Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended | |
Sep. 30, 2014 | Nov. 15, 2014 | |
Document And Entity Information | ' | ' |
Entity Registrant Name | 'Lattice INC | ' |
Entity Central Index Key | '0000350644 | ' |
Document Type | '10-Q | ' |
Document Period End Date | 30-Sep-14 | ' |
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 | ' | 51,431,265 |
Document Fiscal Period Focus | 'Q3 | ' |
Document Fiscal Year Focus | '2014 | ' |
CONDENSED_CONSOLIDATED_BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Current assets: | ' | ' |
Cash and cash equivalents | $370,082 | $312,703 |
Accounts receivable | 2,399,285 | 1,897,856 |
Inventories | 1,297 | 9,330 |
Note receivable - current | 525,000 | 350,000 |
Costs and gross profit in excess of billings | 173,213 | 0 |
Other current assets | 520,003 | 73,940 |
Total current assets | 3,988,880 | 2,643,829 |
Property and equipment, net | 711,836 | 861,712 |
Other intangibles, net | 682,515 | 895,439 |
Note receivable - long term | 175,000 | 350,000 |
Other assets | 12,812 | 12,812 |
Total assets | 5,571,043 | 4,763,792 |
Current liabilities: | ' | ' |
Accounts payable | 1,347,637 | 1,075,651 |
Accrued expenses | 2,399,974 | 2,264,260 |
Customer advances | 1,212,774 | 1,023,966 |
Notes payable - current, net of debt discount | 1,418,067 | 2,601,724 |
Derivative liability | 0 | 122,698 |
Deferred Revenue | 12,213 | 45,797 |
Total current liabilities | 6,390,665 | 7,134,096 |
Long-term liabilities: | ' | ' |
Derivative liability | 757,407 | 0 |
Notes Payable - long term, net of debt discount | 341,605 | 100,000 |
Total long-term liabilities | 1,099,012 | 100,000 |
Total liabilities | 7,489,677 | 7,234,096 |
Shareholders' equity | ' | ' |
Common stock - $0.01 par value, 200,000,000 authorized, 51,421,014 and 35,304,714 issued and outstanding respectively | 514,211 | 353,047 |
Common stock subscribed - 500,000 shares | 5,000 | 0 |
Additional paid-in capital | 45,224,289 | 43,714,377 |
Accumulated deficit | -47,179,205 | -46,066,499 |
Stockholders' equity before treasury stock | -1,360,538 | -1,912,208 |
Stock held in treasury, at cost | -558,096 | -558,096 |
Total shareholder's equity | -1,918,634 | -2,470,304 |
Total liabilities and shareholders' equity | 5,571,043 | 4,763,792 |
Series A Preferred Stock [Member] | ' | ' |
Shareholders' equity | ' | ' |
Preferred Stock, Value, Issued | 58,758 | 65,758 |
Series B Preferred Stock [Member] | ' | ' |
Shareholders' equity | ' | ' |
Preferred Stock, Value, Issued | 10,000 | 10,000 |
Series C Preferred Stock [Member] | ' | ' |
Shareholders' equity | ' | ' |
Preferred Stock, Value, Issued | 5,200 | 5,200 |
Series D Preferred Stock [Member] | ' | ' |
Shareholders' equity | ' | ' |
Preferred Stock, Value, Issued | $5,909 | $5,909 |
CONDENSED_CONSOLIDATED_BALANCE1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
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 | 51,421,014 | 35,304,714 |
Common stock, shares outstanding | 51,421,014 | 35,304,714 |
Series A Preferred Stock [Member] | ' | ' |
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 | 5,405,815 | 5,405,815 |
Preferred stock, shares outstanding | 6,575,815 | 6,575,815 |
Series B Preferred Stock [Member] | ' | ' |
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 | 502,160 | 502,160 |
Preferred stock, shares outstanding | 502,160 | 502,160 |
Series C Preferred Stock [Member] | ' | ' |
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 [Member] | ' | ' |
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, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Income Statement [Abstract] | ' | ' | ' | ' |
Revenue | $2,030,599 | $2,173,780 | $6,618,049 | $6,270,674 |
Cost of Revenue | 1,182,797 | 1,270,869 | 3,973,486 | 4,041,154 |
Gross Profit | 847,802 | 902,911 | 2,644,563 | 2,229,520 |
Operating expenses: | ' | ' | ' | ' |
Selling, general and administrative | 1,111,590 | 633,704 | 3,126,536 | 1,817,814 |
Research and development | 228,838 | 167,839 | 660,075 | 481,221 |
Total operating expenses | 1,340,428 | 801,543 | 3,786,611 | 2,299,035 |
Income (Loss) from operations | -492,626 | 101,368 | -1,142,048 | -69,515 |
Other income (expense): | ' | ' | ' | ' |
Derivative income | 311,527 | -21,233 | 589,214 | -35,641 |
Financing Fees | -25,833 | 0 | -49,185 | 0 |
Other income | 0 | 46,713 | 0 | 46,713 |
Interest expense | -107,859 | -66,130 | -491,856 | -308,848 |
Total other income (expense) | 177,835 | -40,650 | 48,173 | -297,776 |
Income (oss) before taxes | -314,791 | 60,718 | -1,093,875 | -367,291 |
Income taxes | 0 | 0 | 0 | 0 |
Netincome (loss) from continuing operations | -314,791 | 60,718 | -1,093,875 | -367,291 |
Net income (loss) from operations of discontinued component (Note 6) | 0 | -11,273 | 0 | 351,069 |
Net income (loss) | -314,791 | 49,445 | -1,093,875 | -16,222 |
Preferred stock dividends | -6,277 | 0 | -18,831 | 0 |
Net income (loss) attribuable to common shareholders | ($321,068) | $49,445 | ($1,112,706) | ($16,222) |
Basic net income (loss) per common share | ' | ' | ' | ' |
From continuing operations | ($0.01) | $0 | ($0.03) | ($0.01) |
From discontinued operations | $0 | $0 | $0 | $0.01 |
Diluted net income (loss) per common share | ' | ' | ' | ' |
From continuing operations | ($0.01) | $0 | ($0.03) | ($0.01) |
From discontinued operations | $0 | $0 | $0 | $0.01 |
Weighted average shares: | ' | ' | ' | ' |
Basic | 48,612,617 | 33,902,907 | 44,172,926 | 33,321,502 |
Diluted | 48,612,617 | 76,867,034 | 44,172,926 | 33,321,502 |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
Cash flows from operating activities: | ' | ' |
Net Loss | ($1,093,875) | ($16,222) |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ' | ' |
Operating activities discontinued operations | 0 | 48,050 |
Gain on disposition of Government segment assets | 0 | -521,443 |
Derivative (income) expense | -589,214 | 35,641 |
Stock issued for services | 90,000 | 0 |
Amortization of intangible assets | 212,924 | 97,485 |
Amortization of debt discount | 292,779 | 64,547 |
Gain on extinguishment of debt | 0 | -46,713 |
Financing fees | 34,444 | 19,600 |
Share-based compensation | 174,117 | 32,604 |
Depreciation | 268,372 | 180,017 |
Bad debt expense | 18,044 | 0 |
(Increase) decrease in: | ' | ' |
Accounts receivable | -519,473 | 142,500 |
Inventories | 8,033 | 0 |
Costs in excess of billings | -173,213 | 0 |
Other current assets | -140,507 | 71,871 |
Increase (decrease) in: | ' | ' |
Accounts payable and accrued liabilities | 453,415 | -186,537 |
Deferred Revenue | -33,584 | 0 |
Customer advances | 188,808 | 535,969 |
Total adjustments | 284,945 | 473,591 |
Net cash provided by (used in) operating activities | -808,930 | 457,369 |
Cash Used in investing activities: | ' | ' |
Proceeds from sale of government services segment | 0 | 0 |
Cash received sale of discontinued operations | 0 | 231,670 |
Purchase of equipment | -118,496 | -222,202 |
Net cash provided by (used in) used in investing activities | -118,496 | 9,468 |
Cash flows from financing activities: | ' | ' |
Revolving credit facility (payments) borrowings, net | 0 | -232,807 |
Cash paid for financing fees | -148,000 | 0 |
Payments on capital equipment lease | 0 | -18,846 |
Payments on Notes Payable - discontinued operations | 0 | -56,352 |
Payments on notes payable | -1,223,636 | -600,000 |
Proceeds from the issuance of common stock issued, net | 796,441 | 580,400 |
Proceeds from common stock subscribed | 60,000 | 0 |
Proceeds from notes payable | 1,500,000 | 0 |
Payments on director loans | 0 | -44,984 |
