AURT Attune RTD (CE)

ITEM 1A. RISK FACTORS.

An investment in our common stock involves a high degree of risk. Before making an investment decision, you should give careful consideration to the following risk factors, in addition to the other information included in this Annual Report. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of our common stock could decline and investors could lose all or part of their investment.

Risks Related to Our Company

Director Independence

We are not currently listed on any national securities exchange that has a requirement that our Board of Directors have an independent director. At this time, we do not have an “independent director” as that term is defined under the notes of the NASDAQ Capital Market. Thus, there is a potential conflict in that board members who are management will participate in discussions concerning management compensation and audit issues that may affect management decisions.

Risk of not being able to repay our “Secured Promissory Notes” on the date of maturity.

On June 21, 2013, The Company issued two Secured Promissory notes, both in the amount $55,000 each to two different investors (the “Secured Promissory Notes 1 and 2”). Both Secured Promissory Notes 1 and 2 have a maturity date of June 23, 2014 (Date of Maturity) and an annual interest rate of 12% per annum.  Secured Promissory Note 1 and 2 are collateralized by the Company’s Energy Forecasting and Management Device”, its only patent, Patent #7777366 issued by the United States Patent and Trademark Office (USPTO), including the associated source code which is not patented.  If we are unable to repay these debt obligations by the date of maturity, we risk forfeiture of the technology to these investors.  We may be unable to restructure this debt.  We believe that we have good relations with these investors, however, should default occur; they may be unwilling to work with us or negotiate a lease back or other terms for the use of this technology on conditions that are suitable to the company.  Our business and marketing plans are reliant on the use of our only patent.  Should this occur, we may be forced to wind down operations or into bankruptcy or liquidation proceedings.

There is substantial doubt about our ability to continue as a going concern as a result of our lack of revenues and if we are unable to generate significant revenue or secure financing, we may be required to cease or curtail our operations.

We are a development stage company. We have generated no significant revenues to date. Our auditors have raised substantial doubt as to our ability to continue as a going concern. Our business needs in total approximately $4,375,000 to fully implement our business plan. We have a Letter of Intent to secure ongoing funding from Beacon Global Partners, LLC at this time. The total amount is being negotiated. Pursuant to the Letter of Intent, we expect to have a binding Agreement with an amount within fifteen days of the filing of the Company’s 2013 Annual filing on Form 10-K. There is uncertainty regarding our ability to implement our business plan without additional financing. We have a history of operating losses, limited funds and no agreements, commitments or understandings. Our future success is dependent upon our ability to commence selling our products, generate cash from operating activities and obtain additional financing. There are no assurances that we will be able to continue selling our products, generate sufficient cash from operations, sell additional shares of common stock or borrow additional funds. Our inability to obtain additional cash could have a material adverse effect on our ability to continue in business and implement our business plan.

Our lack of operating history makes it difficult for an investor to evaluate our future business prospects.

We have a limited operating history. We have generated no significant revenues from the sales of our products. Our business plan is speculative and unproven. There is no assurance that we will be successful in executing our business plan or that even if we successfully implement our business plan, we will ever generate revenues or profits, which makes it difficult to evaluate our business. As a consequence, it is difficult, if not impossible, to forecast our future results. Because of the uncertainties related to our lack of operating history, it is more difficult for an investor to make an investment decision concerning our securities than if we were a profitable operating business.

We require financing and if such financing is not available on acceptable terms it could have a material adverse effect on our business and financial condition.

In June 2013, we entered into an equity line of credit with Dutchess Opportunity Fund II, LP that provides that Dutchess is committed to purchase from us, from time to time, up to $5,000,000 of our common stock over the course of thirty-six months from the first day following the effectiveness of a registration statement. We may draw on the facility from time to time, as and when we determine appropriate in accordance with the terms and conditions of the related investment agreement (“Investment Agreement”), as soon as we have an effective registration statement in place. We have not yet filed a registration statement registering the shares and therefore, we have not yet sold any shares under the Investment Agreement and are unable to do so until the shares are registered. Accordingly, we are currently in default under the Investment Agreement with Duchess for not filing the registration statement and our equity line remains unavailable.

