Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10Q
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ___________
Commission file number: 000-54194
LATITUDE SOLUTIONS, INC.
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(Exact name of registrant as specified in its charter)
NEVADA 29-1284382
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(State of Incorporation) (IRS Employer ID Number)
2595 NW BOCA RATON BLVD., SUITE 100, BOCA RATON, FL 33431
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(Address of principal executive offices)
(561)417-0644
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(Registrant's Telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to the filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 for Regulation S-T (ss.232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated file, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of share outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 18, 2011, there were 58,029,581 shares of the registrant's common
stock issued and outstanding.
PART I - FINANCIAL INFORMATION
PAGE
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Item 1. Financial Statements (Unaudited) 1
Balance Sheets - September 30, 2011 and December 31, 2010 (Audited) 2
Statements of Operations -
Three and nine months ended September 30, 2011 and 2010
and From June 3, 1983 (Inception) to September 30, 2011 3
Statements of Cash Flows -
Nine months ended September 30, 2011 and 2010 and
From June 3, 1983 (Inception) to September 30, 2011 4
Notes to the Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- NOT APPLICABLE 29
Item 4. Controls and Procedures 29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -NOT APPLICABLE 30
Item 1A. Risk Factors - NOT APPLICABLE 30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 30
-NOT APPLICABLE
Item 3. Defaults Upon Senior Securities - NOT APPLICABLE 31
Item 4. Removed and Reserved 31
Item 5. Other Information - NOT APPLICABLE 31
Item 6. Exhibits 31
SIGNATURES 32
PART I
ITEM 1. FINANCIAL STATEMENTS
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-1-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (F/K/A GMMT, INC.)
(A Development Stage Company)
Condensed Consolidated Balance Sheets
ASSETS
September 30, December 31,
2011 2010
Restated
------------------- -----------------
CURRENT ASSETS (Unaudited) (Audited)
Cash and cash equivalents $ 3,041,953 $ 216,200
Prepaid expenses 229,146 -
------------------- -----------------
Total Current Assets 3,271,099 216,200
------------------- -----------------
Equity investment 1,257,759 1,767,882
Prepaid licensing fee, net 120,234 93,333
Property and equipment, net 4,888,134 384,743
Intangible assets, net 195,567 207,267
Other assets 111,541 174,745
------------------- -----------------
TOTAL ASSETS $ 9,844,334 $ 2,844,170
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,116,904 $ 907,685
Due to Investee 142 412,409
Related party payable 10,400 35,400
Current Portion of long term debt 128,704 -
Convertible debt, net 374,961 2,378,583
Liability to issue stock 1,144,009 239,133
------------------- -----------------
Total Current Liabilities 3,775,120 3,973,210
Long-term debt, net of current portion 175,405 -
------------------- -----------------
Total Liabilities 3,950,525 3,973,210
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Commitments and contingencies
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.001 par value, 250,000,000
shares authorized, 56,443,177 and 28,710,656
shares issued and outstanding, respectively 56,443 28,711
Additional paid-in capital 33,669,802 5,312,288
Deficit accumulated during the development stage (27,598,753) (6,461,255)
Accumulated other comprehensive loss (10,824) (8,784)
------------------- -----------------
Total Latitude Solutions, Inc. Stockholders' Equity (Deficit) 6,116,668 (1,129,040)
Noncontrolling Interest in Consolidated Subsidiary (222,859) -
------------------- -----------------
Total Stockholders' Equity (Deficit) 5,893,809 (1,129,040)
------------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 9,844,334 $ 2,844,170
=================== =================
See accompanying notes to condensed consolidated financial statements.
-2-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (F/K/A GMMT, INC.)
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(Unaudited)
From Inception
on June 3,
1983 Through
For the Three Months Ended For the Nine Months Ended September 30,
September 30 September 30 2011
2011 2010 2011 2010
(Restated) (Restated)
------------ ----------- ------------- ------------ --------------
REVENUES $ - $ - $ - $ - $ -
------------ ----------- ------------- ------------ --------------
EXPENSES
Legal and accounting expense 99,681 39,654 244,841 119,860 578,937
Consulting fees 1,634,430 648,901 15,302,520 931,650 17,072,420
Rent expense 50,943 19,073 106,324 44,408 254,713
Salaries expense 981,227 233,648 2,104,776 450,198 2,926,554
License fees 75,947 - 215,947 - 215,947
Travel expense 162,376 116,683 403,365 179,660 838,696
General and administrative 721,888 237,662 1,519,287 399,561 2,394,921
------------ ----------- ------------- ------------ --------------
Total Expenses 3,726,492 1,295,621 19,897,060 2,125,337 24,282,187
------------ ----------- ------------- ------------ --------------
LOSS FROM OPERATIONS (3,726,492) (1,295,621) (19,897,060) (2,125,337) (24,282,187)
OTHER INCOME (EXPENSE)
Acquisition expense - - - - (350,000)
Finance costs pursuant to debt issuance (170,545) (304,189) (984,795) (639,340) (2,342,693)
Gain on settlement of accrued expenses - - 150,000 - 150,000
Interest expense (51,532) (32,426) (114,918) (82,988) (260,209)
Interest income 951 - 1,887 - 1,887
Equity in losses of investee (132,540) (221,488) (515,555) (328,874) (738,409)
------------ ----------- ------------- ------------ --------------
Total Other (Expense) (353,666) (558,103) (1,463,381) (1,051,202) (3,539,425)
------------ ----------- ------------- ------------ --------------
INCOME TAXES - - - - -
------------ ----------- ------------- ------------ --------------
NET LOSS (4,080,158) (1,853,724) (21,360,441) (3,176,539) (27,821,612)
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST 114,130 - 222,859 - 222,859
------------ ----------- ------------- ------------ --------------
NET LOSS ATTRIBUTABLE TO LATITUDE SOLUTIONS, INC. $(3,966,028) $(1,853,724) $(21,137,582) $(3,176,539) $ (27,598,753)
============ =========== ============= ============ ==============
LOSS PER SHARE ATTRIBUTABLE TO LATITUDE SOLUTIONS, INC. -
BASIC AND DILUTED $ (0.07) $ (0.07) $ (0.50) $ (0.14)
============ =========== ============= ============
WEIGHTED AVERAGE
OUTSTANDING SHARES
BASIC AND DILUTED 53,060,301 25,452,910 41,956,264 22,844,420
============ =========== ============= ============
See accompanying notes to condensed consolidated financial statements.
-3-
LATITUDE SOLUTIONS INC. & SUBSIDIARIES (F/K/A GMMT, INC.)
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
From Inception
on June 3,
Nine Months Ended September 30 1983 Through
2011 2010 September 30,
(Restated) 2011
---------------- --------------- --------------
OPERATING ACTIVITIES
Net loss $ (21,360,441) $ (3,176,539) $ (27,821,612)
Adjustments to reconcile net loss to
net cash used by operating activities:
Services contributed by shareholders - - 16,100
Stock based compensation 881,250 - 881,250
Financing Costs 984,795 860,828 2,001,869
Common stock issued or to be
issued for services 9,414,707 278,875 10,687,275
Warrants issued for services 4,342,274 444,750 4,787,024
Depreciation and amortization expense 53,198 30,446 82,105
Equity in losses of investee 515,555 328,874 869,651
Changes in operating assets and liabilities:
(Increase) in prepaid expenses (229,146) - (229,146)
(Increase) in prepaid license fee (31,901) - (120,234)
(Increase) decrease in other assets 63,204 (117,660) (111,541)
Increase in accounts payable
and accrued expenses 1,335,313 310,012 2,116,904
---------------- --------------- --------------
Net Cash Used by
Operating Activities (4,031,194) (1,040,414) (6,840,355)
---------------- --------------- --------------
INVESTING ACTIVITIES
Capital contributions to investee (7,471) (131,709) (163,231)
Purchase of property and equipment (4,213,812) (301,685) (4,707,600)
Purchase of intangible assets - (102,000) (102,000)
Payments to investee (412,267) (590,807) (999,858)
---------------- --------------- --------------
Net Cash Used by
Investing Activities (4,633,550) (1,126,201) (5,972,689)
---------------- --------------- --------------
FINANCING ACTIVITIES
Bank overdraft - 9,282 -
Proceeds from related party payable - 25,000 35,400
Repayment of related party payable (25,000) - (25,000)
Proceeds from convertible debt 691,000 2,130,200 5,068,961
Exercise of common stock warrants 3,000,000 - 3,000,000
Proceeds from long term debt - - 71,860
Repayment of long term debt (21,967) (23,101)
Repayment of convertible debt (116,000) - (601,000)
Sale of common stock 7,962,464 - 8,327,877
---------------- --------------- --------------
Net Cash Provided by
Financing Activities 11,490,497 2,164,482 15,854,997
---------------- --------------- --------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS 2,825,753 (2,133) 3,041,953
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 216,200 2,133 -
---------------- --------------- --------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 3,041,953 $ - $ 3,041,953
================ =============== ==============
See accompanying notes to condensed consolidated financial statements.
