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 March 31, 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)
190 NW SPANISH RIVER BLVD., SUITE 101, 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 May 20, 2011, there were 42,947,855 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 - March 31, 2011 and December 31, 2010 (Audited) F-1
Statements of Operations -
Three months ended March 31, 2011 and 2010 and
From June 3, 1983 (Inception) to March 31, 2011 F-2
Statements of Cash Flows -
Three months ended March 31, 2011 and 2010 and
From June 3, 1983 (Inception) to March 31, 2011 F-3
Notes to the Financial Statements F-4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 2
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- NOT APPLICABLE 7
Item 4. Controls and Procedures 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -NOT APPLICABLE 8
Item 1A. Risk Factors - NOT APPLICABLE 8
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 8
-NOT APPLICABLE
Item 3. Defaults Upon Senior Securities - NOT APPLICABLE 9
Item 4. Removed and Reserved 9
Item 5. Other Information - NOT APPLICABLE 9
Item 6. Exhibits 9
SIGNATURES 10
PART I
ITEM 1. FINANCIAL STATEMENTS
----------------------------
-1-
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (F/K/A GMMT, INC.)
(A Development Stage Company)
Condensed Consolidated Balance Sheets
ASSETS
March 31, December 31,
2011 2010
Unaudited Restated
--------------------- -------------------
CURRENT ASSETS
Cash $ 3,282,912 $ 216,200
Advance to consultant 20,000 -
--------------------- -------------------
Total Current Assets 3,302,912 216,200
--------------------- -------------------
Equity investment 1,525,434 1,767,882
Prepaid licensing fee, net 91,667 93,333
Property and equipment, net 643,332 384,743
Intangible assets, net 203,567 207,267
Other assets 75,149 174,745
--------------------- -------------------
TOTAL ASSETS $ 5,842,061 $ 2,844,170
===================== ===================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 805,111 $ 907,685
Due to Investee 140,766 412,409
Related party payable 10,327 35,400
Convertible debt, net 1,866,899 2,378,583
Liability to issue stock 3,352,500 239,133
--------------------- -------------------
Total Current Liabilities 6,175,603 3,973,210
--------------------- -------------------
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value, 100,000,000
shares authorized, 34,127,320 and 28,710,656
shares issued and outstanding, respectively 34,128 28,711
Additional paid-in capital 8,252,441 5,312,288
Deficit accumulated during the development stage (8,577,079) (6,461,255)
Accumulated other comprehensive loss (9,553) (8,784)
--------------------- -------------------
Total Latitude Solutions, Inc. Stockholders' Deficit (300,063) (1,129,040)
Noncontrolling Interest in Consolidated Subsidiary (33,479) -
--------------------- -------------------
Total Stockholders' Deficit (333,542) (1,129,040)
--------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 5,842,061 $ 2,844,170
===================== ===================
See accompanying notes to condensed consolidated financial statements.
F-1
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (F/K/A GMMT, INC.)
(A Development Stage Company)
Condensed Consolidated Statements of Operations
Unaudited
For the Three Months Ended
March 31, From Inception
----------------------------- on June 3,
1983 Through
2011 2010 March 31,
(Restated) 2011
-------------- ------------- --------------
REVENUES $ - $ - $ -
-------------- ------------- --------------
EXPENSES
Legal and accounting expense 57,305 22,639 391,401
Consulting fees 641,393 133,620 2,411,293
Rent expense 26,486 10,995 174,875
Salaries expense 459,633 80,075 1,281,411
License fees 60,000 - 60,000
Travel expense 96,535 23,452 531,865
General and administrative 263,055 69,941 1,140,282
-------------- ------------- --------------
Total Expenses 1,604,407 340,722 5,991,127
-------------- ------------- --------------
LOSS FROM OPERATIONS (1,604,407) (340,722) (5,991,127)
OTHER INCOME (EXPENSE)
Acquisition expense - - (350,000)
Finance costs pursuant to debt issuance (408,482) (135,244) (1,633,630)
Gain on settlement of accrued expenses 150,000 - 150,000
Interest expense (40,180) (21,150) (185,471)
Interest income 23 - 23
Equity in losses of investee (246,257) (107,386) (600,353)
-------------- ------------- --------------
Total Other Income (Expense) (544,896) (263,780) (2,619,431)
-------------- ------------- --------------
LOSS BEFORE NONCONTROLLING INTEREST (2,149,303) (604,502) (8,610,558)
LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST 33,479 - 33,479
-------------- ------------- --------------
NET LOSS ATTRIBUTABLE TO LATITUDE SOLUTIONS, INC. $ (2,115,824) $ (604,502) $ (8,577,079)
============== ============= ==============
LOSS PER SHARE ATTRIBUTABLE TO LATITUDE SOLUTIONS, INC. - BASIC AND DILUTED $ (0.07) $ (0.03)
============== =============
WEIGHTED AVERAGE
OUTSTANDING SHARES
BASIC AND DILUTED 30,823,728 22,088,755
============== =============
See accompanying notes to condensed consolidated financial statements.
