Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended | |
Sep. 30, 2013 | Nov. 14, 2013 | |
Document And Entity Information | ' | ' |
Entity Registrant Name | 'Lattice INC | ' |
Entity Central Index Key | '0000350644 | ' |
Document Type | '10-Q | ' |
Document Period End Date | 30-Sep-13 | ' |
Amendment Flag | 'false | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Is Entity a Well-known Seasoned Issuer? | 'No | ' |
Is Entity a Voluntary Filer? | 'No | ' |
Is Entity's Reporting Status Current? | 'Yes | ' |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Common Stock, Shares Outstanding | ' | 34,325,214 |
Document Fiscal Period Focus | 'Q3 | ' |
Document Fiscal Year Focus | '2013 | ' |
CONDENSED_CONSOLIDATED_BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Current assets: | ' | ' |
Cash and cash equivalents | $124,616 | $30,368 |
Accounts receivable | 2,278,237 | 2,420,737 |
Note receivable - current | 291,667 | 0 |
Other current assets | 111,219 | 134,340 |
Total current assets | 2,805,739 | 2,585,445 |
Property and equipment, net | 560,629 | 518,444 |
Other intangibles, net | 812,511 | 910,008 |
Note receivable - long term | 408,333 | 0 |
Other assets | 2,812 | 2,812 |
Assets to be disposed of: goodwill and Intangibles | 0 | 923,381 |
Total assets | 4,590,024 | 4,940,090 |
Current liabilities: | ' | ' |
Accounts payable | 1,346,200 | 1,854,009 |
Accrued expenses | 1,750,171 | 1,499,526 |
Customer advances | 992,899 | 456,930 |
Notes payable - current | 1,953,158 | 2,052,796 |
Derivative liability | 93,275 | 57,634 |
Liability to be disposed of | 0 | 225,104 |
Total current liabilities | 6,135,703 | 6,145,999 |
Long term liabilities: | ' | ' |
Long term liability to be disposed of | 0 | 56,352 |
Notes Payable - long term | 168,000 | 365,998 |
Deferred tax liabilities | 0 | 94,184 |
Total long term liabilities | 168,000 | 516,534 |
Total liabilities | 6,303,703 | 6,662,533 |
Shareholders' equity | ' | ' |
Common stock - .01 par value, 200,000,000 authorized, 34,337,690 and 31,072,690 issued and outstanding respectively as of September 30, 2013 and 33,116,509 and 29,851,509 issued and outstanding respectively as of December 31, 2012 | 343,378 | 326,166 |
Additional paid-in capital | 43,469,459 | 43,338,352 |
Accumulated deficit | -45,055,287 | -45,039,065 |
Stockholders' Equity before Treasury Stock | -1,155,583 | -1,284,480 |
Stock held in treasury, at cost | -558,096 | -558,096 |
Equity Attributable to shareowners of Lattice Incorporated | -1,713,679 | -1,842,576 |
Equity Attributable to noncontrolling interest | 0 | 120,133 |
Total liabilities and shareholders' equity | 4,590,024 | 4,940,090 |
Series A Preferred Stock | ' | ' |
Shareholders' equity | ' | ' |
Preferred Stock, Value, Issued | 65,758 | 68,958 |
Series B Preferred Stock | ' | ' |
Shareholders' equity | ' | ' |
Preferred Stock, Value, Issued | 10,000 | 10,000 |
Series C Preferred Stock | ' | ' |
Shareholders' equity | ' | ' |
Preferred Stock, Value, Issued | 5,200 | 5,200 |
Series D Preferred Stock | ' | ' |
Shareholders' equity | ' | ' |
Preferred Stock, Value, Issued | $5,909 | $5,909 |
CONDENSED_CONSOLIDATED_BALANCE1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Shareholders' equity | ' | ' |
Common stock, par value (in dollars per share) | $0.01 | $0.01 |
Common stock, shares authorized | 200,000,000 | 200,000,000 |
Common stock, shares issued | 34,337,690 | 33,116,509 |
Common stock, shares outstanding | 31,072,690 | 29,851,509 |
Series A Preferred Stock | ' | ' |
Shareholders' equity | ' | ' |
Preferred stock, par value (in dollars per share) | $0.01 | $0.01 |
Preferred stock, shares authorized | 9,000,000 | 9,000,000 |
Preferred stock, shares issued | 6,575,815 | 6,895,815 |
Preferred stock, shares outstanding | 6,575,815 | 6,895,815 |
Series B Preferred Stock | ' | ' |
Shareholders' equity | ' | ' |
Preferred stock, par value (in dollars per share) | $0.01 | $0.01 |
Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
Preferred stock, shares issued | 1,000,000 | 1,000,000 |
Preferred stock, shares outstanding | 502,160 | 502,160 |
Series C Preferred Stock | ' | ' |
Shareholders' equity | ' | ' |
Preferred stock, par value (in dollars per share) | $0.01 | $0.01 |
Preferred stock, shares authorized | 520,000 | 520,000 |
Preferred stock, shares issued | 520,000 | 520,000 |
Preferred stock, shares outstanding | 520,000 | 520,000 |
Series D Preferred Stock | ' | ' |
Shareholders' equity | ' | ' |
Preferred stock, par value (in dollars per share) | $0.01 | $0.01 |
Preferred stock, shares authorized | 636,400 | 636,400 |
Preferred stock, shares issued | 590,910 | 590,910 |
Preferred stock, shares outstanding | 590,910 | 590,910 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Income Statement [Abstract] | ' | ' | ' | ' |
Revenue | $2,173,780 | $2,122,652 | $6,270,674 | $6,045,173 |
Cost of Revenue | 1,270,869 | 1,303,722 | 4,041,154 | 3,687,997 |
Gross Profit | 902,911 | 818,930 | 2,229,520 | 2,357,176 |
Operating expenses: | ' | ' | ' | ' |
Selling, general and administrative | 633,704 | 549,692 | 1,817,814 | 1,769,816 |
Research and development | 167,839 | 160,876 | 481,221 | 514,067 |
Total operating expenses | 801,543 | 710,568 | 2,299,035 | 2,283,883 |
Income (loss) from operations | 101,368 | 108,362 | -69,515 | 73,293 |
Other income (expense): | ' | ' | ' | ' |
Derivative income (expense) | -21,233 | 8,483 | -35,641 | 38,733 |
Other income | 46,713 | 0 | 46,713 | 255,613 |
Interest expense | -66,130 | -101,527 | -308,848 | -271,316 |
Total other income | -40,650 | -93,044 | -297,776 | 23,030 |
Income before taxes | 60,718 | 15,318 | -367,291 | 96,323 |
Income taxes | 0 | 0 | 0 | 0 |
Net income (loss) from continuing operations | 60,718 | 15,318 | -367,291 | 96,323 |
Net income (loss) from operations of discontinued component (Note 5) | -11,273 | -122,635 | -170,374 | -75,341 |
Gain on sale of assets | 0 | 0 | 521,443 | 0 |
Net income from operations of discontinued component | -11,273 | -122,635 | 351,069 | -75,341 |
Net income (loss) | $49,445 | ($107,317) | ($16,222) | $20,982 |
Basic income (loss) per common share - from continuing operations | $0 | $0 | ($0.01) | $0 |
Basic income (loss) per common share - from discontinued operations | $0 | $0 | $0.01 | $0 |
Basic net income per common share | $0 | $0 | $0 | $0 |
Diluted income (loss) per common share - from continuing operations | $0 | $0 | ($0.01) | $0 |
Diluted income (loss) per common share - from discontinued operations | $0 | $0 | $0.01 | $0 |
Diluted net income per common shares | $0 | $0 | $0 | $0 |
Weighted average shares: | ' | ' | ' | ' |
Basic | 33,902,907 | 30,917,270 | 33,321,502 | 30,209,356 |
Diluted | 76,867,034 | 76,077,035 | 75,651,947 | 61,588,766 |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
Cash flow from operating activities: | ' | ' |
Net income (loss) | ($16,222) | $20,982 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ' | ' |
Operating activities discontinued operations | 48,050 | 144,153 |
Gain on disposition of Government segment assets | -521,443 | 0 |
Derivative income (expense) | 35,641 | -38,733 |
Amortization of intangible assets | 97,485 | 97,500 |
Amortization of debt discount | 64,547 | 0 |
Gain on extinguishment of debt | -46,713 | 0 |
Financing fees | 19,600 | 0 |
Share-based compensation | 32,604 | 4,263 |
Depreciation | 180,017 | 172,685 |
(Increase) decrease in: | ' | ' |
Accounts receivable | 142,500 | 34,034 |
Other current assets | 71,871 | 55,251 |
Increase (decrease) in: | ' | ' |
Accounts payable and accrued liabilities | -186,537 | -343,052 |
Deferred revenues | 0 | -37,500 |
Customer advances | 535,969 | 235,973 |
Total adjustments | 473,591 | 324,574 |
Net cash provided by (used in) operating activities | 457,369 | 345,556 |
Cash Used in investing activities: | ' | ' |
Purchase of equipment | -222,202 | -114,387 |
Cash received sale of discontinued operations | 231,670 | 0 |
Net cash provided by (used in) investing activities | 9,468 | -114,387 |
Cash flows from financing activities: | ' | ' |
Revolving credit facility (payments) borrowings, net | -232,807 | -206,139 |
Payments on capital equipment lease | -18,846 | -16,718 |
Payments on Notes Payable - discontinued operations | -56,352 | -84,528 |
Payments on notes payable | -600,000 | -179,527 |
Proceeds from the issuance of note payable, net of discount | 580,400 | 175,000 |
Payments on Director Loans | -44,984 | -30,438 |
Net cash provided by (used in) financing activities | -372,589 | -342,350 |
Net increase (decrease) in cash and cash equivalents | 94,248 | -111,181 |
Cash and cash equivalents - beginning of period | 30,368 | 192,286 |