Net cash provided by (used in) financing activities | 984,805 | -372,589 |
Net increase in cash and cash equivalents | 57,379 | 94,248 |
Cash and cash equivalents - beginning of period | 312,703 | 30,368 |
Cash and cash equivalents - end of period | 370,082 | 124,616 |
Supplemental cash flow information | ' | ' |
Interest paid in cash | 186,108 | 270,614 |
Summary of Non cash Investing and Financing activities | ' | ' |
Conversion of notes payable into common stock | 227,272 | 0 |
Conversion of accrued interest into common stock | 39,546 | 0 |
Dividends declared but not paid | 18,831 | 18,831 |
Common stock issued for principle payment on note payable | $60,000 | $0 |
1_Organization_and_Summary_of_
1. Organization and Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2014 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' |
Organization and Summary of Significant Accounting Policies | ' |
(a) Organization | |
Lattice Incorporated (the “Company”) was incorporated in the State of Delaware 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. Together the SMEI, RTI and CLR acquisitions formed our federal government services business unit. Through 2013 we operated in two segments, our federal government services unit and our telecommunication services business. | |
As part of the Company’s strategy to focus on its higher growth potential communications business, the Company decided during the first quarter of 2013 to exit the government services segment which derived its revenues mainly from contracts with federal government Department 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 Department of Defense (DoD) contract vehicles for approximately $1.2 million. These assets essentially comprised our Federal Government services segment operations. The Company retained the residual assets and liabilities of Lattice government services, Inc. We ceased operations of the federal government business back in April, 2013 coinciding with the sale of assets to Blackwatch. For the period ended September 30, 2013 the financial results of the government services business are being reported as discontinued operations. | |
On November 1, 2013 we purchased certain assets of Innovisit, LLC. The assets acquired included; awarded contracts, customer lists, and its intellectual property rights to the Video Visitation software assets. Under the agreement, the workforce and operating infrastructure supporting Innovisit’s business operations were transferred to Lattice, including but not limited to certain employees, and leases. This acquisition complimented the product offering of our telecom services business. | |
(b) Basis of Presentation Going Concern | |
At September 30, 2014, our working capital deficiency was approximately $2,402,000 which improved from a working capital deficiency of approximately $4,490,000 at December 31, 2013. Cash from operations and available capacity on current credit facilities are insufficient to cover liabilities currently due and the liabilities which will mature over the next twelve months. Additionally, we are past due on promissory notes with investors and payables with trade creditors. We have several payment arrangements in place but face continuing pressures with negotiating payment arrangements with trade creditors regarding overdue payables. These conditions raise substantial doubt regarding our ability to continue as a going concern. Our ability to continue as a going concern is highly dependent upon our ability to; improve our operating cash flow, maintain our credit lines and secure additional financing. Management was able raise $1,500,000 of convertible debt financing during the quarter ended June 30, 2014 which resulted in net proceeds of $1,352,000 which was used to improve our working capital, strengthen our balance sheet and provide liquidity for growth. Securing sufficient capital for our growth strategy may also reduce doubts about our ability to operate as a going concern. During the quarter ended March 31, 2014, we closed on approximately $1,063,000 of equity financing by issuing restricted common stock to various accredited investors for cash proceeds of $796,441 and $266,818 resulting from the conversion of notes payable and accrued interest. There is no assurance, however, that we will succeed in raising additional financing and obtain the capital needed to provide for all of our liquidity needs. In the event we fail to obtain the additional capital needed and/or restructure our existing debts with current creditors, we may be required to curtail our operations significantly. | |
Our current cash position, availability on our lines of credit and current level of operating cash flow is insufficient to support (i) current working capital requirements (ii) pay the interest costs and principal payments on maturing liabilities, and (iii) provide the additional capital for equipment purchases necessary to support our growth plans. In this regard, we are dependent on obtaining the additional financing needed for which we have been soliciting interest. Also, we remain dependent upon maintaining and increasing our cash flow from operations and maintaining the continuing availability on our lines of credit. There can be no assurances that our businesses will generate sufficient forward operating cash flows, we will be able to obtain the financing sought, or that future borrowings under our line of credit facilities will be available in an amount sufficient to service our current indebtedness or to fund other liquidity needs. | |
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the requirements of the Securities and Exchange Commission (“SEC”). | |
(c) Interim Condensed Consolidated Financial Statements | |
The condensed consolidated financial statements for the three and nine months ended September 30, 2014 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 ended December 31, 2013 appearing in Form 10-K filed on March 31, 2014. | |
(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. For the nine months ended September 30, 2014 and twelve months ended December 31, 2013, there was approximately $511,000 and $706,000 of total unrecognized compensation cost related to unvested share-based compensation awards granted under the equity compensation plans which do not include the effect of future grants of equity compensation, if any. The $511,000 will be amortized over the weighted average remaining service period. | |
(g) Revenue Recognition | |
Telecommunication Services: | |
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 previous years. Unapproved claims included as a component of accounts receivable totaled approximately $1,244,000 as of September 30, 2014 and December 31, 2013, respectively. Consistent with industry practice, we classify assets and liabilities related to these claims as current, even though some of these amounts may not be realized within one year. | |
Revenues Recognition for Innovisit: | |
Revenues from construction contracts are included in contract revenue in the consolidated statements of operations and are recognized under the percentage-of-completion accounting method. The percent complete is measured by the cost incurred to date compared to the estimated total cost of each project. This method is used as management considers expended cost to be the best available measure of progress on these contracts, the majority of which are completed within one year, but may occasionally extend beyond one year. Inherent uncertainties in estimating costs make it at least reasonably possible that the estimates used will change within the near term and over the life of the contracts. | |
