10-Q 1 q1201110q.htm 2011 Q1 10Q q1201110q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q

 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________ .
Commission File Number 000-49957
 
 
LocatePLUS Holdings Corporation
(Exact name of registrant as specified in its charter)
     
Delaware
  
04-3332304
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)

     
100 Cummings Center, Suite 235m, Beverly, MA
  
01915
(Address of principal executive offices)
  
(Zip Code)
(978) 921-2727
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report.)
 
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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such 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 of Regulation S-T (§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 filer, 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 ¨ (Do not check if a smaller reporting company) Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No x
 
The number of shares of Common Stock outstanding at May 16, 2011 was 49,980,089
The number of shares of Preferred Stock outstanding at May 16, 2011 was 71,400
 
 
 
 
 


   
Page
     
PART I 
FINANCIAL INFORMATION
  
     
ITEM 1
Financial Statements
  
     
 
1
     
 
2
     
 
3
     
 
4
     
ITEM 2
8
     
ITEM 3
10
     
ITEM 4
10
     
     
PART II
OTHER INFORMATION
  
     
ITEM 1
12
     
ITEM 1A Risk Factors 12
     
ITEM 2
12
     
ITEM 3
12
     
ITEM 4
12
     
ITEM 5
12
     
ITEM 6
13
     
 
        14





* * *

 
 
 
 
 

 
 

LocatePLUS Holdings Corporation and Subsidiaries
  
Consolidated Balance Sheets
  
   
March 31,
2011
(unaudited)
    
December 31,
2010
  
Assets
 
            
Current assets:
            
  Cash
   $ 46,780     $ 207,912  
  Trade accounts receivable, net
     843,522       836,943  
  Prepaid expenses and other current assets
  
      55,422
    
      33,854
  
                 
      Total current assets
     945,724       1,078,709  
                 
Property and equipment, net
Goodwill
     28,585 998,413       28,585 998,413  
Other assets
  
     107,128
    
      104,028
  
                 
      Total assets
   $ 2,079,850     $ 2,209,735  
                 
 
Liabilities and Stockholders’ Deficit
 
                
Current liabilities:
                
  Notes payable
   $ 3,009,999     $ 609,999  
  Accounts payable
     1,686,525       1,692,646  
  Accrued expenses
     2,214,182       2,043,986  
  Deferred revenue
     224,978       294,679  
  Current maturities of convertible note payable
  
    3,329,109
    
   3,329,109
  
                 
      Total current liabilities
     10,464,793       7,970,419  
                 
                 
Convertible note payable, net of current maturities
     -       2,400,000  
Preferred stock subject to mandatory redemption
  
    1,785,000
    
   1,785,000
  
                 
      Total liabilities
  
   12,249,793
       12,076,800  
                 
Commitments and contingencies
                
                 
Stockholders’ deficit:
                
   Common stock , $0.01 par value, 50,000,000 authorized,
                
      49,980,100 and 49,980,089  shares issued and outstanding at March 31, 2011
      and December 31, 2010, respectively
     499,801       499,801  
  Additional paid-in capital
     41,279,759       41,279,759  
  Warrants
     3,094,436       3,094,436  
  Accumulated deficit
     (55,043,939 )     (54,819,679 )
                 
      Total stockholders’ deficit
  
 (10,169,943)
       (9,945,683 )
                 
      Total liabilities and stockholders’ deficit
   $ 2,079,850     $ 2,209,735  
                 
 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 


LocatePLUS Holdings Corporation and Subsidiaries
Consolidated Statements of Operations
(unaudited)

   
For the three
months ended
March 31,
  
   
2011
    
2010
  
 
            
   Revenue
   $ 1,685,134     $ 2,015,077  
 
   Cost of revenue
     930,019       652,863  
                 
   Gross profit
     755,115       1,362,214  
                 
Operating expenses:
                
General and administrative
     679,806       1,116,538  
Selling and marketing
     185,653       296,080  
                 
      Total operating expenses
     865,459       1,412,619  
                 
Operating loss
     (110,344 )     (50,404 )
                 
Other (expense)income:
                
                 
   Interest expense
     (114,268 )     (84,706 )
   Other income
     352       2,371  
   Finance related expenses
     -       (86,048 )
                 
Net loss
   $ (224,260 )   $ (218,787 )
                 
Basic and fully diluted net loss per share
  
$ nil
    
$ nil
  
                 
Weighted average shares used in computing basic and fully diluted net loss per share
     49,980,542       49,986,147  


The accompanying notes are an integral part of these unaudited consolidated financial statements.




