AURT Attune RTD (CE)

NOTES TO CONDENSED FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

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

These statements reflect all adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. It is suggested that these interim condensed financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2012 and notes thereto included in the Company’s 10-K annual report. The Company follows the same accounting policies in the preparation of interim reports.

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 June 30, 2013. 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.

CASH AND CASH EQUIVALENTS

For the purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents as of June 30, 2013 and December 31, 2012.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets of five years. Expenditures for additions and improvements are capitalized while maintenance and repairs are expensed as incurred.

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 June 30, 2013 and December 31, 2012.

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.

There were limited revenues of $950 for the six months ending June 30, 2013.

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 four patents.

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.

SOFTWARE LICENSE

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.

ACCOUNTING FOR DERIVATIVES

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

IMPAIRMENT OF LONG-LIVED ASSETS

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

Long-lived assets held and used by Attune RTD are reviewed for possible impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable or is impaired. Recoverability is assessed using undiscounted cash flows based upon historical results and current projections of earnings before interest and taxes. Impairment is measured using discounted cash flows of future operating results based upon a rate that corresponds to the cost of capital. Impairments are recognized in operating results to the extent that carrying value exceeds discounted cash flows of future operations. Attune RTD recognized an impairment loss of $74,269 on software assets during 2012.

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 $0 for the six months ended June 30, 2013 and 2012, 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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Pursuant to ASC 820, Fair Value Measurements and Disclosures , an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or Liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The carrying amounts reported in the balance sheets for cash, accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments. The following table presents assets and liabilities that are measured and recognized at fair value as of June 30, 2013, on a recurring basis:

The following table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2012, on a recurring basis:

BASIC AND DILUTED NET LOSS PER COMMON SHARE

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

NEW ACCOUNTING PRONOUNCEMENTS

In February 2013, Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:

The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.

In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.

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.

The accompanying condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. For the six months ended June 30, 2013, the Company had a net loss of $956,071; net cash used in operations of $126,984 and was a development stage company with limited revenues. In addition, as of June 30, 2013, the Company had a working capital deficit of $1,036,381, and a deficit accumulated during the development stage of $5,835,930.

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.

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 full impairment of $74,269 as of the balance sheet date of December 31, 2012.

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 variable conversion price of 58% representing a discount rate of 42% 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. On March 5, 2013, the Company issued 591,133 shares of Class A Common Stock to convert $12,000 of the convertible note into equity.

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 variable conversion price of 50% representing a discount rate of 50% of the average of the three lowest closing bid stock prices over the last 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 June 30, 2013, this note remains outstanding.

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 variable conversion price of 58% representing a discount rate of 42% 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 and June 30, 2013, this convertible note is in default under the terms of the note agreement and remains outstanding.

On February 21, 2013, the Company issued convertible promissory note in the amount of $50,000. The convertible note has a maturity date of November 25, 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 50% representing a discount rate of 50% of the average of the three lowest closing bid stock prices over the last ten days and contains no dilutive reset feature. Due to the indeterminable number of shares to be issued at conversion, the Company recorded a derivative liability. As of June 30, 2013, this note remains outstanding.

On April 18, 2013, the Company issued convertible promissory note in the amount of $22,500. The convertible note has a maturity date of January 22, 2014 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 variable conversion price of 45% representing a discount rate of 55% of the average of the three lowest closing bid stock prices over the last ten days and contains no dilutive reset feature. Due to the indeterminable number of shares to be issued at conversion, the Company recorded a derivative liability. As of June 30, 2013, this note remains outstanding.

In June 2013, the Company converted a $10,000 note to a related party into 500,000 share of common stock. The stock was not issued as of June 30, 2013 and is included in Stock Payable. In addition, the same related party, in June 2013, made another $10,000 loan to the Company. The loan is also convertible into common stock at the option of the lender and is non-interest bearing.

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 represents penalty on default and are recorded as a loss in the income statement.

The derivative features of the Notes taint (due to the indeterminate number of shares) the existing convertible instruments, specifically the warrants (“Tainted Warrants”) issued April 15, 2010 (“2010 Investor Warrants” - 900,000 with an exercise price of $0.40 and maturity date of 4/15/13) and issued June 21, 2013 (“2013 Investor Warrants” – 1,375,000 with an exercise price of $0.040 and maturity date of 6/23/16). The 2010 Investor Warrants expired in this period.

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

The fair values of the Company’s derivative liabilities were estimated at the issuance date and are revalued at each subsequent reporting date, using a lattice model. The Company recorded current derivative liabilities of $137,084 and $110,828 at June 30, 2013 and December 31, 2012, respectively. The change in fair value of the derivative liabilities resulted in a gain of $(59,336) for the six months ended June 30, 2013 and a loss of $7,647 for the six months ended 2012. The gain of $(29,220) for the six months ended June 30, 2013 consisted of a gain of ($49,251) attributable to the fair value of warrants, a loss of ($30,116) due issuance of warrants, and a gain in market value of ($10,085) on the convertible notes.

The following presents the derivative liability value by instrument type at June 30, 2013 and December 31, 2012, respectively:

The following is a summary of changes in the fair market value of the derivative liability during the six months ended June 30, 2013 .