Contract costs include all direct material and labor costs and those indirect costs related to contract performance and completion. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. General and administrative costs are charged to expense as incurred. | |
Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income. Such revisions are recognized in the period in which they are determined. An amount equal to contract costs incurred that are attributable to claims is included in revenue when realization is probable and the amount can be reliably estimated. | |
Costs and estimated earnings in excess of billings are comprised principally of revenue recognized on contracts (on the percentage-of-completion method) for which billings had not been presented to customers because the amount were not billable under the contract terms at the balance sheet date. Amounts are billed based on contractual terms. Billings in excess of costs and estimated earnings represent billings in excess of revenues recognized. | |
Service Revenues: | |
Service revenues are recorded when the service is provided and when collection can be reasonably assured. | |
(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. | |
(i) Depreciation, Amortization and Long-Lived Assets: | |
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. | |
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) Fair Value Disclosures | |
Management believes that the carrying values of financial instruments, including, cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value as a result of the short-term maturities of these instruments. As discussed in Note 1(m), below, derivative financial instruments are carried at fair value. | |
The carrying values of the Company’s long term debts approximates their fair values based upon a comparison of the interest rates and terms of such debt to the rates and terms of debt currently available to the Company. | |
(k) Recent Accounting Pronouncements | |
We do not believe there would have been a material effect on the accompanying consolidated financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period. |
2_Notes_payable
2. Notes payable | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Debt Disclosure [Abstract] | ' | ||||||||
Notes payable | ' | ||||||||
Notes payable consists of the following as of September 30, 2014 and December 31, 2013: | |||||||||
September 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Bank line-of-credit (a) | $ | – | $ | – | |||||
Notes payable to shareholder/director (b) | 192,048 | 192,048 | |||||||
Notes payable (c) | 2,566,019 | 1,999,676 | |||||||
Note payable, Innovisit (d) | 160,000 | 510,000 | |||||||
Total notes payable | 2,918,067 | 2,701,724 | |||||||
Less current maturities | (1,418,067 | ) | (2,601,724 | ) | |||||
Long-term debt | $ | 1,500,000 | $ | 100,000 | |||||
(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 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 (c) below. | |||||||||
The outstanding balance owed on the line at September 30, 2014 and December 31, 2013 was $0 and $0 respectively. At September 30, 2014 and December 31, 2013 our interest rate was approximately 13.25%. | |||||||||
(b) Notes Payable Shareholder/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 $24,048 and $75,315 as of September 30, 2014 and December 31, 2012, respectively. Payment of the note is past due however, the note holder has not invoked his rights under the default provisions of the note. | |||||||||
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 principal and interest payments. | |||||||||
(c) Notes 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 was 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 December 31, 2013. During quarter ended September 30, 2014 we paid $100,000 reducing the principal on this note to $781,655. As of September 30, 2014, there is $781,655 of unpaid principal remaining on this note. 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 have accrued interest at current rate; no default provision has been invoked. As of September 30, 2014, there is $200,000 of unpaid principal remaining on this note | |||||||||
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. In conjunction with the Company’s private placement of common stock during the quarter ended March 31, 2014, the Company issued 2,223,484 common shares thereby paying the principal of $227,272 and accrued interest of $39,546. | |||||||||
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 December 31, 2013, the outstanding balance of the note was $20,000. 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 January and February payments totaling $20,000 were paid as of March 31, 2014 leaving a remaining balance of $0 under the settlement arrangement at March 31, 2014. During the quarter ended June 30, 2014 the note holder contended that the Company was not in compliance with the timing of payments of the settlement arrangement. As a result, the Company agreed to settle the note in full for a payment of $32,500 during the quarter ended June 30, 2014. This note was paid in full with cash during June 2014. | |||||||||
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. During the quarter ended March 31, 2014, the Company paid in cash the principal owed on two of the notes totaling $113,636 leaving a remaining balance owed of $84,364 at June 30, 2014. On January 23, 2014 the maturity date, the principal amount of the notes were due along with any unpaid and accrued interest. As a result, Company is not in compliance with the terms of the note. We are current with interest payments; no default provision has been invoked. | |||||||||
On December 31, 2013, the Company issued a note to an investor for $600,000 for which $411,000 of net proceeds were received. Of the $600,000; $60,000 was an original issue discount of 10% or $60,000, $110,000 was used to pay-off the October 2013 note held by the same investor and $19,000 was used for placement fees and legal expenses. No interest is payable if the $600,000 of principal is paid within three months from the date of this note. If the principal is not paid within that time frame, the note will bear 12% annual interest which accrues on the principal sum beginning March 30, 2014, with interest paid monthly, in arrears, on the last day of the month. Monthly payments of $6,000 per month will be due with first cash payment due April 30, 2014, and will continue until the amount due is paid. The net proceeds of $411,000 were used for working capital purposes. In addition to the interest we agreed to deliver warrants to the lender for the purchase of up to 1,000,000 shares of common stock at an exercise price of $0.11 per share, with anti-dilution provisions covering capital stock changes affecting all shareholders, exercisable for 4 years from the date of issuance. In addition, the Company issued 145,000 shares of common stock. A debt discount of $162,093 was recorded representing the fair value of the warrants and the common stock issued and is being amortized over the term of the note which matures June 30, 2014. The fair value of the warrants was determined using the Black Scholes pricing model with the following assumptions; dividend yield of 0%, expected volatility of 176.04%, a risk free rate of 1.72% and an expected life of 4 years. The Company also recorded deferred financing fees of $19,600 representing agency fees which has been fully amortized to expense. The carrying values at September 30, 2014 and December 31, 2013 were $0 and $377,907 respectively. This note was paid in full with the proceeds of the May 30, 2014 financing discussed below. | |||||||||