-4-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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BUSINESS AND ORGANIZATION
Latitude Solutions, Inc. (FKA GMMT, INC) ("the Company") is a Nevada
Corporation incorporated on June 3, 1983. The Company is a development
stage company which has devoted most of its efforts in establishing a
business plan and seeking viable business opportunities.
On July 14, 2009, the Company exchanged a majority of its' shares for all
the outstanding shares of GMMT Merger, Inc., a company controlled by common
stockholders. As a result of the exchange, the Company acquired companies
owned by GMMT Merger, Inc. ("Trinity Solutions, Inc." and "Latitude Clean
Tech Group, Inc.") that conduct businesses in wireless live-video
technology and contaminated water remediation.
On February 9, 2011, the Company, along with four other entities, formed a
Nevada Limited Liability Company named Latitude Energy Services, LLC. This
new entity plans to conduct operations in the water remediation business.
The Company owns a seventy percent (70%) interest in Latitude Energy
Services, LLC.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated interim financial
statements include the accounts of Latitude Solutions, Inc. and its wholly
owned subsidiaries, Latitude Clean Tech Group, Inc., Trinity Solutions,
Inc., Latitude Resource Group, Inc., and GMMT Merger, Inc., and its two 70%
owned subsidiaries, Latitude Energy Services, LLC and Latitude Worldwide,
LLC (collectively the "Company"). All intercompany balances and
transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements were
prepared using generally accepted accounting principles for interim
financial information and the requirements of Form 10-Q and Regulation S-X.
Accordingly, these financial statements do not include all information or
notes required by generally accepted accounting principles for annual
financial statements and should be read together with the Company's 2010
Annual Report on Form 10-K.
The Company's accounting policies are in accordance with United States
generally accepted accounting principles. The preparation of financial
statements in conformity with these accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements; and the reported
amounts of expenses during the reported period. Ultimate results could
differ from the estimates of management.
In the opinion of management, the condensed consolidated financial
statements included herein contain all adjustments necessary to present
fairly the Company's financial position as of September 30, 2011 and the
results of its operations and cash flows for the three and nine months
ended September 30, 2011 and 2010. Such adjustments are of a normal
recurring nature. In addition, certain reclassifications of prior period
balances have been made to conform to 2011 classifications. The results of
operations for the nine months ended September 30, 2011 may not be
indicative of results for the full year.
-5-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments, with an initial
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are stated at cost and consist of bank deposits and money
market funds.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost less accumulated depreciation.
Depreciation is provided for on the straight line method over the estimated
useful lives of the related assets as follows:
Furniture and fixtures 5 to 7 years
Computer equipment 5 years
Plants and equipment 5 to 7 years
Vehicles 5 to 7 years
Software 3 to 5 years
The cost of maintenance and repairs is charged to expense in the period
incurred. Expenditures that increase the useful lives of assets are
capitalized and depreciated over the remaining useful lives of the assets.
When items are retired or disposed of, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is included
in income.
INTANGIBLE ASSETS
In accordance with FASB ASC 350-25, "INTANGIBLES - GOODWILL AND OTHER", the
Company acquired a patent that is being amortized over its useful life of
fifteen years. The Company purchased the patent through the issuance of
600,000 shares of common stock with a fair value of $120,000 and a cash
payment of $100,000. Additionally, the Company capitalized patent fees of
$2,000. The Company's balance of intangible assets on the balance sheet net
of accumulated amortization was $195,567 and $207,267 at September 30, 2011
and December 31, 2010, respectively. Amortization expense related to the
intangible assets was $11,700 and $11,033 for the nine months ended
September 30, 2011 and 2010, respectively.
LONG-LIVED ASSETS
The Company's long-lived assets are reviewed for impairment in accordance
with the guidance of the FASB ASC 360-10, "PROPERTY, PLANT, AND EQUIPMENT",
whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. Recoverability of an asset to
be held and used is measured by a comparison of the carrying amount of an
asset to the future undiscounted cash flows expected to be generated by the
asset. If such asset is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
asset exceeds its fair value. Through September 30, 2011, the Company had
not experienced impairment losses on its long-lived assets.
-6-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
EQUITY INVESTMENTS
The Company follows ASC 323-10, "INVESTMENTS" to account for investments in
entities in which the Company has a 20% to 50% interest or otherwise
exercises significant influence. These investments are carried at cost,
adjusted for the Company's proportionate share of undistributed earnings or
losses of Investee.
DEVELOPMENT STAGE COMPANY
The Company is a development stage company as defined by ASC 915-10,
"DEVELOPMENT STAGE ENTITIES." All losses accumulated since inception have
been considered as part of the Company's development stage activities.
REVENUE RECOGNITION AND COST OF REVENUES
The Company's leased plants and royalty revenues will be recognized when
there is pervasive evidence of the arrangement, delivery has occurred, the
price is fixed and determinable and collectability is reasonably assured.
Leasing and royalty revenues will include revenues from the leasing of the
plants, and a per gallon royalty fee. These services will be provided to
customers ongoing and will be billed on a monthly basis and recognized as
revenue equally during the term of the arrangement in accordance with ASC
605-25, "MULTIPLE ELEMENT ARRANGEMENTS". Since inception, no revenue has
been generated.
Costs of revenues will consist primarily of repairs and maintenance and
depreciation on leased plants and any other related selling and servicing
costs.
NET LOSS PER SHARE
The Company follows ASC 260-10, "EARNINGS PER SHARE" in calculating the
basic and diluted loss per share. The Company computes basic loss per share
by dividing net loss and net loss attributable to common shareholders by
the weighted average number of common shares outstanding. Diluted loss per
share considers the effect of common equivalent shares.
The Company's computation of basic and diluted loss per share for the nine
months ended September 30, 2011 and 2010, respectively, excludes the
following potentially dilutive securities because the effect of their
inclusion would be anti-dilutive.
September 30, 2011 September 30, 2010
------------------- -------------------
Convertible debt 374,961 1,670,461
Stock warrants 22,399,389 5,395,865
------------------- -------------------
22,774,350 7,066,326
=================== ===================
-7-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
INCOME TAXES
Income taxes are accounted for under the asset and liability method as
stipulated by ASC 740, "ACCOUNTING FOR INCOME TAXES". Deferred tax assets
and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss
and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under ASC 740, the effect on deferred tax assets and liabilities
or a change in tax rate is recognized in income in the period that includes
the enactment date. Deferred tax assets are reduced to estimated amounts to
be realized by the use of the valuation allowance. A valuation allowance is
applied when in management's view it is more likely than not (50%) that
such deferred tax will not be utilized.
Effective January 1, 2009, the Company adopted certain provisions under ASC
740, which provide interpretative guidance for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a tax return. Effective with the Company's adoption of these provisions,
interest and penalties related to unrecognized tax benefits, if and when
required, will be classified as part of interest expense and general and
administrative expenses, respectively, in the consolidated statements of
operations.
In the unlikely event that an uncertain tax position exists in which the
Company could incur income taxes, the Company would evaluate whether there
is a probability that the uncertain tax position taken would be sustained
upon examination by the taxing authorities. A liability for uncertain tax
positions would then be recorded if the Company determined it is more
likely than not that a position would not be sustained upon examination or
if a payment would have to be made to a taxing authority and the amount is
reasonably estimable.
As of September 30, 2011, the Company does not believe any uncertain tax
positions exist that would result in the Company having a liability to the
taxing authorities. The Company's policy is to classify interest and
penalties related to unrecognized tax benefits, if and when required, as
part of interest expense and general and administrative expense,
respectively, in the condensed consolidated statements of operations. The
Company's tax returns for the years ended 2007 through 2010 are subject to
examination by the federal and state tax authorities.
The adoption of ASC 740 did not have an impact on the Company's financial
position and results of operations.
-8-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS
The Company adopted the provisions of ASC 820, "FAIR VALUE MEASUREMENTS AND
DISCLOSURES", effective January 1, 2008. ASC 820 defines fair value,
establishes a framework for measuring fair value under generally accepted
accounting principles and enhances disclosures about fair value
measurements.
Fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Valuation techniques used to measure
fair value, as required by ASC 820, must maximize the use of observable
inputs and minimize the use of unobservable inputs.
The standard describes a fair value hierarchy based on three levels of
inputs, of which the first two are considered observable and the last
unobservable, that may be used to measure fair value. The Company's
assessment of the significance of a particular input to the fair value
measurements requires judgment, and may affect the valuation of the assets
and liabilities being measured and their placement within the fair value
hierarchy.
o Level 1 - Quoted prices in active markets for identical assets or
liabilities.
o Level 2 - Inputs other than Level 1 that are observable, either directly
or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
o Level 3 - Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities.
The Company's short-term financial instruments consist primarily of cash,
accounts payable and accrued expenses, and convertible debt. The carrying
amount of convertible debt, net of discount, approximates fair value
because current interest rates available to the Company for debt with
similar terms and maturities are substantially the same. The other
aforementioned financial instruments approximate fair value due to their
short-term maturities.
COMPREHENSIVE INCOME
ASC 220, "COMPREHENSIVE INCOME" establishes standards for the reporting and
display of comprehensive income and its components in the financial
statements. As of September 30, 2011 and December 31, 2010, the Company's
accumulated other comprehensive loss of $10,824 and $8,784, respectively,
is comprised of the accumulated foreign currency translation adjustments
related to the Company's equity investment.
-9-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company applies the fair value method of ASC 718, "COMPENSATION - STOCK
COMPENSATION", in accounting for its stock based compensation. This
standard states that compensation cost is measured at the grant date based
on the value of the award and is recognized over the service period, which
is usually the vesting period. As the Company does not have sufficient,
reliable and readily determinable values relating to its common stock, the
Company has used the stock value pursuant to its most recent sales of stock
for purposes of valuing stock based compensation.
COMMON STOCK PURCHASE WARRANTS
The Company accounts for common stock purchase warrants at fair value in
accordance with ASC 815-40 "DERIVATIVES AND HEDGING." The Black-Scholes
option pricing valuation method is used to determine fair value of these
warrants consistent with ASC 718, "COMPENSATION - STOCK COMPENSATION." Use
of this method requires that the Company make assumptions regarding stock
volatility, dividend yields, expected term of the warrants and risk-free
interest rates.
The Company accounts for transactions in which services are received in
exchange for equity instruments based on the fair value of such services
received from non-employees, in accordance with ASC 505-50 "EQUITY BASED
PAYMENTS TO NON-EMPLOYEES."
NON-CONTROLLING INTEREST
The Company accounts for its 70% interest in Latitude Energy Services, LLC
in accordance with ASC 810, "CONSOLIDATION", and accordingly, the Company
has presented noncontrolling interest as a component of equity on its
condensed unaudited consolidated balance sheets and reports non-controlling
interest loss under the heading "net loss attributable to noncontrolling
interest" in the condensed unaudited consolidated statements of operations.
CONCENTRATION OF RISK
The Company does not have any off-balance-sheet concentrations of credit
risk. The Company expects cash and accounts receivable to be the two assets
most likely to subject the Company to concentrations of credit risk. The
Company's policy is to maintain its cash with high credit quality financial
institutions to limit its risk of loss exposure. The Company plans to
minimize its accounts receivable credit risk by transacting contractual
arrangements with customers that have been subjected to stringent credit
evaluations and structuring the contracts in a manner that lessens inherent
credit risks.
-10-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
CONCENTRATION OF RISK (CONTINUED)
As of September 30, 2011, the Company maintained its cash in four financial
institutions. The Company's cash balance at September 30, 2011 exceeded the
federally insured limits by $201,887. As of December 31, 2010, the
Company's cash balance was fully insured. The Company has not experienced
any losses in its bank accounts through September 30, 2011.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2011, the Financial Accounting Standards Board (FASB) issued a new
accounting standard update (ASU No. 2011-04), which amends the fair value
measurement guidance and includes some enhanced disclosure requirements.
The most significant change in disclosures is an expansion of the
information required for Level 3 measurements based on unobservable inputs.
The standard is effective for fiscal years beginning after December 15,
2011. The Company will adopt this standard in the first quarter of 2012 and
is currently evaluating its impact on the Company's financial statements
and disclosures.
In June 2011, the FASB issued a new accounting standard (ASU No. 2011-05),
which eliminates the current option to report other comprehensive income
and its components in the statement of stockholders' equity. Instead, an
entity will be required to present items of net income and other
comprehensive income in one continuous statement or in two separate, but
consecutive, statements. The standard is effective for fiscal years
beginning after December 15, 2011. The Company will adopt this standard in
the first quarter of 2012.
NOTE 2 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
--------------------------------------------------------------
The accompanying September 30, 2010 financial statements have been restated
to reflect debt discount on convertible debt and to correct the fair value
of warrants and bonus shares issued pursuant to convertible debt and
consulting fees. Management determined that the debt discount had been
erroneously recorded as finance costs and that the Black Scholes
calculation used to determine the fair value of the warrants contained a
mathematical flaw.
As a result of the aforementioned restatement, net loss for the three
months ended September 30, 2010 was restated from $2,227,535 to $1,853,724
and loss per share - basic and diluted was restated from $0.09 to $0.07.
Net loss for the nine months ended September 30, 2010 was restated from
$4,669,399 to $3,176,539 and loss per share - basic and diluted was
restated from $0.20 to $0.14.
-11-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 3- GOING CONCERN
---------------------
The financial statements have been prepared on a going concern basis, and
do not reflect any adjustments related to the uncertainty surrounding the
Company's recurring losses or accumulated deficit.
The Company currently has no source of revenue and is incurring losses.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management plans to finance the Company's
operations through the issuance of equity securities. However, management
cannot provide any assurances that the Company will be successful in
accomplishing its plan.
The ability of the Company to continue as a going concern is dependent upon
its ability to successfully accomplish the plan described in the preceding
paragraph and eventually secure other sources of financing and attain
profitable operations. The accompanying financial statements do not include
any adjustments that might be necessary if the Company is unable to
continue as a going concern.
NOTE 4 - EQUITY INVESTMENT
--------------------------
In July 2009 the Company acquired a 50% ownership interest in VideoLatitude
Inc., (formerly known as 6709800 Canada Inc. and doing business as
GpsLatitude) ("VideoLatitude"), a Canadian Company. The remaining 50% is
owned by four Canadian citizens and a Canadian corporation. The Company
accounts for this investment under the equity method of accounting.
VideoLatitude is engaged in providing unique wireless live-video streaming
technology and processes in Canada.
The initial investment was valued at $975,000 based on the value of the
4,800,000 shares of stock issued upon acquisition. For purposes of
determining the fair value of the consideration paid for this investment,
the Company used $.20 per share since that was the most recent price
received during 2009 for shares privately placed with investors. During the
period, the Company recorded its proportionate share of the losses of the
investee through September 30, 2011.
The Company is committed to contribute unto VideoLatitude 40% of any funds
raised from future issuances of equity or debt securities up to $1,000,000.
The balance for amounts due to this affiliate as of September 30, 2011 and
December 31, 2010 totaled $142 and $412,409, respectively.
-12-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 4 - EQUITY INVESTMENT (CONTINUED)
--------------------------------------
The Company has calculated the components of the Investment in
VideoLatitude as of September 30, 2011 to be as follows:
Goodwill $ 1,050,781
Net Liabilities assumed at July 31, 2009 (75,781)
---------------
975,000
Contributed capital, including $142 not paid as
of September 30, 2011 1,163,233
Estimated proportionate share in losses
of investee, including foreign currency
translation losses of $10,824 (880,474)
---------------
Book Value $ 1,257,759
===============
VideoLatitude has a fiscal year end of January 31. The following is
summarized unaudited financial information of VideoLatitude as of September
30, 2011 and for the eight month period then ended:
September 30, 2011
--------------------
Balance Sheet:
Current assets $ 114,930
Noncurrent assets 7,675
Current liabilities (624,437)
Noncurrent liabilities (386,934)
--------------------
Total Stockholders' Deficit $ ( 888,766)
====================
Operating Results
Operating expenses $ ( 980,466)
Revenue 44,143
Interest expense (9,049)
--------------------
Net loss (945,372)
--------------------
Loss on foreign exchange (7,521)
--------------------
Comprehensive Loss $ ( 952,893)
====================
-13-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 4 - EQUITY INVESTMENT (CONTINUED)
--------------------------------------
VideoLatitude's functional currency is the Canadian Dollar. VideoLatitude
accounts for currency translation in accordance with ASC 830-10, "FOREIGN
CURRENCY MATTERS." Income and expenses related to its operations are
translated at weighted average exchange rates during the year. Assets and
liabilities are translated to US dollars at the exchange rate in effect at
the balance sheet date.