Cash and cash equivalents - end of period | 124,616 | 81,105 |
Supplemental cash flow information | ' | ' |
Interest paid in cash | $270,614 | $396,051 |
1_Organization_and_summary_of_
1. Organization and summary of significant accounting policies | 9 Months Ended |
Sep. 30, 2013 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' |
1. Organization and summary of significant accounting policies | ' |
(a) Organization | |
Lattice Incorporated (the “Company”) was incorporated in the State of Delaware in May 1973 and commenced operations in July 1977. The Company began as a provider of specialized solutions to the telecom industry. Throughout its history Lattice has adapted to the changes in this industry by reinventing itself to be more responsive and open to the dynamic pace of change experienced in the broader converged communications industry of today. Currently, Lattice provides advanced solutions for several vertical markets. The greatest change in operations is in the shift from being a component manufacturer to a solution provider focused on developing applications through software on its core platform technology. To further its strategy of becoming a solutions provider, the Company acquired a majority interest in “SMEI” in February 2005. In September 2006 the Company purchased all of the issued and outstanding shares of the common stock of Lattice Government Services, Inc., (“LGS”) (formerly Ricciardi Technologies Inc. (“RTI”)). LGS was founded in 1992 and provides software consulting and development services for the command and control of biological sensors and other Department of Defense requirements to United States federal governmental agencies either directly or through prime contractors of such governmental agencies. LGS’s proprietary products include SensorView, which provides clients with the capability to command, control and monitor multiple distributed chemical, biological, nuclear, explosive and hazardous material sensors. In December 2009 we changed RTI’s name to Lattice Government Services Inc. In January 2007, we changed our name from Science Dynamics Corporation to Lattice Incorporated. On May 16, 2011 we acquired 100% of the shares of Cummings Creek Capital, a holding Company which itself owns 100% of the shares of CLR Group Limited. (“CLR”). CLR is a government contractor which complements our Government Services business by expanding markets and service offerings. During the first quarter of 2013, management decided that focusing resources on the communications business had more strategic value to the Company’s shareholders. The Government assets were marketed for sale during the quarter and culminated in a sale on April 2, 2013 for approximately $1.2 million. Accordingly, the financial performance of the Government segment has been segregated in our financial statements as discontinued operations. As a result, the Company’s management discussion will be based on its communications business and the Company no longer operates in multiple segments. | |
(b) Basis of Presentation going concern | |
At September 30, 2013 the Company had a working capital deficiency of $3,330,000. This compared to a working capital deficiency of $3,561,000 at December 31. 2012. The Company’s working capital deficiency and constrained liquidity raises substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is highly dependent upon (i) management’s ability to increase operating cashflows (ii), maintain continued availability on its line of credit and the ability to obtain alternative financing to fund capital requirements and/or debt obligations coming due. The accompanying financial statements do not include any adjustments that may result from the outcome of this uncertainty. | |
(c) Interim Condensed Consolidated Financial Statements | |
The condensed consolidated financial statements as of Setember 30, 2013 and for the three and nine months ended September 30, 2013 and 2012 are unaudited. In the opinion of management, such condensed consolidated financial statements include all adjustments (consisting of normal recurring accruals) necessary for the fair representation of the consolidated financial position and the consolidated results of operations. The consolidated results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year end December 31, 2012 appearing in Form 10-K filed on April 1, 2013. | |
(d) Principles of consolidation | |
The condensed financial statements include the accounts of the Company and all of its subsidiaries in which a controlling interest is maintained. All significant inter-company accounts and transactions have been eliminated in consolidation. For those consolidated subsidiaries where Company ownership is less than 100%, the outside stockholders’ interests are shown as non-controlling interest. Investments in affiliates over which the Company has significant influence but not a controlling interest are carried on the equity basis. | |
(e) Use of estimates | |
The preparation of these financial statements in accordance with accounting principles generally accepted in the United States (US GAAP) requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. These estimates form the basis for judgments made about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and judgments are based on historical experience and on various other assumptions that the Company believes are reasonable under the circumstances. However, future events are subject to change and the best estimates and judgments routinely require adjustment. US GAAP requires estimates and judgments in several areas, including those related to impairment of goodwill and equity investments, revenue recognition, recoverability of inventory and receivables, the useful lives, long lived assets such as property and equipment, the future realization of deferred income tax benefits and the recording of various accruals. The ultimate outcome and actual results could differ from the estimates and assumptions used. | |
(f) Share-based payments | |
On January 1, 2006, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification 718-10, Accounting for Share-based payment , to account for compensation costs under its stock option plans and other share-based arrangements. ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. For purposes of estimating fair value of stock options, we use the Black-Scholes-Merton valuation technique. At September 30, 2013, there is $3,291 of unrecognized compensation cost related to unvested share-based compensation awards granted. For the three months ended September 30, 2013 share-based compensation was $2,319 compared to $1,421 in the prior year period. For the nine months ended September 30, 2013 share based compensation was $32,604 over $4,263 for 2012. | |
(g) Revenue Recognition | |
Revenues related to collect and prepaid calling services generated by the communication services segment are recognized during the period in which the calls are made. In addition, during the same period, the Company records the related telecommunication costs for validating, transmitting, billing and collection, and line and long distance charges, along with commissions payable to the facilities and allowances for uncollectible calls, based on historical experience. | |
Government claims: Unapproved claims relate to contracts where costs have exceeded the customer’s funded value of the task ordered on our cost reimbursement type contract vehicles. The unapproved claims are considered to be probable of collection and have been recognized as revenue in prior periods. Unapproved claims included as a component of our Accounts Receivable totaled approximately $1,555,000 as of September 30, 2013. Consistent with industry practice, we classify assets and liabilities related to these claims as current, even though some of these amounts are not expected to be realized within one year. | |
(h) Segment Reporting | |
FASB ASC 280-10-50, “Disclosure about Segments of an Enterprise and Related Information” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. The Company had operated in two segments prior to 2013 but with the decision to focus on the communications business and exit the federal government services business, the Company now operates in one segment for the three months and six month’s ended September 30, 2013. | |
(i) Depreciation, amortization and long-lived assets: | |
Long-lived assets include: | |
Property, plant and equipment - These assets are recorded at original cost. The Company depreciates the cost evenly over the assets’ estimated useful lives. For tax purposes, accelerated depreciation methods are used as allowed by tax laws. | |
