UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 2010





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
o
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 November 12, 2010, issuer had 21,881,863 outstanding shares of common stock, par value $0.001.








TABLE OF CONTENTS








Item
Description
PagePART I – FINANCIAL INFORMATIONItem 1
Financial Statements
3Condensed Consolidated Balance Sheets (Unaudited)
3Condensed Consolidated Statements of Operations (Unaudited)
4Condensed Consolidated Statements of Cash Flows (Unaudited)
5Notes to Condensed Consolidated Financial Statements (Unaudited)
6Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
10Item 3
Quantitative and Qualitative Disclosures about Market Risk
16Item 4T
Controls and Procedures
16PART II – OTHER INFORMATIONItem 6
Exhibits
17Signature
17














PART I – FINANCIAL INFORMATION





ITEM 1.  FINANCIAL STATEMENTS





TETRIDYN SOLUTIONS, INC. AND SUBSIDIARYCONDENSED CONSOLIDATED BALANCE SHEETSSeptember 30,


December 31,2010


2009(Unaudited)ASSETSCurrent AssetsCash
$
32,973

$
123,784Accounts receivable, current portion

18,267


132,706Inventory

63,432


739Prepaid expenses

8,137


16,806Total Current Assets

122,809


274,035Property and Equipment, net

41,554


43,005Accounts receivable, net of current portion

156


3,088Total Assets
$
164,519

$
320,128LIABILITIESCurrent LiabilitiesAccounts payable
$
267,717

$
217,135Accrued liabilities

55,831


64,970Unearned revenue

32,419


33,084Notes payable, current portion

76,532


113,181Total Current Liabilities

432,499


428,370Long-Term LiabilitiesNotes payable, net of current portion

318,004


322,905Convertible note payable to related party

100,000


-Total Long-Term Liabilities

418,004


322,905Total Liabilities

850,503


751,275COMMITMENTS AND CONTINGENCIES

-


-STOCKHOLDERS' DEFICITPreferred stock - $0.001 par valueAuthorized:
5,000,000 sharesIssued and outstanding:
1,200,000 shares and1,200,000 shares, respectively

1,200


1,200Common stock - $0.001 par valueAuthorized:
100,000,000 sharesIssued and outstanding:
21,881,863 shares and21,881,863 shares, respectively

21,882


21,882Additional paid-in capital

2,810,330


2,810,330Accumulated deficit

(3,519,396)


(3,264,559)Total Stockholders' Deficit

(685,984)


(431,147)Total Liabilities and Stockholders' Deficit
$
164,519

$
320,128See the accompanying notes to condensed consolidated unaudited financial statements.















TETRIDYN SOLUTIONS, INC. AND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)For the Three Months Ended

For the Nine Months EndedSeptember 30,

September 30,2010

2009

2010

2009Revenue

$
168,442

$
107,221

$
441,439

$
721,478Cost of Revenue


106,664


51,202


227,030


265,091Gross Profit


61,778


56,019


214,409


456,387Operating ExpensesGeneral and administrative


34,254


71,014


179,293


252,148Professional fees


7,167


9,456


38,300


45,473Selling and marketing


44,332


28,945


80,959


83,206Research and development


43,807


127,895


123,517


191,994Total Operating Expenses


129,560


237,310


422,069


572,821Net Profit (Loss) from Operations


(67,782)


(181,291)


(207,660)


(116,434)Other Income (Expenses)Other Income


-


-


61


64Interest Income


12


54


134


469Interest Expense


(19,265)


(5,901)


(47,372)


(16,612)Total Other Income (Expenses)


(19,253)


(5,847)


(47,177)


(16,079)Net Loss from Continuing Operations beforeProvision for Income Taxes


(87,035)


(187,138)


(254,837)


(132,513)Provision for Income Taxes


-


-


-


-Net Loss from Continuing Operations

$
(87,035)

$
(187,138)

$
(254,837)

$
(132,513)Discontinued OperationsLoss from Operations of Discontinued Subsidiary

$
-

$
(63,856)

$
-

$
(243,778)Loss from Discontinued Operations

$
-

$
(63,856)

$
-

$
(243,778)Net Loss

$
(87,035)

$
(250,994)

$
(254,837)

$
(376,291)Basic and Diluted Loss Per Common ShareContinuing operations

$
-

$
(0.01)

$
(0.01)

$
(0.01)Discontinued operations

$
-

$
-

$
-

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

$
-

$
(0.01)

$
(0.01)

$
(0.02)Basic and Diluted Weighted-AverageCommon Shares Outstanding


21,881,863


21,381,863


21,881,863


21,381,863See the accompanying notes to condensed consolidated unaudited financial statements.
















