10-Q 1 sept0810q.txt SEPTEMBER 2008 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION --- WASHINGTON, D.C. 20549 FORM 10Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2008 ------------------ [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to Commission file number 000-49957 --------- LocatePLUS Holdings Corporation (Exact name of small business issuer as specified in its charter) Delaware 04-3332304 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 100 Cummings Center, Suite 235M, Beverly, Massachusetts 01915 (Address of principal executive offices) (Zip Code) (978) 921-2727 (Issuer's telephone number) N/A (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. Large accelerated filer [] Accelerated filer [] Non-accelerated filer [] Smaller reporting company [X] Indicate by check mark whether the registrant is shell company (as defined in Rule 12b-12 of the Exchange Act). Yes [ ] No [X] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Class Outstanding at November 7, 2008 Common, $0.01 par value per share 21,977,310 TABLE OF CONTENTS ----------------- PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated condensed balance sheets as of September 30, 2008 (un-audited) and December 31, 2007 . . . . . . . . . . . . . . . . . .1 Un-audited consolidated condensed statements of operations for the three and nine months ended September 30, 2008 and 2007. .. . . . .. 2 Un-audited consolidated condensed statements of cash flows for the three months ended September 30, 2008 and 2007 . . . . . .. . . . . .3 Notes to un-audited consolidated condensed financial statements. . . . . . . . . . . . . . . . . . 4 ITEM 2. Management's Discussion and Analysis of Financial Condition and Resultsof Operations . . . . . . .9 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . .. . . 17 ITEM 4. Controls and Procedures . . . . . . . . . . . . . . . . . 17 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 18 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.. . . . . . . . . . . . . . . . . . . . 18 ITEM 3. Defaults. Upon. Senior. Securities. . . . . . . . . . . . 18 ITEM 4. Submission of Matters to Vote of Security Holders . . . . 18 ITEM 5. Other Information . . . . . . . . . . . . . . . . . . . . 19 ITEM 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 19 SIGNATURES AND CERTIFICATION. . . . . . . . . . . . . . . . . . . 20 PART I . FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS

LOCATEPLUS HOLDINGS CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS September 30, DECEMBER 31, 2008 2007 (UN-AUDITED) ASSETS Current assets: Cash and cash equivalents $ 129,134 $ 96,142 Accounts receivable 605,031 721,524 Prepaid expenses and other current assets 367,251 392,609 --------------- ------------- Total current assets 1,101,416 1,210,275 Property and equipment, net 827,759 1,278,886 Other assets 272,338 284,188 --------------- ------------- Total assets $ 2,201,513 $ 2,773,349 =============== ============= LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY Current liabilities: Accounts payable 1,155,698 1,371,167 Accrued expenses 3,376,360 3,426,840 Deferred revenue 180,443 159,223 Current portion of capital lease obligation 4,288 37,878 Current Notes Payable 608,584 717,080 Current Convertible notes payable 2,514,070 365,107 --------------- ------------- Total current liabilities 7,839,443 6,077,295 Long Term notes payable 1,500,980 6,530 Long Term Convertible notes payable - 3,573,477 --------------- ------------- Total liabilities 9,340,423 9,657,302 --------------- ------------- Commitments and contingencies Stockholders' equity: Common Stock , $0.01 par value, 25,000,000 shares authorized 19,475,217 shares issued and outstanding at September 30, 2008 194,752 113,977 Additional paid-in capital 39,368,379 39,218,416 Warrants 3,627,194 3,692,378 Impairment on Assets (873,200) (861,350) Accumulated deficit (49,456,035) (49,047,374) --------------- -------------- Total stockholders' equity (7,138,910) (6,883,953) --------------- -------------- Total liabilities and stockholders' equity $ 2,201,513 $ 2,773,349 =============== =============

The accompanying notes are an integral part of these un-audited consolidated interim financial statements. See accompanying notes and accountants report. 1 LOCATEPLUS HOLDINGS CORPORATION UN-AUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

FOR THE THREE FOR THE NINE MONTHS ENDED MONTHS ENDED September 30, September 30, 2008 2007 2008 2007 Revenues Information Sales - CD Rom $ 134,253 $ 140,121 $ 356,028 $ 394,570 Information Sales - Online 1,428,010 1,353,538 4,302,311 4,241,366 Information Sales - Channel 554,903 618,079 1,671,402 1,627,417 Information Sales - Wireless 1,439 2,513 4,858 7,320 - - -------------- -------------- ----------- ----------- Total revenues 2,118,605 2,114,251 6,334,599 6,270,673 -------------- -------------- ----------- ----------- Costs and expenses: Costs of revenues CD Rom 8,440 16,548 38,623 30,381 Online and Channel 372,532 424,699 1,053,189 1,236,958 Wireless - - - - Engineering - - - - Selling and marketing 420,945 358,751 1,182,850 1,128,399 General and administrative 1,213,056 1,439,767 3,845,183 4,472,172 Severance Expense - - - 250,000 Research and development 48,531 17,884 111,690 97,274 -------------- -------------- ----------- ----------- Total operating expenses 2,063,504 2,257,649 6,231,535 7,215,184 -------------- -------------- ----------- ----------- Operating income (loss) 55,101 (143,398) 103,064 (944,511) Other income (expense): Interest income - - - 48,383 Interest expense (150,516) (120,223) (518,116) (445,258) Other income 855 2,226 6,392 9,708 Finance Related Expenses - (271,025) - (3,165,093) -------------- -------------- ----------- ----------- Net loss $ (94,560) $ (532,420) $(408,660) $(4,496,771) ============== ============== =========== =========== Basic and diluted net loss per share ($0.005) ($0.053) ($0.028) ($0.507) Shares used in computing basic and diluted net loss per share 20,598,586 10,076,593 14,464,767 8,861,624