Goodwill - Goodwill represents the difference between the purchase price of an acquired business and the fair value of the net assets acquired and the liabilities assumed at the date of acquisition. Goodwill is not amortized. The Company tests goodwill for impairment annually (or in interim periods if events or changes in circumstances indicate that its carrying amount may not be recoverable) by comparing the fair value of each reporting unit, as measured by discounted cash flows, to the carrying value to determine if there is an indication that potential impairment may exist. Absent an indication of fair value from a potential buyer or similar specific transactions, the Company believes that the use of this income approach method provides reasonable estimates of the reporting unit’s fair value. Fair value computed by this method is arrived at using a number of factors, including projected future operating results, economic projections, and anticipated future cash flows. The Company reviews its assumptions each time goodwill is tested for impairment and makes appropriate adjustments, if any, based on facts and circumstances available at that time. There are inherent uncertainties, however, related to these factors and to management’s judgment in applying them to this analysis. Nonetheless, management believes that this method provides a reasonable approach to estimate the fair value of the Company’s reporting units. | |
The income approach, which is used for the goodwill impairment testing, is based on projected future debt-free cash flow that is discounted to present value using factors that consider the timing and risk of the future cash flows. Management believes that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating and cash flow performance. This approach also mitigates most of the impact of cyclical downturns that occur in the reporting unit’s industry. The income approach is based on a reporting unit’s five year projection of operating results and cash flows that is discounted using a build up approach. The projection is based upon management’s best estimates of projected economic and market conditions over the related period including growth rates, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future capital expenditures and changes in future working capital requirements based on management projections. | |
Identifiable intangible assets - The Company amortizes the cost of other intangibles over their useful lives unless such lives are deemed indefinite. Amortizable intangible assets are tested for impairment based on undiscounted cash flows and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are not amortized; however, they are tested annually for impairment and written down to fair value as required. | |
(j) Recent accounting pronouncements | |
No new accounting pronouncements issued or effective during the period has had or is expected to have a material impact on the financial statements. | |
2_Notes_payable
2. Notes payable | 9 Months Ended | ||||||||
Sep. 30, 2013 | |||||||||
Debt Disclosure [Abstract] | ' | ||||||||
2. Notes payable | ' | ||||||||
Notes payable consists of the following as of September 30, 2013 and December 31, 2012: | |||||||||
September 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Bank line-of-credit (a) | $ | – | $ | 232,807 | |||||
Notes payable to Stockholder/director (b) | 198,331 | 243,315 | |||||||
Capital lease payable (c) | 6,243 | 25,089 | |||||||
Notes Payable (d) | 1,916,585 | 1,916,585 | |||||||
Notes payable Cummings Creek/CLR (e) | – | 282,454 | |||||||
Total notes payable | 2,121,158 | 2,700,250 | |||||||
Less current maturities | (1,953,158 | ) | (2,277,900 | ) | |||||
Long-term debt | $ | 168,000 | $ | 422,350 | |||||
(a) Bank Line-of-Credit | |||||||||
On July 17, 2009, the Company and its wholly-owned subsidiary, Lattice Government Services (formally “RTI”), entered into a Financing and Security Agreement (the “Action Agreement”) with Action Capital Corporation (“Action Capital”). | |||||||||
Pursuant to the terms of the Action Agreement, Action Capital agreed to provide the Company with advances of up to 90% of the net amount of certain acceptable account receivables of the Company (the “Acceptable Accounts”). The maximum amount eligible to be advanced to the Company by Action Capital under the Action Agreement is $3,000,000. The Company will pay Action Capital interest on the advances outstanding under the Action Agreement equal to the prime rate of Wachovia Bank, N.A. in effect on the last business day of the prior month plus 1%. In addition, the Company will pay a monthly fee to Action Capital equal to 0.75% of the total outstanding balance at the end of each month. | |||||||||
In addition, pursuant to the Action Agreement, the Company granted Action Capital a security interest in certain assets of the Company including all, accounts receivable, contract rights, rebates and books and records pertaining to the foregoing (the “Action Lien”). On June 11, 2010, Action Capital and an accredited investor entered into an agreement under which $1,250,000 of the collateral otherwise securing advances covered by the Action Agreement are subordinated to a new security interest securing an additional loan from the accredited investor. During November 2011, $268,345 of the collateral was collected by Action, escrowed and paid directly to the accredited investor reducing the collateral and outstanding balance on the loan to $981,655 at September 30, 2013. See (d) below. | |||||||||
The outstanding balance owed on the line at September 30, 2013 and December 31, 2012 was $0 and $232,807 respectively. At September 30, 2013 and December 31, 2012 our interest rate was approximately 13.25%. | |||||||||
(b) Notes Payable Stockholders/Director | |||||||||
The first note bears interest at 21.5% per annum. During December 2010, the note was amended to flat monthly payments of $6,000 until maturity, December 31, 2013, at which time any remaining interest and or principal will be paid. This note has an outstanding balance of $30,331 and $75,315 as of September 30, 2013 and December 31, 2012, respectively. | |||||||||
The second note dated October 14, 2011 has a face value of $168,000 of which the Company received $151,200 in net proceeds during October 2011. The discount of $16,800 is being amortized to interest expense over the term of the note. The note carries an annual interest rate of 10% payable quarterly at the rate of $4,200 per quarter. The entire principal on the note of $168,000 is due at maturity on October 14, 2014. The Company is in arrears on interest payments that were due but has accrued the interest costs on the note. The holder has not as of the date of this filing invoked his rights under the default provisions of the note related to the past due interest payments. | |||||||||
(c) Capital Lease Payable | |||||||||
On June 16, 2009 Lattice entered an equipment lease financing agreement with Royal Bank America Leasing to purchase approximately $130,000 in equipment for our communication services. The terms of which included monthly payments of $5,196 per month over 32 months and a $1.00 buy-out at end of the lease term. On July 15, 2011 we signed an addendum to this lease and received additional equipment financing for $58,122 payable over 30 months at $2,211 per month. As of September 30, 2013 and December 31, 2012, the outstanding balance was $6,243 and $25,089, respectively. | |||||||||
(d) Note Payable | |||||||||
On June 11, 2010, Lattice closed on a Note Payable for $1,250,000. The net proceeds to the Company were $1,100,000. The $150,000 is being amortized over the life of the note as additional interest expense. The note matured June 30, 2012 and payment of principal was due at that time in the lump sum value of $981,655 including any unpaid interest. On June 30, 2012 the holder of the note agreed to an extension for payment in full of the note to October 31, 2012. In addition to the maturity extension the Company agreed to increase the collateral by $250,000 the note was secured by certain receivables totaling $981,655, the new secured total is approximately $1,232,000. Until maturity, Lattice is required to make quarterly interest payments (calculated in arrears) at 12% stated interest with the first quarter interest payment of $37,500 due September 30, 2010 and $37,500 due each quarter end thereafter until the final payment comes due October 31, 2012 totaling $1,019,155 including the final interest payment. Concurrent with the note, an intercreditor agreement was signed between Action Capital and Holder where Action Capital has agreed to subordinate the Action Lien on certain government contracts, task orders and accounts receivable totaling $981,655. During November 2011, $268,345 of the original $1,250,000 accounts receivable securing the note was collected, escrowed and paid directly to the note holder by Action Capital thereby reducing the outstanding balance on the note and the collateral to $981,655 at September 30, 2013. As of the date of this filing, the Company is currently in violation under this note agreement from not paying the principal due at the October 31, 2012 maturity date. The Company is current with quarterly interest payments. The holder has not as of the date of this filing invoked his rights under the default provisions of the note. | |||||||||