LocatePLUS Holdings Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
   
   
   
For the Three
Months Ended
March 31,
  
   
2011
    
2010
  
Cash flows from operating activities:
            
Net loss
   $ (224,260 )   $ (218,787 )
   Adjustments to reconcile net loss to net
                
     cash used in operating activities:
                
 
      Depreciation and amortization
     -       7,382  
      Provision for doubtful accounts
     (9,787 )     -  
      Conversion of debt to equity
     -       20,000  
      Interest expense related to warrants issued with debt
     -       79,422  
      Note executed in equity rights transaction
     -       216,119  
      Net changes in operating assets and liabilities:
                
        Trade accounts receivable
     16,366       (69,913 )
        Prepaid expenses and other assets
     (24,668 )     (236,159 )
        Accounts payable
     (76,118 )     189,345  
        Accrued expenses
     227,036       (36,141 )
        Deferred revenue
     (69,701 )     (7,311 )
                 
          Net cash used in operating activities
  
            (161,132)
    
              (56,043)
  
                 
Cash flows from financing activities:
                
      Proceeds from issuance of debt
     -       162,500  
      Repayment of debt
     -       (37,000 )
                 
          Net cash provided by financing activities
  
                          -
    
               125,500
  
                 
Net (decrease) increase in cash
     (161,132 )     69,457  
                 
Cash, beginning of period
  
             207,912
    
               53,546
  
                 
Cash, end of period
   $ 46,780     $ 123,002  
                 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 
 
 
LocatePLUS Holdings Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
 
 
 
1.
Nature of Business and Basis of Presentation

LocatePLUS Holdings Corporation (LPHC)
The Company owns and operates subsidiary companies that provide various types of public and private data to business and credentialed clients throughout the United States. The Company provides accounting, finance, legal, risk management, information technology, strategy analysis, sales and marketing, operations and management services in various forms to its subsidiary companies. LPHC, through itself and its wholly-owned subsidiaries LocatePLUS Corporation, Worldwide Information, Inc., Entersect Corporation, Dataphant, Inc., Metrigenics, Inc., and Employment Screening Profiles, Inc. d/b/a TruBackgrounds are business-to-business, business-to-government and business-to-consumer providers of public information via our proprietary data integration solutions.

LocatePLUS Corporation (LocatePLUS)
LocatePLUS provides web-based investigative search and background screening products for credentialed corporate, government and law enforcement clients as well as private investigators, legal professionals, bail bondsmen, collection and security agencies. The LocatePLUS flagship products – LocatePLUS Pay-Per-Click (PPC) and LP Police – empower businesses and government agencies with real-time web access to a wide range of public and proprietary databases to verify personally identifiable information on the U.S. adult population.

LocatePLUS provides access to information that includes credit header data, telephone numbers, address histories, dates of birth, social security numbers, civil and criminal records, corporation records, real property information and email addresses. The primary markets served are private investigators, law enforcement, government, legal and collections professionals, bail bondsmen and security agencies.

Worldwide Information, Inc. (Worldwide)
Worldwide provides CD-ROM and DVD products for effectively identifying motor vehicle, driver’s license, harbor records and unlisted cell phone records. Worldwide distributes software products containing statewide motor vehicle records that provide identity validation services to law enforcement, law offices and other accredited businesses.