TETRIDYN SOLUTIONS, INC. AND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)For the Nine Months EndedSeptember 30,2010

2009Cash Flows from Operating ActivitiesNet Loss
$
(254,837)

$
(376,291)Less: Net loss from discontinued operations
$
-

$
(243,778)Loss from Continuing Operations
$
(254,837)

$
(132,513)Adjustments to reconcile net loss from continuing operations to net cash usedin operating activities from continuing operations:Depreciation

11,451


10,236Changes in operating assets and liabilities:Accounts receivable

43,939


14,191Inventory

739


-Prepaid expenses

8,669


8,776Accrued expenses

(9,139)


9,809Accounts payable

50,582


14,068Unearned revenue

(665)


(38,069)Net Cash Used in Operating Activities from Continuing Operations

(149,261)


(113,502)Net Cash Provided by Operating Activities from Discontinued Operations

-


44,748Net Cash Used in Operating Activities

(149,261)


(68,754)Cash Flows from Investing ActivitiesPurchase of property and equipment

-


(11,124)Net Cash Used in Investing Activities from Continuing Operations

-


(11,124)Net Cash Used in Investing Activities from Discontinued Operations

-


-Net Cash Used in Investing Activities

-


(11,124)Cash Flows from Financing ActivitiesProceeds from borrowing under related party convertible note payable

100,000


-Proceeds from borrowing under notes payable

-


50,000Principal payments on notes payable

(41,550)


(76,076)Net Cash Provided by (Used in) Financing Activities from Continuing Operations

58,450


(26,076)Net Cash Provided by Financing Activities from Discontinued Operations

-


125,000Net Cash Provided by Financing Activities

58,450


98,924Net Increase (Decrease) in Cash

(90,811)


19,046Cash at Beginning of Period

123,784


77,914Cash at End of Period
$
32,973

$
96,960Supplemental Disclosure of Cash Flow Information:Cash paid for income taxes
$
-

$
-Cash paid for interest expense and lines of credit
$
11,900

$
14,476Supplemental Noncash Investing and Financing:During the nine months ending September 30, 2010, the Company received from aformer subsidiary inventory worth $63,432 and equipment worth $10,000, reducingthe accounts receivable balance from the former subsidiary by $73,432See the accompanying notes to condensed consolidated unaudited financial statements.













TETRIDYN SOLUTIONS, INC. AND SUBSIDIARY


Notes to the Condensed Consolidated Financial Statements


(Unaudited)





Note 1 – Basis of Presentation





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





It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made that are necessary for a fair financial statements presentation.  The results for the interim period are not necessarily indicative of the results to be expected for the year.  The interim condensed consolidated financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2009, 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 efficiencies 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”), and results of discontinued operations of its partially owned variable interest entity, Southfork Solutions, Inc., from January 1, 2009, through September 30, 2009.  Intercompany accounts and transactions have been eliminated in consolidation.





Business Segments – In 2009, the Company’s services were broadly classified into two principal segments: the business IT solutions segment and the livestock segment.  The business IT solutions segment provides business IT solutions within the healthcare industry, although the segment is in the process of expanding the solutions to other select industries.  The livestock segment was focused on providing business IT solutions specifically within the livestock industry.  The Company’s involvement in the livestock segment ended in the fourth quarter of 2009, and the Company currently has only one segment.





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 and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period.  Actual results could differ from these estimates.





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












Revenue Recognition –The Company’s AeroMD EMR, electronic medical records software, is provided as turnkey software that has been customized for specific medical specializations.  The Company installs the software at the customer’s location for a fee and charges the customer a monthly license fee, based on the number of operating workstations, under a one- or two-year usage agreement.  The customer is entitled to all systems upgrades during the term of the agreement.  At the end of their contracts, customers may continue using AeroMD by entering into a new license with the Company.  The Company also sells installation and post-contract support service contracts on an hourly basis.  The Company does not provide any rights of return or warranties on its AeroMD EMR software or on its support service contracts.





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 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 contracts is recognized as the services are provided, 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 also provides IT management consulting services.  These services are paid for on a project basis and on a contracted payment schedule, which is not cancelable or refundable.  Revenue for these services is recognized over the contract period.