We do not have any arrangements with any bank or financial institution to provide additional financing and there can be no assurance that any such arrangement, if required or otherwise sought, would be available on terms deemed to be commercially acceptable and in our best interests. Also, if we raise additional funds by selling equity or equity-based securities, the percentage ownership of our existing stockholders will be reduced and such equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. Any inability to obtain additional cash as needed could have a material adverse effect on our financial position, results of operations and ability to continue operations. 

A material drop in the retail price of utility-generated electricity or electricity from other sources would harm our business, financial condition and results of operations.

We believe that a customer’s decision to buy renewable energy from us is primarily driven by their desire to pay less for electricity. The customer’s decision may also be affected by the cost of other renewable energy sources. Decreases in the retail prices of electricity from the utilities or from other renewable energy sources would harm our ability to offer competitive pricing and could harm our business. The price of electricity from utilities could decrease as a result of:

A reduction in utility electricity prices would make the purchase of our BrioWave technology and proposed solar power energy systems less economically attractive. In addition, a shift in the timing of peak rates for utility-generated electricity to a time of day when solar energy generation is less efficient could make our BrioWave product offerings less competitive and reduce demand for our products and services. If the retail price of energy available from utilities were to decrease due to any of these reasons, or others, we would be at a competitive disadvantage, we may be unable to attract new customers and our growth could be limited.

The products we sell and install have never been sold on a mass market commercial basis, and we do not know whether they will be accepted by the market.

The market for our BrioWave products for use by residential, commercial, industrial and governmental users is at a relatively early stage of development and the extent to which the products we sell and install will be widely adopted is uncertain. If these products are not accepted by the market, our business plans, prospects, results of operations and financial condition will suffer. Moreover, demand for the products we sell and install may not develop or may develop to a lesser extent than we anticipate. The development of a successful market for our products and our ability to sell our products at a lower price per watt may be affected by a number of factors, many of which are beyond our control, including but not limited to:

If our proposed products fail to gain sufficient market acceptance, our business plans, prospects, results of operations and financial condition will suffer.

Because we depend and will depend upon third parties with whom we have no signed contracts for components used in manufacturing our product and for the manufacturing of our products, if these manufacturers or suppliers fail to perform or if we lose our relationships with these manufacturers or suppliers, our revenues could be reduced.

We will rely on various third party suppliers for the components used in the production of our swimming pool electronic control products and for the manufacturing of our products. Specifically, we are outsourcing all production, including, but not limited to, the design of our printed circuit board technology, firmware, and software assembly to MEC Northwest. We maintain tooling in Guangzhou, China for the purpose of manufacturing our polyethylene enclosure. We do not have any signed contracts pertaining to any of our manufacturing which exposes us to a greater risk of losing these suppliers or manufacturers than if we had written agreements.

If we lose these suppliers, there can be no assurance that we will be able to negotiate new supplier or manufacturer agreements on acceptable terms, if at all, or that current or future supplier or manufacturer arrangements will be successful. With respect to any products supplied or manufactured by third parties, there can be no assurance that any third-party supplier will perform acceptably or that failures by third parties will not delay or impair our ability to deliver products on a timely basis, which could reduce our revenues.

Technological changes in our industry could render our BrioWave products obsolete, which could prevent us from achieving sales and market share.

If we or our suppliers fail to refine our, or their, technology and to develop and introduce new products could cause our, or their, products to become uncompetitive or obsolete, which could prevent us from increasing our sales and becoming profitable. The industry related to components using our Brio Wave products is rapidly evolving and highly competitive. Development efforts may be rendered obsolete by the technological advances of others, and other technologies may prove more advantageous for the commercialization of products using our products. If this occurs, our sales could be diminished.

