LATTICE INCORPORATED | ||
(Exact Name of Registrant as Specified in its Charter) |
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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17
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Item
4T. Controls and Procedures
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17
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PART
II - OTHER INFORMATION
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Item
1. Legal Proceedings
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18
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Item
1A. Risk Factors
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18
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Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
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18
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Item
3. Defaults Upon Senior Securities
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18
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Item
4. Reserved
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18
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Item
5. Other Information
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18
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Item
6. Exhibits
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18
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SIGNATURES
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19
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LATTICE
INCORPORATED AND SUBSIDIARIES
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||||||||||||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
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||||||||||||||||
Three
Months Ended June 30,
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Six
Months Ended June 30,
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|||||||||||||||
2010
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2009
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2010
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2009
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|||||||||||||
Revenue
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$ | 3,373,737 | $ | 4,166,700 | $ | 7,114,794 | $ | 7,974,583 | ||||||||
Cost
of Revenue
|
1,981,885 | 2,884,506 | 4,549,436 | 5,441,009 | ||||||||||||
Gross
Profit
|
1,391,852 | 1,282,194 | 2,565,358 | 2,533,574 | ||||||||||||
Operating expenses:
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||||||||||||||||
Selling,
general and administrative
|
1,090,745 | 1,239,801 | 2,288,822 | 2,361,793 | ||||||||||||
Research
and development
|
144,799 | 143,182 | 300,330 | 295,677 | ||||||||||||
Amortization
expense and depreciation expense
|
172,136 | 299,248 | 281,272 | 598,496 | ||||||||||||
Total
operating expenses
|
1,407,680 | 1,682,231 | 2,870,424 | 3,255,966 | ||||||||||||
Loss
from operations
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(15,828 | ) | (400,037 | ) | (305,066 | ) | (722,392 | ) | ||||||||
Other
income (expense):
|
||||||||||||||||
Derivative
expense
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(13,726 | ) | 108,373 | (109,673 | ) | (64,070 | ) | |||||||||
Extinguishment
( loss)
|
- | - | (130,055 | ) | - | |||||||||||
Other
income
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- | - | - | - | ||||||||||||
Interest
expense
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(94,069 | ) | (48,897 | ) | (175,840 | ) | (126,114 | ) | ||||||||
Total
other income
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(107,795 | ) | 59,476 | (415,568 | ) | (190,184 | ) | |||||||||
Minority
Interest
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3,147 | 5,052 | 6,294 | 10,447 | ||||||||||||
Income
before taxes
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(120,476 | ) | (335,509 | ) | (714,340 | ) | (902,129 | ) | ||||||||
Income
taxes (benefit)
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(61,440 | ) | (163,355 | ) | (122,880 | ) | (326,710 | ) | ||||||||
Net
loss
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(59,036 | ) | (172,154 | ) | (591,460 | ) | (575,419 | ) | ||||||||
Reconciliation
of net loss to
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||||||||||||||||
Loss
applicable to common shareholders:
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||||||||||||||||
Net
loss
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(59,036 | ) | (172,154 | ) | (591,460 | ) | (575,419 | ) | ||||||||
Preferred
stock dividends
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(6,277 | ) | (6,277 | ) | (12,554 | ) | (12,554 | ) | ||||||||
Loss
applicable to common stockholders
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(65,313 | ) | (178,431 | ) | (604,014 | ) | (587,973 | ) | ||||||||
Loss
per common share
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||||||||||||||||
Basic
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$ | (0.00 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.04 | ) | ||||
Diluted
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$ | (0.00 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.04 | ) | ||||
Weighted
average shares:
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||||||||||||||||
Basic
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22,639,450 | 16,739,444 | 21,631,755 | 16,720,555 | ||||||||||||
Diluted
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22,639,450 | 16,739,444 | 21,631,755 | 16,720,555 | ||||||||||||
See
accompanying notes to the consolidated financial
statements.