Key inputs and assumptions used to value the convertible debentures and warrants issued during the six months ended June 30, 2013 and the years ended December 31, 2012:

The Note #1 & #2 face amount as of 6/30/13 is $108,000 with an initial conversion price of 58% of the 3 lowest lows out of the 10 previous days (effective rate of 58.00%). Both notes are in default and obligated to pay the 50% penalty and accrued interest – we therefore assumed the note balances of $41,766 and $66,234 (total $120,000) and no additional interest is being accrued.

The 3 year warrants with an exercise price of $0.040 and no reset features were valued at issuance 6/21/13 using the Black Scholes model and the following assumptions: stock price at valuation, $0.10; strike price, $0.040; risk free rate 0.70%; 3 year term and 36 month term remaining; and volatility of 113.48% relating to these warrants as of issuance 6/21/13.

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, 2012 and the six months ended June 30, 2013 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.

In the second quarter ended June 30, 2013, 357,143 shares of Class A common stock were sold for $12,500 cash with $.04 price per share. The shares related to this sale were not issued as of June 30, 2013 and are recorded as Stock Payable at June 30, 2013.

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.

On January 30, 2013, the C.E.O and C.F.O were each issued 3,000,000 shares for services. The shares were valued at $600,000 based on Fair Market Value on the date of grant.

On February 27, 2013, 300,000 shares were issued for services provided to the company with a value of $30,000 based on Fair Market Value on the date of grant.

On March 21, 2013, 360,000 shares were issued for services fulfilling a stock payable of $36,000 that was accrued for through December 31, 2012.

During the quarter ended June 30, 2013, the company authorized 197,500 shares for services with a value of $19,750 based on Fair Market Value on the date of grant. The shares have not been issued as of June 30, 2013 and are recorded as stock payable.

During the quarter ended June 30, 2013, the company issued 72,500 shares for services with a value of $1,204 based on Fair Market Value on the date of grant.

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.

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 or loss was recognized.

On March 6, 2013, the Company issued 591,133 shares of Class A Common Stock to convert $12,000 of the convertible note into equity. The note was converted in accordance with the conversion terms; therefore, no gain or loss was recognized.

In June 2013, the Company converted a $10,000 note to a related party into 500,000 shares of Common Stock at $0.02 per share. The note was converted in accordance with the conversion terms; therefore, no gain or loss was recognized.

In 2010 the Company issued 900,000 warrants to several investors in the Company. These warrants are attached to issuances of common stock and expired on April 15, 2013.

Warrant Activity for the Quarter ended June 30, 2013 is as follows:

Class B Participating Cumulative Preferred Super-voting Stock

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

Shares Issued for Cash

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

Shares Issued for Services

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

2010 Equity Incentive Plan

In June 2010, 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 has 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 June 30, 2013, 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 June 30, 2013, the balance sheet date, none of the shares under this plan were granted or issued.

Employment Agreements

On March 26, 2008, the Company established two employment arrangements by resolution of the Board of Directors with Shawn Davis, our chief executive officer, and Thomas Bianco, our chief financial officer. These arrangements established a yearly salary for each of $120,000. Because the employees have been, and are currently, employed by the Company in critical managerial positions, the Company believes it to be in their best interests to provide both Employees with certain severance protections and accelerated option vesting in certain circumstances. Effective December 3, 2012 through December 31, 2016, the Company established two new “Employment Agreements” and two new “Severance Agreements” by resolution of the board of directors with Mr. Davis, our Chief Executive Officer, and Mr. Bianco, our Chief Financial Officer. The “Employment Agreements” establish a yearly base salary of $185,000 for each, and are governed by separate “Severance Agreements”. The “Employee Agreements” allow for employee benefits of medical and dental insurance, life insurance, disability insurance, sick pay, paid leave, retirement, annual bonus and other benefits when the Company is financially able to provide for them or as determined by the Board of Directors.

The “Severance Agreements” provide for aggregate severance amounts equal to 300% of the Employee’s annual base salary in effect as of the date of such termination. In addition to the Severance Amount, the Company shall provide Employees with full medical, dental, and vision benefits through the third full year following the date of Employees termination. Company agrees that Employee shall have one year from the Employee’s termination date in which to exercise all options that are vested as of the date upon which Employee’s employment was terminated, subject to any trading window requirements or other restrictions imposed under the Company’s insider trading policy. The Severance Agreements state that if during the period of time during which Employee is employed by the Company a Change of Control occurs, 100% of the unvested portion of all options held by Employee as of the date of Change of Control Event shall be deemed vested and Employee shall be entitled to exercise such options.

The Company agrees that if the payments are deemed “Golden Parachute” payments under the Internal Revenue Code of 1984 and the employees are obligated to pay an excise tax, the Company shall reimburse the Employees in full for both the amount of the excise tax, or ordinary income taxes owed in connection with the payment.

As of June 30, 2013, the Company owed its officers $277,101 based on the terms of the agreements.

Amend the Fourth Article of the Articles of Incorporation

On March 4, 2013, stockholders holding 68.77% 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 became effective on date of filing, July 10, 2013.