Worldwide’s search products increase the success rate of identifying or locating critical persons when only a minimal amount of information is available. The ability to search partial data is a valuable tool in circumstances in which incomplete information is available, as is often the case in criminal investigations. Unlike web-based search products, Worldwide’s CD/DVD-based software can be accessed from anywhere without the need for an internet connection or phone signal. Worldwide products are useful in solving police cases involving missing persons associated with partial vehicle information.

Entersect Corporation (Entersect)
Entersect Corporation (aka Certifion Corporation), is a provider of web-based and off-line public information databases that allow investigative professionals to verify the authenticity of a subject’s background. Entersect’s products include Entersect Police Online (EPO) and Entersect HR.

EPO delivers telephone and address information to empower local and state police as well as federal agents to conduct more thorough investigations resulting in swift actions in the field. Access to EPO is restricted to law enforcement agencies.

Entersect HR provides tools for the recruiter, employer, and hiring consultant who are charged with the duty to screen candidates. We empower human resource professionals to make better, more informed decisions based on the verified backgrounds of potential and existing associates.


Dataphant, Inc. (Dataphant)
Dataphant is a provider of information on land and mobile phone numbers in the United States. Dataphant leverages a proprietary process to gather and analyze phone numbers from mobile and landline sources and map those numbers to phone owners and addresses.

Dataphant phone information is used by credentialed investigative and law enforcement customers throughout the U.S. and Canada. The information is available to all business and consumer markets, but the primary markets for this information remains in the government and law enforcement arena.

Metrigenics, Inc. (Metrigenics)
Metrigenics was formed to develop new ways to integrate biometrics with data.  In March, 2009, management made the decision to suspend funding of this subsidiary which consisted primarily of research and development costs, and is presently exploring strategic options with respect to this entity.

Employment Screening Profiles, Inc. (d/b/a TruBackgrounds)
TruBackgrounds develops and markets integrated, customized, web-enabled background verification solutions designed to aid in the verification, applicant management and human resource collaboration processes. TruBackgrounds serves large and small businesses with systems and information that enable better decisions and reduced costs via automation of the screening process.

TruBackgrounds products empower clients to reduce risk, cost and workload while improving productivity by delivering accurate, timely nationwide background information right to the desktop. Designed to utilize the latest Internet technologies, TruBackgrounds products are easy-to-use, secure, reliable and industry standards compliant. Solutions are sold to all businesses that are in need of background screening products, including education and employment verification, criminal and civil records, motor vehicle records, SSN verifications, and professional license checks.

Unaudited Interim Financial Statements
The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America.  These statements include the accounts of LocatePLUS Holdings Corporation and its subsidiaries. Certain information and footnote disclosures normally included in LocatePLUS Holdings Corporation’s annual consolidated financial statements have been condensed or omitted in accordance with Securities and Exchange Commission rules for interim financial statements.  The interim consolidated financial statements reflect, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary to fairly present the financial position as of March 31, 2011, and the results of operations and cash flows for the three months then ended.  There were no material unusual charges or credits to operations during the recently completed fiscal quarter. All inter-company accounts and transactions have been eliminated in consolidation. Certain amounts in the 2010 consolidated financial statements have been reclassified to conform to the 2011 presentation.

The results of operations for the interim periods reported hereon are not necessarily indicative of the results of operations to be expected for the entire fiscal year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2010, which are contained in LocatePLUS Holdings Corporation’s Annual Report filed on Form 10-K with the Securities and Exchange Commission on April 14, 2011.

The consolidated financial statements of the Company have been prepared on a "going concern" basis, which assumes the realization of assets and the liquidation of liabilities in the ordinary course of business. However, such realization of assets and liquidation of liabilities are subject to a significant number of uncertainties which may impact the Company's ability to function as a going concern. The Company has sustained a net loss of $224,260 for the three months ended March 31, 2011. The Company also has an accumulated deficit of $55,043,939, a stockholders' deficit of $10,169,943 and a working capital deficit of $9,519,069 as of March 31, 2011. The above factors raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
 

 
2.
Significant Accounting Policies
 
 
Concentration of Credit Risk
Financial instruments that subject the Company to credit risk consist of cash and trade accounts receivable.  The risk with respect to cash and cash equivalents is minimized by the Company’s policies in which such investments are placed only with highly rated financial institutions and in instruments with relatively short maturities.  The financial stability of these financial institutions is constantly reviewed by senior management.  The carrying value of cash and cash equivalents approximates their fair value.
 