The Company had three customers that represented more than 10% of sales for either the three- or nine-month period ended September 30, 2010, and two customers that represented more than 10% of sales for either the three- and nine-month periods ended September 30, 2009, as follows:





Three Months Ended September 30, 2010
Nine Months Ended September 30, 2010
Three Months Ended September 30, 2009
Nine Months Ended September 30, 2009Customer A
--
13%
--
--Customer B
40%
16%
--
--Customer C
--
12%
15%
--Customer D
--
--
13%
--Customer E
--
--
--
66%





Going Concern– The accompanying unaudited 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 $87,035 and $254,837 for the three and nine months ended September 30, 2010, respectively.  The Company used $149,261 of cash in operating activities for the nine months ended September 30, 2010.  The Company had a working capital deficiency of $309,690 and a stockholders’ deficiency of $685,984 as of September 30, 2010.  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 utilizes the liability method of accounting for income taxes.  Under the liability method, deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and on the amount of operating loss carryforwards, and are measured using the enacted tax rates and laws that will be in effect when the temporary differences and carryforwards are expected to reverse.  An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized.





Fair Value of Financial Instruments –The carrying amounts of the Company’s current portion of accounts receivable, prepaid expenses, accounts payable, accrued liabilities, unearned revenue, notes payable, and notes payable to related parties 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 is computed based upon the weighted-average stock outstanding as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, “Earnings Per Share.”  As of September 30, 2010 and 2009, 3,465,000 and 3,520,500, respectively, of common share equivalents 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 that, 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 that are not employees, officers, or directors, but contribute to the Company’s success.





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













Effective January 1, 2006, the Company adopted the provisions of FASB ASC 505 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 2009 information have been reclassified to conform to the 2010 presentation.  These reclassifications had no impact on the Company’s net loss or cash flows.





Note 3 – Inventory





The Company’s inventory is comprised of regular inventory and direct materials to be used in the manufacture of new products.  The Company had no regular inventory as of September 30, 2010, and its inventory as of December 31, 2009, consisted of one piece of equipment valued at $739.  During the nine months ended September 30, 2010, the Company received direct materials in exchange for reduction of a former variable interest subsidiary’s debt to the Company by $63,462.





Note 4 – Notes Payable





In February 2010, the Company paid the balance of $19,035 in full for its note payable to a bank that was due April 2010.





Effective in June 2010, one economic development lender agreed to suspend all loan payments toward principal and interest for six months on two separate loans.  The balances of the two loans were $27,045 and $145,645 as of September 30, 2010.





Effective in July 2010, a separate economic development lender agreed to suspend all loan payments toward principal and interest for six months.  The balance of the loan was $104,829 as of September 30, 2010.





Note 5 – Convertible Notes Payable to Related Party





On June 1, 2010, the Company borrowed $50,000 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 $5,000 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, 2013.













In August 2010, the Company borrowed an additional $50,000 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 $5,000 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, 2013.





Note 6 – Investments





Until the fourth quarter of 2009, the Company was engaged in providing business IT solutions to the livestock segment through a variable interest subsidiary, Southfork Solutions, Inc., which is developing electronic livestock tracking systems, in which the Company had an approximately 39% interest at December 31, 2009.  Effective October 2009, the Company is no longer in management or financial control of this entity, although as of September 30, 2010, it holds an approximately 38% minority interest.  Effective September 30, 2009, the Company changed from the variable interest consolidation method of accounting for this entity to the cost method of accounting for this entity.








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 efficiencies and value to our customers’ business processes and to help our customers identify critical success factors in their business.  Our business was founded as an Idaho corporation, TetriDyn Solutions, Inc.  On March 22, 2006, we completed a share exchange with Creative Vending Corp., then inactive, that resulted in TetriDyn Solutions, Inc., becoming a wholly owned subsidiary of the Florida corporation, the legal acquirer.  For accounting purposes, the Idaho corporation was the accounting acquirer because its management and controlling shareholders continued to manage and control the consolidated enterprise following the exchange.  In June 2006, we changed our corporate domicile from Florida to Nevada and changed our name from Creative Vending Corp. to TetriDyn Solutions, Inc.





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.





Until the fourth quarter of 2009, we also were engaged in providing business IT solutions to the livestock segment through a variable interest subsidiary, Southfork Solutions, Inc., which is developing electronic livestock tracking systems, in which we had an approximately 39% interest at December 31, 2009.  Effective October 2009, we are no longer in management or financial control of this entity, although as of September 30, 2010, we hold an approximately 38% minority interest.  Effective September 30, 2009, we changed from the variable interest consolidation method of accounting for this entity to the cost method of accounting for this entity.