During the quarter ended June 30, 2011, we issued a two year promissory note payable for $200,000 to a shareholder of the Company. The Note bears interest of 12% per year. The Company is required to pay interest quarterly on a calendar basis starting with a pro-rata interest payment on June 30, 2011. On May 15, 2013 the maturity date, the principal amount of $200,000 became due along with any unpaid and accrued interest. The Company is not in compliance with the terms of the note. We are current with interest and will continue payment at current rate, no default provision has been invoked. | |||||||||
During the quarter ended September 30, 2011, we issued a two year promissory note payable for $227,272 to an investor. The Note bears interest of 12% per year. The Company is required to pay interest quarterly on a calendar basis starting with a pro-rata interest payment on September 30, 2011. On August 3, 2013 the maturity date, the principal amount of the note will be due along with any unpaid and accrued interest. The Company is not in compliance with the terms of the note. We are current with interest and will continue payment at current rate, no default provision has been invoked. | |||||||||
On December 13, 2011, we converted outstanding invoices that we owed a vendor by converting the liability to a promissory note in the amount of $416,533. The note is payable quarterly over a two year term with principal payments due as follows: December 31, 2011 of $10,000, January 15, 2012 of $50,000, March 31, 2012 of $20,000, June 30, 2012 of $30,000, September 30, 2012 of $30,000, December 31, 2012 of $45,000, March 31, 2013 of $45,000, June 30, 2013 of $55,000, September 30, 2013 of $55,000 and December 31, 2013 of $76,533. The note carries a 12% annual interest rate calculated on the outstanding principal balance payable monthly. As of September 30, 2013, the outstanding balance of the note is $309,658. The Company was in default under this note agreement in that it did not pay certain principal payments when due. In June 2013, the Company was served a writ of Garnishment against the note receivable of $700,000 from Blackwatch International Inc. for the outstanding balance due for which we are in default. In October 2013, the Company reached a settlement arrangement whereby the holder agreed to forbear any further collection actions against the Company in exchange for $280,000 payable as follows; $240,000 on October 10, 2013 and then $10,000 payable monthly over four months starting November 10, 2013. The $240,000 was paid. | |||||||||
On January 23, 2012, we issued several promissory notes to private investors with face values totaling $198,000. The proceeds from the notes totaled $175,000 used for working capital. The discount of $23,000 has been recorded as a deferred financing fee and amortized over the life of the note. The Notes bear interest of 12% per year. The Company is required to pay interest quarterly on a calendar basis starting with a pro-rata interest payment on March 31, 2012. On January 23, 2014 the maturity date, the principal amount of the notes will be due along with any unpaid and accrued interest. | |||||||||
On February 26, 2013, the Company issued a note to an investor for $600,000 for which $580,400 of net proceeds were received. The note bears interest of 12% payable monthly and is due in full to investor by the earlier of (i) September 1, 2013 or (ii) the date the customer pays for the system. The note was issued to finance the costs associated with a purchase order transaction with a large telecommunications customer. In addition to the interest we agreed to deliver warrants to the lender for the purchase of up to 800,000 shares of common stock at an exercise price of $0.08 per share, with anti-dilution provisions covering capital stock changes affecting all stockholders, exercisable for four years from the date of issuance. A debt discount of $64,547 was recorded representing the fair value of the warrants issued and was fully amortized to interest expense during the nine months ended September 30, 2013. The fair value of the warrants was determined using the Black Scholes pricing model with the following assumptions; No dividend yield, expected volatility of 159%, a risk free rate of 0.73% and an expected life of 4 years. The Company also recorded amortization of deferred financing fees of $19,600 representing agency fees which has been fully amortized to expense. The Company paid this note in full on July 27, 2013. | |||||||||
(e) Notes payable Cummings Creek / CLR | |||||||||
In conjunction with the Cumming Creek Capital / CLR acquisition, Lattice assumed notes totaling $676,925 comprised of three notes each with the former principles of CLR Group. The notes bear interest on the unpaid principal amount until paid in full, at a rate of four percent (4.0%) per annum payable quarterly. The Company will pay the unpaid principal amount as follows: beginning on May 31, 2011, the Company will make equal payments of principal on the first day of each calendar quarter totaling $58,275 (i.e., February 28, May 31, August 30 and November 30), until February 15, 2014. The unpaid balances of the notes were assumed by Purchaser as part of the sale of our Government assets transaction on April 2, 2013. Accordingly, there is no balance owing as of September 30 2013 on these notes. | |||||||||
3_Derivative_financial_instrum
3. Derivative financial instruments | 9 Months Ended |
Sep. 30, 2013 | |
Derivative Instrument Detail [Abstract] | ' |
3. Derivative financial instruments | ' |
The balance sheet caption derivative liabilities consist of Warrants, issued in connection with the 2005 Laurus Financing Arrangement, and the 2006 Omnibus Amendment and Waiver Agreement with Laurus. These derivative financial instruments are indexed to an aggregate of 758,333 shares of the Company’s common stock as of September 30, 2013 and December 31, 2012 and are carried at fair value. The balance at September 30, 2013 of $93,275 compared to $57,634 at December 31, 2012. | |
The valuation of the derivative warrant liabilities is determined using a Black Scholes Merton Model. Freestanding derivative instruments, consisting of warrants and options that arose from the Laurus financing are valued using the Black-Scholes-Merton valuation methodology because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions used in the Black Scholes models as of September 30, 2013 included conversion or strike price of $0.10; historical volatility factor of 181% based upon forward terms of instruments, and a risk free rate of 2.8% and remaining life 8.9 years. |
4_Litigation
4. Litigation | 9 Months Ended |
Sep. 30, 2013 | |
Litigation | ' |
4. Litigation | ' |