The accompanying notes are an integral part of these un-audited consolidated interim financial statements. 2 UN-AUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

LOCATEPLUS HOLDINGS CORPORATION FOR THE NINE MONTHS ENDED September 30, 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss (408,660) (4,496,771) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization of property and equipment 452,358 548,478 Provision for doubtful accounts (56,369) (10,162) Interest expense related to warrants issued with debt 197,051 2,414,687 Services performed in exchange for stock - 200,441 Stock Based Compensation 42,977 57,426 Amortization of intangible assets - - Changes in assets and liabilities: Accounts receivable 172,861 (242,632) Prepaid expenses and other assets 25,358 (237,996) Accounts payable (215,469) (336,122) Accrued expenses (50,479) 843,905 Deferred revenue 21,220 2,124 Security deposits - 116,875 ------------ ------------- Net cash used in operating activities 180,848 (1,139,747) ------------ ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Principal repayment of receivable - 41,617 Purchases of property and equipment (1,231) (12,311) ------------ ------------- Net cash provided by (used in) investing activities (1,231) 29,306 ------------ ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of debt (113,035) (1,581,934) Proceeds from issuance of debt - 2,780,000 Payments of obligations under capital lease (33,590) (43,239) ------------ ------------- Net cash provided by financing activities (146,625) 1,154,827 ------------ ------------- Net (decrease) increase in cash and cash equivalents 32,992 44,386 Cash and cash equivalents, beginning of period 96,142 29,822 ------------ ------------ Cash and cash equivalents, end of period 129,134 74,208 ============ ============

The accompanying notes are an integral part of these un-audited consolidated interim financial statements. See accompanying notes and accountants report. 3 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION LocatePLUS Holdings Corporation (the "Company") was initially incorporated in Massachusetts in 1996 as Worldwide Information, Inc. In July 1999, the Company reincorporated in Delaware and changed its name to LocatePLUS.com, Inc. On August 1, 2001, the Company changed its name from LocatePLUS.com, Inc. to LocatePLUS Holdings Corporation as part of a corporate restructuring. Also, as part of the restructuring, the Company created two wholly-owned subsidiaries, LocatePLUS Corporation and Worldwide Information, Inc. The restructuring was completed by commonly-controlled entities and, accordingly, was accounted for based on historical cost. In September 2003, the Company, through its newly formed wholly owned subsidiary Certifion Corporation, acquired all of the assets of Project Entersect Corporation. The acquisition was accounted for as a purchase and is recorded with the Company's operations from the date of purchase through December 31, 2003. In October 2003, the Company merged Voice Power Technology into its newly formed wholly owned subsidiary Dataphant, Inc. There were no assets acquired in this acquisition and the Company issued 2,500,000 shares of its Class B Non-Voting common stock to the stockholders of Voice Power Technology in consideration for a two year non-competition agreement with these stockholders. On January 6, 2004, the Company formed Metrigenics, Inc, a wholly-owned subsidiary. All inter-company accounts and transactions have been eliminated in consolidation. The Company provides access to public information such as bankruptcy filings, real estate transactions, motor vehicle records, and drivers' licenses to commercial, private sector and law enforcement entities in the United States. In 1999 and prior periods, this information was delivered to customers on compact disks. In March 2000, the Company began providing information through the Internet and in 2002 began providing information through the use of handheld wireless devices. CONCENTRATION OF CREDIT RISK Financial instruments that subject the Company to credit risk consist of cash and cash equivalents, accounts receivable and notes 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 notes receivable are placed with unrelated companies that are also reviewed by management. Consequently, the carrying value of cash and cash equivalents, and notes receivable approximates their fair value based on the short-term maturities of these instruments. REVENUE RECOGNITION The Company provides access to public information