On May 30, 2014, the Company entered into a Note Purchase and Security Agreement with Lattice Funding, LLC (“Lender”), a Pennsylvania limited liability company affiliated with Cantone Asset Management, LLC as a placement agent. The Company delivered a secured promissory note in the principal sum of $1,500,000, bearing interest at 8% per annum plus a 2% monitoring fee and maturing on May 15, 2017. Interest and fees on the note are payable quarterly. Outstanding principal may be converted into restricted common stock. The Company also executed UCC financing statements, securing the note with proceeds of certain agreements. In addition to cash fees and reimbursed expenses to placement agent which totaled $148,000, the Company delivered 1,350,000 shares of restricted common stock to Cantone Asset Management, LLC as placement agent fees. The 1,350,000 shares were valued at the closing share price $0.12 per share and resulted in deferred financing of $162,000. The deferred financing fees recorded during the second quarter including the cash fees paid totaled $310,000. This is being amortized ratably over the term of the note. The Company used $600,000 of gross proceeds to repay an existing bridge loan with an affiliate of Lender. Each $10,000 of note principal is convertible into 75,000 common shares at an exercise price of $0.133333 per share any time after November 30, 2014, to be adjusted for splits, reorganizations, stock dividends and similar corporate events (anti-dilution provisions). The outstanding balance on the note was $1,500,000 at September 30, 2014. (See Note 3) | |||||||||
(d) Note Payable - Innovisit | |||||||||
In conjunction with the purchase of intellectual property and certain other assets of Innovisit (See Note #6) on November 1, 2013, Lattice issued a promissory note for $590,000 to Icotech LLC, the owner of Innovisit. Lattice agreed to pay to Icotech; (a) $250,000 on November 30, 2013, and four payments of $60,000 on each of January 1, 2014, April 30, 2014, July 31, 2014, and October 31, 2014; and final payment of $100,000 due and payable on January 31, 2015. The note bears no interest on the unpaid principal amount and is secured with the intellectual property acquired. The Company issued 500,000 common shares in lieu of the January 31, 2014 $60,000 installment payment under the note, and paid installments totaling $120,000 in cash, leaving a balance outstanding of $160,000 at September 30, 2014. |
3_Convertible_Note
3. Convertible Note | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Convertible Subordinated Debt [Abstract] | ' | ||||||||
Convertible Note | ' | ||||||||
On May 30, 2014, the Company entered into a Note Purchase and Security Agreement with Lattice Funding, LLC (“Lender”), a Pennsylvania limited liability company affiliated with Cantone Asset Management, LLC. The Company delivered a secured promissory note (the “Note”) in the principal sum of $1,500,000, bearing interest at 8% per annum and maturing on May 15, 2017. Interest on the Note is payable quarterly. Outstanding principal may be converted into restricted common stock. The Company also executed UCC financing statements, securing the Note with proceeds of certain agreements. | |||||||||
Each $10,000 of note principal is convertible into 75,000 common shares at an exercise price of $0.133333 per share any time after November 30, 2014, to be adjusted for splits, reorganizations, stock dividends and similar corporate events (anti-dilution provisions). If the market price of Lattice common equals or exceeds twice the exercise price and certain other conditions are met, the Company may call the Note at face value for the purpose of forcing conversion of the balance of the Note into common stock. | |||||||||
The Convertible Note contains a provision whereby the conversion price is adjustable upon the occurrence of certain events, including the issuance of common stock or common stock equivalents at a price which is lower than the current conversion price. Under FASB ASC 815-40-15-5, the embedded conversion feature is not considered indexed to the Company’s own stock and, therefore does not meet the scope exception in FASB ASC 815-10-15 and thus needs to be accounted for as a derivative liability. The initial fair value at May 30, 2014 of the embedded conversion feature was estimated at $1,223,923 and recorded as a derivative liability, resulting in a net carrying value of the note at May 30, 2014 of $276,077 ($1,500,000 face value less $1,223,923 debt discount). On September 30, 2014 the derivative was valued at $694,694 which resulted in derivative income of $296,360 for the quarter ended September 30, 2014 and $529,229 for the nine months ended September 30, 2014. The debt discount was amortized using the effective interest method and was $1,158,395 at September 30, 2014 resulting in a finance charge of $31,530 for the quarter ended September 30, 2014 included in the statement of operations. The fair value of the embedded conversion feature is estimated at the end of each quarterly reporting period using the Monte Carlo model. | |||||||||
The debt discount is being amortized over the life of the convertible note using the effective interest method. | |||||||||
Inherent in the Monte Carlo Valuation model are assumptions related to expected volatility, remaining life, risk-free rate and expected dividend yield. For the Convertible Notes using a Monte Carlo model, we estimate the probability and timing of potential future financing and fundamental transactions as applicable. The assumptions used by the Company are summarized below: | |||||||||
Convertible Notes | |||||||||
30-Sep-14 | Inception | ||||||||
Closing stock price | $ | 0.09 | $ | 0.13 | |||||
Conversion price | $ | 0.13 | $ | 0.13 | |||||
Expected volatility | 124% | 135% | |||||||
Remaining term (years) | 2.63 | 2.96 | |||||||
Risk-free rate | 0.88% | 0.77% | |||||||
Expected dividend yield | 0% | 0% | |||||||
Convertible notes consist of the following at September 30, 2014 and December 31, 2013: | |||||||||
30-Sep-14 | 31-Dec-13 | ||||||||
Convertible notes | $ | 1,500,000 | $ | – | |||||
Discount on convertible notes | (1,223,923 | ) | – | ||||||
Accumulated amortization of discount | 65,528 | – | |||||||
Total convertible notes | $ | 341,605 | $ | – | |||||
4_Fair_Value
4. Fair Value | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Fair Value Disclosures [Abstract] | ' | ||||||||
Fair Value | ' | ||||||||
Warrants: | |||||||||
The balance sheet caption derivative liabilities includes 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, 2014 and December 31, 2013 and are carried at fair value. The balance at September 30, 2014 was $62,714 compared to $122,698 at December 31, 2013. | |||||||||
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, 2014 included conversion or strike price of $0.09; historical volatility factor of 177% based upon forward terms of instruments, and a risk free rate of 2.22% and remaining life 7.98 years. | |||||||||
In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, the following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013: | |||||||||
Convertible Notes: | |||||||||
Level 3 | Total | ||||||||
September 30, 2014: | |||||||||
Derivative Instrument | $ | 694,694 | $ | 694,694 | |||||
Level 3 | Total | ||||||||
December 31, 2013: | |||||||||