From time to time, lawsuits are threatened or filed against us in the ordinary course of business. Such lawsuits typically involve claims from customers, former or current employees, and vendors related to issues common to our industry. Such threatened or pending litigation also can involve claims by third-parties, either against customers or ourselves, involving intellectual property, including patents. A number of such claims may exist at any given time. In certain cases, derivative claims may be asserted against us for indemnification or contribution in lawsuits alleging use of our intellectual property, as licensed to customers, infringes upon intellectual property of a third-party. At present, we are a third-party defendant in a patent infringement suit against one of our customers, which is currently in advance stages and for settlement negotiations. Management intends to vigorously contest this case. At present, it is too early to estimate the amount or range of, any potential financial effects related to this matter and any estimate would be so uncertain as to impair the integrity of these financial statements. Per FASB ASC 450-20-25; recognition of a contingency loss may only be made if the event is (1) probable and (2) the amount of the loss can be reasonably estimated. Since the amount cannot be reasonably estimated, no accrual for this contingent loss has been made to these financial statements. Although there can be no assurance as to the ultimate disposition of these matters, it is our management’s opinion, based upon the information available at this time, that the expected outcome of these matters, individually and in the aggregate, will not have a material adverse effect on the results of operations, liquidity or financial condition of our company. There were no liabilities of this type at September 30, 2013. In June 2013, the Company was served a writ of Garnishment with respect to our note receivable from the sale of our Governmental services segment due to a default on the December 13, 2011 note payable (see footnote 2(d). In October 2013, the Company reached a settlement arrangement whereby the holder agreed to forbear any further collection actions against the Company in exchange for $280,000 payable as follows; $240,000 on October 10 2013 and then $10,000 payable monthly over four months starting November 10, 2013. The $240,000 was paid. (see footnote 2(d) above). |
5_Sale_of_Assets_of_Discontinu
5. Sale of Assets of Discontinued Operations | 9 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Discontinued Operations and Disposal Groups [Abstract] | ' | ||||||||||||||||
5. Sale of Assets of Discontinued Operations | ' | ||||||||||||||||
As part of the Company’s strategy to focus on its higher growth potential communications business, the Company decided during the first quarter to exit the Government services segment which derived its revenues mainly from contracts with federal government Dept of Defense agencies either as prime contractor or as a subcontractor to another prime contractor. On April 2, 2013, we entered an Asset Purchase Agreement (“Purchase Agreement”) with Blackwatch International, Inc. (“Blackwatch”), a Virginia corporation, pursuant to which we primarily sold our government Dept. of Defense (DoD) contract vehicles for approximately $1.2 million. These assets essentially comprised our Government services segment operations. The Company retained the residual assets and liabilities of Lattice Government services, Inc. The Company recorded a gain of to $521,443 on the sale of these assets during the quarter ended June 30 2013, which represents the excess of the sales price over the book or carrying value of the assets sold detailed in tabular form below: | |||||||||||||||||
On April 2, 2013 Company entered into an Asset Purchase agreement With Blackwatch International, Inc as follows : | |||||||||||||||||
Consideration received from sale of Government assets: | |||||||||||||||||
Cash | $ | 200,000 | |||||||||||||||
Seller notes assumed by buyer | 282,456 | ||||||||||||||||
Note receivable from buyer** | 700,000 | ||||||||||||||||
Total consideration | $ | 1,182,456 | |||||||||||||||
Other Contingencies considerations: | |||||||||||||||||
3% of gross revenues on Phase II of an SBIR contract for 24 months if awarded. | – | ||||||||||||||||
Pay up to $100,000 for each of the next two years in the event that certain contract are rebid and funded | – | ||||||||||||||||
Total consideration received on sale of assets | 1,182,456 | ||||||||||||||||
Carrying value of Lattice Government assets sold (see below) | 661,013 | ||||||||||||||||
Gain (loss) on sale of Government segment assets | $ | 521,443 | |||||||||||||||
Carrying value of assets disposed of: | |||||||||||||||||
Goodwill and intangibles | 842,933 | ||||||||||||||||
Non-controlling interest | (120,133 | ) | |||||||||||||||
Deferred tax liability | (61,787 | ) | |||||||||||||||
661,013 | |||||||||||||||||
** 3% annum interest rate, 12 equal quarterly installments payments of $61,216.03 over a 3 year period first installment being 7/31/2013 with each successive payment being on the 15th day of the month following close each calendar quarter. | |||||||||||||||||
With the Company’s decision to exit the Government services business, the results of operations and cash flows from this business have been classified as discontinued operations. | |||||||||||||||||
The following table shows the results of operations of Lattice Government Services segment for the nine months ended September 30, 2013 and 2012 which are included in the net income (loss) from discontinued operations: | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Revenue | $ | – | $ | 608,947 | $ | 603,616 | $ | 2,569,966 | |||||||||
Cost of Revenue | – | 349,046 | 300,033 | 1,503,896 | |||||||||||||
Gross Profit | – | 259,891 | 303,583 | 1,066,070 | |||||||||||||
42.70% | 50.30% | 41.50% | |||||||||||||||
Selling, general and administrative expenses | 10,257 | 311,229 | 414,010 | 913,864 | |||||||||||||
Amortization expense | – | 80,448 | 80,448 | 241,344 | |||||||||||||
Income (loss) from operations | (10,257 | ) | (131,786 | ) | (190,875 | ) | (89,138 | ) | |||||||||
Interest expense | (1,016 | ) | (23,246 | ) | (11,897 | ) | (83,394 | ) | |||||||||
Gain on sale of discontinue operation | – | – | 521,443 | – | |||||||||||||
Income (Loss) before taxes | (11,273 | ) | (155,032 | ) | 318,671 | (172,532 | ) | ||||||||||
Income taxes (benefit) | – | (32,397 | ) | (32,397 | ) | (97,191 | ) | ||||||||||
Net income (loss) from Discontinued operations | $ | (11,273 | ) | $ | (122,635 | ) | $ | 351,068 | $ | (75,341 | ) | ||||||
As a result of the decision to exit the Government services business, the assets and liabilities to be disposed of are comprised of the following: | |||||||||||||||||
September 30, | December 31, | ||||||||||||||||
2013 | 2012 | ||||||||||||||||
(unaudited) | |||||||||||||||||
Goodwill | – | 690,871 | |||||||||||||||
Intangible assets, net | – | 232,510 | |||||||||||||||
Note payable | – | 282,456 | |||||||||||||||
Deferred tax liability | – | 61,787 | |||||||||||||||
Non-controlling interest | – | 120,133 | |||||||||||||||
6_Note_Receivable
6. Note Receivable | 9 Months Ended |
Sep. 30, 2013 | |
Earnings Per Share [Abstract] | ' |
6. Note Receivable | ' |
As part of sale of Lattice Government assets on April 2, 2013, the Company received a promissory note from purchaser for $700,000 which carries 3% annum interest rate payable in 12 equal quarterly installments payments of $61,216.03 over a 3 year period first installment being 7/31/2013 with each successive payment being on the 15th day of the month following close each calendar quarter. The note is secured by personal guarantee by the principal owner of Purchaser. As of the filing date, the Company has not received the initial two installments due to the writ of garnishment issued with regards to the default on the December 13, 2011 note (see footnote 2(d)). In October 2013, the Company reached a settlement with the note holder and expects to release the garnishment and collect the installments in arrears by the end of the 2013 fiscal year. |
7_Conversion_of_Preferred_Stoc
7. Conversion of Preferred Stock | 9 Months Ended |
Sep. 30, 2013 | |
Subsequent Events [Abstract] | ' |
7. Conversion of Preferred Stock | ' |
On April 24, 2013, we issued 1,142,848 common shares to Barron Partners L.P. Such shares were issuable upon the March 20, 2013 exercise of conversion rights associated with 320,000 shares of Series A Preferred Stock owned by Barron Partners. |
8_Net_income_loss_per_share
8. Net income (loss) per share | 9 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Earnings Per Share [Abstract] | ' | ||||||||||||||||
8. Net income (loss) per share | ' | ||||||||||||||||
The following table sets forth the information needed to compute basic and diluted earnings per share: | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Basic net income (loss) per common share | |||||||||||||||||
Net income (loss) from continuing operation | $ | 60,718 | $ | 15,318 | $ | (367,291 | ) | $ | 96,323 | ||||||||
Net income (loss) from Discontinue operation | (11,273 | ) | (122,635 | ) | 351,069 | (75,341 | ) | ||||||||||
Numerator for basis net income per share | $ | 49,445 | $ | (107,317 | ) | $ | (16,222 | ) | $ | 20,982 | |||||||
Basic net income (loss) per common share | |||||||||||||||||
Net income (loss) from continuing operation | $ | 0 | $ | 0 | $ | (0.01 | ) | $ | 0 | ||||||||
Net income (loss) from Discontinue operation | 0 | 0 | 0.01 | 0 | |||||||||||||
Net income per common share | $ | 0 | $ | 0 | $ | (0.00 | ) | $ | 0 | ||||||||
Diluted net income (loss) per common share | |||||||||||||||||
Net income (loss) from continuing operation | $ | (0.00 | ) | $ | 0 | $ | 0 | $ | 0 | ||||||||