Revenue Recognition
The Company derives its revenue by providing access to public information such as names, addresses, phone numbers, bankruptcies, real estate transactions and motor vehicles and background check services. The Company recognizes revenue when all of the following conditions are met:
 
·  
There is persuasive evidence of an arrangement;
·  
The product or service has been provided to the customer;
·  
The collection of the fees is reasonably assured; and
·  
The amount of fees to be paid by the customer is fixed or determinable.

Throughout our various subsidiary product lines, the majority of revenue is recognized on a monthly basis for search results which are delivered over the internet under the terms of customer agreements. Some products are developed specifically for law enforcement which are typically billed and prepaid on an annual basis at a fixed rate. For these agreements, revenue is recognized appropriately throughout the term of the agreements.

Income Taxes
The Company uses the asset and liability method of accounting for income taxes, as set forth in accounting principles generally accepted in the United States of America.  Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities at currently enacted tax rates.  These temporary differences primarily relate to the accumulating of net operating losses to offset future taxable income as well as tax to book differences between stock based compensation, reserves for bad debt, and investment losses and other timing differences in recognition of expenses for tax and book purposes.  Valuation allowances are established, if necessary, to reduce a deferred tax asset to the amount that will more likely than not be realized.

The Company recognizes tax benefits from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the tax position. Any tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. There are no uncertain tax benefits that have been recognized in the accompanying financial statements.  Each of the tax years in the three-year period ended December 31, 2010 remains subject to examination by the Internal Revenue Service.  The Company’s policy is to recognize interest and penalties related to uncertain tax benefits (if any) in income tax expense. No such interest and penalties have been accrued as of March 31, 2011.

Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 

The carrying amounts of cash, trade accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, deferred revenue, current maturities of notes payable and convertible notes payable approximate fair value because the best valuation for them is the use in the business and the short maturity of those instruments.

3.      Notes Payable

On March 20, 2007, the Company issued a secured convertible debenture to Cornell Capital Partners (now YA Global Investments, L.P.) in the aggregate principal amount of $6,000,000 of which $3,000,000 was advanced immediately.  The second installment of $2,000,000 was to be advanced immediately prior to the filing by the Company with the Securities and Exchange Commission (the "Commission") of the Registration Statement.  The last installment of $1,000,000 was to be advanced immediately prior to the date the Registration Statement was declared effective by the Commission.  The remaining $3,000,000 was not funded due to the Company failing to file the necessary Registration Statement. The Debentures matured on the third anniversary of the date of issuance and are now in default. The holder of the Debentures may convert at any time amounts outstanding under the Debentures into shares of common stock of the Company at a fixed conversion price per share equal to $0.314, now $0.057 per share due to the default.  Under the Purchase Agreement the debentures are secured by substantially all of the Company's, and its wholly owned subsidiaries’ assets.  The Company was engaged in negotiations toward a restructuring of this indebtedness. At March 31, 2011, the balance outstanding totaled $2,712,990. Accrued interest on this note at March 31, 2011 totaled $689,115.

Under the Purchase Agreement, the Company also issued to Cornell Partners (now YA Global Investments, L.P.) five-year warrants in six separate series as follows:

 
A Warrants to purchase 2,384,814 shares of common stock at $0.314 per share;
 
B Warrants to purchase 2,186,079 shares of common stock at $0.343 per share;
 
C Warrants to purchase 2,017,919 shares of common stock at $0.372 per share;
 
D Warrants to purchase 1,748,863 shares of common stock at $0.429 per share;
 
E Warrants to purchase 1,499,026 shares of common stock at $0.50 per share;
 
F Warrants to purchase 1,500,000 shares of common stock at $0.01 per share.
 