We rely on access to software from a third party vendor the Company is in default with on an agreement.

As of December 31, 2013, the Company remains in default under the terms and conditions of an agreement for software usage provided by a vendor. The vendor has not previously prevented access to the software and continues to bill the Company for its respective monthly payments. The Company is not currently using the software and its purpose is related to the use of its graphical user interface, to display data, dashboards and control parameters. The user interface is a critical tool in the technologies use for its utility demand response application. If we are prevented from using this software, commercialization of our product for use by utility vendors may not materialize, or may delay its launch to market and delay or impair our ability to deliver products on a timely basis, which could reduce our revenues or render the technology obsolete. We have no assurances from the vendor that they will continue to allow us access to the use of this software.

Problems with product quality or product performance, including defects, in the BrioWave products we distribute and install could result in a decrease in customers and revenue, unexpected expenses and loss of market share.

Our BrioWave products may contain undetected errors or defects, especially when the products are first introduced. For example, components in our BrioWave products may contain defects that are not detected until after they are shipped or are installed because we cannot test for all possible scenarios. These defects may cause us to request that suppliers incur significant re-engineering costs, divert the attention of our personnel from product selling efforts and significantly affect our customer relations and business reputation. If we deliver components with errors or defects, or if there is a perception that our components contain errors or defects, our credibility and the market acceptance and sales of our products could be harmed. Similarly, if we deliver components with errors or defects, or if there is a perception that such components contain errors or defects, our credibility and the market acceptance and sales of our BrioWave products could be harmed. Furthermore, widespread product failures may damage our market reputation, reduce our market share, and cause sales to decline.

Like other retailers, distributors and manufacturers of products that are used by consumers, we face an inherent risk of exposure to product liability claims in the event that the use of the component products in our energy systems results in injury.

Our business may be subject to warranty and product liability claims in the event that our BrioWave technology fails to perform as expected or if a failure of our BrioWave technology results, or is alleged to result, in bodily injury, property damage or other damages. Because our BrioWave technology is used with products that involve the use of electricity, it is possible that our products could result in injury, whether by product malfunctions, defects, improper installation or other causes. Moreover, we may not have adequate resources in the event of a successful claim against us. We have no product liability insurance. In addition, quality issues can have various other ramifications, including delays in the recognition of revenue, loss of revenue, loss of future sales opportunities, increased costs associated with repairing or replacing products, and a negative impact on our goodwill and reputation, which could also adversely affect our business and operating results. Our business’ exposure to product liability claims is expected to increase significantly in connection with the implementation of our business plan.

We rely on suppliers to comply with intellectual property, copyright, hazardous materials and processes and trade secrecy laws and regulations and, if such laws and regulations are not sufficiently followed, our business could suffer substantially.

We endeavor to comply with all law and regulation regarding intellectual property law, manufacturing process law and regulation, however, in many cases it is our supplier that must comply with such regulations and laws. Although we make efforts to ensure that products sourced from third parties comply with required regulation and law and that the operation of our suppliers do as well, our business could suffer if a supplier was, or suppliers were, found to be non-compliant with regulation and law in our, our customers’ or our suppliers’ jurisdictions.

Our inability to protect our intellectual property rights could allow competitors to use our property rights and technologies in competition against our Company, which would reduce our sales. In such an event we would not be able to grow as quickly as expected, and the loss of anticipated revenues will also reduce our ability to fully fund our operations and to otherwise execute our business plan.