F-2
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,
Threee Months Ended March 31, 1983 Through
2011 2010 March 31,
Restated 2011
------------------ ----------------- ----------------
OPERATING ACTIVITIES
Net loss $ (2,149,303) $ (604,502) $ (8,610,558)
Adjustments to reconcile net loss to
net cash used by operating activities:
Services contributed by
shareholders - - 16,100
Financing Costs 408,482 135,244 1,633,630
Common stock issued or to be
issued for services 445,000 55,620 1,008,049
Warrants issued for services - - 146,034
Depreciation and amortization expense 8,875 6,409 37,782
Equity in losses of investee 246,257 107,386 600,353
Changes in operating assets and liabilities:
(Increase) decrease in other assets 99,596 (14,576) (75,149)
(Decrease) Increase in accounts
payable and accrued expenses (74,804) 181,400 910,500
------------------ ----------------- ----------------
Net Cash Used by
Operating Activities (1,015,896) (133,019) (4,333,259)
------------------ ----------------- ----------------
INVESTING ACTIVITIES
Capital contributions to investee (4,579) (83,350) (160,339)
Purchase of plant and equipment (262,097) (211,764) (656,957)
Purchase of intangible asset - (100,000) (102,000)
Payments to investee (271,643) (86,391) (859,234)
------------------ ----------------- ----------------
Net Cash Used by
Investing Activities (538,319) (481,505) (1,778,530)
------------------ ----------------- ----------------
FINANCING ACTIVITIES
Proceeds from related party payable - - 35,400
Decrease in related party payable (25,073) - (25,073)
Increase in advance to consultant (20,000) - (20,000)
Proceeds from convertible debt 691,000 617,200 5,068,961
Repayments of convertible debt (40,000) - (45,000)
Proceeds from short term debt 100,000 - 100,000
Repayment of short term debt (100,000) - (100,000)
Sale of common stock 4,015,000 - 4,380,413
------------------ ----------------- ----------------
Net Cash Provided by
Financing Activities 4,620,927 617,200 9,394,701
------------------ ----------------- ----------------
NET INCREASE IN CASH 3,066,712 2,676 3,282,912
CASH AT BEGINNING
OF PERIOD 216,200 2,133 -
------------------ ----------------- ----------------
CASH AT END OF PERIOD $ 3,282,912 $ 4,809 $ 3,282,912
================== ================= ================
See accompanying notes to condensed consolidated financial statements.
F-3
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------
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 condensed unaudited consolidated interim financial statements
include the accounts of Latitude Solutions, Inc. and its wholly owned
subsidiaries, Latitude Clean Tech Group, Inc, Trinity Solutions, Inc. and GMMT
Merger, Inc., and its 70% owned subsidiary, Latitude Energy Services, 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 instructions to 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.
F-4
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
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 March 31, 2011 and the results of its
operations and cash flows for the three months ended March 31, 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 three months ended March 31,
2011 may not be indicative of results for the full year.
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
Equipment 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 $203,567 and $207,267 at March 31, 2011 and December 31, 2010,
respectively. Amortization expense related to the intangible assets was $3,700
and $3,667 for the three months ended March 31, 2011 and 2010, respectively.