Net income (loss) from Discontinue operation | 0 | 0 | 0 | 0 | |||||||||||||
Net income per common share | $ | 0 | $ | 0 | $ | (0.00 | ) | $ | 0 | ||||||||
Weighted average common shares outstanding: | 33,902,907 | 30,917,270 | 33,321,502 | 30,209,356 | |||||||||||||
Dilutive securities | |||||||||||||||||
Preferred Stock A, B, C, D | 40,921,516 | 42,913,524 | 40,921,516 | 29,548,522 | |||||||||||||
Options | 2,042,611 | 2,246,241 | 1,408,429 | 1,830,888 | |||||||||||||
Warrants | 0 | 0 | 0 | 0 | |||||||||||||
Diluted weighted average common shares outstanding and assumed conversion | 76,867,034 | 76,077,035 | 75,651,947 | 61,588,766 | |||||||||||||
For the nine month period ended September 30, 2013 and the three months September 30, 2102 certain potential shares of common stock have been excluded from the calculation of diluted income per share because the exercise price was greater than the average market price of our common stock, and therefore, the effect on diluted income per share would have been anti-dilutive. Also for those periods we had a net loss, these shares are also excluded because the effect on the diluted income per share would have been anti-dilutive. The following table sets forth the number of potential shares of common stock that have been excluded from diluted net income per share because their effect was anti-dilutive. | |||||||||||||||||
Three Months Ended | |||||||||||||||||
September 30, | |||||||||||||||||
2013 | 2012 | ||||||||||||||||
Warrant | 6,178,233 | 5,378,233 |
Subsequent_event
Subsequent event | 9 Months Ended |
Sep. 30, 2013 | |
Subsequent Events [Abstract] | ' |
9. Subsequent event | ' |
On September 11, 2013, we entered confidential letter of intent (“LOI”) with Innovisit LLC (“Innovisit”), an Alamaba limited liability company, which contemplated our acquisition of certain of its assets and awarded contracts, customer lists, and its intellectual property rights to the Video Visitation software (“the Assets”). We recently completed this transaction, when the parties entered an Asset Purchase Agreement (“Purchase Agreement”), and certain other agreements, each dated as of November 1, 2013. Under these agreements, the workforce and operating infrastructure supporting Innovisit’s business operations are being transferred to Lattice, including but not limited to certain employees, and leases. | |
As part of the consideration, we delivered a $590,000 secured promissory note, payable in several installments between November 30, 2013 and January 31, 2015. We also entered an employment agreement with Scott Pritchett, who has joined our organization as a manager. Under his three year employment contract, Mr. Pritchett is compensated at a base salary of $100,000 as well as commissions based upon realization of agreed upon revenue targets |
1_Organization_and_summary_of_1
1. Organization and summary of significant accounting policies (Policies) | 9 Months Ended |
Sep. 30, 2013 | |
Notes to Financial Statements | ' |
Organization | ' |
Lattice Incorporated (the “Company”) was incorporated in the State of Delaware in May 1973 and commenced operations in July 1977. The Company began as a provider of specialized solutions to the telecom industry. Throughout its history Lattice has adapted to the changes in this industry by reinventing itself to be more responsive and open to the dynamic pace of change experienced in the broader converged communications industry of today. Currently, Lattice provides advanced solutions for several vertical markets. The greatest change in operations is in the shift from being a component manufacturer to a solution provider focused on developing applications through software on its core platform technology. To further its strategy of becoming a solutions provider, the Company acquired a majority interest in “SMEI” in February 2005. In September 2006 the Company purchased all of the issued and outstanding shares of the common stock of Lattice Government Services, Inc., (“LGS”) (formerly Ricciardi Technologies Inc. (“RTI”)). LGS was founded in 1992 and provides software consulting and development services for the command and control of biological sensors and other Department of Defense requirements to United States federal governmental agencies either directly or through prime contractors of such governmental agencies. LGS’s proprietary products include SensorView, which provides clients with the capability to command, control and monitor multiple distributed chemical, biological, nuclear, explosive and hazardous material sensors. In December 2009 we changed RTI’s name to Lattice Government Services Inc. In January 2007, we changed our name from Science Dynamics Corporation to Lattice Incorporated. On May 16, 2011 we acquired 100% of the shares of Cummings Creek Capital, a holding Company which itself owns 100% of the shares of CLR Group Limited. (“CLR”). CLR is a government contractor which complements our Government Services business by expanding markets and service offerings. During the first quarter of 2013, management decided that focusing resources on the communications business had more strategic value to the Company’s shareholders. The Government assets were marketed for sale during the quarter and culminated in a sale on April 2, 2013 for approximately $1.2 million. Accordingly, the financial performance of the Government segment has been segregated in our financial statements as discontinued operations. As a result, the Company’s management discussion will be based on its communications business and the Company no longer operates in multiple segments. | |
Basis of Presentation going concern | ' |
At September 30, 2013 the Company had a working capital deficiency of $3,330,000. This compared to a working capital deficiency of $3,561,000 at December 31. 2012. The Company’s working capital deficiency and constrained liquidity raises substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is highly dependent upon (i) management’s ability to increase operating cashflows (ii), maintain continued availability on its line of credit and the ability to obtain alternative financing to fund capital requirements and/or debt obligations coming due. The accompanying financial statements do not include any adjustments that may result from the outcome of this uncertainty. | |
Interim Condensed Consolidated Financial Statements | ' |
The condensed consolidated financial statements as of Setember 30, 2013 and for the three and nine months ended September 30, 2013 and 2012 are unaudited. In the opinion of management, such condensed consolidated financial statements include all adjustments (consisting of normal recurring accruals) necessary for the fair representation of the consolidated financial position and the consolidated results of operations. The consolidated results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year end December 31, 2012 appearing in Form 10-K filed on April 1, 2013. | |
Principles of consolidation | ' |
The condensed financial statements include the accounts of the Company and all of its subsidiaries in which a controlling interest is maintained. All significant inter-company accounts and transactions have been eliminated in consolidation. For those consolidated subsidiaries where Company ownership is less than 100%, the outside stockholders’ interests are shown as non-controlling interest. Investments in affiliates over which the Company has significant influence but not a controlling interest are carried on the equity basis. | |
Use of estimates | ' |
The preparation of these financial statements in accordance with accounting principles generally accepted in the United States (US GAAP) requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. These estimates form the basis for judgments made about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and judgments are based on historical experience and on various other assumptions that the Company believes are reasonable under the circumstances. However, future events are subject to change and the best estimates and judgments routinely require adjustment. US GAAP requires estimates and judgments in several areas, including those related to impairment of goodwill and equity investments, revenue recognition, recoverability of inventory and receivables, the useful lives, long lived assets such as property and equipment, the future realization of deferred income tax benefits and the recording of various accruals. The ultimate outcome and actual results could differ from the estimates and assumptions used. | |
Share-based payments | ' |
