note into equity.
The note was converted in accordance with the conversion terms, therefore, no gain of loss was recognized.
2010
Equity Incentive Plan
In
June 2010, we registered 4,000,000 shares of our Class A Common Stock pursuant to our 2010 Equity Incentive Plan which was also
enacted in June 2010. Our Board of Directors have authorized the issuance of the Class A Shares to employees upon effectiveness
of a recently issued Registration Statement. The 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 our Class A Common Shares; (iii) maintaining or stabilizing a market for our
Class A Common Shares. The Board of Directors may at any time alter, suspend or terminate the Equity Incentive Plan.
As
of December 31, 2011, 800,000 shares were approved under this plan for issuance by the Board of Directors. 200,000 shares each
were approved for issuance to Shawn Davis, Thomas Bianco, Paul Davis and Raymond Tai. As of December 31, 2012, the balance sheet
date, none of the shares under this plan were granted or issued.
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.
|
9.
|
GUARANTEE
OF EQUITY VALUE
|
In
March 2010, 120,000 shares of Class A common stock were issued upon conversion of a $24,000 liability from a vendor. The shares
were valued at $42,000 or $0.35 per share, based on a contemporaneous cash sales price and the Company recognized a loss on conversion
of $18,000. We agreed with the vendor, prior to conversion, that we would guarantee the value of the stock, when sold by the vendor,
up to the dollar value for the 2009 liability converted in 2010 of $24,000, plus an additional $11,000 for a total sales price
of $35,000 when sold by the vendor. Any difference in value, if less than the liability, will be paid by us in cash or through
the issuance of additional common stock. As a result, we recorded the $24,000 conversion as a liability along with the additional
$11,000 guarantee for a total guarantee liability of $35,000. During 2011, the vendor forgave $25,000 of the payable where the
company recorded as gain on forgiveness of debt. A cash payment of $3,000 was also made in relation to the total payable outstanding.
The
total cumulative liability to guarantee equity value totaled $90,980 as of December 31, 2012. No shares have been sold by the
vendor through December 31, 2012.
There
was no income tax expense in 2012 and 2011 due to the Company’s net taxable losses, other than the minimum Franchise Tax
due to the State of California of $800.
Deferred
tax asset and the valuation account is as follows:
|
|
|
Year
ended December 31,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
|
NOL Carry forward
|
|
$
|
(637,426
|
)
|
|
$
|
(1,255,851
|
)
|
|
Valuation allowances
|
|
|
(637,426
|
)
|
|
|
(1,255,851
|
)
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of income tax expense are as follows:
|
|
|
|
|
|
|
|
|
|
Current Federal Tax
|
|
|
-
|
|
|
|
$ -
-
|
|
|
Current State Tax
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Change in NOL Benefit
|
|
|
745,373
|
|
|
|
522,285
|
|
|
Change in valuation allowance
|
|
|
(745,373
|
)
|
|
|
(522,285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefits
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. At December 31, 2012 and 2011, the Company has net
operating losses (NOL) of approximately $2,129,636 and $1,492,210, respectively that will expire from 2027 to 2032. In the event
that a significant change in ownership of the Company occurs as a result of the Company’s issuance of common stock, the
utilization of the NOL carry forward will be subject to limitation under certain provisions of the Internal Revenue Code. Management
does not presently believe that such a change has occurred.
A
valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized.
Accordingly, a valuation allowance was established in 2012 and 2011 for the full amount of our deferred tax assets due to the
uncertainty of realization. Management believes that based upon its projection of future taxable operating income for the
foreseeable future, it is more likely than not that the Company will not be able to realize the benefit of the deferred tax assets
at December 31, 2012 and 2011. The valuation allowance as of December 31, 2012 and 2011 was $745,373 and $522,285, respectively.
|
11.
|
COMMITMENTS
AND CONTINGENCIES
|
Employment
Agreements
Effective
March 26, 2008, the Company entered into two employment agreements with its Chief Executive Officer and Chief Financial Officer.
These agreements established a yearly salary for each of $120,000. As of December 31, 2012 and 2011, the Company owed its
officers $181,537 and $120,068, respectively, based on the terms of the agreement.
Operating
Leases
The
Company is in the process of negotiating a lease for new office space through the Coachella Valley Economics Partnership, iHub
division.
The
following is a schedule by years of future minimum rental payments required under the operating lease:
|
2012
|
|
$
|
12,600
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,600
|
|
Rent
expense for the years ended December 31, 2012 and 2011 were $11,600 and $16,800 respectively.
Legal
Matters
From
time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.
As of December 31, 2010 and 2009, there were no pending or threatened lawsuits that could reasonably be expected to have a material
effect on the results of our operations.
In
March of 2010, Attune RTD engaged the services of a vendor to complete work described in the Scope of Services portion of a March
2010 agreement. 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
vendor 250,000 shares of Restricted Class A Common Stock as an incentive for vendor to deliver services not later than March 1,
2011. Vendor agreed to incrementally deliver work in process. No work in process was received from vendor. Vendor
requested the company pay an additional $18,818. On or about October 4, 2010, 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. Vendor did not acknowledge receipt of letter. Company has placed a “Stop”
on the certificate with its Transfer Agent to prevent its consumption.
As
of this date, the company is currently contemplating litigation with counsel to cancel the stock certificate. Attune’s
alleged damages resulting from vendors failure to perform and subsequent repudiation of the contract, including the companies
lost opportunity costs, should it pursue litigation against vendor will need to be established by an economic expert. Vendor
could conceivably pursue litigation against the company for the $18,818, however the Company believes this is not probable and
therefore a contingent liability is not warranted.
|
12.
|
RELATED
PARTY NOTE PAYABLE
|
During
the period, Company received $10,182 from related parties. The note is unsecured and remained unpaid as of the December 31, 2012.