Simultaneously, with the sale and issuance of the Debentures to YA Global Investments, L.P. as mentioned in the preceding paragraph, the Company entered into a settlement agreement with Dutchess Private Equities Fund, Ltd. for the settlement of a dispute regarding the amount due under debt instruments issued by the Company to Dutchess during 2005 and 2006.  Pursuant to the terms of the Settlement, the Company immediately paid a cash amount of $1,500,000 with two additional cash payments in the amount of $300,000 each to be made on the date that (i) the Company filed the Registration Statement (or, if earlier, within 45 days) and (ii) the Registration Statement is declared effective (or, if earlier, within 145 days), neither of which took place.  The Company also issued a Note in the amount of $1,500,000 and agreed to reduce to $0.10 per share the exercise price of the warrants issued to Dutchess.  Dutchess terminated its security interest in the Company’s assets upon the Initial Payment.

On December 11, 2007, the Company received a letter dated December 6, 2007 ( the "Notice Letter"), from YA Global Investments, L.P., (formerly known as Cornell Capital Partners, L.P.) notifying the Company of certain Events of Default under the Secured Convertible Debenture dated March 20, 2007 of the Company (the "Debenture").  As a result of this default, the entire note has been re-classified as short term. The Company was engaged in negotiations toward a restructuring of this indebtedness.

On June 1, 2010, the Company agreed to the cancellation of series A- E of the 5-year warrants held by YA Global Investments, L.P to purchase a total of 9,836,701 shares of the Company’s Common Stock. The cancellation was in exchange for 300,000 shares of Common Stock.

On March 21, 2011, YA Global Investments, L.P. notified the Company that it had agreed to assign the debenture to Gulabtech, LLC., an unrelated third party, subject to certain unspecified conditions.  On March 30, 2011, YA Global Investments, L.P. advised the Company that it had completed the assignment to Gulabtech, LLC.
 
As of April 10, 2010, the Company issued to Special Situations Fund III, L.P and Special Situations Private Equity Fund, L.P., a four-year promissory note in the amount of $2,750,000 bearing simple interest of 5% per annum (the "Substitute Note"). The Substitute Note was in substitution for previous existing indebtedness that was in default. The balance of principal and interest due on the Substitute Note at June 30, 2010 was $2,742,901. The Substitute Note was cancelled as of August 23, 2010 in favor of two separate notes, each in the principal amount of $1,375,000, payable separately to each of Special Situations Fund III, L.P and Special Situations Private Equity Fund, L.P. and due in full January 10, 2016. Each note contains an identical revised monthly principal repayment schedule in monthly installments of $7,500, beginning February, 2011, increasing to $10,000 April 10, 2011, $15,000 July 10, 2011 and $25,000 September 10, 2011. Interest is payable on the 10th day of each month at 5% per annum but any interest payment may be deferred until maturity at a 10% per annum rate. This note defaulted in February 2011.

4.      Legal Proceedings

On October 14, 2010 the U.S. Securities and Exchange Commission filed a civil action against the Company in the United States District Court for the District of Massachusetts, Securities and Exchange Commission v. LocatePlus Holdings Corporation. The Complaint alleges violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The complaint alleges that the Company filed financial statements for the fiscal years 2005 and 2006 which were false and misleading. The action seeks the entry of a permanent injunction prohibiting the Company from engaging in future violations of the cited sections and rules; disgorgement and pre-judgment interest and civil monetary penalties. The Motion to Stay Further Proceedings was allowed by Woodlock,, J.: U.S.D.C. on April 7, 2011.

5.      Subsequent Events

The Company has evaluated all events or transactions through the date of this filing.   During this period, the Company did not have any material subsequent events.
 
The following discussion of the financial condition and results of operations of LocatePLUS Holdings Corporation and Subsidiaries should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, which has been filed with the Securities and Exchange Commission, or SEC.
 