On January 1, 2006, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification 718-10, Accounting for Share-based payment , to account for compensation costs under its stock option plans and other share-based arrangements. ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. For purposes of estimating fair value of stock options, we use the Black-Scholes-Merton valuation technique. At September 30, 2013, there is $3,291 of unrecognized compensation cost related to unvested share-based compensation awards granted. For the three months ended September 30, 2013 share-based compensation was $2,319 compared to $1,421 in the prior year period. For the nine months ended September 30, 2013 share based compensation was $32,604 over $4,263 for 2012 | |
Revenue Recognition | ' |
Revenues related to collect and prepaid calling services generated by the communication services segment are recognized during the period in which the calls are made. In addition, during the same period, the Company records the related telecommunication costs for validating, transmitting, billing and collection, and line and long distance charges, along with commissions payable to the facilities and allowances for uncollectible calls, based on historical experience. | |
Government claims: Unapproved claims relate to contracts where costs have exceeded the customer’s funded value of the task ordered on our cost reimbursement type contract vehicles. The unapproved claims are considered to be probable of collection and have been recognized as revenue in prior periods. Unapproved claims included as a component of our Accounts Receivable totaled approximately $1,555,000 as of September 30, 2013. Consistent with industry practice, we classify assets and liabilities related to these claims as current, even though some of these amounts are not expected to be realized within one year. | |
Segment Reporting | ' |
FASB ASC 280-10-50, “Disclosure about Segments of an Enterprise and Related Information” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. The Company had operated in two segments prior to 2013 but with the decision to focus on the communications business and exit the federal government services business, the Company now operates in one segment for the three months and six month’s ended September 30, 2013. | |
Depreciation, amortization and long-lived assets | ' |
Long-lived assets include: | |
Property, plant and equipment - These assets are recorded at original cost. The Company depreciates the cost evenly over the assets’ estimated useful lives. For tax purposes, accelerated depreciation methods are used as allowed by tax laws. | |
Goodwill - Goodwill represents the difference between the purchase price of an acquired business and the fair value of the net assets acquired and the liabilities assumed at the date of acquisition. Goodwill is not amortized. The Company tests goodwill for impairment annually (or in interim periods if events or changes in circumstances indicate that its carrying amount may not be recoverable) by comparing the fair value of each reporting unit, as measured by discounted cash flows, to the carrying value to determine if there is an indication that potential impairment may exist. Absent an indication of fair value from a potential buyer or similar specific transactions, the Company believes that the use of this income approach method provides reasonable estimates of the reporting unit’s fair value. Fair value computed by this method is arrived at using a number of factors, including projected future operating results, economic projections, and anticipated future cash flows. The Company reviews its assumptions each time goodwill is tested for impairment and makes appropriate adjustments, if any, based on facts and circumstances available at that time. There are inherent uncertainties, however, related to these factors and to management’s judgment in applying them to this analysis. Nonetheless, management believes that this method provides a reasonable approach to estimate the fair value of the Company’s reporting units. | |
The income approach, which is used for the goodwill impairment testing, is based on projected future debt-free cash flow that is discounted to present value using factors that consider the timing and risk of the future cash flows. Management believes that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating and cash flow performance. This approach also mitigates most of the impact of cyclical downturns that occur in the reporting unit’s industry. The income approach is based on a reporting unit’s five year projection of operating results and cash flows that is discounted using a build up approach. The projection is based upon management’s best estimates of projected economic and market conditions over the related period including growth rates, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future capital expenditures and changes in future working capital requirements based on management projections. | |
Identifiable intangible assets - The Company amortizes the cost of other intangibles over their useful lives unless such lives are deemed indefinite. Amortizable intangible assets are tested for impairment based on undiscounted cash flows and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are not amortized; however, they are tested annually for impairment and written down to fair value as required | |
Recent accounting pronouncements | ' |
No new accounting pronouncements issued or effective during the period has had or is expected to have a material impact on the financial statements. |
2_Notes_payable_Tables
2. Notes payable (Tables) | 9 Months Ended | ||||||||
Sep. 30, 2013 | |||||||||
Debt Disclosure [Abstract] | ' | ||||||||
Notes payable | ' | ||||||||
September 30, | December 31, | ||||||||
2013 | 2012 | ||||||||
Bank line-of-credit (a) | $ | – | $ | 232,807 | |||||
Notes payable to Stockholder/director (b) | 198,331 | 243,315 | |||||||
Capital lease payable (c) | 6,243 | 25,089 | |||||||
Notes Payable (d) | 1,916,585 | 1,916,585 | |||||||
Notes payable Cummings Creek/CLR (e) | – | 282,454 | |||||||
Total notes payable | 2,121,158 | 2,700,250 | |||||||
Less current maturities | (1,953,158 | ) | (2,277,900 | ) | |||||
Long-term debt | $ | 168,000 | $ | 422,350 |
5_Sale_of_Assets_of_Discontinu1
5. Sale of Assets of Discontinued Operations (Tables) | 9 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Discontinued Operations and Disposal Groups [Abstract] | ' | ||||||||||||||||
Discontinued operations results of operations | ' | ||||||||||||||||
On April 2, 2013 Company entered into an Asset Purchase agreement With Blackwatch International, Inc as follows : | |||||||||||||||||
Consideration received from sale of Government assets: | |||||||||||||||||
Cash | $ | 200,000 | |||||||||||||||
Seller notes assumed by buyer | 282,456 | ||||||||||||||||
Note receivable from buyer** | 700,000 | ||||||||||||||||
Total consideration | $ | 1,182,456 | |||||||||||||||
Other Contingencies considerations: | |||||||||||||||||
3% of gross revenues on Phase II of an SBIR contract for 24 months if awarded. | – | ||||||||||||||||
Pay up to $100,000 for each of the next two years in the event that certain contract are rebid and funded | – | ||||||||||||||||
Total consideration received on sale of assets | 1,182,456 | ||||||||||||||||
Carrying value of Lattice Government assets sold (see below) | 661,013 | ||||||||||||||||
Gain (loss) on sale of Government segment assets | $ | 521,443 | |||||||||||||||
Carrying value of assets disposed of: | |||||||||||||||||
Goodwill and intangibles | 842,933 | ||||||||||||||||
Non-controlling interest | (120,133 | ) | |||||||||||||||
Deferred tax liability | (61,787 | ) | |||||||||||||||
661,013 | |||||||||||||||||
** 3% annum interest rate, 12 equal quarterly installments payments of $61,216.03 over a 3 year period first installment being 7/31/2013 with each successive payment being on the 15th day of the month following close each calendar quarter. | |||||||||||||||||
With the Company’s decision to exit the Government services business, the results of operations and cash flows from this business have been classified as discontinued operations. | |||||||||||||||||
The following table shows the results of operations of Lattice Government Services segment for the nine months ended September 30, 2013 and 2012 which are included in the net income (loss) from discontinued operations: | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Revenue | $ | – | $ | 608,947 | $ | 603,616 | $ | 2,569,966 | |||||||||
Cost of Revenue | – | 349,046 | 300,033 | 1,503,896 | |||||||||||||
Gross Profit | – | 259,891 | 303,583 | 1,066,070 | |||||||||||||
42.70% | 50.30% | 41.50% | |||||||||||||||