Due to the cash received toward the end of the year, the Company evaluated for imputed interest and have determined that it does
not have significant financial impact.
|
13.
|
RELATED
PARTY TRANSACTIONS
|
During
the years ended December 31, 2008 and 2007, the Company received funds from the issuance of a shareholder loan agreement
to a shareholder. During the year ended December 31, 2007, the Company had received $30,000 under this agreement. During the year
ended December 31, 2008, the Company received and additional $30,000 and repaid $4,800. The outstanding balance as of December
31, 2008 was $55,200. This debt was converted into 788,571 shares of Class A common stock in fiscal 2009 (See Note 8).
The
Company entered into two unsecured promissory notes with its Chief Executive Officer and Chief Financial officer (see Note 4).
The balance due under these loans was $175,825 as of December 31, 2009. As of December 31, 2009, the Company owed the same
two officers $175,239 based on the terms of their employment contracts (see Note 10). On January 31, 2010, the officers/shareholders
redeemed 521,439 shares (collectively) of their common stock in the Company, with a value of $0.35 to satisfy this outstanding
debt obligation. Under Sarbanes Oxley, receivables from officers are prohibited, hence redemption of the loans in January 2010.
On
July 23, 2012, our Secretary Timothy Smith loaned the company $10,000. The note is unsecured and remains unpaid as of the date
of this filing April 5, 2013.
Beginning
with the quarter starting October 1, 2012, the Stock Grant Agreement executed by the company and Mr. Zhu on December 10, 2011
has been placed on hold until such time when the company has the required capital to resume development on the server and wireless
code at which point in time it will again resume.
On
October 5, 2012, the company
offered an investment opportunity that paid participating investors up to a maximum of five
times their initial investment. Under the terms and conditions of the offer, the investment was to be pooled and the return on
investment paid to investors was based on the amount they invested and the size of the pool which was fixed at $159,560.00 Half
of the proceeds received from the sale of devices would be consumed by the company to cover expenses and the other half used to
distribute a royalty payment to investors based on their percentage. Three investors participated in the offer and the total amount
invested was $22,000. Based on the amounts invested, the company is obligated to pay the three investors a royalty payment of
6.27%, 6.27%, and 1.25% of the remaining 50% of the proceeds not consumed by the company, up to a maximum cumulative payout over
time equal to five times their initial investment, at which point the investors will be considered to have been paid in full and
the agreement terminates. The agreement does not specify when funds are to be distributed, or time duration. As of December 31,
2012, the $22,000 is presented on the balance sheet as a royalty payable.
On
January 30, 2013, 6,000,000 shares of Class A common stock were issued for services provided to the Company with a value of $60,000
at $.01 per share, based on a Fair Market Value sales price.
On
January 31, 2013, 360,000 shares of Class A common stock were issued for services provided to the Company with a value of $18,000
at $.05 per share, based on a Fair Market Value sales price.
On
February 13, 2013, 72,500 shares of Class A common stock were issued for services provided to the Company with a value of $7,250
at $.10 per share, based on a Fair Market Value sales price.
On
February 15, 2013, The Company signed a twelve month “Consulting Agreement” with a vendor for the purpose of providing
services related to business development, SEC compliance matters, liase with corporate finance groups, liase with legal and accounting
professionals and advise on potential mergers or acquisitions as opportunities may arise. The services are valued at $52,000.
On
February 21, 2013, the Company entered into an agreement to execute a convertible promissory note in the amount of $50,000 bearing
interest at 8% per annum, with the note due and payable in November 25, 2013. The note is convertible into shares of Class A common
stock at a variable conversion price based on 58% of the market value of the stock at the time of conversion. On February 26,
2013, the funding was received by the company.
On
February 26, 2013, the Company signed a “Letter of Engagement” with Anubis Partners for the purpose of assisting the
Company in preparation of financial communications documents, materials, and Company presentations (“Financial Communications
Documents”), including press releases, online communications, and The Company’s website. The company agreed to pay
a service fee of $5,000 and 300,000 shares of its restricted common stock.
On
February 27, 2013, 300,000 shares of Class A common stock were issued for services provided to the Company with a value of $30,000
at $.10 per share, based on a Fair Market Value sales price.
On
March 4, 2013, stockholders holding 72.40% of the shares in the corporation, representing a majority of the voting power, voted
in favor to amend the Fourth Article of the 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 shares such that the voting rights of Class B shareholders are increased from one hundred votes per share to
twenty thousand votes per share; (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 was filed with the Nevada Secretary of State and became effective on
March 4, 2013.
On
March 5, 2013, 591,133 shares of common stock were converted on $12,000 of the principal of the note dated September 28, 2011
as amended by amendment No. 1 dated October 17
th
, 2011.
Management
evaluated all activity of the Company through March 31, 2013 (the issuance date of the Company’s financial statements) and
concluded that no subsequent events have occurred that would require recognition in the financial statements.
Notwithstanding
the above, any information contained in a schedule that would cause a reasonable investor (or that a reasonable investor would
consider important in making a decision) to buy or sell our common stock has been included. We have been further advised
by our counsel that in all instances the standard of materiality under the federal securities laws will determine whether or not
information has been omitted; in other words, any information that is not material under the federal securities laws may be omitted. Furthermore,
information which may have a different standard of materiality will nonetheless be disclosed if material under the federal securities
laws.
Copies
of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to
our shareholders who make a written request to Attune RTD, Inc., 3111 Tahquitz Canyon Way, Palm Springs, CA 92263, Attention:
Thomas Bianco or Shawn Davis.