NOTE 5 - PREPAID LICENSING FEE
------------------------------
Prepaid licensing fee represents the unamortized costs for the use of
certain technology related to water remediation. In consideration for this
technology, the Company issued 500,000 shares of common stock valued at
$.20 per share during December 2009. This amount will be amortized over the
term of the licensing agreement, which is 15 years. The Company also has
paid in advance for a license fee associated with the Enterprise Resource
Program that the Company is in the process of implementing. The Company's
balance of prepaid licensing fee on the balance sheet, net of accumulated
amortization, was $120,234 and $93,333 at September 30, 2011 and December
31, 2010, respectively. Amortization expense related to the intangible
asset was $5,000 and $5,000 for the nine months ended September 30, 2011
and 2010.
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
--------------------------------------
At September 30, 2011 and December 31, 2010, property and equipment
consisted of the following:
2011 2010
------------------- -------------------
Equipment $ 218,984 $ 35,752
Furniture and fixtures 78,147 11,421
Plants under construction 4,224,124 345,076
Vehicles 410,977 -
------------------- -------------------
4,932,232 392,249
Less accumulated Depreciation 44,098 7,506
------------------- -------------------
$ 4,888,134 $ 384,743
=================== ===================
Plants under construction represent electro-precipitation units in assembly
at the Company's contracted manufacturer in Colorado. These machines will
either be utilized as demonstration units or leased to potential customers.
The Company purchased vehicles costing $410,977 for a combination of notes
payable, secured by the vehicles, of $278,947 and cash of $153,997. The
Company makes monthly payments of $10,163 towards principal and interest on
these notes.
Depreciation expense for the nine months ended September 30, 2011 and 2010
was $36,592 and $14,413, respectively.
-14-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 7 - RELATED PARTY TRANSACTIONS AND BALANCES
------------------------------------------------
The Company has a liability to stockholders for expenses paid by them on
the Company's behalf and advances received by the Company. The liability
has a balance of $10,400 and $35,400 as of September 30, 2011 and December
31, 2010, respectively. These amounts are non-interest bearing and payable
on demand.
In January 2011, the Company purchased a vehicle from an officer. The
purchase price of $33,846 was based on the estimated fair value of the
vehicle and is included in fixed assets under the vehicles category as
shown in Note 6.
NOTE 8 - CONVERTIBLE DEBT
-------------------------
At September 30, 2011 and December 31, 2010, the Company had convertible
notes payable outstanding of $374,961 and $2,378,583, respectively, which
was net of a discount of $0 and $409,428, respectively. These convertible
notes matured at various times within six months from date of issuance,
have an interest rate of 7% and allows the holder to convert the notes into
common stock at a conversion price of $1.00 per share. As of September 30,
2011 all of the outstanding debt had become due and was in default. Of the
$374,961 of debt in default, $236,700 was converted into common stock
subsequent to September 30, 2011 with no additional penalties related to
the default. In connection with these convertible notes, the Company issued
warrants expiring five years from date of issuance which allow the holders
to purchase shares of common stock at $1.25 per share and issued a share of
common stock for every dollar borrowed.
NOTE 9- DEBT
------------
Debt is comprised of third party financing arrangements for vehicles and
capital leased lab equipment. The payment terms of the debt ranges from one
to three years and bears interest rate ranging from 6.79% to 29.8%. The
following table sets forth the composition of the debt at September 30,
2011 and December 31, 2010.
2011 2010
------------------- -------------------
Vehicle loans $ 256,980 $ -
Capital leases 47,129 -
------------------- -------------------
304,109 -
Less: current portion 128,704 -
------------------- -------------------
$ 175,405 $ -
=================== ===================
Future repayments of the debt are as follows:
YEAR AMOUNT
------------------- --------------------
2011 $ 35,319
2012 148,550
2013 89,798
2014 30,441
2015 -
--------------------
$ 304,109
-15-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 10- STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------
COMMON STOCK
For the nine months ended September 30, 2011, the Company issued common
stock as follows:
a) 850,000 shares for professional fees valued at $0.20 per share in
January 2011.
b) 978,700 bonus shares in connection with convertible debt valued at
$0.20 per share in January 2011.
c) 625,000 shares for professional fees valued at $0.50 per share in
February 2011.
d) 566,000 bonus shares in connection with convertible debt valued at
$0.50 per share in March 2011.
e) 1,036,964 shares for conversion of convertible debt and accrued
interest valued at $1.00 per share in March 2011.
f) 1,360,000 shares and warrants for cash valued at $0.50 per share
pursuant to a private placement offering in March 2011.
g) 150,000 shares for professional fees valued at $1.50 per share in
April 2011.
h) 259,537 shares for conversion of convertible debt and accrued interest
valued at $1.00 per share in April 2011.
i) 8,375,998 shares and warrants for cash valued at $0.50 per share
pursuant to a private placement offering in April 2011.
j) 35,000 shares for professional fees valued at $0.50 per share in April
2011.
k) 440,753 shares for conversion of convertible debt and accrued interest
valued at $1.00 per share in May 2011.
l) 415,000 shares and warrants for cash valued at $0.50 per share
pursuant to a private placement offering in May 2011.
m) 332,574 shares for conversion of convertible debt and accrued interest
valued at $1.00 per share in June 2011.
n) 2,100,000 shares and warrants for cash valued at $0.50 per share
pursuant to a private placement offering in June 2011.
o) 1,440,000 shares for professional fees valued at $1.50 per share in
June 2011.
p) 2,250,000 shares to officers for services rendered valued at $1.97 per
share in June 2011.
q) 650,000 shares were retired in June 2011. These shares were originally
issued to a third party consultant in July 2009, but it was determined
that the individual did not perform the services underlying the
payment of common stock and the shares were returned and retired.
r) 475,000 shares for professional fees valued at $2.57 per share in July
2011.
s) 300,000 shares related to employment agreements valued at $1.02 per
share in July 2011.
t) 1,235,000 shares for professional fees valued at $1.24 per share in
August 2011.
u) 150,500 shares related to employment agreements valued at $0.53 per
share in August 2011.
v) 842,082 shares for conversion of convertible debt and accrued interest
valued at $1.00 per share in August 2011.
w) 812,500 shares and warrants for cash valued at $0.50 per share
pursuant to a private placement offering in July and August 2011.
x) 3,000,000 shares for the exercise of 3,000,000 stock warrants with an
exercise price of $1.00 per share in August 2011.
y) 150,000 shares related to employment agreements valued at $0.80 per
share in September 2011.
z) 202,233 shares for conversion of convertible debt and accrued interest
valued at $1.00 per share in September 2011.
At September 30, 2011 and December 31, 2010, respectively, the Company had
a liability to issue stock of $1,144,009 and $239,133, respectively. The
balance at September 30, 2011 is comprised of 705,982 shares valued at
$1.62 per share (relative fair value) for cash received during the third
quarter of 2011. The balance at December 31, 2010 is comprised of $170,739
of bonus shares to be issued in 2011 and $68,394 of stock to be issued for
legal and consulting services rendered in 2010.
-16-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 11 - STOCK PURCHASE WARRANTS
--------------------------------
During the nine months ended September 30, 2011, the Company issued
warrants (each warrant is exercisable into one share of Company restricted
common stock) in connection with the issuance of convertible debt as
discussed in Note 8, upon conversion of outstanding notes and the issuance
of stock for cash as discussed in Note 9 and for services rendered by
consultants.
A summary of the change in stock purchase warrants for the nine months
ended September 30, 2011 is as follows:
WEIGHTED
WEIGHTED AVERAGE
NUMBER OF AVERAGE REMAINING
WARRANTS EXERCISE CONTRACTUAL
OUTSTANDING PRICE LIFE (YEARS)
------------------------------ ----------- ---------- ------------
Balance, December 31, 2010 7,411,772 $ 1.25 3.63
Warrants issued - 2011 17,987,617 1.26 4.54
Warrants exercised - 2011 (3,000,000) 1.25 -
------------------------------ ----------- ---------- ------------
Balance, September 30, 2011 22,399,389 $ 1.26 3.97
=========== ========== ============
The balance of outstanding and exercisable common stock warrants at
September 30, 2011 is as follows:
Remaining
Contractual
Number of Warrants Outstanding Exercise Price Life (Years)
------------------------------- ---------------- --------------
22,064,389 $1.25 3.96
335,000 $3.00 4.96
The fair value of stock purchase warrants granted were calculated using the
Black-Scholes option pricing model using the following assumptions:
Nine Months Ended
September 30, September 30,
2011 2010
------------------ -------------------
(Restated)
Risk free interest rate .24% - 1.13% .37% - 1.14%
Expected volatility 210% - 223% 229% - 234%
Expected term of stock warrant in years 2.5 2.5
Expected dividend yield 0% 0%
Average value per option $0.16 - $3.50 $0.17
Expected volatility is based on historical volatility of the Company and
other comparable companies. Short Term U.S. Treasury rates were utilized.
