Delaware
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22-2011859
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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7150
N. Park Drive, Pennsauken, New Jersey
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08109
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(Address
of principal executive offices)
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(Zip
code)
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting company x
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Page
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PART
I - FINANCIAL INFORMATION
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Item
1. Financial Statements
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3
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Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
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11
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Item
3. Quantitative and Qualitative Disclosure About Market
Risks
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14
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Item
4T. Controls and Procedures
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15
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PART
II - OTHER INFORMATION
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Item
1. Legal Proceedings
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15
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Item
1A. Risk Factors
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15
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Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
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15
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Item
3. Defaults Upon Senior Securities
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15
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Item
4. Submission of Matters to a Vote of Security Holders
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15
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Item
5. Other Information
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15
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Item
6. Exhibits
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16
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SIGNATURES
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17
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September-09
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December 31,
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|||||||
2009
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2008
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|||||||
(Unaudited)
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(Audited)
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|||||||
ASSETS:
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
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$ | 342,717 | $ | 1,363,130 | ||||
Accounts
receivable, net
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3,840,719 | 3,560,690 | ||||||
Inventories
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41,684 | 30,704 | ||||||
Other
current assets
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185,175 | 51,008 | ||||||
Total
current assets
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4,410,295 | 5,005,532 | ||||||
Property
and equipment, net
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212,075 | 21,090 | ||||||
Goodwill
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3,599,386 | 3,599,386 | ||||||
Other
intangibles, net
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1,512,004 | 2,409,748 | ||||||
Other
assetes
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54,141 | 54,459 | ||||||
Total
assets
|
$ | 9,787,901 | $ | 11,090,215 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 1,952,353 | $ | 1,698,551 | ||||
Accrued
expenses
|
1,578,420 | 1,726,891 | ||||||
Customer
advances
|
87,625 | 15,000 | ||||||
Notes
payable
|
1,713,574 | 1,766,098 | ||||||
Derivative
liability
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257,178 | 200,606 | ||||||
Total
current liabilities
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5,589,150 | 5,407,146 | ||||||
Long
term liabilities:
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||||||||
Long
Term Debt
|
203,951 | 666,515 | ||||||
Deferred
tax liabilities
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710,218 | 1,200,283 | ||||||
Total
long term liabilities
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914,169 | 1,866,798 | ||||||
Total
liabilities
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6,503,319 | 7,273,944 | ||||||
Minority
interest