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LATTICE
INCORPORATED AND SUBSIDIARIES
|
||||||||
CONSOLIDATED
BALANCE SHEETS
|
||||||||
June
30,
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December
31,
|
|||||||
2010
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2009
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|||||||
unaudited
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audited
|
|||||||
ASSETS:
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||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
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$ | 835,737 | $ | 212,616 | ||||
Accounts
receivable
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3,090,778 | 3,560,293 | ||||||
Inventories
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29,402 | 29,402 | ||||||
Other
current assets
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297,822 | 133,405 | ||||||
Total
current assets
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4,253,739 | 3,935,716 | ||||||
Property
and equipmen, net
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265,691 | 264,753 | ||||||
Goodwill
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3,599,386 | 3,599,386 | ||||||
Other
intangibles, net
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1,933,184 | 977,455 | ||||||
Other
assetes
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47,262 | 54,259 | ||||||
Total
assets
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$ | 10,099,262 | $ | 8,831,569 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
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$ | 2,032,352 | $ | 1,780,143 | ||||
Accrued
expenses
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1,426,323 | 1,719,831 | ||||||
Customer
deposits
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249,179 | 94,954 | ||||||
Notes
payable - current
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1,503,742 | 1,503,742 | ||||||
Derivative
liability
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183,458 | 161,570 | ||||||
Total
current liabilities
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5,395,054 | 5,260,240 | ||||||
Long
term liabilities:
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||||||||
Notes
Payable - long term
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1,324,143 | 188,466 | ||||||
Deferred
tax liabilities
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317,952 | 440,832 | ||||||
Total
long term liabilities
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1,642,095 | 629,298 | ||||||
Total
liabilities
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7,037,149 | 5,889,538 | ||||||
Shareholders'
equity
|
||||||||
Preferred
Stock - .01 par value
|
||||||||
Series
A 9,000,000 shares authorized 7,530,681 and 7,567,685 issued
respectively
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75,307 | 75,677 | ||||||
Series
B 1,000,000 shares authorized 1,000,000 issued and 502,160
outstanding
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10,000 | 10,000 | ||||||
Series
C 520,000 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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229,425 | 178,104 | ||||||
22,942,437
and 17,810,281 issued, 22,639,450 and 17,507,294 outstanding
respectively
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||||||||
Additional
paid-in capital
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39,605,182 | 38,925,743 | ||||||
Accumulated
deficit
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(36,455,906 | ) | (35,851,892 | ) | ||||
3,469,208 | 3,342,832 | |||||||
Stock
held in treasury, at cost
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(558,096 | ) | (558,096 | ) | ||||
Equity
Attributable to shareowners of Lattice Incorporated
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2,911,112 | 2,784,736 | ||||||
Equity
Attributable to noncontrolling interest
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151,001 | 157,295 | ||||||
Total
liabilities and shareholders' equity
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$ | 10,099,262 | $ | 8,831,569 | ||||
See
accompanying notes to the consolidated financial
statements.
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LATTICE
INCORPORATED AND SUBSIDIARIES
|
||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
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||||||||
Six
Month's ended June 30,
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||||||||
2010
|
2009
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|||||||
Cash
flow from operating activities:
|
||||||||
Net
loss
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$ | (591,459 | ) | $ | (575,419 | ) | ||
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
|
||||||||
Derivative
income
|
109,673 | 64,070 | ||||||
Amortization
of intangible assets
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344,272 | 598,496 | ||||||
Deferred
income taxes
|
(122,880 | ) | (326,710 | ) | ||||
Extinguishment
loss
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130,055 | - | ||||||
Minority
interest
|
(6,294 | ) | (10,447 | ) | ||||
Share-based
compensation
|
262,550 | 251,266 | ||||||
Depreciation
|
29,489 | - | ||||||
Changes
in operating assets and liabilities:
|
- | |||||||
(Increase)
decrease in:
|
||||||||
Accounts
receivable
|
469,515 | (1,184,897 | ) | |||||
Other
current assets
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16,582 | (155,601 | ) | |||||
Other
assets
|
6,997 | (1,275 | ) | |||||
Increase
(decrease) in:
|
- | |||||||
Accounts
payable and accrued liabilities
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(53,854 | ) | 971,355 | |||||
Customer
advances
|
154,225 | - | ||||||
Total
adjustments
|
1,340,330 | 206,257 | ||||||
Net
cash provided by (used for) operating activities
|
748,871 | (369,162 | ) | |||||
Cash
Used in investing activities:
|
||||||||
Purchase
of intangibles
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(1,300,000 | ) | - | |||||
Purchase
of equipment
|
(30,427 | ) | (32,773 | ) | ||||
Net
cash used for investing activities
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(1,330,427 | ) | (32,773 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Revolving
credit facility (payments) borrowings, net
|
(45,714 | ) | (775,950 | ) | ||||
Payments
on captial equipment lease
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(19,169 | ) | - | |||||
Proceeds
from the issuance of Note
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1,100,000 | |||||||
Proceeds
from issuance of Series A preferred stock
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250,000 | - | ||||||
Loans
paid director
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(80,441 | ) | (14,000 | ) | ||||
Net
cash provided by (used in) financing activities
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1,204,676 | (789,950 | ) | |||||
Net
increase (decrease) in cash and cash equivalents
|
623,120 | (1,191,885 | ) | |||||
Cash
and cash equivalents - beginning of period
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212,616 | 1,363,130 | ||||||
Cash
and cash equivalents - end of period
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$ | 835,736 | $ | 171,245 | ||||
Supplemental
cash flow information
|
||||||||
Interest
paid in cash
|
$ | 172,168 | $ | 100,769 | ||||
Taxes
paid
|
2,850 | 4,805 | ||||||
Supplemental
disclosures of Non-Cash Investing & Financing
Activities
|
||||||||
Sale
of accts receivable by factor proceeds paid directly to Private
Bank
|
682,232 | |||||||
Proceeds
from Factoring agreement paid directly to Private Bank
Facility
|
6,277 | |||||||
Preferred
stock dividends
|
- | |||||||
Conversion
of preferred shares into common
|
(14,370 | ) | (280 | ) | ||||
Conversion
of preferred shares into common
|
51,322 | 1,000 | ||||||
Additonal
paid in capital
|
(36,951 | ) | (720 | ) | ||||
Exchange
of warrants for preferred series A
|
||||||||
Derivative
liabilities
|
87,785 | |||||||
Additional
paid in Capital
|
453,840 | |||||||
Deferred
financing fees
|
150,000 | |||||||
See
accompanying notes to the consolidated financial
statements.