The expected term of the options was calculated using the alternative
simplified method permitted by SAB 107, which defines the expected life as
the average of the contractual term of the options and the weighted average
vesting period for all option tranches. Since trading volumes and the
number of unrestricted shares are very small compared to total outstanding
shares, the value of the warrants was decreased for lack of marketability.
-17-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 12 - COMMITMENTS
---------------------
EMPLOYMENT AGREEMENT
On January 1, 2011, the Company entered into a five year employment
agreement to hire a Vice-President of Marketing to further develop the
business interests of the Company. After the initial five year term, the
employment shall automatically be extended on the same terms and conditions
for successive one-year renewal periods, unless terminated by either party
with ninety days prior notice.
The marketing executive's minimum compensation in year one shall not be
less than $96,000 per year. Annual salary reviews are required and
compensation shall be increased annually by a percentage at least equal to
the increase in the Consumer Price Index. The executive's compensation
includes the issuance of 300,000 shares of the Company's common stock which
were issued throughout the nine months ended September 30, 2011 for an
aggregate value of $160,500.
CONSULTING AGREEMENTS
On January 12, 2011, the Company entered into a Sales/Marketing Agreement
with a consultant whereby said individual will serve as a non-exclusive
sales agent to sell and market water purification plants, systems, or other
water cleaning technology services. The consultant shall have the exclusive
right to sell and market to specific prospective customers designated and
approved by the Company for a period of one year.
The consultant shall be paid 20% for all sales and 10% of any royalties
during the term of the agreement. The Company shall pay the consultant
$5,000 monthly commencing January 15, 2011 and thereafter for the duration
of the agreement and shall issue to the consultant 300,000 shares of the
Company's common stock as follows: (a) 150,000 shares upon execution of the
agreement (b) 75,000 shares ninety days from the agreement date and (c)
75,000 shares one-hundred eighty days from the agreement date.
The consultant was issued 150,000 shares valued at $0.20 per share on
January 27, 2011 and 75,000 shares valued at $1.50 per share on April 19,
2011. The Company recorded consulting fees of $142,500 for the shares
issued.
On April 1, 2011, the Company entered into a financial services agreement
for services including, but not limited to, investor relations, corporate
record keeping, accounting and preparation of the Company's regulatory
filings. The term of the agreement is for a minimum of thirty-six months
and shall renew automatically on a month to month basis thereafter unless
either party terminates the agreement within ninety days of the automatic
renewal period. The Company shall pay the financial services consultant
$3,000 per month commencing May 1, 2011.
On April 1, 2011, the Company entered into a one year consulting agreement
for the purpose of obtaining professional services in the areas of
corporate structure, strategic planning, and capital and business
development and implementation. The agreement was amended on June 24, 2011.
The amended agreement obligates the Company to issue 1,575,000 common
shares and 1,575,000 warrants which entitles the consultant to purchase
common shares for a five year at $1.25 per share. On June 20, 2011, the
Company issued 1,440,000 shares at $1.50 per share, and recorded consulting
fees expense of $2,160,000. On August 17, 2011 the Company issued the
remaining 135,000 shares to the consultant at $2.02 per share, and recorded
consulting expense of $272,700.
On June 16, 2010, the Company entered into a one year agreement to obtain
advisory and consulting services pertaining to business development,
financing, and strategic planning matters. On May 2, 2011, the compensation
portion of the agreement was amended. In accordance with the amended
agreement, on July 19, 2011 the Company issued 900,000 shares to the
consultant valued at $1,215,000.
-18-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 12 - COMMITMENTS (CONTINUED)
---------------------------------
LEASE AGREEMENTS
On February 9, 2011, the Company entered into a five year office and
laboratory lease agreement in Colorado commencing June 1, 2011 through May
31, 2016 for aggregate rent of $102,226. The amount is to be paid monthly
over the term of the lease term.
Future minimum lease payments for this office space are as follows:
YEAR AMOUNT
---- -----------
2011 $ 4,625
2012 19,040
2013 19,992
2014 20,991
2015 22,041
Thereafter 9,370
-----------
$ 96,059
In August, 2011, the Company entered into an office lease covering its new
Boca Raton, Florida headquarters. The lease term is for three years
commencing on September 1, 2011 and contains a three year renewal option.
The estimated monthly rent including sales tax, but subject to change for
the Company's allocated portion of the building's annual operating expense
factor is as follows: (a) Year 1 - $10,163 (b) Year 2 - $10,995 (c) Year 3
- $11,550.
LICENSE AGREEMENT
On February 15, 2011, the Company entered into a license agreement with
Separatech Canada, Inc. for a term of five years. The license provides the
Company with access to exclusive usage of specified patents to use, test,
develop, package, promote, sell and provide license products exclusively in
North America. The License provides for the Company to construct a testing
plant for development of the licensed products. The Company paid license
fees of $60,000 through March 31, 2011 and commencing in April 2011 and for
the duration of the term of the agreement, the Company is obligated to pay
$30,000 per month.
Future minimum license fees are as follows:
YEAR AMOUNT
----- -----------
2011 $ 90,000
2012 360,000
2013 360,000
2014 360,000
2015 360,000
-----------
$ 1,530,000
INTELLECTUAL PROPERTY AGREEMENTS
The Company entered into a Patented Technology and Services Purchase
Agreement on January 1, 2010 for the acquisition of certain proprietary
intellectual properties concerning the treatment of water by the use of
electro-precipitation. The Company is obligated to pay a five percent
royalty on the first $6,000,000 of gross revenues earned from sales, use or
other transfers of equipment based upon the patented technology transferred
to the Company pursuant to the agreement.
-19-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 13 - INCOME TAXES
----------------------
A reconciliation of the differences between the effective income tax rate
and the statutory federal tax rate for the nine months ended September 30,
2011 and the year ended December 31, 2010 are as follows:
2010
2011 Restated
------------- --------------
Tax benefit at U.S. statutory rate 34.00 % 34.00 %
State taxes, net of federal benefit 3.63 3.63
Change in valuation allowance (37.63) (37.63)
------------- --------------
- % - %
============= ==============
The tax effect of temporary differences that give rise to significant
portions of the deferred tax asset and liabilities at September 30, 2011
and December 31, 2010 consisted of the following:
September 30, December 31,
Deferred Tax Assets 2011 2010
----------------- ---------------
(Restated)
Net Operating Loss
Carryforward $ 10,335,456 $ 2,431,370
----------------- ---------------
Total Non-current Deferred 10,335,456 2,431,370
Tax Asset
Non-current Deferred Tax
Liabilities (2,074,026) (350,640)
----------------- ---------------
Net Non-current Deferred Tax 8,261,430 2,080,730
Asset
Valuation Allowance (8,261,430) (2,080,730)
----------------- ---------------
Total Net Deferred Tax Asset $ - $ -
================= ===============
As of September 30, 2011, the Company had a net operating loss carry
forward for income tax reporting purposes of $27,466,002 that may be offset
against future taxable income through 2031. Current tax laws limit the
amount of loss available to be offset against future taxable income when a
substantial change in ownership occurs. Therefore, the amount available to
offset future taxable income may be limited. No tax asset has been reported
in the financial statements, because the Company believes there is a 50% or
greater chance the carry forwards will expire unused.
Accordingly, the potential tax benefits of the loss carry forwards are
offset by a valuation allowance of the same amount.