F-5
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
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
March 31, 2011, the Company had not experienced impairment losses on its
long-lived assets.
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
Machinery 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.
Licensing and other services will include revenues from technology licensing and
maintenance services. These services are provided to customers ongoing and will
be billed up front on a monthly or quarterly 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 costs to purchase machinery and
equipment and the shipping costs necessary to distribute products to customers.
F-6
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
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 outstanding
common stock warrants and shares of common stock which may be issued upon
conversion of convertible notes, are not included in the computation of net loss
per common share for the three months ended March 31, 2011 and 2010 because the
effect of their inclusion would be anti-dilutive.
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.
F-7
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
INCOME TAXES (CONTINUED)
As of March 31, 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.
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.
F-8
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS (CONTINUED)
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 March 31, 2011 and December 31, 2010, the Company's accumulated other
comprehensive loss of $9,553 and $8,784, respectively, is comprised of the
accumulated foreign currency translation adjustments related to the Company's
equity investment.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company applies the fair value method of ASC 718, "SHARE BASED PAYMENT", 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, "SHARE BASED PAYMENT." 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."
F-9
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
NON-CONTROLLING INTEREST
The Company accounts for its 70% interest in Latitude Energy Services, LLC in
accordance with ASC 810 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 "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.
As of March 31, 2011, the Company maintained its cash in two financial
institutions. The Company's cash balance at March 31, 2011 exceeded the
federally insured limits by $2,771,532. 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 March 31, 2011.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company does not believe that any ASU's which are not effective until after
March 31, 2011 will have a significant effect on the Company's consolidated
financial position or results of operations.
NOTE 2 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
--------------------------------------------------------------
The accompanying March 31, 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 determined the
fair value of the warrants contained a mathematical flaw.
As a result of the aforementioned restatement, net loss for the three months
ended March 31, 2010 was restated from $1,086,458 to $604,502 and loss per share
- basic and diluted was restated from $0.05 to $0.03.
F-10
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 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 our recurring
losses or accumulated deficit.
The Company currently has no revenue source and is incurring losses. These
factors raise substantial doubt about our 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 any of its plans.
The ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plans 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 6709800 Canada
Inc. ("GPS Latitude"), 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. GPS Latitude 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 March 31, 2011.
The Company is committed to contribute unto GPS Latitude 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 March 31, 2011 and December 31, 2010
totaled $140,766 and $412,409, respectively.
F-11
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 4 - EQUITY INVESTMENT (CONTINUED)
--------------------------------------
The Company has calculated the components of the Investment in GPS Latitude as
of March 31, 2011 to be as follows:
Goodwill 1,050,781
Net Liabilities assumed at July 31, 2009 (75,781)
---------------
975,000
Contributed capital, including $140,766 not paid
as of March 31, 2011 1,160,340
Estimated proportionate share in losses
of investee, including foreign currency
translation losses of $9,553 (609,906)
---------------
Book Value $ 1,525,434
===============
GPS Latitude has a fiscal year end of January 31. The following is summarized
unaudited financial information of GPS Latitude as of March 31, 2011 and for the
two month period then ended:
March 31, 2011
-------------------
Balance Sheet:
Reimbursable R&D $ 89,752
Other current assets 302,506
Noncurrent assets 5,964
Current liabilities (649,061)
Noncurrent liabilities (281,168)
-------------------
Total Stockholders' Deficit $ (532,007)
===================
Operating Results
Loss from operations $ (432,070)
Revenue 25,939
Interest Expense (4,497)
-------------------
Net loss (410,628)
-------------------
Loss on Foreign Exchange (4,981)
-------------------
Comprehensive Loss $ (415,609)
===================
F-12
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 4 - EQUITY INVESTMENT (CONTINUED)
--------------------------------------
GPS Latitude's functional currency is the Canadian Dollar. GPS Latitude 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 it's 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's balance of prepaid
licensing fee on the balance sheet, net of accumulated amortization, was $91,667
and $93,333 at March 31, 2011 and December 31, 2010, respectively. Amortization
expense related to the intangible asset was $1,666 and $1,667 for the three
months ended March 31, 2011 and 2010, respectively.