Derivative Instrument | $ | – | $ | – | |||||
Level 3 financial instruments consist of certain embedded conversion features. The fair value of these embedded conversion features that have exercise reset features are estimated using a Monte Carlo valuation model. The Company adopted the disclosure requirements of ASU 2011-04, “Fair Value Measurements,” during the quarter ended September 30, 2014. The unobservable input used by the Company was the estimation of the likelihood of a reset occurring on the embedded conversion feature of the Convertible Notes. These estimates of the likelihood of completing an equity raise that would meet the criteria to trigger the reset provisions are based on numerous factors, including the remaining term of the financial instruments and the Company’s overall financial condition. | |||||||||
The following table summarizes the changes in fair value of the Company’s Level 3 financial instruments for the period ended September 30, 2014. | |||||||||
30-Sep-14 | |||||||||
Beginning Balance | $ | 122,698 | |||||||
Initial recognition - Derivative liability of embedded conversion feature of the Convertible Notes | 1,223,923 | ||||||||
Change in fair value | (589,214 | ) | |||||||
Ending Balance | $ | 757,407 | |||||||
Changes in the unobservable input values would likely cause material changes in the fair value of the Company’s Level 3 financial instruments. The significant unobservable input used in the fair value measurement is the estimation of the likelihood of the occurrence of a change to the conversion price based on the contractual terms of the financial instruments. A significant increase (decrease) in this likelihood would result in a higher (lower) fair value measurement. |
5_Litigation
5. Litigation | 9 Months Ended |
Sep. 30, 2014 | |
Litigation | ' |
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. 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. There were no liabilities of this type at September 30, 2014 and December 31, 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(c)). 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. $280,000 was paid by the Company as of the date of this filing. However, the holder had asserted that the payments were late, and that the holder is entitled to an additional $80,000 payment. The Company settled this matter in full during the quarter ended June 30, 2014 for $32,500 paid in cash. The Note is now fully satisfied and the Note holder has released all related claims. |
6_Discontinued_Operations
6. Discontinued Operations | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Discontinued Operations and Disposal Groups [Abstract] | ' | ||||||||
Discontinued Operations | ' | ||||||||
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 following table shows the results of operations of Lattice Government Services segment for the nine months ended September 30, 2014 and 2013 which are included in the net income (loss) from discontinued operations: | |||||||||
Nine Months Ended | |||||||||
September 30, | |||||||||
2014 | 2013 | ||||||||
Revenue | $ | – | $ | 603,616 | |||||
Cost of revenue | – | 300,033 | |||||||
Gross profit | – | 303,583 | |||||||
– | 50.30% | ||||||||
Selling, general and administrative expenses | – | 414,010 | |||||||
Amortization expense | – | 80,448 | |||||||
Loss from operations | – | (190,875 | ) | ||||||
Interest expense | – | (11,897 | ) | ||||||
Gain on sale of discontinued operations | – | 521,443 | |||||||
Income before taxes | – | 318,671 | |||||||
Income tax (benefit) | – | (32,397 | ) | ||||||
Net income from discontinued operations | $ | – | $ | 351,068 | |||||
7_Note_Receivable
7. Note Receivable | 9 Months Ended |
Sep. 30, 2014 | |
Receivables [Abstract] | ' |
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 over a 3 year period first installment being July 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. Previously, the Company had not received any of the installments due to the writ of garnishment issued with regards to the default on the December 13, 2011 note (see footnote 2(c)). The writ of garnishment has been released as a result of settling the default during the quarter (see Note 4). We have not received any payments as of September 30, 2014. The Company is currently in the process of collecting the past due installments. |
8_Conversion_of_Preferred_Stoc
8. Conversion of Preferred Stock | 9 Months Ended |
Sep. 30, 2014 | |
Equity [Abstract] | ' |
Conversion of Preferred Stock | ' |
On January 14, 2014, we issued 1,178,562 common shares to Barron Partners L.P. Such shares were issuable upon the exercise of conversion rights associated with 330,000 shares of Series A Preferred Stock owned by Barron Partners. | |
On March 18, 2014, we issued 1,321,418 common shares to Barron Partners L.P. Such shares were issuable upon the exercise of conversion rights associated with 370,000 shares of Series A Preferred Stock owned by Barron Partners. | |
On August 28, 2014, we issued 1,678,558 common shares to Barron Partners L.P. Such shares were issuable upon the exercise of conversion rights associated with 470,000 shares of Series A Preferred Stock owned by Barron Partners. |
9_Issuance_of_Common_Stock
9. Issuance of Common Stock | 9 Months Ended |
Sep. 30, 2014 | |
Equity [Abstract] | ' |
Issuance of Common Stock | ' |
During the quarter ended March 31, 2014, the Company issued 8,860,489 restricted common shares at a price of $0.12 per share in a series of private placements for a gross financing amount of $1,063,259. Of which, net cash proceeds of $796,441 were received and $266,818 was derived from the conversion of principal and accrued interest on existing notes with several investors. | |
During the quarter ended June 30, 2014, the Company sold 500,000 shares restricted common shares at a price of $0.12 per share in a private placement with an investor for a gross financing amount of $60,000. As of September 30, 2014, the shares had not been issued. | |
During the quarter ended September 30, 2014, the Company issued 1,000,000 restricted common shares as compensation to a service provider. The shares were valued at $0.12 per share resulting in total compensation expense of $120,000. This expense is being amortized ratably over the service period ending December 31, 2014. | |
During the quarter ended September 30, 2014, the Company issued 1,350,000 shares as fees to the placement agent for the convertible note issued in May 2014. The shares were valued at $012 per share or a total fee of $162,000 which is included as a component of deferred financing fees and is being amortized over the term of the note. | |
During the quarter ended September 30, 2014, the Company issued 227,272 common shares to Paul Burgess, CEO previously carried as a liability (Shares to be issued) pursuant to a common stock subscription for an investment of $25,000 or $0.11 per share. | |
We did not issue any employee options or warrants during the three and nine months ended September 30, 2014. |
10_Commitments
10. Commitments | 9 Months Ended | ||||
Sep. 30, 2014 | |||||
Commitments and Contingencies Disclosure [Abstract] | ' | ||||
Commitments | ' | ||||
(a) Operating Leases | |||||
The Company leases its office, sales and manufacturing facilities under non-cancelable operating leases with varying terms expiring through 2015. The leases generally provide that the Company pay the taxes, maintenance and insurance expenses related to the leased assets. | |||||