We primarily rely on one patent, U.S. Patent No. 7,777,366 B2, issued by the United States Patent and Trademark Office (USPTO) on August 17, 2010. We rely in part, on copyright, trademark and trade secret laws, proprietary rights agreements, and non-disclosure agreements to protect our intellectual property. We cannot give any assurance that these measures will prove to be effective in protecting our intellectual property. We also cannot give any assurance that our existing patent will not be invalidated, that any patents that we currently or prospectively apply for will be granted, or that any of these patents will ultimately provide significant commercial benefits. Further, competing companies may circumvent any patents that we may ultimately hold by developing products which closely emulate but do not infringe our patents. We can give no assurance that we will be able to successfully defend our patents if and when received and proprietary rights in any action we may file for patent infringement. Similarly, we cannot give any assurance that we will not be required to defend against litigation involving the patents if and when received or proprietary rights of others, or that we will be able to obtain licenses for these rights. Legal and accounting costs relating to prosecuting or defending patent infringement litigation may be substantial.

We also rely on proprietary designs, technologies, processes and know-how not eligible for patent protection. We cannot give any assurance that our competitors will not independently develop the same or superior designs, technologies, processes and know-how.

We have a policy concerning proprietary rights with our employees giving us proprietary rights to certain technology developed by those employees while engaged by our Company; however, we can give you no assurance that courts of competent jurisdiction will enforce this policy.

Our lack of an established brand name and relative lack of resources could negatively impact our ability to effectively compete in the market for applications using our BrioWave technology, which could reduce the value of your investment.

We do not have an established brand name or reputation in the business of sales and installation of our BrioWave products. We also have a relative lack of resources to conduct our business operations. Thus, we may have difficulty effectively competing with companies that have greater name recognition and resources than we do. Our inability to promote and/or protect our brand name may have an adverse effect on our ability to compete effectively in the energy systems market.

Our management decisions are made by our management team, Shawn Davis and Thomas Bianco. If we lose their services, our revenues, if any, may be reduced.

Our success is dependent in part upon the availability of our executive officers. The loss or unavailability to us of either of Messrs. Davis or Bianco could have a material adverse effect on our business, prospects, financial condition and operating results. If Messrs. Davis or Bianco is not able to continue as an officer, our prospects could be adversely affected and, as a result, the loss of services of Mr. Davis or Mr. Bianco could materially adversely affect our operations. We have entered into employment agreements with each of Messrs. Davis and Bianco. We do not maintain key man insurance.

Risks Related to our Convertible Notes

On January 30, 2013, the holder of Convertible Notes presented a demand for immediate payment

On January 30, 2013, the holder of Convertible Notes presented a demand for immediate payment, as provided in the terms of the notes, of an aggregate of $120,000, representing 150% of the remaining outstanding principal balance of Convertible Notes 1, 2, and 3, together with default interest under the terms of the Notes. Because we have failed to pay the remaining principal balance, together with accrued and unpaid interest, upon the maturity dates of Convertible Notes 1, 2, 3, 4 and 5 (collectively, the “Convertible Notes”), we are in default under the respective Convertible Notes. The Convertible Notes are held by the same holder. As of the date of this filing, we continue to work with the holder of the Convertible Notes, and though the holder of the notes has not threatened litigation, the incident rises to the level of potential threatened litigation. We anticipate the parties will be able to resolve the issue amicably. The holder of the Convertible Notes has continued to support us and has advanced certain additional funds to us beyond the date of the issuance of its demand letter that was received on January 30, 2013. The holder of the notes could pursue litigation, however, as of the date of this filing has not threatened to do so.

Existing stockholders could experience dilution upon the issuance of common stock pursuant to the conversion of our Derivative Financial Instruments (Convertible Notes)

Our Derivative Financial Instruments (Convertible Notes) contemplate the issuance of shares of our common stock to satisfy these debt obligations, subject to certain restrictions and obligations. Our existing stockholders’ownership could be diluted by such conversions. Consequently, the value of your investment may decrease. Our convertible notes provide the issuer with the following conversion terms.