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
--------------------------------------
At March 31, 2011 and December 31, 2010, property and equipment consisted of the
following:
2011 2010
------------------- ------------------
Equipment $ 98,021 $ 35,752
Furniture and fixtures 15,661 11,421
Plants under construction 503,057 345,076
Vehicles 37,607 -
------------------- ------------------
654,346 392,249
Less accumulated Depreciation 11,014 7,506
------------------- ------------------
$ 643,332 $ 384,743
=================== ==================
Plants under construction represent electro-coagulation 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 in 2011.
Depreciation expense for the three months ended March 31, 2011 and 2010 was
$3,508 and $2,742, respectively.
F-13
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 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 $10,327 and $35,400 as of March 31, 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 March 31, 2011 and December 31, 2010, the Company had convertible notes
payable outstanding of $2,443,211 and $2,788,011, respectively. These
convertible notes mature at various times within six months from date of
issuance, have an interest rate of 7% and include a beneficial conversion
feature which allows the holder to convert the notes into common stock at a
conversion price of $1.00 per share. 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.
Convertible debt with beneficial conversion features, whereby the conversion
feature is "in the money," is accounted for in accordance with guidelines
established by ASC 470-20, "DEBT WITH CONVERSION AND OTHER OPTIONS." The
relative fair value of the beneficial conversion feature and other embedded
features are individually valued at fair market value and are either expensed or
amortized over the term of the related instruments. The Company has recognized
the respective values of these features as a discount to the convertible debt
and is amortizing the discount over the term of the notes.
The remaining debt discount balances as of March 31, 2011 and December 31, 2010,
of $576,312 and $409,428, respectively, are netted against the outstanding
notes.
NOTE 9- STOCKHOLDERS' DEFICIT
-----------------------------
COMMON STOCK
For the three months ended March 31, 2011, the Company issued common stock as
follows:
(a) 850,000 shares for professional fees valued at $0.20 per share.
(b) 625,000 shares for professional fees valued at $0.50 per share.
(c) 978,700 bonus shares in connection with convertible debt valued at
$0.20 per share.
(d) 566,000 bonus shares in connection with convertible debt valued at
$0.50 per share.
(e) 1,036,964 shares for conversion of convertible debt valued at $1.00
per share.
F-14
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 9 - STOCKHOLDERS' DEFICIT (CONTINUED)
-----------------------------------------
(f) 1,360,000 shares for cash valued at $0.50 per share. The Company
received $4,015,000 for 8,030,000 common stock share subscriptions,
the balance of 6,670,000 shares unissued as of March 31, 2011 is
recorded as a liability to issue stock as more fully explained in the
following paragraph.
At March 31, 2011 and December 31, 2010, respectively, the Company had a
liability to issue stock of $3,352,000 and $239,133, respectively. The balance
at March 31, 2011 is comprised of 6,670,000 shares valued at $0.50 per share for
cash received during the first quarter of 2011 and 35,000 shares valued at $0.50
per share for professional fees of $17,500. 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.
NOTE 10 - STOCK PURCHASE WARRANTS
---------------------------------
During the three months ended March 31, 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 and upon
conversion of outstanding notes and the issuance of stock for cash as discussed
in Note 9.