Selling, general and administrative expenses | 10,257 | 311,229 | 414,010 | 913,864 | |||||||||||||
Amortization expense | – | 80,448 | 80,448 | 241,344 | |||||||||||||
Income (loss) from operations | (10,257 | ) | (131,786 | ) | (190,875 | ) | (89,138 | ) | |||||||||
Interest expense | (1,016 | ) | (23,246 | ) | (11,897 | ) | (83,394 | ) | |||||||||
Gain on sale of discontinue operation | – | – | 521,443 | – | |||||||||||||
Income (Loss) before taxes | (11,273 | ) | (155,032 | ) | 318,671 | (172,532 | ) | ||||||||||
Income taxes (benefit) | – | (32,397 | ) | (32,397 | ) | (97,191 | ) | ||||||||||
Net income (loss) from Discontinued operations | $ | (11,273 | ) | $ | (122,635 | ) | $ | 351,068 | $ | (75,341 | ) | ||||||
Assets and liabilities to be disposed | ' | ||||||||||||||||
As a result of the decision to exit the Government services business, the assets and liabilities to be disposed of are comprised of the following: | |||||||||||||||||
September 30, | December 31, | ||||||||||||||||
2013 | 2012 | ||||||||||||||||
(unaudited) | |||||||||||||||||
Goodwill | – | 690,871 | |||||||||||||||
Intangible assets, net | – | 232,510 | |||||||||||||||
Note payable | – | 282,456 | |||||||||||||||
Deferred tax liability | – | 61,787 | |||||||||||||||
Non-controlling interest | – | 120,133 |
8_Net_income_loss_per_share_Ta
8. Net income (loss) per share (Tables) | 9 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
Earnings Per Share [Abstract] | ' | ||||||||||||||||
Basic and diluted earnings per share | ' | ||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Basic net income (loss) per common share | |||||||||||||||||
Net income (loss) from continuing operation | $ | 60,718 | $ | 15,318 | $ | (367,291 | ) | $ | 96,323 | ||||||||
Net income (loss) from Discontinue operation | (11,273 | ) | (122,635 | ) | 351,069 | (75,341 | ) | ||||||||||
Numerator for basis net income per share | $ | 49,445 | $ | (107,317 | ) | $ | (16,222 | ) | $ | 20,982 | |||||||
Basic net income (loss) per common share | |||||||||||||||||
Net income (loss) from continuing operation | $ | 0 | $ | 0 | $ | (0.01 | ) | $ | 0 | ||||||||
Net income (loss) from Discontinue operation | 0 | 0 | 0.01 | 0 | |||||||||||||
Net income per common share | $ | 0 | $ | 0 | $ | (0.00 | ) | $ | 0 | ||||||||
Diluted net income (loss) per common share | |||||||||||||||||
Net income (loss) from continuing operation | $ | (0.00 | ) | $ | 0 | $ | 0 | $ | 0 | ||||||||
Net income (loss) from Discontinue operation | 0 | 0 | 0 | 0 | |||||||||||||
Net income per common share | $ | 0 | $ | 0 | $ | (0.00 | ) | $ | 0 | ||||||||
Weighted average common shares outstanding: | 33,902,907 | 30,917,270 | 33,321,502 | 30,209,356 | |||||||||||||
Dilutive securities | |||||||||||||||||
Preferred Stock A, B, C, D | 40,921,516 | 42,913,524 | 40,921,516 | 29,548,522 | |||||||||||||
Options | 2,042,611 | 2,246,241 | 1,408,429 | 1,830,888 | |||||||||||||
Warrants | 0 | 0 | 0 | 0 | |||||||||||||
Diluted weighted average common shares outstanding and assumed conversion | 76,867,034 | 76,077,035 | 75,651,947 | 61,588,766 | |||||||||||||
Anti-dilutive warrants | ' | ||||||||||||||||
Three Months Ended | |||||||||||||||||
September 30, | |||||||||||||||||
2013 | 2012 | ||||||||||||||||
Warrant | 6,178,233 | 5,378,233 |
1_Organization_and_summary_of_2
1. Organization and summary of significant accounting policies (Details Narrative) (USD $) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | Dec. 31, 2012 | |
Organization And Summary Of Significant Accounting Policies Details Narrative | ' | ' | ' | ' | ' |
Working capital | ($3,330,000) | ' | ($3,330,000) | ' | ($3,561,000) |
Unrecognized compensation cost | 3,291 | ' | 3,291 | ' | ' |
Share-based compensation | 2,319 | 1,421 | 32,604 | 4,263 | ' |
Accounts Receivable | $1,555,000 | ' | $1,555,000 | ' | ' |
2_Notes_payable_Details
2. Notes payable (Details) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Notes Payable Details | ' | ' |
Bank line-of-credit (a) | $0 | $232,807 |
Notes payable to Stockholder/director (b) | 198,331 | 243,315 |
Capital lease payable (c) | 6,243 | 25,089 |
Notes Payable (d) | 1,916,585 | 1,916,585 |
Notes payable Cummings Creek/CLR (e) | 0 | 282,454 |
Total notes payable | 2,121,158 | 2,700,250 |
Less current maturities | -1,953,158 | -2,277,900 |
Long-term debt | $168,000 | $422,350 |
2_Notes_payable_Details_Narrat
2. Notes payable (Details Narrative) (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Dec. 31, 2012 | |
Loan balance | $1,916,585 | $1,916,585 |
Line of credit outstanding balance | 0 | 232,807 |
Capital lease balance | 6,243 | 25,089 |
Bank Line-of-Credit | ' | ' |
Loan balance | ' | 232,807 |
Line of credit outstanding balance | 0 | 232,807 |
Line of credit interest rate | 13.25% | 13.25% |
Note Payable Stockholder | ' | ' |
Loan balance | ' | 75,315 |
Line of credit outstanding balance | 30,331 | 75,315 |
Debt interest rate | 21.50% | ' |
Note Payable Stockholder 2 [Member] | ' | ' |
Loan balance | ' | 168,000 |
Line of credit outstanding balance | 30,331 | 75,315 |
Debt maturity date | 14-Oct-14 | ' |
Capital Lease | ' | ' |
Line of credit outstanding balance | 6,243 | 25,089 |
Capital lease balance | ' | 25,089 |
Note Payable | ' | ' |
Line of credit outstanding balance | 981,655 | ' |
Line of credit interest rate | 12.00% | ' |
Cummings Creek | ' | ' |
Line of credit outstanding balance | $0 | ' |
3_Derivative_financial_instrum1
3. Derivative financial instruments (Details Narrative) (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Dec. 31, 2012 | |
Derivative Financial Instruments Details Narrative | ' | ' |
Derivative financial instruments indexed shares | 758,333 | 758,333 |
Derivative liability | $93,275 | $57,634 |
Conversion strike price range | 10.00% | ' |
Volatility rate | 181.00% | ' |
Risk free rate | 2.80% | ' |
5_Discontinued_Operations_Deta
5. Discontinued Operations (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Discontinued Operations Details | ' | ' | ' | ' |
Revenue | $0 | $608,947 | $603,616 | $2,569,966 |
Cost of Revenue | 0 | 349,046 | 300,033 | 1,503,896 |
Gross Profit | 0 | 259,891 | 303,583 | 1,066,070 |
Selling, general and administrative expenses | 10,257 | 311,229 | 414,010 | 913,864 |
Amortization expense | ' | 80,448 | 80,448 | 241,344 |
Income (loss) from operations | -10,257 | -131,786 | -190,875 | -89,138 |
Interest expense | -1,016 | -23,246 | -11,897 | -83,394 |
Gain on sale of discontinued operation | 0 | 0 | -521,443 | 0 |
Income (Loss) before taxes | -11,273 | -155,032 | 318,671 | -172,532 |
Income taxes (benefit) | 0 | -32,397 | -32,397 | -97,191 |
Net income (loss) from Discontinued operations | $11,273 | $122,635 | $170,374 | $75,341 |
5_Discontinued_Operations_Deta1
5. Discontinued Operations (Details 1) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Discontinued Operations Details 1 | ' | ' |
Goodwill | $0 | $690,871 |
Intangible assets, net | 0 | 232,510 |
Note payable | 0 | 282,456 |
Deferred tax liability | 0 | 61,787 |
Non-controlling interest | $0 | $120,133 |
8_Net_income_per_share_Details
8. Net income per share (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Basic net income (loss) per common share | ' | ' | ' | ' |
Net income (loss) from continuing operations | $60,718 | $15,318 | ($367,291) | $96,323 |
Net income (loss) from Discontinued operations | -11,273 | -122,635 | 351,069 | -75,341 |
Numerator for basic net income per share | $49,445 | ($107,317) | ($16,222) | $20,982 |
Basic net income (loss) per common share | ' | ' | ' | ' |
Net income (loss) from continuing operation | $0 | $0 | ($0.01) | $0 |
Net income (loss) from Discontinue operation | $0 | $0 | $0.01 | $0 |
Net income per common share | $0 | $0 | $0 | $0 |
Diluted net income (loss) per common share | ' | ' | ' | ' |
Net income (loss) from continuing operation | $0 | $0 | ($0.01) | $0 |
Net income (loss) from Discontinued operation | $0 | $0 | $0.01 | $0 |
Net income per common share | $0 | $0 | $0 | $0 |
Weighted average common shares outstanding: | 33,902,907 | 30,917,270 | 33,321,502 | 30,209,356 |
Dilutive securities | ' | ' | ' | ' |
Preferred Stock A, B, C, D | 40,921,516 | 42,913,524 | 40,921,516 | 29,548,522 |
Options | 2,042,611 | 2,246,241 | 1,408,429 | 1,830,888 |
Warrants | 0 | 0 | 0 | 0 |
Diluted weighted average common shares outstanding and assumed conversion | 76,867,034 | 76,077,035 | 75,651,947 | 61,588,766 |
8_Net_income_per_share_Details1
8. Net income per share (Details 1) | 3 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
Earnings Per Share [Abstract] | ' | ' |
Warrants excluded from diluted net income per share | 6,178,233 | 5,378,233 |