We currently have two leases for office facilities located in the United States with lease expirations occurring through March 31, 2015. The total average monthly rent for these leases during the quarter ended September 30 2014 is approximately $9,000 per month. | |||||
Future minimum lease commitments as of September 30, 2014 as follows: | |||||
Operating | |||||
Leases | |||||
2014 (remaining) | $ | 25,256 | |||
2015 | 43,278 | ||||
Total minimum lease payments | $ | 68,534 | |||
Total rent expense was $25,755 for the quarter ended September 30, 2014 and $76,684 for the nine months ended September 30, 2014. |
1_Organization_and_Summary_of_1
1. Organization and Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2014 | |
Accounting Policies [Abstract] | ' |
Organization | ' |
(a) Organization | |
Lattice Incorporated (the “Company”) was incorporated in the State of Delaware 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. Together the SMEI, RTI and CLR acquisitions formed our federal government services business unit. Through 2013 we operated in two segments, our federal government services unit and our telecommunication services business. | |
As part of the Company’s strategy to focus on its higher growth potential communications business, the Company decided during the first quarter of 2013 to exit the government services segment which derived its revenues mainly from contracts with federal government Department 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 Department of Defense (DoD) contract vehicles for approximately $1.2 million. These assets essentially comprised our Federal Government services segment operations. The Company retained the residual assets and liabilities of Lattice government services, Inc. We ceased operations of the federal government business back in April, 2013 coinciding with the sale of assets to Blackwatch. For the period ended September 30, 2013 the financial results of the government services business are being reported as discontinued operations. | |
On November 1, 2013 we purchased certain assets of Innovisit, LLC. The assets acquired included; awarded contracts, customer lists, and its intellectual property rights to the Video Visitation software assets. Under the agreement, the workforce and operating infrastructure supporting Innovisit’s business operations were transferred to Lattice, including but not limited to certain employees, and leases. This acquisition complimented the product offering of our telecom services business. | |
Basis of Presentation going concern | ' |
(b) Basis of Presentation Going Concern | |
At September 30, 2014, our working capital deficiency was approximately $2,402,000 which improved from a working capital deficiency of approximately $4,490,000 at December 31, 2013. Cash from operations and available capacity on current credit facilities are insufficient to cover liabilities currently due and the liabilities which will mature over the next twelve months. Additionally, we are past due on promissory notes with investors and payables with trade creditors. We have several payment arrangements in place but face continuing pressures with negotiating payment arrangements with trade creditors regarding overdue payables. These conditions raise substantial doubt regarding our ability to continue as a going concern. Our ability to continue as a going concern is highly dependent upon our ability to; improve our operating cash flow, maintain our credit lines and secure additional financing. Management was able raise $1,500,000 of convertible debt financing during the quarter ended June 30, 2014 which resulted in net proceeds of $1,352,000 which was used to improve our working capital, strengthen our balance sheet and provide liquidity for growth. Securing sufficient capital for our growth strategy may also reduce doubts about our ability to operate as a going concern. During the quarter ended March 31, 2014, we closed on approximately $1,063,000 of equity financing by issuing restricted common stock to various accredited investors for cash proceeds of $796,441 and $266,818 resulting from the conversion of notes payable and accrued interest. There is no assurance, however, that we will succeed in raising additional financing and obtain the capital needed to provide for all of our liquidity needs. In the event we fail to obtain the additional capital needed and/or restructure our existing debts with current creditors, we may be required to curtail our operations significantly. | |
Our current cash position, availability on our lines of credit and current level of operating cash flow is insufficient to support (i) current working capital requirements (ii) pay the interest costs and principal payments on maturing liabilities, and (iii) provide the additional capital for equipment purchases necessary to support our growth plans. In this regard, we are dependent on obtaining the additional financing needed for which we have been soliciting interest. Also, we remain dependent upon maintaining and increasing our cash flow from operations and maintaining the continuing availability on our lines of credit. There can be no assurances that our businesses will generate sufficient forward operating cash flows, we will be able to obtain the financing sought, or that future borrowings under our line of credit facilities will be available in an amount sufficient to service our current indebtedness or to fund other liquidity needs. | |
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the requirements of the Securities and Exchange Commission (“SEC”). | |
Interim Condensed Consolidated Financial Statements | ' |
(c) Interim Condensed Consolidated Financial Statements | |
The condensed consolidated financial statements for the three and nine months ended September 30, 2014 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 ended December 31, 2013 appearing in Form 10-K filed on March 31, 2014. | |
Principles of consolidation | ' |
(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. | |
Use of estimates | ' |
(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. | |
Share-based payments | ' |
(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. For the nine months ended September 30, 2014 and twelve months ended December 31, 2013, there was approximately $511,000 and $706,000 of total unrecognized compensation cost related to unvested share-based compensation awards granted under the equity compensation plans which do not include the effect of future grants of equity compensation, if any. The $511,000 will be amortized over the weighted average remaining service period. | |
Revenue Recognition | ' |
(g) Revenue Recognition | |
Telecommunication Services: | |
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 previous years. Unapproved claims included as a component of accounts receivable totaled approximately $1,244,000 as of September 30, 2014 and December 31, 2013, respectively. Consistent with industry practice, we classify assets and liabilities related to these claims as current, even though some of these amounts may not be realized within one year. | |
Revenues Recognition for Innovisit: | |
Revenues from construction contracts are included in contract revenue in the consolidated statements of operations and are recognized under the percentage-of-completion accounting method. The percent complete is measured by the cost incurred to date compared to the estimated total cost of each project. This method is used as management considers expended cost to be the best available measure of progress on these contracts, the majority of which are completed within one year, but may occasionally extend beyond one year. Inherent uncertainties in estimating costs make it at least reasonably possible that the estimates used will change within the near term and over the life of the contracts. | |