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175,180 | 193,280 | ||||||
Shareholders'
equity
|
||||||||
Preferred
Stock - .01 par value
|
||||||||
Preferred
Stock series A 9,000,000 shares authorized, 7,810,686 and 7,838,686
issued
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78,107 | 78,387 | ||||||
Preferred
Stock series B 1,000,000 shares authorized 1,000 000
issued
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10,000 | 10,000 | ||||||
Preferred
Stock series C 575,000 shares authorized 520,000 issued
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5,200 | 5,200 | ||||||
Common
stock - .01 par value, 200,000,000 authorized,
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||||||||
16,942,428
and 16,842,428 issued, and 16,639,441 and 16,539,441 outstanding
respectively
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169,425 | 168,425 | ||||||
Additional
paid-in capital
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38,800,717 | 38,418,897 | ||||||
Accumulated
deficit
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(35,395,951 | ) | (34,499,822 | ) | ||||
3,667,498 | 4,181,087 | |||||||
Common
stock held in treasury, at cost
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(558,096 | ) | (558,096 | ) | ||||
Shareholders'
equity
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3,109,402 | 3,622,991 | ||||||
Total
liabilities and shareholders' equity
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$ | 9,787,901 | $ | 11,090,215 |
Nine
Months Ended
September 30,
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Three Months Ended
September 30,
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|||||||||||||||
2009
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2008
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2009
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2008
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|||||||||||||
Revenue
- Technology Services
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$ | 11,000,359 | $ | 10,656,897 | $ | 3,632,911 | $ | 3,775,213 | ||||||||
Revenue
- Technology Products
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896,288 | 866,245 | 289,153 | 428,934 | ||||||||||||
Total
Revenue
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11,896,647 | 11,523,142 | 3,922,064 | 4,204,147 | ||||||||||||
Cost
of Revenue - Technology Services
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7,763,288 | 7,916,610 | 2,545,333 | 2,924,049 | ||||||||||||
Cost
of Revenue - Technology Products
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342,455 | 335,386 | 119,400 | 167,370 | ||||||||||||
Total
cost of revenue
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8,105,743 | 8,251,996 | 2,664,733 | 3,091,419 | ||||||||||||
Gross
Profit
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3,790,904 | 3,271,146 | 1,257,331 | 1,112,728 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Selling,
general and administrative
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3,628,756 | 3,359,768 | 1,247,510 | 1,024,628 | ||||||||||||
Research
and development
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409,141 | 384,692 | 132,917 | 123,720 | ||||||||||||
Amortization
expense
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897,744 | 1,116,171 | 299,248 | 372,057 | ||||||||||||
Total
operating expenses
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4,935,641 | 4,860,631 | 1,679,675 | 1,520,405 | ||||||||||||
Loss
from operations
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(1,144,737 | ) | (1,589,485 | ) | (422,344 | ) | (407,677 | ) | ||||||||
Other
income (expense):
|
||||||||||||||||
Derivative
income (expense)
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(56,572 | ) | 2,750,199 | 7,498 | 195,609 | |||||||||||
Extinguishment
gain (loss)
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- | 2,607,525 | 0 | - | ||||||||||||
Other
expense
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- | 970,150 | 0 | 370,150 | ||||||||||||
Interest
expense
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(181,066 | ) | (140,910 | ) | (56,754 | ) | (32,703 | ) | ||||||||
Finance
expense
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(3,092 | ) | (2,636 | ) | (1,289 | ) | (1,170 | ) | ||||||||
Total
other income (expense)
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(240,730 | ) | 6,184,328 | (50,545 | ) | 531,886 | ||||||||||
Minority
Interest income
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18,100 | 79,119 | 7,653 | 23,700 | ||||||||||||
Net
income (loss) before taxes
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(1,367,367 | ) | 4,673,962 | (465,236 | ) | 147,909 | ||||||||||
Income
taxes (benefit)