such as bankruptcies, real estate transactions and motor vehicles and drivers' licenses. The Company provides this information as an online service through its website, wirelessly to handheld wireless devices, via XML over the Internet to Channel Partners, or through licenses of the information on compact disks. The Company updates the information contained in compact disks (CD ROMs) either quarterly or semi-annually. Revenue is recognized upon delivery to the customer of a compact disk, provided that no significant obligations remain, evidence of the arrangement exists, the fees are fixed or determinable, and collectability is reasonably assured. In October 2002, the Company changed its method of selling compact disks. Prior to October, compact disks were sold with an upfront purchase of an annual supply of compact disks, with the purchase price allocated equally based on the number of compact disks to which the customer was entitled. Deferred revenue principally related to undelivered compact disks. Subsequent to October 2002, compact disks are sold individually. Customers may choose to have the disks automatically shipped and billed. Online customers are charged fees which vary based on the type of information requested. Revenue is recognized when the information requested is downloaded, there is evidence of an arrangement, the fees are fixed or determinable, and collectability is reasonably assured. 4 Wireless customers using LocatePLUS Anywhere are charged a monthly subscription fee billed in arrears. Revenue is recognized on a monthly basis when there is evidence of an arrangement, the fees are fixed or determinable, and collectability is reasonably assured. Engineering services relate to integration services provided to a third party database provider with whom the Company has an arrangement whereby the Company provides the third party access to the Company's database. Revenue is recognized over the term of the contract when there is evidence of an arrangement, the fees are fixed or determinable, and collectability is reasonably assured. UN-AUDITED INTERIM FINANCIAL STATEMENTS The accompanying interim consolidated condensed financial statements are un-audited 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 ("SEC") rules for interim financial statements. The interim consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring accruals) necessary to fairly present the financial position as of September 30, 2008 and the results of operations and cash flows for the six months then ended. There were no material unusual charges or credits to operations during the recently completed fiscal quarter. The results of operations for the interim periods 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, 2007, which are contained in LocatePLUS Holdings Corporation's Annual Report filed on Form 10-KSB filed with the Securities and Exchange Commission on April 10, 2008. LIQUIDITY AND OPERATIONS The financial statements included in this quarterly report have been prepared assuming that the Company will continue as a going concern, and contemplate continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred significant net losses in each of the last two years as well as during the nine months ended September 30, 2008. In addition, the Company has incurred an accumulated deficit of approximately $49 million through September 30, 2008. The Company raised approximately $3 million and $1.3 million through the issuance of debt and equity during 2007 and 2006 respectively. The ultimate success of the Company is still dependent upon its ability to secure additional financing to meet its working capital and ongoing project development needs. On March 20, 2007, the Company issued a secured convertible debenture to Cornell Capital Partners in the aggregate principal amount of $6,000,000 of which $3,000,000 was advanced immediately. The second installment of $2,000,000 will 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 will be advanced immediately prior to the date the Registration Statement is declared effective by the Commission. The Debentures mature on the third anniversary of the date of issuance. 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. Under the Purchase Agreement the debentures are secured by substantially all of the Company's, and its wholly owned subsidiaries' assets. Under the Purchase Agreement, we also issued to Cornell 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. 5 2. OTHER ASSETS Other assets consist of the following at September 30, 2008: Restricted trading securities $ 1,800 Security deposits 91,881 Other Non-Current Assets 178,657 -------- Total $ 272,338 ======== Restricted trading securities consist of 200,000 restricted shares of common stock in Data Evolution Holdings, Inc. (DEH), which trades over the counter under the symbol DTEV. These shares were acquired as part of an agreement to provide service and data to DEH. The service and data was valued at $875,000. At the time the service and data was valued, November 22, 2004, the trailing 10 day average closing price of DTEV was $5.96 per share, or $1,192,000. Due to the fact that these shares were restricted, a mutually agreed upon 25% liquidity discount was applied to the value, or $875,000, as such 200,000 shares were exchanged for the service. At September 30, 2008, the 10-day trailing average closing price was $0.012 per share, or the value of the shares was $2,400. An impairment to the current value has been recorded to adjust the security carrying value to the original 25% discount. The company recorded an impairment of $873,200 and the adjusted carrying value is now $1,800. 