Stock Issuance Commitment

On April 3, 2012 The Company entered into an agreement with one of its vendors, whereby the vendor will provide services valued at $15,000 in exchange for 150,000 shares of contingently issuable Restricted Class A Common Stock at $0.10 per share.

Operating Leases

On September 30, 2012, the companies leased office space located at 3700 E. Tahquitz Drive, Suite 117, Palm Springs, CA 92262 expired . Our corporate headquarters, including our principal administrative, marketing, technical support, and research and development departments, are presently located in Palm Springs, CA, in office and warehouse provided by the Coachella Valley Economic Partnerships (CVEP) iHub division. The Company has been assigned two office spaces and one area suitable for assembling our technology. Management took possession of the space on April 17, 2013. Rent has yet to be determined.

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.

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.

On September 25, 2011, the Company received Notice of Chapter 7 Bankruptcy Case filed personally by vendor.

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 vendor’s failure to perform and subsequent repudiation of the contract, including the Company’s 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.

On or about July 30 of 2012, Wakabayashi Fund, LLC sent an email advertisement to Attune RTD, to which Mr. Davis, Attune RTD’s C.E.O and Thomas Bianco, Attune RTD’s C.F.O, responded. In subsequent telephone conversations, Mr. Stone of Wakabayashi Fund, LLC (the “Fund”) stated that he was a finance professional that previously held a high position in a well known securities firm and regularly provides services for the purpose of funding public companies, and/or finding good companies for his clients to invest in. After several weeks, and during two telephone conversations with both Davis and Bianco, Mr. Stone stated that several of his close colleagues with whom he had a pre-existing relationship had reviewed Attune RTD’s information, agreed to invest immediately, and were imminently prepared to send checks to the company, but that he would not advise them to do so until after the company delivered to the Fund the first 750,000 share stock certificate. Only after Mr. Stone assured Davis and Bianco that the investment was assured, imminent and forthcoming, and that the company would be receiving the first of many checks within a week or two after he received the stock certificate, did Attune RTD agree to process the now pending stock certificate. Attune RTD negotiated the size of the stock certificate based on the amount of money Mr. Stone claimed the Fund would deliver in those short weeks, based on promises he allegedly secured from pre-existing relationships, amounting to $100,000 - $200,000 in funds that he stated would begin arriving at Attune RTD within the first few weeks. The Company indicated an urgent need for capital and believed that Mr. Stone would fulfill the promise that was bargained for. No funds or offers to provide funds for Attune RTD have been forthcoming from any person claiming any relationship with the Fund or Mr. Stone. The Company believes Mr. Stone’s statements were false and made to induce management into delivering the stock certificate. On May 17, 2013 the Company was notified by it transfer agent that Wakabayashi was attempting to clear a stock certificate. The Company notified the transfer agent it was placing a stop on the transaction. On or about July 2, 2013 the Company received an email from its transfer agent with a letter from Mr. Stone’s counsel. On or about June 10, 2013 the Company replied to Stone’s counsel detailing Mr. Stone’s promise and indicated the Company would not process the certificate, but in an effort to resolve this matter, the Company offered Mr. Stone 50,000 shares. The Company is prepared to litigate the matter.

As of June 30, 2013 and December 31, 2012, the Company owed its 2 principal officers combined accrued salaries of $277,101 and $181,538, respectively.

The CEO and CFO of the Company contributed $4,647 for the January, February and March 2013 payments for two vehicles for the Company. They do not expect to be repaid by the Company and therefore the contribution of $4,647 will be considered contributed capital to the Company.

On June 8, 2013, the Company released and discharged two Ford F150 vehicles, and all claims of ownership along with the entire remaining debt obligations owed on each vehicle to Mr. Davis, the Company’s CEO, and to Mr. Bianco, the Company’s principal financial officer. Both vehicles were purchased personally by and registered to the officers for business use in a pilot program the Company participated in with a major utility provider. The Company began making payments of $755.70 beginning on 6/06/2011 for the vehicle purchased by Mr. Davis and ended making payments on December 2012. The Company began making payments of $755.70 beginning on 6/06/2011 for the vehicle purchased by Mr. Bianco and ended making payments on December 2012. Both officers have agreed to reduce their deferred payroll amounts by $20,000 each. The transaction resulted in no gain or loss and was reflected as additional paid in capital.

On July 25, 2013, the Company converted a note with a related party that was issued on June 7, 2013 with a face value of $10,000 into restricted common stock shares at $0.02 per share, satisfying the note dated 7/23/2012 in full.

On July 24, 2013 the Company issued 862,069 shares of Class A Common Stock to convert $15,000 principal of a convertible note dated September 28, 2011, as amended by Amendment No 1 dated October 17, 2011 with a principal face value of $42,500. The principal due remaining on this note after conversion is $24,750.

On August 8, 2013, the Company issued convertible promissory note in the amount of $10,000. The convertible note has a maturity date of January 22, 2014 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 variable conversion price of 35% representing a discount rate of 65% of the average of the three lowest closing bid stock prices over the last ten days and contains no dilutive reset feature. Due to the indeterminable number of shares to be issued at conversion, the Company recorded a derivative liability.