A summary of the change in stock purchase warrants for the three months ended
March 31, 2011 and 2010 is as follows:
WEIGHTED
WEIGHTED AVERAGE
NUMBER OF AVERAGE REMAINING
WARRANTS EXERCISE CONTRACTUAL
1st Quarter - 2010: OUTSTANDING PRICE LIFE (YEARS)
----------- --------- ------------
Balance, December 31, 2009 825,811 $ 1.25 4.38
Warrants issued - 1st quarter, 2010 617,200 1.25 4.87
----------- --------- ------------
Balance, March 31, 2010 1,443,011 $ 1.25 4.59
----------- --------- ------------
1st Quarter - 2011:
Balance, December 31, 2010 7,348,895 $ 1.25 4.50
Warrants issued - 1st quarter, 2011 9,570,087 1.25 4.96
----------- --------- ------------
Balance, March 31, 2011 16,918,982 1.25 4.65
----------- --------- ------------
The balance of outstanding and exercisable common stock warrants at March 31,
2011 is as follows:
Remaining
Contractual
Number of Warrants Outstanding Exercise Price Life (Years)
------------------------------- ---------------- ----------------
7,348,895 $1.25 4.50
9,570,087 $1.25 4.96
F-15
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 10 - STOCK PURCHASE WARRANTS (CONTINUED)
---------------------------------------------
The fair value of stock purchase warrants granted were calculated using the
Black-Scholes option pricing model using the following assumptions:
Three Months Ended
March 31, 2011 March 31, 2010
---------------- -----------------
(Restated)
Risk free interest rate .62% - .78% .77% - 1.02%
Expected volatility 218% - 220% 711% - 713%
Expected term of stock warrant in years 2.5 2.5
Expected dividend yield 0% 0%
Average value per option $0.16 - $0.44 $0.16
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.
NOTE 11 - COMMITMENTS
---------------------
On January 1, 2011, the Company entered into a five year employment agreement to
hire a Vice-President of Marketing primarily 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 shall also be entitled to 300,000 shares of
the Company's common stock as follows: 150,000 shares at inception, 75,000
shares ninety days from inception and 75,000 shares one-hundred eighty days from
inception.
On January 27, 2011 the Company issued the executive the initial 150,000 shares
and recorded compensation expense of $30,000 based on a per share value of
$0.20.
F-16
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 11 - COMMITMENTS (CONTINUED)
---------------------------------
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 be entitled to be issued 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 on January 27, 2011 which was recorded
as consulting fees expense of $30,000 based on a per share value of $0.20.
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 are as follows:
YEAR AMOUNT
---- ----------
2011 $ 10,792
2012 19,040
2013 19,992
2014 20,991
2015 22,041
Thereafter 9,370
----------
$ 102,226
==========
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 pilot plant
for development of the licensed products. The Company is obligated to pay
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.
F-17
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 11 - COMMITMENTS (CONTINUED)
---------------------------------
Future minimum license fees are as follows:
YEAR AMOUNT
---- ----------
2011 $ 270,000
2012 360,000
2013 360,000
2014 360,000
2015 360,000
----------
$1,710,000
==========
Subsequent to March 31, 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 for a minimum of thirty-six months.
Subsequent to March 31, 2011, the Company entered into a 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 term is one year. The Company is obligated to
issue 1,200,000 of its common shares and 1,200,000 warrants which entitles the
consultant to purchase common shares for a five year period at $1.25 per share.
Subsequent to March 31, 2011, the Company entered into a consulting agreement
whereby in exchange for services pertaining to corporate development and
communications, investor relations and strategic planning, the Company shall pay
the consultant $6,500 per month for one year. Additionally, the consultant will
receive 100,000 common stock warrants to purchase 100,000 shares for a five year
period at $1.25 per share. Upon execution of the agreement the consultant was
entitled to 50,000 warrants and 50,000 warrants shall be issued upon the one
year anniversary of the agreement.
F-18
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 12 - INCOME TAXES
----------------------
A reconciliation of the differences between the effective income tax rate and
the statutory federal tax rate for the three months ended March 31, 2011 and the
year ended December 31, 2010 are as follows:
2010
2011 Restated
----------- ------------
(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 March 31, 2011 and December 31,
2010 consisted of the following:
March 31, December 31,
Deferred Tax Assets 2011 2010
----------------- ----------------
(Restated)
Net Operating Loss
Carryforward $ 3,240,153 $ 2,431,370
----------------- ----------------
Total Non-current Deferred 3,240,153 2,431,370
Tax Asset
Non-current Deferred Tax
Liabilities (454,589) (350,640)
----------------- ----------------
Net Non-current Deferred Tax 2,785,564 2,080,730
Asset
Valuation Allowance (2,785,564) (2,080,730)
----------------- ----------------
Total Net Deferred Tax Asset $ - $ -
================= ================
As of March 31, 2011, the Company had a net operating loss carry forward for
income tax reporting purposes of approximately $8,610,558 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.