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenues:
|
||||||||||||||||
Goverment
Services
|
$ | 2,519,118 | $ | 3,860,923 | $ | 5,430,953 | $ | 7,367,448 | ||||||||
Communication
Serivices
|
854,620 | 305,777 | 1,683,842 | 607,135 | ||||||||||||
Total
Consolidated Revenues
|
$ | 3,373,738 | $ | 4,166,700 | $ | 7,114,795 | $ | 7,974,583 | ||||||||
Gross
Profit:
|
||||||||||||||||
Government
Services
|
$ | 1,137,065 | $ | 1,084,064 | $ | 2,104,242 | $ | 2,149,493 | ||||||||
Communication
Serivices
|
301,030 | 198,130 | 553,604 | 384,081 | ||||||||||||
Total
Consolidated
|
$ | 1,438,095 | $ | 1,282,194 | $ | 2,657,846 | $ | 2,533,574 |
June
30,
2010
|
December
31,
2009
|
|||||||
Total
Assets:
|
||||||||
Government
Services
|
$ | 7,821,000 | $ | 8,270,589 | ||||
Communication
Services
|
2,278,000 | 560,980 | ||||||
Total
Consolidated Assets
|
$ | 10,099,000 | $ | 8,831,569 |
June
30,
2010
|
December 31,
2009
|
|||||||
Bank
line-of-credit (a)
|
$
|
792,517
|
$
|
838,231
|
||||
Note
Payable – (b)
|
531,000
|
562,500
|
||||||
Notes
payable to Stockholders/director (c )
|
179,239
|
197,180
|
||||||
Capital
lease payable (d)
|
75,129
|
94,297
|
||||||
Note
Payable – I Wistar Morris (e)
|
1,250,000
|
-
|
||||||
Total
notes payable
|
2,827,885
|
1,692,208
|
||||||
Less
current maturities
|
(1,503,742
|
)
|
(1,503,742
|
)
|
||||
Long-term
debt
|
$
|
1,324,143
|
$
|
188,466
|
For the Three
Months Ending June
30,
|
||||||||
|
2010
|
2009
|
||||||
REVENUE
|
$ | 3,373,737 | $ | 4,166,700 | ||||
Net
(loss)
|
$ | (59,035 | ) | $ | (172,154 | ) | ||
Net
(loss) per common share – Basic & Diluted
|
$ | (0.00 | ) | $ | (0.01 | ) |
OPERATING
EXPENSES
|
PERCENT
OF SALES
|
||||||||
THREE
MONTHS
ENDED
JUNE
30, 2010
|
THREE
MONTHS
ENDED
JUNE
30, 2009
|
THREE
MONTHS
ENDED
JUNE
30, 2010
|
THREE
MONTHS
ENDED
JUNE
30, 2009
|
||||||
Research
& Development
|
144,799
|
143,182
|
4.3
|
%
|
3.4
|
%
|
|||
Selling,
General & Administrative
|
1,090,745
|
1,239,801
|
32.3
|
%
|
29.78
|
%
|
For the Six
Months Ending June 30,
|
||||||||
|
2010
|
2009
|
||||||
REVENUE
|
$ | 7,114,794 | $ | 7,974,583 | ||||
Net
(loss)
|
$ | (591,460 | ) | $ | (575,419 | ) | ||
Net
(loss) per common share – Basic & Diluted
|
$ | (0.03 | ) | $ | (0.04 | ) |
OPERATING
EXPENSES
|
PERCENT
OF SALES
|
||||||||
SIX
MONTHS
ENDED
JUNE
30, 2010
|
SIX
MONTHS
ENDED
JUNE
30, 2009
|
SIX
MONTHS
ENDED
JUNE
30, 2010
|
SIX
MONTHS
ENDED
JUNE
30, 2009
|
||||||
Research
& Development
|
300,330 | 295,677 | 4.2 | % | 3.7 | % | |||
Selling,
General & Administrative
|
2,288,822 | 2,361,793 | 32.2 | % | 29.6 | % |
Exhibit
Number
|
Description
|
|
10.25
|
Promissory
Note issued to I. Wistar Morris
|
|
10.26
|
Security
Agreement dated June 11, 2010 by and between Lattice, Incorporated,
Lattice Government Services, Inc. and I. Wistar Morris
|
|
10.27
|
Inter-Creditor
Agreement dated June 11, 2010 among Action Capital Corporation and I.
Wistar Morris
|
|
10.28
|
Amendment
Number One to Promissory Note issued to I. Wistar Morris dated July 21,
2010
|
|
10.29
|
Amendment
Number One to Security Agreement by and between Lattice, Incorporated,
Lattice Government Services, Inc. and I. Wistar Morris dated July 21,
2010
|
|
10.30
|
First
Amendment to Intercreditor Agreement between Action Capital Corporation
and I. Wistar Morris
|
|
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
|