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(490,065 | ) | (521,171 | ) | (163,355 | ) | (172,755 | ) | ||||||||
Net
Income (loss)
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$ | (877,302 | ) | $ | 5,195,133 | $ | (301,881 | ) | $ | 320,664 | ||||||
Net
income (Loss) applicable to common
shareholders:
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||||||||||||||||
Net
income (loss)
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$ | (877,302 | ) | $ | 5,195,133 | $ | (301,881 | ) | $ | 320,664 | ||||||
Series
B Preferred stock dividend
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(18,831 | ) | (37,500 | ) | (6,277 | ) | (12,500 | ) | ||||||||
Income
(Loss) applicable to common stockholders
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$ | (896,133 | ) | $ | 5,157,633 | $ | (308,158 | ) | $ | 308,164 | ||||||
Income
(Loss) per common share
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||||||||||||||||
Basic
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$ | (0.05 | ) | $ | 0.24 | $ | (0.02 | ) | $ | 0.25 | ||||||
Diluted
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$ | (0.05 | ) | $ | 0.03 | $ | (0.02 | ) | $ | 0.03 | ||||||
Weighted
average shares:
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||||||||||||||||
Basic
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16,727,592 | 16,829,428 | 16,739,444 | 16,829,428 | ||||||||||||
Diluted
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16,727,592 | 56,172,092 | 16,739,444 | 53,592,883 |
Nine Months ended
September 30,
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||||||||
2009
|
2008
|
|||||||
Cash
flow from operating activities:
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||||||||
Net
loss before preferred dividends
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$ | (877,301 | ) | $ | 5,195,133 | |||
Adjustments
to reconcile net loss to net used for operating
activities:
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||||||||
Derivative
(income) expense
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56,572 | (2,750,199 | ) | |||||
Amortization
of intangible assets
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897,744 | 1,116,171 | ||||||
Settlement
of contingent liability - former RTI shareholders
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- | (1,057,650 | ) | |||||
Extinguishment
(gain)
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- | (2,607,525 | ) | |||||
Deferred
income taxes
|
(490,065 | ) | (521,171 | ) | ||||
Minority
interest
|
(18,100 | ) | (79,119 | ) | ||||
Share-based
compensation
|
382,541 | 156,635 | ||||||
Depreciation
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9,500 | 21,079 | ||||||
Changes
in operating assets and liabilities:
|
- | |||||||
(Increase)
decrease in:
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||||||||
Accounts
receivable
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(965,461 | ) | 564,478 | |||||
Inventories
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(10,980 | ) | 19,439 | |||||
Other
current assets
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(130,461 | ) | (6,998 | ) | ||||
Customer
advances
|
72,625 | |||||||
Other
assets
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318 | 65,734 | ||||||
Increase
(decrease) in:
|
||||||||
Accounts
payable and accrued liabilities
|
102,256 | (677,530 | ) | |||||
- | ||||||||
Total
adjustments
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(93,511 | ) | (5,756,656 | ) | ||||
Net
cash provided by ( used in) operating activities
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(970,812 | ) | (561,523 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Purchase
of equipment
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(89,608 | ) | (32,844 | ) | ||||
Net
cash used in investing activities
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(89,608 | ) | (32,844 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Payments
on notes payable
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(34,453 | ) | (131,000 | ) | ||||
Payment
on capital equipment lease
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(7,994 | ) | ||||||
Bank
line-of-credit borrowings (payments), net
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82,454 | 687,717 | ||||||
Net
cash provided by (used in) by financing activities
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40,007 | 556,717 | ||||||
Net
increase (decrease) in cash and cash equivalents
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(1,020,413 | ) | (37,650 | ) | ||||
Cash
and cash equivalents - beginning of period
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1,363,130 | 769,915 | ||||||
Cash
and cash equivalents - end of period
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$ | 342,717 | $ | 732,265 | ||||
Supplemental