F-19
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION
--------------------------------------------
Three Months Ended
March 31,
------------------------
2011 2010
----------- -----------
(Restated)
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 10 $ 39
----------- -----------
Changes in non-cash financing and investing activities:
Common stock issued for intangible asset $ - $ 120,000
----------- -----------
Common stock issued for notes payable $ 478,740 $ 223,850
(bonus shares)
----------- -----------
Common stock issued for conversion of notes
payable and accrued interest $ 1,036,964 $ -
----------- -----------
NOTE 14 - GAIN ON SETTLEMENT OF ACCRUED EXPENSES
------------------------------------------------
For the three months ended March 31, 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 15 - SUBSEQUENT EVENTS
---------------------------
Management has evaluated the subsequent events through the date at which the
financial statements were issued.
On April 1, 2011, the Company entered into a three year financial services
agreement whereby the Company will pay only cash compensation in exchange for
services. The terms of the agreement are disclosed in Note 11.
On April 1, 2011, the Company entered into a one year consulting agreement
whereby the Company will pay for the services rendered with common stock and
warrants. The terms of the agreement are disclosed in Note 11.
F-20
LATITUDE SOLUTIONS, INC. & SUBSIDIARIES (FKA GMMT, INC.)
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2011
(UNAUDITED)
NOTE 15 - SUBSEQUENT EVENTS (CONTINUED)
---------------------------------------
On April 13, 2011, the Company appointed two members to its Board of Directors.
In exchange for their services, each director was issued a common stock warrant
for 100,000 shares exercisable for five years at a per share price of $1.25.
On April 19, 2011, the Company's Board of Directors authorized the issuance of
8,635,535 common shares. A total of 8,375,998 shares pertain to an equity raise
whereby the shares were sold at $0.50 per share along with an equivalent amount
of common stock warrants exercisable over a five year term at $1.25 per share.
The remaining 259,537 shares represent stock issued from the conversion of
convertible debt at $1.00 per share.
On April 26, 2011, the Company's Board of Directors authorized the issuance of
35,000 shares for legal services rendered as of March 31, 2011. The shares have
been valued at $0.50 per share and the $17,500 value has been recorded in the
March 31, 2011 condensed consolidated statement of operations under the category
legal and accounting expense and in the condensed consolidated balance sheets
under the category liability to issue stock.
On May 11, 2011, the Company's Board of Directors authorized the issuance of
855,753 common shares. A total of 415,000 shares pertain to an equity raise
whereby the shares were sold at $0.50 per share along with an equivalent amount
of common stock warrants exercisable over a five year term at $1.25 per share.
The remaining 440,753 shares represent stock issued from the conversion of
convertible debt at $1.00 per share.
F-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 four 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 second subsidiary, 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. 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) are utilizing the Company's products.
Trinity Solutions, Inc., the Company's third operating subsidiary, is the
Company's internal business marketing subsidiary which provides sales and
marketing support to the other subsidiaries.
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.