 
Forward Looking Statements

The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended) that involve risks and uncertainties. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as "believes," "expects," "may," "will," "should" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These forward-looking statements, such as statements regarding anticipated future revenue, contract percentage completions, capital expenditures, management's plans and objectives and other statements regarding matters that are not historical facts, involve predictions. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including those factors set forth in Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. We urge you to consider those risks and uncertainties in evaluating our forward-looking statements. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.


Critical Accounting Policies

We have identified the policies critical to our business operations and the understanding of our results of operations.  The impact and any associated risks related to these policies on our business operations are discussed throughout this section where such policies affect our reported and expected financial results.  For a detailed discussion on the application of these and other accounting policies, see Note 2 in the Notes to the consolidated financial statements (unaudited) included in this report.  Note that our preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period.  There can be no assurance that actual results will not differ from those estimates.
 
 
Our accounting policies that are the most important to the portrayal of our financial condition and results, and which require the highest degree of management judgment relate to revenue recognition and the provision for uncollectible accounts receivable.  We estimate the likelihood of customer payment based principally on a customer’s credit history and our general credit experience.  To the extent our estimates differ materially from actual results, the timing and amount of revenues recognized or bad debt expense recorded may be materially misstated during a reporting period.

Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010

Revenue.  Revenue decreased to $1,685,134 for the three months ended March 31, 2011 from $2,015,077 for the three months ended March 31, 2010, a decrease of 16%. A significant portion of the decrease of approximately $250,000 (76%) is attributable to the cancellation of services by a series of customers and the remaining decrease of approximately $80,000 is due to a delay in delivery of product and is being recognized in April 2011.

Cost of revenue.  Our cost of revenue consist primarily of our costs to obtain data and software maintenance expenses, which consist primarily of payroll and related expenses for information technology personnel as well as personnel that work directly to enhance our products, Internet access and hosting charges and expenses relating to Web content and design.  We obtain our data from multiple sources and we have entered into various license agreements with related data providers.    In the event that any of our primary sources of data became unavailable to us, we believe that we would be able to integrate alternate sources of data without significant disruption to our business or operations, as there are currently a number of providers of such data. For the three months ended March 31, 2011, cost of revenues was $930,019 as compared to $652,863 for the three months ended March 31, 2010, an increase of 42%.  The increase is due to costs for additional data services related to expanded product functionality as well as a reclassification of certain expenses that would otherwise have been classified as general and administrative.
 
Selling and marketing expenses.  Our selling and marketing expenses consist of salaries and commissions paid to sales representatives for the products that we offer, as well as direct and electronic mail advertising campaigns and magazine. Selling and marketing expenses for the three months ended March 31, 2011 were $185,653, as compared to $296,080 for the three months ended March 31, 2010, a decrease of 37%.  The primary reason for the reduction is due to the elimination of marketing activities that generated less revenue than the cost to acquire that revenue as well as a reduction in personnel.

General and administrative expenses.  General and administrative expenses consist of payroll and related expenses for non-sales, non-research and development and executive and administrative personnel, facilities expenses, insurance, professional services, travel and other miscellaneous expenses General and administrative expenses for the three months ended March 31, 2011 were $679,806, as compared to $1,116,538 for the three months ended March 31, 2010, a decrease of 39%. A portion of this decrease is attributable to certain expenses being reclassified as cost of revenues.

Interest expense. Interest expense is primarily attributable to various notes issued through March 31, 2011.  As of March 31, 2011, we had notes payable and convertible notes payable (current and long-term) totaling $6,339,108.
Interest expense increased to $114,268 for the three months ended March 31, 2011, from $84,706 for the three months ended March 31, 2010, an increase of 35%. This increase is attributable to the accrual of interest for the Company’s senior debt holder.

Other income (expense). Other income decreased to $352 for the three months ended March 31, 2011, from $2,371 for the three months ended March 31, 2010, a decrease of 85%.  This income is attributable to the collection of certain accounts receivable that have previously been written off.

Financing related expenses.  Finance related expenses which amounted to $86,048 in the three months ended March 31, 2010 are attributable to the expenses related to the restructuring of debt during the period and expenses associated with the issuance of new notes. There were no such expenses in 2011.