Contract costs include all direct material and labor costs and those indirect costs related to contract performance and completion. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. General and administrative costs are charged to expense as incurred. | |
Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income. Such revisions are recognized in the period in which they are determined. An amount equal to contract costs incurred that are attributable to claims is included in revenue when realization is probable and the amount can be reliably estimated. | |
Costs and estimated earnings in excess of billings are comprised principally of revenue recognized on contracts (on the percentage-of-completion method) for which billings had not been presented to customers because the amount were not billable under the contract terms at the balance sheet date. Amounts are billed based on contractual terms. Billings in excess of costs and estimated earnings represent billings in excess of revenues recognized. | |
Service Revenues: | |
Service revenues are recorded when the service is provided and when collection can be reasonably assured. | |
Segment Reporting | ' |
(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. | |
Depreciation, amortization and long-lived assets | ' |
(i) Depreciation, Amortization and Long-Lived Assets: | |
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. | |
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. | |
Fair value disclosures | ' |
(j) Fair Value Disclosures | |
Management believes that the carrying values of financial instruments, including, cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value as a result of the short-term maturities of these instruments. As discussed in Note 1(m), below, derivative financial instruments are carried at fair value. | |
The carrying values of the Company’s long term debts approximates their fair values based upon a comparison of the interest rates and terms of such debt to the rates and terms of debt currently available to the Company. | |
Recent accounting pronouncements | ' |
(k) Recent Accounting Pronouncements | |
We do not believe there would have been a material effect on the accompanying consolidated financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period. |
2_Notes_payable_Tables
2. Notes payable (Tables) | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Debt Disclosure [Abstract] | ' | ||||||||
Notes payable | ' | ||||||||
Convertible Notes | |||||||||
30-Sep-14 | Inception | ||||||||
Closing stock price | $ | 0.09 | $ | 0.13 | |||||
Conversion price | $ | 0.13 | $ | 0.13 | |||||
Expected volatility | 124% | 135% | |||||||
Remaining term (years) | 2.63 | 2.96 | |||||||
Risk-free rate | 0.88% | 0.77% | |||||||
Expected dividend yield | 0% | 0% | |||||||
Convertible notes consist of the following at September 30, 2014 and December 31, 2013: | |||||||||
30-Sep-14 | 31-Dec-13 | ||||||||
Convertible notes | $ | 1,500,000 | $ | – | |||||
Discount on convertible notes | (1,223,923 | ) | – | ||||||
Accumulated amortization of discount | 65,528 | – | |||||||
Total convertible notes | $ | 341,605 | $ | – |
3_Convertible_Notes_Tables
3. Convertible Notes (Tables) | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Convertible Subordinated Debt [Abstract] | ' | ||||||||
Schedule of convertible notes | ' | ||||||||
Convertible Notes | |||||||||
30-Sep-14 | Inception | ||||||||
Closing stock price | $ | 0.09 | $ | 0.13 | |||||
Conversion price | $ | 0.13 | $ | 0.13 | |||||
Expected volatility | 124% | 135% | |||||||
Remaining term (years) | 2.63 | 2.96 | |||||||
Risk-free rate | 0.88% | 0.77% | |||||||
Expected dividend yield | 0% | 0% | |||||||
Convertible notes consist of the following at September 30, 2014 and December 31, 2013: | |||||||||
30-Sep-14 | 31-Dec-13 | ||||||||
Convertible notes | $ | 1,500,000 | $ | – | |||||
Discount on convertible notes | (1,223,923 | ) | – | ||||||
Accumulated amortization of discount | 65,528 | – | |||||||
Total convertible notes | $ | 341,605 | $ | – |
4_Fair_Value_Tables
4. Fair Value (Tables) | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Fair Value Disclosures [Abstract] | ' | ||||||||
Schedule of convertible notes | ' | ||||||||
Level 3 | Total | ||||||||
September 30, 2014: | |||||||||
Derivative Instrument | $ | 694,694 | $ | 694,694 | |||||
Level 3 | Total | ||||||||
December 31, 2013: | |||||||||
Derivative Instrument | $ | – | $ | – | |||||
Schedule of Level 3 financial instruments | ' | ||||||||
30-Sep-14 | |||||||||
Beginning Balance | $ | 122,698 | |||||||
Initial recognition - Derivative liability of embedded conversion feature of the Convertible Notes | 1,223,923 | ||||||||
Change in fair value | (589,214 | ) | |||||||
Ending Balance | $ | 757,407 |
6_Discontinued_Operations_Tabl
6. Discontinued Operations (Tables) | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Discontinued Operations and Disposal Groups [Abstract] | ' | ||||||||
Discontinued operations results of operations | ' | ||||||||
Nine Months Ended | |||||||||
September 30, | |||||||||
2014 | 2013 | ||||||||
Revenue | $ | – | $ | 603,616 | |||||
Cost of revenue | – | 300,033 | |||||||
Gross profit | – | 303,583 | |||||||
– | 50.30% | ||||||||
Selling, general and administrative expenses | – | 414,010 | |||||||
Amortization expense | – | 80,448 | |||||||
Loss from operations | – | (190,875 | ) | ||||||
Interest expense | – | (11,897 | ) | ||||||
Gain on sale of discontinued operations | – | 521,443 | |||||||
Income before taxes | – | 318,671 | |||||||
Income tax (benefit) | – | (32,397 | ) | ||||||
Net income from discontinued operations | $ | – | $ | 351,068 |
10_Commitments_Tables
10. Commitments (Tables) | 9 Months Ended | ||||
Sep. 30, 2014 | |||||
Commitments and Contingencies Disclosure [Abstract] | ' | ||||
Future minimum lease payments operating leases | ' | ||||
Operating | |||||
Leases | |||||
2014 (remaining) | $ | 25,256 | |||
2015 | 43,278 | ||||
Total minimum lease payments | $ | 68,534 |
Recovered_Sheet1
1. Organization and summary of significant accounting policies (Details Narrative) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Working capital | ($2,402,000) | ($4,490,000) |
Unrecognized compensation cost | 511,000 | 706,000 |
Unapproved claims [Member] | ' | ' |
Unproved claims included in accounts receivable | $1,244,000 | $1,244,000 |
2_Notes_payable_Details
2. Notes payable (Details) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Debt Disclosure [Abstract] | ' | ' |
Bank line-of-credit | $0 | $0 |
Notes payable to Stockholder/director | 192,048 | 192,048 |
Notes Payable | 2,566,019 | 1,999,676 |
Note Payable, Innovisit | 160,000 | 510,000 |
Total notes payable | 2,918,067 | 2,701,724 |
Less current maturities | -1,418,067 | -2,601,724 |
Long-term debt | $1,500,000 | $100,000 |
2_Notes_Payable_Details_Narrat
2. Notes Payable (Details Narrative) (USD $) | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | |
Credit line interest rate | 13.25% | ' | ' |
Credit line balance | $0 | ' | $0 |
Balance of notes payable to stockholder/director | 192,048 | ' | 192,048 |
Notes payable balance | 2,566,019 | ' | 1,999,676 |
Notes payable, Innovisit | 160,000 | ' | 510,000 |
Payments on notes payable | 1,223,636 | 600,000 | ' |