-20-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2011
(UNAUDITED)
NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION
--------------------------------------------
Nine Months Ended
September 30,
---------------------------
2011 2010
------------- -------------
(Restated)
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 344 $ 275
------------- -------------
Changes in non-cash financing and investing activities:
Contributions payable to GPS Latitude $ - $ 630,681
------------- -------------
Vehicle and equipment additions from issuance of
long term debt $ 326,076 $ -
------------- -------------
Common stock issued for intangible asset $ - $ 120,000
------------- -------------
Common stock issued for notes payable $ 478,740 $ 282,786
(bonus shares)
------------- -------------
Common stock issued for conversion of notes
payable and accrued interest $ 3,114,144 $ 1,208,346
------------- -------------
NOTE 15 - GAIN ON SETTLEMENT OF ACCRUED EXPENSES
------------------------------------------------
For the nine months ended September 30, 2011, the condensed consolidated
statements of operations include a gain on settlement of accrued expenses
of $150,000. This amount represents the balance that was owed to a
consultant pertaining to services the Company received in connection with
the year 2009 merger referred to in Note 1 to the condensed consolidated
financial statements.
In the first quarter of 2011, the Company settled the debt with said
consultant resulting in the aforementioned gain of $150,000.
NOTE 16 - SUBSEQUENT EVENTS
---------------------------
Management has evaluated the subsequent events through the date at which
the financial statements were issued.
In October 2011, the Company issued 266,089 shares of common stock for
conversion of convertible debt and accrued interest.
In October 2011, the Company issued 1,320,000 shares of common stock and
660,000 warrants for cash in exchange for $2,640,000 pursuant to a private
placement offering.
In October 2011, as a result of a shareholder vote the Company increased
the number of authorized common shares from 100,000,000 to 250,000,000
shares.
In October 2011, as a result of a shareholder vote the Company authorized
the creation of 25,000,000 shares of preferred stock with a $0.001 par
value.
In October 2011, the Company added a seventh Board of Directors member. The
Company also entered into agreements with each of the seven Board members
to include in their compensation the issuance of 100,000 warrants each.
In October 2011, the Company began a 30-day paid pilot test for the
treatment of contaminated water.
-21-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED HEREIN. IN CONNECTION WITH, AND
BECAUSE WE DESIRE TO TAKE ADVANTAGE OF, THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WE CAUTION READERS REGARDING
CERTAIN FORWARD LOOKING STATEMENTS IN THE FOLLOWING DISCUSSION AND ELSEWHERE IN
THIS REPORT AND IN ANY OTHER STATEMENT MADE BY, OR ON OUR BEHALF, WHETHER OR NOT
IN FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. FORWARD-LOOKING
STATEMENTS ARE STATEMENTS NOT BASED ON HISTORICAL INFORMATION AND WHICH RELATE
TO FUTURE OPERATIONS, STRATEGIES, FINANCIAL RESULTS OR OTHER DEVELOPMENTS.
FORWARD LOOKING STATEMENTS ARE NECESSARILY BASED UPON ESTIMATES AND ASSUMPTIONS
THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND OUR CONTROL AND MANY
OF WHICH, WITH RESPECT TO FUTURE BUSINESS DECISIONS, ARE SUBJECT TO CHANGE.
THESE UNCERTAINTIES AND CONTINGENCIES CAN AFFECT ACTUAL RESULTS AND COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING
STATEMENTS MADE BY, OR ON OUR BEHALF. WE DISCLAIM ANY OBLIGATION TO UPDATE
FORWARD-LOOKING STATEMENTS.
THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S REPORT ON THE COMPANY'S
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2010, AND FOR EACH OF THE YEARS IN THE
TWO-YEAR PERIOD THEN ENDED, INCLUDES A "GOING CONCERN" EXPLANATORY PARAGRAPH,
THAT DESCRIBES SUBSTANTIAL DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A
GOING CONCERN.
Latitude Solutions, Inc., through three subsidiaries, has operations based upon
its proprietary technologies.
Latitude Clean Tech Group, Inc. provides products, processes and solutions for
contaminated water applications. LCTG provides products, processes and solutions
for contaminated water issues resulting from various oil/gas drilling operations
including water used in hydraulic fractionizing of wells, contaminated water
relating to the Alberta oil sands, and mining operations producing contaminated
water. In light of the increasing issues related to major industrial produced
water pollution, mining, oil/ natural gas (hydraulic fracturing), contaminated
water related issues, together with ever increasing expenditures for defense,
surveillance and anti-terrorism requirements, there is a growing market for the
Company's technologies, both domestically and possibly internationally.
6709800 Canada, Inc. dba GpsLatitude, the Company's equity investment, is the
technology/software/hardware group, which provides wireless telemetry/live video
streaming and security products for Mobile Assets, Public Security, Corporate
and National Security applications. On October 1, 2011, the GpsLatitude began
doing business as VideoLatitude. The Company has established a marketing
strategic alliance with U.S. defense contractor, General Dynamics, as well as
with Bell Canada to jointly market the Company's technologies. Additionally, the
Royal Canadian Mounted Police (RCMP) is utilizing the Company's products.
Trinity Solutions, Inc., the Company's third subsidiary, was the Company's
internal business marketing subsidiary which provided sales and marketing
support to the other subsidiaries. The subsidiary is now dormant.
On February 8, 2011, Latitude Energy Services, LLC was organized in the state of
Nevada. LSI has a 70% equity ownership in LES, the remaining 30% equity
ownership is owned by third party entities. LSI is one of five managers of the
LLC, the other four managers are from the 30% equity owners of the LLC. Latitude
Energy Services, LLC will provide water remediation services to the Oil, Gas and
Energy industries worldwide utilizing innovative and patented technologies
developed by its majority equity owner, Latitude Solutions, Inc. ("LSI") and its
subsidiary companies.
At November 17, 2011, we have $1,682,077 cash on hand. We have not generated any
revenues to date. We account for our ownership in GpsLatitude as an equity
investment recognizing gains and losses on that investment. If we are unable to
begin to generate enough revenue, through our other subsidiaries, to cover our
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operational costs, we will need to seek additional sources of funds. No
representation is made that any funds will be available when needed. In the
event funds cannot be raised if and when needed, we may not be able to carry out
our business plan and could fail in business as a result of these uncertainties.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2011 WITH THE THREE MONTHS ENDED SEPTEMBER 30, 2010
For the Three Months Ended Change
September 30,
2011 2010 $ %
--------------------- ----------------------- ---------------- ------------
REVENUES $ - $ - $ - -%
COST OF REVENUES - - - -
--------------------- ----------------------- ---------------- ------------
GROSS PROFIT (LOSS) - - - -
--------------------- ----------------------- ---------------- ------------
OPERATING EXPENSES
Consulting fees 1,634,430 648,901 985,529 151.87%
General and administrative 721,888 237,662 484,226 203.74%
Legal and Accounting expense 99,681 39,654 60,027 151.37%
License fees 75,947 - 75,947 100%
Rent expense 50,943 19,073 31,870 167.09%
Salaries expense 981,227 233,648 747,579 319.95%
Travel expense 162,376 116,683 45,693 39.16%
--------------------- ----------------------- ---------------- ------------
Total expenses 3,726,492 1,295,621 2,430,871 187.62%
--------------------- ----------------------- ---------------- ------------
LOSS FROM OPERATIONS (3,726,492) (1,295,621) 2,430,871 187.62%
--------------------- ----------------------- ---------------- ------------
OTHER EXPENSES
Finance costs (170,545) (304,189) (133,644) (43.93%)
Interest expense (51,532) (32,426) 19,106 58.92%
Interest income 951 - 951 100%
Equity in losses to investee (132,540) (221,488) (88,948) (40.15%)
--------------------- ----------------------- ---------------- ------------
Total other expense (353,666) (558,103) (204,437) (60.14%)
--------------------- ----------------------- ---------------- ------------
NET LOSS (4,080,158) (1,853,724) (2,226,434) (120.21%)
Net Loss Contributable to non-
controlling interest 114,130 - 114,130 100%
--------------------- ----------------------- ---------------- ------------
NET LOSS ATTRIBUTABLE TO
LATITUDE SOLUTIONS, INC. (3,966,028) (1,853,724) (2,112,304) 113.94%
--------------------- ----------------------- ---------------- ------------
LOSS PER SHARE ATTRIBUTABLE TO
LATITUDE SOLUTIONS, INC. $ (0.07) $ (0.07) $ - -
WEIGHTED AVERAGE OUTSTANDING SHARES
BASIC AND DILUTED 53,060,301 25,452,910
REVENUES
The Company did not recognize any revenue from its operations other then GPS
Latitude during the three months ended September 30, 2011 and 2010. During the
year ended December 31, 2010, the Company had completed construction of its
equipment sets with a capacity to treat 200 gallons per minute. While currently
being used for demonstrations, the Company expects to utilize this facility to
initiate the generation of revenues during the year ended December 31, 2011.