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 and management personnel, and the costs of materials and equipment used by these employees, in the development of new or enhanced product offerings.





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















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





Results of Operations





Comparison of Three and Nine Months Ended September 30, 2010 and 2009





Revenues





Our revenue was $168,442 and $441,439 for the three and nine months ended September 30, 2010, respectively, compared to $107,221 and $721,478 for the three and nine months ended September 30, 2009, respectively, representing an increase of $61,221, or 57%, for the three-month period and a decrease of $280,039, or 39%, for the nine-month period.  The increase in the three-month period was due to increased support and hardware sales to regional critical access hospitals.  The decrease in revenues in the nine-month period was due to the loss of our service contract with a regional hospital at the end of the second quarter of 2009 following a change in ownership and management at the hospital.





Cost of Revenue





Our cost of revenue was $106,664 and $277,030 for the three and nine months ended September 30, 2010, respectively, compared to $51,202 and $265,091 for the three and nine months ended September 30, 2009, respectively, representing an increase of $55,462, or 108%, for the three-month period and a decrease of $38,061, or 14%, for the nine-month period.  The gross margin percentage on revenue was 37% and 49% for the three and nine months ended September 30, 2010, respectively, and 52% and 63% for the three and nine months ended September 30, 2009, respectively.  The decrease in the gross margin percentage for the three and nine months ended September 30, 2010, from the three and nine months ended September 30, 2009, was due to a higher percentage of revenue from hardware sales rather than from the associated service sales.  Hardware sales have a significantly lower gross 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 nine months ended September 30, 2010 and 2009, 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 — General and administrative expenses for our continuing operations, including noncash compensation expense, were $34,254 and $179,293 for the three and nine months ended September 30, 2010, respectively, compared to $71,014 and $252,148 for the three and nine months ended September 30, 2009, respectively, representing a decrease of $36,760, or 52%, and $72,855, or 29%, for the three- and nine-month periods, respectively.  The decrease in our general and administrative expenses for the three- and nine-month periods ended September 30, 2010, as compared to the three- and nine- month periods ended September 30, 2009, reflects a decrease in salary for executives.  The three-month decrease was also influenced by  personnel being reassigned from general and administrative business development to sales and marketing activities associated with those new business development initiatives.












Professional Fees — Professional fees expenses, including noncash compensation expense, were $7,167 and $38,300 for the three and nine months ended September 30, 2010, respectively, compared to $9,456 and $45,473 for the three and nine months ended September 30, 2009, respectively, representing a decrease of $2,289, or 24%, and $7,173, or 16%, for the three- and nine-month periods, respectively.  The decrease in our professional fees expenses for the three- and nine-month periods ended September 30, 2010, as compared to the three and nine months ended September 30, 2009, reflects the improvements in our filing and audit support practices that reduced our expenditures.





Selling and Marketing — Selling and marketing expenses, including noncash compensation expense, were $44,332 and $80,959 for the three and nine months ended September 30, 2010, respectively, compared to $28,945 and $83,206 for the three and nine months ended September 30, 2009, respectively, representing an increase of $15,387, or 53%, for the three-month period and a decrease of $2,247, or 3%, for the nine-month period.  The increase in our selling and marketing expenses in the three-month period ended September 30, 2010, as compared to the three months ended September 30, 2009, reflects the reassignment of personnel from general and administrative business development to sales and marketing activities associated with those new business development initiatives.  The decrease in our selling and marketing expenses in the nine-month period ended September 30, 2010, as compared to the nine months ended September 30, 2009, was immaterial.





Researchand Development — Research and development expenses were $43,807 and $123,517 for the three and nine months ended September 30, 2010, respectively, compared to $127,895 and $191,994 for the three and nine months ended September 30, 2009, respectively, representing a decrease of $84,088, or 66%, and $68,477, or 36%, for the three- and nine-month periods, respectively.  The decrease in research and development expenses reflects the reduction of staff in 2010.





Interest expense was $19,265 and $47,372 for the three and nine months ended September 30, 2010, respectively, as compared to $5,901 and $16,612 for the three and nine months ended September 30, 2009, respectively, representing an increase of $13,364, or 226%, and $30,760, or 185%, for the three- and nine-month periods, respectively.  The increase in interest expense is directly related to our increased use of short-term borrowing while we build up our revenues to cover operations.





Liquidity and Capital Resources





At September 30, 2010, our principal source of liquidity consisted of $32,973 of cash, as compared to $123,784 of cash at December 31, 2009.  In addition, our stockholders’ deficit was $685,984 at September 30, 2010, compared to a stockholders’ deficit of $431,147 at December 31, 2009, an increase in the deficit of $254,837.