-2-
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2011 WITH THE THREE MONTHS ENDED
MARCH 31, 2010
For the Three Months Ended
March 31, Change
2011 2010 $ %
--------------------- ----------------------- ---------------- ------------
REVENUES $ - $ - $ - -%
COST OF REVENUES - - -
-
--------------------- ----------------------- ---------------- ------------
GROSS PROFIT (LOSS) - - - -
--------------------- ----------------------- ---------------- ------------
OPERATING EXPENSES
Legal and accounting expense 57,305 22,639 34,666 153.1%
Consulting fees 641,393 133,620 507,773 380.0%
Rent expense 26,486 10,995 15,491 147.7%
Salaries expense 459,633 80,075 379,558 474.0%
License Expense 60,000 - 60,000 100%
Travel expense 96,535 23,452 73,083 311.6%
General and administrative 263,535 69,941 193,594 276.8%
--------------------- ----------------------- ---------------- ------------
Total expenses 1,604,407 340,722 1,263,685 414.7%
--------------------- ----------------------- ---------------- ------------
LOSS FROM OPERATIONS (1,604,407) ( 340,722) 1,263,685 414.7%
--------------------- ----------------------- ---------------- ------------
OTHER EXPENSES
Finance costs (408,482) (135,244) 273,238 202.0%
Gain on settlement of
accrued expenses 150,000 - 150,000 100%
Interest expense (40,180) (21,150) 19,030 89.9%
Interest income 23 - 23 100%
Equity in losses to investee (246,257) (107,386) 138,871 129.3%
--------------------- ----------------------- ---------------- ------------
Total other expense (544,896) (263,502) 281,394 106.8%
--------------------- ----------------------- ---------------- ------------
Loss Contributable to non-
controlling interest 33,479 - 33,479 100%
--------------------- ----------------------- ---------------- ------------
NET LOSS (2,115,824) (604,502) 1,511,322 250.0%
--------------------- ----------------------- ---------------- ------------
LOSS PER SHARE $ (0.07) $ (0.03) $ (0.04) (133.3%)
WEIGHTED AVERAGE OUTSTANDING
SHARES
BASIC AND DILUTED 30,823,728 22,088,755
REVENUES
The Company did not recognize any revenue from its operations other then GPS
Latitude during the three months ended March 31, 2011 and 2010. During the year
ended December 31, 2010, the Company had completed construction of its water
plant with a capacity to treat 200 gallons per minute. While currently being
used for demonstrations, we expect to utilize this facility to initiate the
generation of revenues during the year ended December 31, 2011.
-3-
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 2011 were $1,604,407 as
compared to $340,722 for the three months ended March 31, 2010, an increase of
$1,263,685 or 414%. The increase was primarily caused by an increase of $379,558
increase in salaries expenses and increase of $507,773 in consulting expenses
related to the deployment of staff to supervise and operate our equipment in the
field and an increase in travel related expenses of $73,083 which resulted from
our proof of concept customer demonstrations.
LOSS FROM OPERATIONS
Loss from operations for the three months ended March 31, 2011 was $1,604,407
compared to a loss of $340,722 for the three months ended March 31, 2011, an
increase of $1,263,685 or 414%. The increase in the loss from operations in the
three months ended March 31, 2011 versus the three months ended March 31, 2010
was due to the increases in operating expenses identified above.
INTEREST EXPENSE
Interest expense was $40,180 for the three months ended March 31, 2011 as
compared to $21,150 for the three months ended March 31, 2010, an increase of
$19,030 or 89.9%. 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 March 31, 2011, the Company recognized a net loss
of $2,115,824 compared to $604,502 for the three months ended March 31, 2010.
The Company's net loss increased $1,511,322 during the three months ended March
31, 2011 when compared to the three months ended March 31, 2010. The primary
reasons for this increase was an increase in operating expenses of $1,263,685,
plus an increase in finance costs of $273,238 caused by the increase in debt
financing and increase of 138,871 in losses recognized from our investee. The
gain of $150,000 is attributed to the settlement of accrued expenses and is a
one time event.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2011, the Company had total current assets of $3,302,912,
consisting of $3,282,912 in cash on hand and a $20,000 related party receivable.
At March 31, 2011, we had total current liabilities of $6,175,602, consisting of
$805,110 in accounts payable and accrued liabilities, $140,766 due to investee,
$10,327 related party payable, convertible debt of $1,866,899 and a liability to
issue common stock of $3,352,500. At March 31, 2011, the Company has a working
capital deficit of $2,872,690.
Net cash used in operating activities was $1,015,896 for the three months ended
March 31, 2011, compared to $133,019 for the three months ended March 31, 2010.
This increase in cash used relates to the significantly higher cash expenses
during the three months ended March 31, 2011 due to an increase in operating
activities including an increase in consulting and travel expenses. During the
three months ended March 31, 2011, net losses of $2,149,303 were offset by
non-cash items of $408,482 in financing costs, $445,000 in common stock for
services, $8,875 in depreciation expense and $246,257 in equity loss in the GPS
Latitude investment.