-23-
OPERATING EXPENSES
Operating expenses for the three months ended September 30, 2011 were $3,726,492
as compared to $1,295,621 for the three months ended September 30, 2010, an
increase of $2,430,871 or 187.62%. The increase was primarily caused by an
increase of $985,529 increase in consulting fees, an increase of $484,226 in
general and administrative expenses and an increase of $747,579 in salary
expenses related to the deployment of staff to supervise and operate our
equipment in the field and an increase in travel related expenses of $45,694
which resulted from our proof of concept customer demonstrations.
INTEREST EXPENSE
Interest expense was $51,532 for the three months ended September 30, 2011 as
compared to $32,426 for the three months ended September 30, 2010, an increase
of $19,106 or 58.92%. This amount is a result of the Company's notes payable
that were converted into common stock and related to actual and accrued interest
expense.
NET LOSSES
During the three months ended September 30, 2011, the Company recognized a net
loss of $3,966,028 compared to $1,853,724 for the three months ended September
30, 2010. The Company's net loss increased $2,112,304 during the three months
ended September 30, 2011 when compared to the three months ended September 30,
2010. The primary reasons for this increase was an increase in operating
expenses of $2,430,871 and an increase of $114,130 in loss contributable to
non-controlling interest offset by a decrease in finance costs of $133,645
caused by the decrease in debt financing.
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
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COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2011 WITH THE NINE MONTHS ENDED SEPTEMBER 30, 2010
For the Nine Months Ended
September 30, Change
2011 2010 $ %
--------------------- ----------------------- ---------------- -------------
REVENUES $ - $ - $ - -%
COST OF REVENUES - - - -
--------------------- ----------------------- ---------------- -------------
GROSS PROFIT (LOSS) - - - -
--------------------- ----------------------- ---------------- -------------
OPERATING EXPENSES
Consulting fees 15,302,520 931,650 14,370,870 1,542.51%
General and administrative 1,519,287 399,561 1,119,726 280.23%
Legal and accounting expense 244,841 119,860 124,981 104.27%
License fees 215,947 - 215,947 100%
Rent expense 106,324 44,408 61,916 139.42%
Salaries expense 2,104,776 450,198 1,654,578 367.52%
Travel expense 403,365 179,660 223,705 124.51%
--------------------- ----------------------- ---------------- -------------
Total expenses 19,897,060 2,125,337 17,771,683 836.16%
--------------------- ----------------------- ---------------- -------------
LOSS FROM OPERATIONS (19,897,060) (2,125,337) 17,771,683 836.16%
--------------------- ----------------------- ---------------- -------------
OTHER EXPENSES
Finance costs (984,795) (639,340) 345,454 54.03%
Gain on settlement of accrued
expenses 150,000 - 150,000 100%
Interest expense (114,918) (82,988) 31,930 38.46%
Interest income 1,887 - 1,887 100%
Equity in losses to investee (515,555) (328,874) 186,681 56.76%
--------------------- ----------------------- ---------------- -------------
Total other expense (1,463,381) (1,051,202) 412,179 39.21%
--------------------- ----------------------- ---------------- -------------
NET LOSS (21,360,441) (3,176,539) (18,183,902) (572.02%)
Net Loss Contributable to non-
controlling interest 222,859 - 222,859 100%
--------------------- ----------------------- ---------------- -------------
NET LOSS ATTRIBUTABLE TO
LATITUDE SOLUTIONS, INC. (21,137,582) (3,176,539) (17,961,043) 565.43%
--------------------- ----------------------- ---------------- -------------
LOSS PER SHARE ATTRIBUTABLE TO
LATITUDE SOLUTIONS, INC. $ (0.50) $ (0.14) $ 0.36 257.14%
WEIGHTED AVERAGE OUTSTANDING SHARES
BASIC AND DILUTED 41,956,264 22,844,420
REVENUES
The Company did not recognize any revenue from its operations other then GPS
Latitude during the nine months ended September 30, 2011 and 2010. During the
year ended December 31, 2010, the Company had completed construction of its
equipment sets with a capacity to treat 200 gallons per minute. While currently
being used for demonstrations, the Company expects to utilize this facility to
initiate the generation of revenues during the year ended December 31, 2011.
-25-
OPERATING EXPENSES
Operating expenses for the nine months ended September 30, 2011 were $19,897,060
as compared to $2,125,337 for the nine months ended September 30, 2010, an
increase of $17,771,683 or 836.18%. The increase was primarily caused by an
increase of $14,370,870 increase in consulting fees, an increase of $1,119,726
in general and administrative expenses, an increase of $1,654,578 in salary
expenses related to the deployment of staff to supervise and operate our
equipment in the field and an increase in travel related expenses of $223,705
which resulted from our proof of concept customer demonstrations.
During the nine months ended September 30, 2011, we incurred consulting expenses
of $15,302,520, which were paid to consultants for services, such as business
development, for services to the Company (such as officers and directors) and
services relating to product development. The consulting expenses incurred
during the nine months ended September 30, 2011, were paid using cash and/or
equity. During the nine months ended September 30, 2011, the $15,302,520 in
consulting expenses consisted of 7,125,000 shares of common stock valued at
$9,414,707 and warrants exercisable for 2,480,000 shares of the common stock
valued at $4,342,274. We intend to continue to use shares of our common stock
and warrants as a way to compensate for consulting services in the future and we
anticipate that such consulting fees will continue to be a significant portion
of our operating expenses.
INTEREST EXPENSE
Interest expense was $114,918 for the nine months ended September 30, 2011 as
compared to $82,988 for the nine months ended September 30, 2010, an increase of
$31,930 or 38.46%. This amount is a result of the Company's notes payable that
were converted into common stock and related to actual and accrued interest
expense.
NET LOSSES
During the nine months ended September 30, 2011, the Company recognized a net
loss of $21,137,582 compared to $3,176,539 for the nine months ended September
30, 2010. The Company's net loss increased $17,961,043 during the nine months
ended September 30, 2011 when compared to the nine months ended September 30,
2010. The primary reasons for this increase was an increase in operating
expenses of $17,771,683, plus an increase in finance costs of $345,455 caused by
the increase in debt financing and increase of $222,859 in losses recognized
from our investee. The Company during the nine months ended September 30, 2011
recognized a non-recurring gain on the settlement of accrued expense of
$150,000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2011, the Company had total current assets of $3,271,099,
consisting of $3,041,953 in cash on hand and $229,146 in prepaid expenses. At
September 30, 2011, the Company had total current liabilities of $3,775,120,
consisting of $2,116,904 in accounts payable and accrued liabilities, $142 due
to investee, $10,400 related party payable, promissory notes of $128,704
convertible debt of $374,961 and a liability to issue common stock of
$1,144,009. At September 30, 2011, the Company has a working capital deficit of
$504,021.
Net cash used in operating activities was $4,031,194 for the nine months ended
September 30, 2011, compared to $1,040,414 for the nine months ended September
30, 2010. This increase in cash used relates to the significantly higher cash
expenses during the nine months ended September 30, 2011 due to an increase in
operating activities including an increase in consulting and travel expenses as
the Company has built its equipment sets and has started testing them. During
the nine months ended September 30, 2011, net losses of $21,360,441 were offset
by non-cash items of $984,795 in financing costs, $9,414,706 in common stock for
services, $4,342,274 in warrants issued for services, $53,198 in depreciation
and amortization expense and $515,555 in equity loss in the GPS Latitude
investment.
The Company's net cash used in investing activities was $4,633,550 for the nine
months ended September 30, 2011 compared to net cash used in investing
activities of $1,126,201 for the nine months ended September 30, 2010. In the
nine months ended September 30, 2011, the Company invested $4,213,812 in plant
and equipment and made payments of $412,267 to its investment.
-26-
The Company's net cash provided by financing activities was $11,490,497 for the
nine months ended September 30, 2011 compared to net cash provided by financing
activities of $2,164,482 for the nine months ended September 30, 2010. During
the nine months ended September 30, 2011, the Company received $7,962,464 in
proceeds from the issuance of shares of common stock, $3,000,000 from the
exercise of common stock warrants and $691,000 in proceeds from the issuance of
convertible debt. During the nine months ended September 30, 2011, the Company
made a payment of $116,000 on outstanding convertible debt, payments of $21,967
on long term debt and a payment of $25,000 on related party payable.