Convertible Note 1 . On September 2011, the Company issued a convertible promissory note in the amount of $42,500 to an investor (the “Convertible Note 1”). Convertible Note 1 had a maturity date of July 2012 and an annual interest rate of 8% per annum. The holder of Convertible Note 1 has the right to convert any outstanding principal and accrued interest into fully paid and non-assessable shares of Common Stock. The convertible note has a variable conversion price of 58% of the average of the three lowest closing bid stock prices over the last ten days and contains no dilutive reset feature.

Convertible Note 2 . On January 5, 2012, the Company issued a second convertible promissory note in the amount of $42,500 to the same investor (the “Convertible Note 2”). Convertible Note 2 had a maturity date of July 2012 and an annual interest rate of 8% per annum. The holder of Convertible Note 2 has the right to convert any outstanding principal and accrued interest into fully paid and non-assessable shares of Common Stock. Convertible Note 2 has a conversion price of 58% of the average of the three lowest closing bid stock prices over the last ten days and contains no dilutive reset feature.

Convertible Note 3 . On December 3, 2012, the Company issued a third convertible promissory note in the amount of $3,000 to the same investor (the “Convertible Note 3”). Convertible Note 3 had a maturity date of September 5, 2013 and an annual interest rate of 8% per annum. The holder of Convertible Note 3 has the right to convert any outstanding principal and accrued interest into fully paid and non-assessable shares of Common Stock. Convertible Note 3 has a conversion price of 58% of the average of the three lowest closing bid stock prices over the last ten days and contains no dilutive reset feature.

Convertible Note 4 . On February 21, 2013, the Company issued a fourth convertible promissory note in the amount of $50,000 to the same investor (the “Convertible Note 4”). Convertible Note 4 had a maturity date of November 25, 2013 and an annual interest rate of 8% per annum. The holder of Convertible Note 4 has the right to convert any outstanding principal and accrued interest into fully paid and non-assessable shares of Common Stock. Convertible Note 4 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.

Convertible Note 5 . On April 18, 2013, the Company issued a fifth convertible promissory note in the amount of $22,500 to the same investor (the “Convertible Note 5”). Convertible Note 5 had a maturity date of January 22, 2014 and an annual interest rate of 8% per annum. The holder of Convertible Note 5 has the right to convert any outstanding principal and accrued interest into fully paid and non-assessable shares of Common Stock. Convertible Note 5 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.

Convertible Note 6 . On August 5, 2013, the Company issued a sixth convertible promissory note in the amount of $10,000 to the same investor (the “Convertible Note 6”). Convertible Note 6 has a maturity date of May 7, 2014 and an annual interest rate of 8% per annum. The holder of Convertible Note 6 has the right to convert any outstanding principal and accrued interest into fully paid and non-assessable shares of Common Stock. Convertible Note 6 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

We lost our office space; our business may adversely be impacted

On April 3, 2014, we lost our office space.  We are currently looking for suitable office space.  Losing our office space may disrupt our ongoing business. We have to store items that may not be available when needed, or which may result in loss. Sensitive information and tangible property may be at additional risk of being lost by not being stored in a centralized or secure location

Risks Related to Our Equity Line

The resale of the shares of common stock which may be issued under our equity line could depress the market price of our common stock and you may not be able to sell your investment for what you paid for it.

We intend to register the resale of up to $5,000,000 of our common stock in connection with our equity line, but have not yet filed a registration statement registering the shares. The sale of these shares into the public market by the investor could depress the market price of our common stock and you may not be able to sell your investment for what you paid for it.

Existing stockholders could experience dilution upon the issuance of common stock pursuant to the equity line.

Our equity line contemplates our issuance of shares of our common stock, subject to certain restrictions and obligations. If the terms and conditions of the equity line are satisfied, and we choose to exercise our put rights to the fullest extent permitted and sell shares of our common stock to the investor, our existing stockholders’ ownership will be diluted by such sales. Consequently, the value of your investment may decrease.

The equity line investor will pay less than the then-prevailing market price for our common stock under the equity line.