The Company's net cash used in investing activities was $538,319 for the three
months ended March 31, 2011 compared to net cash used in investing activities of
$481,505 for the three months ended March 31, 2010. In the three months ended
March 31, 2011, the Company invested $262,097 in plant and equipment and made
payments of $271,643 to its investment.
-4-
The Company's net cash provided by financing activities was $4,620,927 for the
three months ended March 31, 2011 compared to net cash provided by financing
activities of $617,200 for the three months ended March 31, 2010. During the
three months ended March 31, 2011, the Company received $4,105,000 in proceeds
from the issuance of shares of common stock, $691,000 in proceeds from the
issuance of convertible debt and received $100,000 from short term debt. During
the three months ended March 31, 2011, the Company made a payment of $100,000 on
outstanding convertible debt.
At March 31, 2011 and December 31, 2010, the Company had convertible notes
payable outstanding of $2,443,211 and $2,738,583, respectively, the debt
discount values of $576,312 and $409,428, respectively, are netted against the
outstanding notes. These convertible notes mature at various times within six
months from date of issuance, have an interest rate of 7% and include a
beneficial conversion feature which allows the holder to convert the notes into
common stock at a conversion price of $1.00 per share. 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.
Convertible debt with beneficial conversion features, whereby the conversion
feature is "in the money," is accounted for in accordance with guidelines
established by ASC 470-20, "DEBT WITH CONVERSION AND OTHER OPTIONS." The
relative fair value of the beneficial conversion feature and other embedded
features are individually valued at fair market value and are either expensed or
amortized over the term of the related instruments. The Company has recognized
the respective values of these features as a discount to the convertible debt
and is amortizing the discount over the term of the notes.
At March 31, 2011 and December 31, 2010, respectively, the Company had a
liability to issue stock of $3,352,000 and $239,133, respectively. The balance
at March 31, 2011 is comprised of 6,670,000 shares valued at $0.50 per share for
cash received during the first quarter of 2011 and 35,000 shares valued at $0.50
per share for professional fees of $17,500. 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.
NEED FOR ADDITIONAL FINANCING
The Company anticipates the need for an additional $6- $10 million in financing
over the next twelve months in order to fund the building of additional water
units 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.
-5-
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
Equipment 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.
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 $207,267 and $0 at December 31, 2010 and 2009, respectively.
Amortization expense related to the intangible assets was $14,733 and $0 for the
years ended December 31, 2010 and 2009, respectively. Amortization expenses
related to intangible assets is expected to be approximately $14,800 each year
for 2011 through 2015.
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
Machinery 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.
Licensing and other services will include revenues from technology licensing and
maintenance services. These services are provided to customers ongoing and will
be billed up front on a monthly or quarterly 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 for the Company will consist primarily of costs to purchase
machinery and equipment and the shipping costs necessary to distribute products
to customers.
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
-6-
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
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 March 31, 2011, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
-7-
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 January 1, 2011 through March 31, 2011, the Company issued
the following unregistered securities.
DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER
------------------------------- ------------------- ------------- --------------------- -------------------
January 2011 through March 2011 Common Stock 850,000 Professional Services Business Associates
January 2011 through March 2011 Common Stock 625,000 Professional Services Business Associates
January 2011 through March 2011 Common Stock 978,700 Bonus Shares for Convertible Notes
Convertible Debt
January 2011 through March 2011 Common Stock 566,000 Bonus Shares for Convertible Notes
Convertible Debt
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
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.
-8-
DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF
PURCHASER
------------ ------------------- ------------- ------------- ----------
March 2011 Common Stock 8,030,000 Cash 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 Rule 506 of Regulation D 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 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
-9-
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: May 23, 2011 By: /s/Harvey N. Kaye
-------------------------------------------------
Harvey N. Kaye (Principal Executive Officer,
President and Chief Executive Officer)
Dated: May 23, 2011 By: /s/Matthew J. Cohen
-------------------------------------------------
Matthew J. Cohen, (Chief Financial Officer/
Principal Accounting Officer/Secretary/Treasurer)
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