Our continuing operations used $149,261 of net cash during the nine months ended September 30, 2010, as compared to $113,502 of net cash used by our continuing operations during the nine months ended September 30, 2009.  The $35,759 increase in the net cash used by our operating activities resulted primarily from the reduction in revenues due to the lost service contract with a local regional hospital.













Investing activities for the nine months ended September 30, 2010, used no net cash, as compared to $11,124 net cash used during the nine months ended September 30, 2009.  However, we had noncash investing activities of $10,000 for equipment in the nine-month period ended September 30, 2010.  We also had noncash operating activities of $63,432 for direct materials inventory in the nine-month period ended September 30, 2010.  The noncash activities were a result of exchanging equipment and materials for debt reduction with a former variable interest subsidiary.





Financing activities for our continuing operations provided net cash of $58,450 during the nine months ended September 30, 2010, compared to using net cash of $26,076 during the nine months ended September 30, 2009.  The increase of $84,526 of net cash provided in financing activities is the result of borrowing under related-party notes payable and paying down less principal in 2010.





We are focusing our efforts on increasing revenue while we explore external funding alternatives.  We currently have contracts in place for future deliveries of our consulting services, our AeroMD product, and other solutions that we believe will cover our minimum expenditures for operating costs and minimum installments due on our other indebtedness to nonaffiliates during the next 12 months.  We expect that additional sales will enable us to increase our payments on indebtedness and support the development of other products.  We have also arranged payment deferments on loans to increase our cash flow, resulting in a reduction of $4,721 in loan payments for the next three months.  Although our independent auditors have expressed substantial doubt about our ability to continue as a going concern, we feel that our revenues, along with additional funding sources, will be sufficient for our IT business solutions segment to continue as a going concern.  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 are 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, 2009, consolidated financial statements.  Note that our preparation of the condensedconsolidatedfinancial 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 condensedconsolidatedfinancial statements, and the reported amounts of revenue and expenses during the reporting period.  There can be no assurance that actual results will not differ from those estimates.













Revenue Recognition





Our AeroMD EMR software is provided as turnkey software that has been customized for specific medical specializations.  We install the software at the customer’s location for a fee and charge the customer a monthly license fee, based on the number of operating workstations, under a usage agreement.  The customer is entitled to all systems upgrades during the term of the agreement.  At the end of their contracts, customers may continue using AeroMD by entering into a new license with us.  We also sell installation and post-contract support service contracts on an hourly basis.  We do not provide any rights of return or warranties on our AeroMD EMR software.





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 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 contracts is recognized as the services are provided, determined on an hourly basis.  We recognize 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.





We also provide IT management consulting services.  These services are paid for on a project basis and on a contracted payment schedule, which is not cancelable or refundable.  Revenue for these services is recognized over the contract period.





Income Taxes





We utilize the liability method of accounting for income taxes.  Under the liability method, deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities and on the amount of operating loss carryforwards, and are measured using the enacted tax rates and laws that will be in effect when the temporary differences and carryforwards are expected to reverse.  An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized.





Off-Balance Sheet Arrangements





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














ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not applicable.








ITEM 4T.  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 of 1934, as amended, 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 evaluated, with the participation of our Certifying Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act) as of September 30, 2010, pursuant to Rule 13a-15(b) under the Securities Exchange Act.  Based upon that evaluation, our Certifying Officer concluded that, as of September 30, 2010, our disclosure controls and procedures were effective at the reasonable assurance level.





There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





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














PART II – OTHER INFORMATION





ITEM 6.  EXHIBITS





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





Exhibit Number*

Title of Document

LocationItem 10

Material Contracts10.09

Promissory Note dated August 12, 2010

Incorporated by reference from the quarterly report on Form 10-Q for the quarter ended June 30, 2010, filed August 16, 2010Item 31

Rule 13a-14(a)/15d-14(a) Certifications31.01

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13a-14

AttachedItem 32

Section 1350 Certifications32.01

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


_______________


*
All exhibits are numbered with the number preceding the decimal indicating the applicable SEC reference number in Item 601 and the number following the decimal indicating the sequence of the particular document.  Omitted numbers in the sequence refer to documents previously filed as an exhibit.








SIGNATURE





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





TETRIDYN SOLUTIONS, INC.(Registrant)Date: November 12, 2010
By:
/s/ David W. HempsteadDavid W. Hempstead, President,

Chief Executive Officer, and

Principal Financial Officer