The common stock to be issued pursuant to the equity line, once we have an effective registration statement in place, will be purchased at a 5% discount to the lowest daily volume weighted average price, VWAP, of our common stock during the five consecutive trading day period beginning on the trading day immediately following the date of delivery of a put notice by us to the counterparty, subject to certain exceptions. The counterparty has a financial incentive to sell our common stock upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price. If the investor sells the shares, the price of our common stock could decrease.

We may not be able to access sufficient funds under the equity line when needed.

Our ability to put shares and obtain funds under the equity line is limited by the terms and conditions in the Investment Agreement, including restrictions on when we may exercise our put rights, restrictions on the amount we may put to the investor at any one time, which is determined in part by the trading volume of our common stock, and a limitation on the investor’s obligation to purchase if such purchase would result in them beneficially owning more than 4.99% of our common stock. Accordingly, the equity line may not be available to satisfy all of our funding needs. To date, we have not sold any shares under the Investment Agreement as we have not yet filed a registration statement registering the shares and accordingly, we are currently in default under the Investment Agreement. It is our understanding that, upon notice from us to sell shares to Dutchess under the Investment Agreement, Dutchess will begin selling shares in the open market and does not typically hold the shares purchased, if any, from us. However, once the registration statement is effective, the Investment Agreement does not require Dutchess to immediately sell the shares we issue to them.

Risks Related to our Common Stock

Trading in our common stock is limited and the price of our common stock may be subject to substantial volatility.

Our common stock (OTCBB: AURT) is quoted on the Over-the-Counter Bulletin Board, or the OTCBB. We expect our common stock to continue to be quoted on the OTCBB for the foreseeable future. Broker-dealers may decline to trade in OTCBB stocks given the market for such securities is often limited, the stocks are more volatile and the risk to investors is greater. These factors may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of their shares. This could cause our stock price to decline.

Additionally, the price of our common stock may be volatile as a result of a number of factors, including, but not limited to, the following:

Because our officers and directors control our activities, they may cause us to act in a manner that is most beneficial to them and not to outside shareholders, which could cause us not to take actions that outside investors might view favorably and which could prevent or delay a change in control .

Our executive officers and directors beneficially own approximately 42% as of April 14, 2014 of our outstanding common stock and 33.3% of our Class B preferred stock, of which the holders are entitled to twenty thousand votes per share. As the Class B preferred stock votes with common stock, our executive officers and directors collectively hold 33.3% of the voting rights of our Company. As a result, they effectively control all matters requiring director and stockholder approval, including the election of directors, the approval of significant corporate transactions, such as mergers and related party transactions. Our executive officers and directors also have the ability to delay or perhaps even block, by their ownership of our stock, an unsolicited tender offer. This concentration of ownership could have the effect of delaying, deterring, or preventing a change in control of our company that you might view favorably.

Changes to the Articles of Incorporation.

We filed a Definitive 14C Information Statement on January 29, 2013.  The Board of Directors believes that the increase in the number of authorized shares of Common Stock is in the best interests of the Company and its stockholders. The purpose of increasing the number of authorized shares of Common Stock is to have shares available for issuance for such corporate purposes as the Board of Directors may determine in its discretion, including, without limitation, conversion of convertible securities, future acquisitions, stock splits, stock dividends, future financings and other corporate purposes.  Existing stockholders will experience dilution upon the issuance of common stock pursuant to the conversion of our convertible notes which may decrease the value of your investment.

“Penny stock” rules may make buying or selling our securities difficult which may make our stock less liquid and make it harder for investors to buy and sell our securities.

Trading in our securities is subject to the SEC’s “penny stock” rules and it is anticipated that trading in our securities will continue to be subject to the penny stock rules for the foreseeable future. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our securities to persons other than prior customers and accredited investors must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by these requirements may discourage broker-dealers from recommending transactions in our securities, which could severely limit the liquidity of our securities and consequently adversely affect the market price for our securities.