At September 30, 2011 and December 31, 2010, the Company had convertible notes
payable outstanding of $374,961 and $2,378,583, respectively, which was net of a
discount of $0 and $409,428, respectively. These convertible notes matured at
various times within six months from date of issuance, have an interest rate of
7% and allows the holder to convert the notes into common stock at a conversion
price of $1.00 per share. As of September 30, 2011 all of the outstanding debt
had become due and was in default. Of the $374,961 of debt in default, $236,700
was converted into common stock subsequent to September 30, 2011 with no
additional penalties related to the default. In connection with these
convertible notes, the Company issued warrants expiring five years from date of
issuance which allow the holders to purchase shares of common stock at $1.25 per
share and issued a share of common stock for every dollar borrowed.
The Company's Long Term Debt is comprised of third party financing arrangements
for vehicles and capital leased lab equipment. The payment terms of the debt
ranges from one to three years and bears interest rate ranging from 6.79% to
29.8%.
NEED FOR ADDITIONAL FINANCING
The Company anticipates the need for an additional $6 to $10 million in
financing over the next twelve months in order to fund the building of
additional equipment sets which is marketed under the Companies trade mark brand
named Integrated Water Systems(TM). Management is currently exploring several
financing alternatives including both debt and equity financing. However there
can be no assurances that these alternatives will come to fruition or that if
the Company needs to raise capital for working capital purposes, it will be
successful.
CRITICAL ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments, with an initial maturity of
three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is provided for on the
straight line method over the estimated useful lives of the related assets as
follows:
Furniture and fixtures 5 to 7 years
Computer equipment 5 years
Plants and Equipment 5 to 7 years
Vehicles 5 to 7 years
Software 3 to 5 years
The cost of maintenance and repairs is charged to expense in the period
incurred. Expenditures that increase the useful lives of assets are capitalized
and depreciated over the remaining useful lives of the assets. When items are
retires or disposed of, the cost and accumulated depreciation are removed from
the accounts and any gain or loss is included in income.
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INTANGIBLE ASSETS
In accordance with FASB ASC 350-25, "INTANGIBLES - GOODWILL AND OTHER", the
Company acquired a patent that is being amortized over its useful life of
fifteen years. The Company purchased the patent through the issuance of 600,000
shares of common stock with a fair value of $120,000 and a cash payment of
$100,000. Additionally, the Company capitalized patent fees of $2,000. The
Company's balance of intangible assets on the balance sheet net of accumulated
amortization was $195,567 and $207,267 at September 30, 2011 and December 31,
2010, respectively. Amortization expense related to the intangible assets was
$11,700 and $11,033 for the nine months ended September 30, 2011 and 2010,
respectively. Amortization expenses related to intangible assets is expected to
be approximately $14,800 each year for 2011 through 2025.
EQUITY INVESTMENTS
The Company follows ASC 323-10, "INVESTMENTS" to account for investments in
entities in which the Company has a 20% to 50% interest or otherwise exercises
significant influence. These investments are carried at cost, adjusted for the
Company's proportionate share of undistributed earnings or losses of Investee.
REVENUE RECOGNITION AND COST OF REVENUES
The Company's leased plants and royalty revenues will be recognized when there
is pervasive evidence of the arrangement, delivery has occurred, the price is
fixed and determinable and collectability is reasonably assured.
Leasing and royalty revenues will include revenues from the leasing of the
plants, and a per gallon royalty fee. These services will be provided to
customers ongoing and will be billed on a monthly basis and recognized as
revenue equally during the term of the arrangement in accordance with ASC
605-25, "Multiple Element Arrangements". Since inception, no revenue has been
generated.
Costs of revenues will consist primarily of repairs and maintenance and
depreciation on leased plants and any other related selling and servicing costs.
FINANCIAL INSTRUMENTS
The Company adopted the provisions of ASC 820, "FAIR VALUE MEASUREMENTS AND
DISCLOSURES", effective January 1, 2008. ASC 820 defines fair value, establishes
a framework for measuring fair value under generally accepted accounting
principles and enhances disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Valuation techniques used to measure fair
value, as required by ASC 820, must maximize the use of observable inputs and
minimize the use of unobservable inputs.
The standard describes a fair value hierarchy based on three levels of inputs,
of which the first two are considered observable and the last unobservable, that
may be used to measure fair value. The Company's assessment of the significance
of a particular input to the fair value measurements requires judgment, and may
affect the valuation of the assets and liabilities being measured and their
placement within the fair value hierarchy.
o Level 1 - Quoted prices in active markets for identical assets or
liabilities.
o Level 2 - Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
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o Level 3 - Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the
assets or liabilities.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
------------------------------------------------------------------
NOT APPLICABLE
ITEM 4. CONTROLS AND PROCEDURES
--------------------------------
Disclosures Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such term is
defined in Rules 13a 15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) and that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act, is
recorded, processed, summarized and reported within the time periods required
under the SEC's rules and forms and that the information is gathered and
communicated to our management, including our Chief Executive Officer (Principal
Executive Officer) and Chief Financial Officer (Principal Financial Officer), as
appropriate, to allow for timely decisions regarding required disclosure.
As required by SEC Rule 15d-15(b), our Chief Executive Officer carried out an
evaluation under the supervision and with the participation of our management,
of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period
covered by this report. Based on the foregoing evaluation, our Chief Executive
Officer has concluded that our disclosure controls and procedures are effective
in timely alerting them to material information required to be included in our
periodic SEC filings and to ensure that information required to be disclosed in
our periodic SEC filings is accumulated and communicated to our management,
including our Chief Executive Officer, to allow timely decisions regarding
required disclosure.
There was no change in our internal control over financial reporting that
occurred during the fiscal quarter ended September 30, 2011, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
--------------------------
NONE.
ITEM 1A. RISK FACTORS
----------------------
Not Applicable to Smaller Reporting Companies.
ITEM 2. CHANGES IN SECURITIES
------------------------------
During the period of July 1, 2011 through September 30, 2011, the Company issued
the following unregistered securities.
DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER
------------------------------------- -------------------- ----------------- ------------------------ -----------------------------
July 2011 Common Stock 475,000 $1,220,750 in services Business Associates
$306,000 in services
July 2011 Common Stock 300,000 pursuant to Employment Business Associate
Agreements
August 2011 Common Stock 1,235,000 $1,531,400 in services Business Associates
$79,765 in services
August 2011 Common Stock 150,500 pursuant to Employment Business Associates
Agreements
August 2011 Common Stock 842,082 Conversion of Business Associates
Promissory Notes
August 2011 Common Stock 812,500 $406,250 Business Associates
August 2011 Warrants 812,500 $406,250 Business Associates
August 2011 Common Stock 3,000,000 Exercise of Warrant Business Associates
$120,000 in services
September 2011 Common Stock 150,000 pursuant to Employment Business Associates
Agreements
September 2011 Common Stock 202,233 Conversion of Debt Business Associates
EXEMPTION FROM REGISTRATION CLAIMED
All of the above sales by the Company of its unregistered securities were made
by the Company in reliance upon Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"). All of the individuals and/or entities that purchased
the unregistered securities were primarily existing shareholders, known to the
Company and its management, through pre-existing business relationships, as long
-30-
standing business associates. All purchasers were provided access to all
material information, which they requested, and all information necessary to
verify such information and were afforded access to management of the Company in
connection with their purchases. All purchasers of the unregistered securities
acquired such securities for investment and not with a view toward distribution,
acknowledging such intent to the Company. All certificates or agreements
representing such securities that were issued contained restrictive legends,
prohibiting further transfer of the certificates or agreements representing such
securities, without such securities either being first registered or otherwise
exempt from registration in any further resale or disposition.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
----------------------------------------
NONE.
ITEM 4. REMOVED AND RESERVED
-----------------------------
ITEM 5. OTHER INFORMATION
--------------------------
NONE.
ITEM 6. EXHIBITS
-----------------
EXHIBITS. The following is a complete list of exhibits filed as part of this
Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of
Item 601 of Regulation S-K.
Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
Exhibit 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
Exhibit 32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
Exhibit 32.2 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
101.INS XBRL Instance Document (1)
101.SCH XBRL Taxonomy Extension Schema Document (1)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (1)
-----------------
(1) Pursuant to Rule 406T of Regulation S-T, this interactive data file is
deemed not filed or part of a registration statement or prospectus for purposes
of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for
purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is
not subject to liability under these sections.
-31-
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
LATITUDE SOLUTIONS, INC.
---------------------------------------------------
(REGISTRANT)
Dated: November 21, 2011 By: /s/Harvey N. Kaye
---------------------------------------------------
Harvey N. Kaye (Principal Executive Officer,
President and Chief Executive Officer)
Dated: November 21, 2011 By: /s/Matthew J. Cohen
---------------------------------------------------
Matthew J. Cohen, (Chief Financial Officer/
Principal Accounting Officer/Secretary / Treasurer)
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