Note payable stockholder/director 1 [Member] | ' | ' | ' |
Interest rate on note | 21.50% | ' | ' |
Balance of notes payable to stockholder/director | 24,048 | ' | 75,315 |
Note payable stockholder/director 2 [Member] | ' | ' | ' |
Face value of note | 168,000 | ' | ' |
Interest rate on note | 10.00% | ' | ' |
Balance of notes payable to stockholder/director | 168,000 | ' | 168,000 |
Note Payable 1 [Member] | ' | ' | ' |
Notes payable balance | 781,655 | ' | 881,655 |
Payments on notes payable | 100,000 | ' | ' |
Note payable 2 [Member] | ' | ' | ' |
Interest rate on note | 12.00% | ' | ' |
Notes payable balance | 200,000 | ' | 200,000 |
Note payable 3 [Member] | ' | ' | ' |
Stock issued in conversion of debt, shares issued | 2,223,484 | ' | ' |
Stock issued conversion of debt, debt amount | 227,272 | ' | ' |
Stock issued in conversion of debt, interest amount | 39,546 | ' | ' |
Note payable 4 [Member] | ' | ' | ' |
Notes payable balance | 0 | ' | 0 |
Payments on notes payable | 32,500 | ' | ' |
Note Payable 5 [Member] | ' | ' | ' |
Face value of note | 198,000 | ' | ' |
Interest rate on note | 12.00% | ' | ' |
Notes payable balance | 84,364 | ' | ' |
Payments on notes payable | 113,636 | ' | ' |
Note Payable 6 [Member] | ' | ' | ' |
Face value of note | 600,000 | ' | ' |
Notes payable balance | 0 | ' | ' |
Note Payable 7 [Member] | ' | ' | ' |
Notes payable balance | 0 | ' | ' |
Note Payable 8 [Member] | ' | ' | ' |
Notes payable balance | 0 | ' | 377,907 |
Note Payable 9 [Member] | ' | ' | ' |
Face value of note | 1,500,000 | ' | ' |
Notes payable balance | 1,500,000 | ' | ' |
Note Payable Innovisit [Member] | ' | ' | ' |
Notes payable, Innovisit | $160,000 | ' | ' |
Stock issued in conversion of debt, shares issued | 500,000 | ' | ' |
3_Convertible_Notes_Details_As
3. Convertible Notes (Details - Assumptions) (USD $) | 9 Months Ended | 447 Months Ended |
Sep. 30, 2014 | Sep. 30, 2014 | |
Convertible Subordinated Debt [Abstract] | ' | ' |
Closing stock price | $0.09 | $0.13 |
Conversion price | $0.13 | $0.13 |
Expected volatility | 124.00% | 1.35% |
Remaining term (years) | '2 years 7 months 17 days | '2 years 11 months 16 days |
Risk-free rate | 0.88% | 0.70% |
Expected dividend yield | 0.00% | 0.00% |
3_Convertible_Notes_Details_Co
3. Convertible Notes (Details - Convertible notes) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Convertible Subordinated Debt [Abstract] | ' | ' |
Convertible notes | $1,500,000 | $0 |
Discount on convertible notes | -1,223,923 | 0 |
Accumulated amortization of discount | 65,528 | 0 |
Total convertible notes | $341,605 | $0 |
3_Convertible_Note_Details_Nar
3. Convertible Note (Details Narrative) (USD $) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | |
Embedded conversion feature | ($1,223,923) | ' | ($1,223,923) | ' | $0 |
Derivative income | 311,527 | -21,233 | 589,214 | -35,641 | ' |
Convertible Debt [Member] | ' | ' | ' | ' | ' |
Debt face value | 150,000 | ' | 150,000 | ' | ' |
Debt stated interest rate | 8.00% | ' | 8.00% | ' | ' |
Debt maturity date | ' | ' | 15-May-17 | ' | ' |
Embedded conversion feature | 1,223,923 | ' | 1,223,923 | ' | ' |
Derivative income | $296,360 | ' | $529,229 | ' | ' |
4_Fair_Value_Details_Level_3
4. Fair Value (Details - Level 3) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Derivative instrument | $694,694 | $0 |
Level 3 [Member] | ' | ' |
Derivative instrument | 757,407 | 122,698 |
Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | ' | ' |
Derivative instrument | ' | $0 |
4_Fair_Value_Details_Derviativ
4. Fair Value (Details - Derviative activity) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 |
Level 3 [Member] | |||
Beginning Balance | $694,694 | $0 | $122,698 |
Initial recognition - Derivative liability of embedded conversion feature of the Convertible Notes | ' | ' | 1,223,923 |
Change in fair value | ' | ' | -589,214 |
Ending Balance | $694,694 | $0 | $757,407 |
4_Fair_Value_Details_Narrative
4. Fair Value (Details Narrative) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Dec. 31, 2013 | |
Warrant value (derivative liability) | $0 | $122,698 |
Warrants [Member] | ' | ' |
Warrant value (derivative liability) | $62,714 | $1,226,598 |
Assumptions used | ' | ' |
Strike price | $0.09 | ' |
Volatility rate | 177.00% | ' |
Risk free interest rate | 2.22% | ' |
Remaining life | '7 years 11 months 23 days | ' |
6_Discontinued_Operations_Deta
6. Discontinued Operations (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Discontinued Operations and Disposal Groups [Abstract] | ' | ' | ' | ' |
Revenue | ' | ' | $0 | $603,616 |
Cost of Revenue | ' | ' | 0 | 300,033 |
Gross Profit | ' | ' | 0 | 303,583 |
Gross Profit-Percentage | ' | ' | 0.00% | 50.30% |
Selling, general and administrative expenses | ' | ' | 0 | 405,470 |
Amortization expense | ' | ' | 0 | 80,448 |
Income (loss) from operations | ' | ' | 0 | -182,335 |
Interest expense | ' | ' | 0 | -9,163 |
Gain on sale of discontinued operation | ' | ' | 0 | 521,443 |
Income (Loss) before taxes | ' | ' | 0 | 329,945 |
Income taxes (benefit) | ' | ' | 0 | -32,397 |
Net income (loss) from Discontinued operations | $0 | ($11,273) | $0 | $351,069 |
8_Conversion_of_Preferred_Stoc1
8. Conversion of Preferred Stock (Details Narrative) | 9 Months Ended |
Sep. 30, 2014 | |
January 14, 2014 [Member] | ' |
Common stock issued upon exercise of conversion of preferred stock, common stock issued | 1,178,562 |
Common stock issued upon exercise of conversion of preferred stock, preferred shares converted | 330,000 |
March 18, 2014 [Member] | ' |
Common stock issued upon exercise of conversion of preferred stock, common stock issued | 1,321,418 |
Common stock issued upon exercise of conversion of preferred stock, preferred shares converted | 370,000 |
August 28, 2014 [Member] | ' |
Common stock issued upon exercise of conversion of preferred stock, common stock issued | 1,678,558 |
Common stock issued upon exercise of conversion of preferred stock, preferred shares converted | 470,000 |
9_Issuance_of_Common_Shares_De
9. Issuance of Common Shares (Details Narrative) (USD $) | 9 Months Ended | 3 Months Ended | ||||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Jun. 30, 2014 | Mar. 31, 2014 | Sep. 30, 2014 | |
Common Stock [Member] | Common Stock [Member] | Common Stock [Member] | Common Stock [Member] | |||
Chief Executive Officer [Member] | ||||||
Stock issued during period, shares issued | ' | ' | ' | 500,000 | 8,860,489 | ' |
Stock issued during period, value | ' | ' | ' | $60,000 | $1,063,259 | ' |
Proceeds from issuance of common stock | 796,441 | 580,400 | ' | ' | 796,441 | ' |
Conversion of principal and interest on existing notes | ' | ' | ' | ' | 266,818 | ' |
Stock issued for services, shares issued | ' | ' | 1,000,000 | ' | ' | ' |
Stock issued for services, value | ' | ' | 120,000 | ' | ' | ' |
Stock issued for conversion of note, shares issued | ' | ' | 1,350,000 | ' | ' | ' |
Stock issued for conversion of note, value | ' | ' | 162,000 | ' | ' | ' |
Options issued during period | 0 | ' | ' | ' | ' | ' |
Warrants issued during period | 0 | ' | ' | ' | ' | ' |
Stock issued for investment, shares issued | ' | ' | ' | ' | ' | 227,272 |
Stock issued for investment, other | ' | ' | ' | ' | ' | $25,000 |
10_Commitments_Details
10. Commitments (Details) (USD $) | 3 Months Ended | 9 Months Ended |
Sep. 30, 2014 | Sep. 30, 2014 | |
Commitments and Contingencies Disclosure [Abstract] | ' | ' |
2014 | $25,256 | $25,256 |
2015 | 43,278 | 43,278 |
Total minimum lease payments | 68,534 | 68,534 |
Rent expense | $25,755 | $76,684 |