Net loss. As a result of the activity detailed above we recognized a net loss of $224,260 and $218,787 for the three months ended March 31, 2011 and 2010 respectively.  Our accumulated deficit as of March 31, 2011 was $55,043,939.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Certain Related Party Transactions

On September 24, 2009 the Company acquired all the stock of Employment Screening Profiles, Inc.(d/b/a Trubackgrounds), a Florida corporation (“Trubackgrounds”), engaged in the business of developing and delivering integrated, customized Web-enabled solutions designed to aid in background verification, applicant management and human resource collaboration processes. Trubackgrounds was owned by Derrick Spatorico, who received 9,000,000 shares of the Company’s Common Stock in payment for Trubackgrounds.

On September 25, 2009 Derrick Spatorico became a Director of the Company and on February 25, 2010 he became acting President and Chief Executive Officer. Mr. Spatorico’s stock was subject to an escrow agreement by the terms of which he was to receive all of the stock out of escrow no later than September 1, 2011. On August 5, 2010 the escrow terminated in settlement of certain pending litigation and the 9,000,000 shares were transferred to The Spatorico Family Blind Trust established by Mr. Spatorico.
 
At March 31, 2011, the Company has outstanding notes payable totaling $378,000 to Derrick Spatorico that are in default.

On April 15, 2011, Derrick Spatorico was appointed as a Director and on April 20, 2011, his father, Anthony Spatorico was appointed Interim Chairman of the Board of Directors.

Liquidity and Capital Resources

At March 31, 2011, we had cash on hand of $46,780.  We incurred a loss from operations of $110,344 for the three months ended March 31, 2011, and a net loss for the quarter of $224,260.

In the three-month period ended March 31, 2011 we used cash from operations of approximately $161,000 compared to using cash of approximately $56,000 for the three months ended March 31, 2010, an increased use of approximately $105,000.  The cash used from operations for 2011 is due to the net loss, the increase in prepaid expenses and other assets and the decreases in accounts payable and deferred revenue offset by the increase in accrued expenses.

There were no investing or financing activities for the three-month period ended March 31, 2011.

The consolidated financial statements of the Company have been prepared on a "going concern" basis, which assumes the realization of assets and the liquidation of liabilities in the ordinary course of business. However, such realization of assets and liquidation of liabilities are subject to a significant number of uncertainties which may impact the Company's ability to function as a going concern. The Company has sustained a net loss of $224,260 for the three months ended March 31, 2011. The Company also has an accumulated deficit of $55,043,939, a stockholders' deficit of $10,169,943 and a working capital deficit of $9,519,069 as of March 31, 2011. The above factors raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

 
Item 3.  Quantitative and Qualitative Disclosures about Market Risk

We do not invest in or hold securities or other financial market instruments as a regular part of our business. We conduct our business in U.S. dollars. Our market risk is limited to domestic economic and regulatory factors.

Item 4.  Controls and Procedures

Evaluation of disclosure controls and procedures.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.  Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
 
Internal control over financial reporting is defined as a process designed by, or under the supervision of, the issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer's board of directors, management and other  personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
 
 
1.  
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
 
2.  
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and
 
3.  
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the financial statements.
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
As of March 31, 2011, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) and internal controls over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer has concluded that at the end of this reporting period we have identified matters that would constitute material weaknesses (as such term is defined under the Public Company Accounting Oversight Board Auditing Standard No. 2) in our internal controls over financial reporting. It has been concluded that because material weaknesses exist, internal controls over financial reporting are not effective at this time. The material weakness relates to the financial closing process, specifically a lack of segregation of financial responsibilities and the need for additional qualified financial accounting personnel.

Changes In Internal Control Over Financial Reporting
 
There were no significant changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
Following the year ended December 31, 2010, we have begun to take specific actions to remediate the reportable conditions and material weaknesses, including the devotion of additional resources to the quarterly closing process, and realignment of certain financial responsibilities to achieve stronger segregation of financial duties.  We intend to continue to further strengthen our controls and procedures regarding the closing process over the next twelve months.