cash flow information
|
||||||||
Interest
paid in cash
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$ | 181,066 | $ | 81,397 | ||||
Supplemental
Disclosures of Non-Cash Financing Activities
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||||||||
Purchase
of Equipment
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$ | 110,879 | $ | - | ||||
Capital
lease
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$ | (110,879 | ) | $ | - | |||
Preferred
stock - Series B
|
$ | - | $ | (4,978 | ) | |||
Preferred
stock - Series C
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$ | - | $ | 5,200 | ||||
Common
Stock
|
$ | - | $ | (2,905 | ) | |||
Additional
Paid in capital
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$ | (720 | ) | $ | 1,257,883 | |||
Derivative
Liability
|
$ | - | $ | (1,261,010 | ) | |||
$ | $ | |||||||
Refinancing
of credit facility
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$ | 682,232 | $ | - | ||||
Preferred
stock dividends
|
$ | 18,831 | $ | 37,500 | ||||
Conversion
of 28,000 preferred share into 100,000 of common
|
$ | (280 | ) | $ | - | |||
Conversion
of 28,000 preferred share into 100,000 of common
|
$ | 1,000 | $ | - |
Nine Months Ended
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Three Months Ended
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|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues:
|
||||||||||||||||
Goverment
Services
|
$ | 11,000,359 | $ | 10,656,897 | $ | 3,632,911 | $ | 3,775,213 | ||||||||
Other
|
896,288 | 866,245 | 289,153 | 428,934 | ||||||||||||
Total
Consolidated Revenues
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$ | 11,896,647 | $ | 11,523,142 | $ | 3,922,064 | $ | 4,204,147 | ||||||||
Gross
Profit:
|
||||||||||||||||
Government
Services
|
$ | 3,237,071 | $ | 2,740,287 | $ | 1,087,578 | $ | 851,164 | ||||||||
Corporate
and other
|
553,833 | 530,859 | 169,753 | 261,564 | ||||||||||||
Total
Consolidated
|
$ | 3,790,904 | $ | 3,271,146 | $ | 1,257,331 | $ | 1,112,728 |
September
30
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Total
Assets:
|
||||||||
Goverment
Services
|
$ | 9,151,950 | $ | 10,127,333 | ||||
Corporate
and Other
|
635,951 | 962,882 | ||||||
Total
Consolidated Assets
|
$ | 9,787,901 | $ | 11,090,215 |
September
30,
2009
|
December 31,
2008
|
|||||||
Bank
line-of-credit (a)
|
$ | 858,404 | $ | 1,458,183 | ||||
Note
Payble – former RTI owners (b)
|
750,000 | 750,000 | ||||||
Notes
payable to Stockholders/director (c )
|
206,237 | 224,430 | ||||||
Capital
lease payable (d)
|
102,884 | - | ||||||
Total
notes payable
|
1,917,525 | 2,432,613 | ||||||
Less
current maturities
|
(1,713,574 | ) | (1,766,098 | ) | ||||
Long-term
debt
|
$ | 203,951 | $ | 666,515 |
Payments
due
|
$ | 138,970 | ||
Less
interest
|
36,086 | |||
102,884 | ||||
Current
portion
|
38,128 | |||
Long
term portion
|
$ | (64,756 | ) |
Nine Months
|
Three Months
|
|||||||||||||||
Ended September 30,
|
Ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Income
(loss) applicable to common shareholders
|
$ | (896,133 | ) | $ | 5,157,633 | $ | (308,158 | ) | $ | 308,164 | ||||||
Reconciliation
to numerator for diluted earnings per share
|
||||||||||||||||
Income
on derivative warrants
|
(2,750,199 | ) | (195,609 | ) | ||||||||||||
Preferred
stock dividends
|
37,500 | 12,500 | ||||||||||||||
Numerator
for diluted earnings per share
|
$ | (896,133 | ) | $ | 2,444,934 | $ | (308,158 | ) | $ | 125,055 | ||||||
Weighted
average shares
|
16,727,592 | 16,829,428 | 16,739,444 | 16,829,428 | ||||||||||||
Reconciliation
to denominator for diluted earnings per share
|
||||||||||||||||
Dilutive
derivative warrants
|
- | 5,379,707 | - | 5,739,670 | ||||||||||||
Shares
indexed to convertible preferred stock
|
- | 34,110,568 | - | 34,110,568 | ||||||||||||
Dilutive
employee options
|
- | (147,615 | ) | - | (3,086,784 | ) | ||||||||||
Denominator
for diluted earnings per share
|
16,727,592 | 56,172,088 | 16,739,444 | 53,592,882 | ||||||||||||
Earnings
per common share:
|
||||||||||||||||
Basic
|
(0.05 | ) | 0.31 | (0.02 | ) | 0.02 | ||||||||||
Diluted
|
(0.05 | ) | 0.04 | (0.02 | ) | 0.00 |
Exhibit
Number
|
Description
|
|
31.1
|
Certification
by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
of the Exchange Act
|
|
31.2
|
Certification
by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
of the Exchange Act
|
|
32.1
|
Certification
by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the
United States Code
|
|
32.2
|
Certification
by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the
United States Code
|
LATTICE
INCORPORATED
|
|
BY:
|
/s/
Paul Burgess
|
PAUL
BURGESS
|
|
CHIEF
EXECUTIVE OFFICER
(PRINCIPAL
EXECUTIVE
OFFICER),
SECRETARY AND
DIRECTOR
|
BY:
|
/s/
Joe Noto
|
JOE
NOTO
|
|
CHIEF
FINANCIAL OFFICER
(PRINCIPAL
ACCOUNTING
OFFICER)
AND DIRECTOR
|