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

See updates for legal proceedings in Note 5 of the notes to consolidated financial statements (unaudited).

Item 1. A.  Risk Factors

For factors that could affect our business, results of operations and financial condition, see the discussion of risk factors contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010. There were no material changes in these risk factors for the three month period ended March 31, 2011.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

The following is a list of our securities sold within the past three years without registration under the Securities Act of 1933, as amended.

Effective December 30, 2009, all indebtness of the Company to Dutchess Private Equities Fund, Ltd. was satisfied through the issuance of 72,000 shares of Preferred Class Common Stock that was authorized by a majority of shareholders of Common Stock through a Written Consent process.

Item 3.  Defaults Upon Senior Securities

The Company continues to be in default under the Secured Convertible Debenture dated March 20, 2007. On March 30, 2011, the Debenture was assigned to Gulabtech, LLC. The Company is in discussions with Gulabtech, LLC as to the resolution of this default.

Item 4.  Submission of Matters to Vote of Security Holders.

On December 15, 2009, the Company filed a definitive proxy statement asking shareholders for their written consent (a) to increase our authorized shares by adding a new authorization of Preferred Shares and (b) to authorize action by our officers to carry out the foregoing tasks. The purpose of this authorization was to successfully complete an agreed-upon exchange of approximately $1,817,828 of Convertible Debentures owned by Dutchess Private Equities Fund, Ltd. into 72,000 shares of new Series A Preferred Shares.

On December 29, 2009, the Company obtained the consent of a majority of the record holders of its Common Stock to the foregoing actions.

Item 5.  Other Information.

None.

Item 6.  Exhibits and Reports on Form 8-K.

Exhibits

31.1
Certification of Interim Chief Executive and Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1
Certification of Interim Chief Executive and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
Reports on Form 8-K

On May 13, 2011, we filed a Form 8-K and reported under item 5.02 that the Board of Directors accepted the voluntary resignation of James Ahearn from his position on the Board.

On May 3, 2011, we filed a Form 8-K and reported under item 4.01 that the Company notified Livingston & Haynes, P.C. that it was dismissed as the Company’s independent registered public accounting firm and that the Company had engaged Moody, Famiglietti, & Andronico, LLC as the replacement firm.

On April 26, 2011, we filed a Form 8-K and reported under item 8.01 that the Company had communicated to Carl Green and to the SEC that, on advice of counsel, the Company believes that the 14C filing by Carl Green is not on its face compliant with applicable SEC regulations as well as the Company's By-laws.

On April 22, 2011, we filed a Form 8-K and reported under item 5.02 that the Board of Directors elected Anthony Spatorico as Interim Chairman of the Board.

On April 18, 2011, we filed a Form 8-K and reported under item 5.02 that the Board of Directors appointed Derrick Spatorico as Director to fill the vacancy arising from the resignation of Christian Williamson.

On April 8, 2011, we filed a Form 8-K and reported under item 5.02 that the Board of Directors accepted the resignation of Christian Williamson as Director and Chairman of the Board.

On March 30, 2011, we filed a Form 8-K and reported under item 8.01 that the Company’s senior debt holder, YA Global notified the Company that it had completed the assignment of the Debenture to Gulabtech, LLC.

On March 24, 2011, we filed a Form 8-K and reported under item 8.01 that on March 22, 2011, the Company’s senior debt holder, YA Global notified the Company that it had agreed to assign the Debenture to Gulabtech, LLC, subject to certain unspecified conditions.

 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

* * *


                                        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


LOCATEPLUS HOLDINGS CORPORATION
                             (Registrant)


SIGNATURE
TITLE
DATE
 
 
 /s/ Ronald Lifton
 
President and
Chief Executive Officer
 
May 16, 2011
 
  
Ronald Lifton
  
 
 /s/ Brian McHugh
 
Chief Financial Officer and Treasurer
 
 
May 16, 2011
 
  
Brian McHugh
  

 
 

 
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