3. STOCK OPTIONS Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123(R), "Share Based Payment" ("SFAS No. 123(R)") using the modified prospective transition method. Under that transition method, compensation cost recognized in the three months ended March 31, 2007 includes: (a) compensation cost for all stock-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all stock-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). Results for prior periods have not been restated, as provided for under the modified-prospective method. Total stock-based compensation expense recognized in the income statement was $19,997 and $57,426 for the nine months ended September 30, 2008 and 2007 respectively. SFAS No. 123R requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes-Merton ("BSM") option valuation model, which incorporates various assumptions including volatility, expected life, and interest rates. The assumptions used for the nine-month periods ended September 30, 2008 and September 30, 2007 and the resulting estimates of weighted-average fair value per share of options granted during those periods are as follows: FOR THE THREE MONTHS ENDED ========================== SEPTEMBER 2008 2007 ------- ------- Expected life 6 years 6 years ------ ------- Volatility 33% 31% Risk free interest rate 4.54% 4.86% Dividend yields - - Weighted-average fair value of options granted during the period - - 6 The expected life of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. For 2008 and 2007, expected stock price volatility is based on a combination of historical volatility of the Company's stock and the one-year implied volatility of its traded options, for the related vesting periods. Prior to the adoption of SFAS 123R, expected stock price volatility was estimated using only historical volatility of the Company's stock. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term. The Company has not paid dividends in the past and does not plan to pay any dividends in the near future. 4. NOTES PAYABLE Convertible promissory note, due on demand that bears interest at the rate of 12% per annum. The note is convertible into 44,444 shares of Class A Voting Common Stock at the note holder's option. The note requires quarterly payment of interest until the principal is repaid or converted. During 2003, the Company received $2.3 million, by issuing subordinated promissory notes bearing simple interest ranging from 10% and 12% per annum. The balance of this debt at September 30, 2008 is $13,574. In 2007, the terms of these notes were re-negotiated and now bear interest ranging from 19% to 30%. The remaining debt is due in 2008. On March 20, 2007, the Company issued a secured convertible debenture to Cornell Capital Partners in the aggregate principal amount of $6,000,000 of which $3,000,000 was advanced immediately. The second installment of $2,000,000 will be advanced immediately prior to the filing by the Company with the Securities and Exchange Commission of the Registration Statement. The last installment of $1,000,000 will be advanced immediately prior to the date the Registration Statement is declared effective by the Commission. The Debentures mature on the third anniversary of the date of issuance. 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. Under the Purchase Agreement the debentures are secured by substantially all of the Company's, and its wholly owned subsidiaries' assets. Under the Purchase Agreement, we also issued to Cornell 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. Also in connection with the sale and issuance of the Debentures, 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 files the Registration Statement (or, if earlier, within 45 days) and (ii) the Registration Statement is declared effective (or, if earlier, within 145 days). 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 agreed to terminate any 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. 7 5. LEGAL PROCEEDINGS The Company is from time to time subject to legal proceedings and claims which arise in the normal course of its business. There are no pending or known actions for which the amount of ultimate liability could have a material adverse effect on the Company's financial position or results of operations. 6. SEGMENT INFORMATION The Company has two reportable segments which management operates as distinct sales organizations; these two segments are segregated by the nature of products and services provided. The Company measures and evaluates its two reportable segments based on revenues and costs of revenues. The CD ROM segment provides information on motor vehicles and drivers' licenses, contained on compact disks. The online segment provides information on individuals throughout the United States of America through the Company's website. No material operating costs, other than costs of revenues, or assets and liabilities relate to the CD ROM segment.

FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED September 30, September 30, 2008 2007 2008 2007 (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) Reportable segment sales: CD Rom $ 134,253 $ 140,121 $ 356,028 $ 394,570 Online and Channel 1,982,913 1,971,617 5,973,713 5,868,783 --------------- -------------- -------------- -------------- Total Reportable segment sales $ 2,117,166 $ 2,111,738 $ 6,329,741 $ 6,263,353 =============== ============== ============== ============== Costs of segment sales: CD Rom 8,440 16,548 38,623 30,381 Online and Channel 372,532 424,699 1,053,189 1,236,958 --------------- -------------- -------------- -------------- Total costs of reportable segment sales $ 380,972 $ 441,247 $ 1,091,812 $ 1,267,339 =============== ============== ============== ==============

7. NET LOSS PER SHARE The computations of basic and diluted loss per common share are based upon the weighted average number of common shares outstanding during the period. Shares of both classes of the Company's Common Stock potentially issuable upon the exercise of stock options and warrants are anti-dilutive for all periods presented and were not included in the computations of diluted net loss per share. 8. SUBSEQUENT EVENTS None 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our consolidated financial condition and results of operations together with our un-audited consolidated financial statements and related notes included elsewhere in this quarterly report. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21 E of the Securities Exchange Act of 1934, each as amended. Such forward-looking statements are based on current information and expectations and are subject to certain risks and uncertainties that may cause actual results to differ materially from those described. Factors that may cause such differences include but are not limited to, uncertainties relating to our ability to successfully compete in our industry, uncertainties regarding our ability to obtain financial and other resources for our product development and commercial activities, and uncertainties relating to privacy regulations. These factors, and others, are discussed from time to time in the Company's filings with the Securities and Exchange Commission. You should not place undue reliance on these forward-looking statements, which speak only as of the date they are made. We undertake no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after the date they are made. Further discussion of risk factors is also available in our registration statements filed with the Securities and Exchange Commission. OVERVIEW The LocatePLUS Group is a business-to-business and business-to-government provider of public information via our proprietary data integration solutions. Since 1996, we have sold a CD-ROM-based product, which we refer to as Worldwide Information , that enables users to search certain motor vehicle records and driver's license information in multiple states through a dynamic search engine, using complete or partial information. Since March 1, 2000, we have maintained a database that is accessible through the Internet, known as LocatePLUS. Our LocatePLUS product contains searchable and cross-referenced public information on individuals throughout the United States, including individuals' names, addresses, dates of birth, Social Security numbers, prior residences, and, in certain circumstances, real estate holdings, recorded bankruptcies, liens, judgments, drivers' license information and motor vehicle records. Since September 2003, our wholly-owned subsidiary, Certifion, has offered personal information for self-certification purposes through its Entersect product. We distribute our content both directly (through the Internet in the case of our LocatePLUS product and through the mail in the case of our Worldwide Information CD-ROM) and through "channel partner" arrangements, by which third-party database providers obtain access to our databases in consideration for a royalty (such as job search and on-line dating sites, in the case of our Entersect product). On September 1, 2003, through our newly formed wholly-owned subsidiary Certifion Corporation, we acquired all the assets of Project Entersect Corporation in consideration for $62,662. The acquisition was accounted for as a purchase and is recorded and reflected with our operations from the time of purchase. The subsidiary operates under the trade name Entersect. Entersect provides a self-identification and validation service for online job posting and dating sites. On October 17, 2003, through our newly formed wholly-owned subsidiary, Dataphant, Inc., we acquired Voice Power Technologies, Inc., a Texas-based provider of data technology. In connection with this acquisition, Voice Power Technologies, Inc. merged with and into Dataphant, Inc. As consideration for the merger, shareholders of Voice Power Technologies, Inc. received an aggregate of 2,500,000 shares of LocatePLUS Class B Non-voting Common Stock. Through this acquisition, we now have information concerning virtually all landline phone numbers in the United States and approximately 25% of United States cell phone numbers. This data has been integrated into our current product lines. 9 On January 6, 2004, the LocatePLUS Holdings Corporation formed Metrigenics, Inc, a wholly-owned subsidiary. From time to time, we also provide engineering services in connection with the implementation and rollout of our channel partnership arrangements. Although our products consist primarily of publicly available - and therefore non-proprietary - information, we integrate data in our products in a proprietary manner that allows users to access data rapidly and efficiently. In addition, our LocatePLUS product utilizes proprietary methodologies to link data from different sources associated with a given individual to a single background report, even though the sources of data with respect to a given individual may be incomplete or contain only partial information with respect to that individual. During the quarter ended June 30, 2003 we launched our new patent-pending Bull's-Eye technology, which is currently integrated into a LocatePLUS product. Bull's-Eye is the first search tool in our industry that allows users to correctly identify a person's current address based upon certain currently available information. Typically, when a search is performed on an individual using competing technologies, a number of addresses are pulled from a database of public records. Bull's-Eye enhances or improves the search process by cross-referencing current public utility and telephone records with historical data to more accurately identify a person's current address. We have also sought patent protection with respect to aspects of our CareerScan and TrustmeID products. On March 23, 2007, the Board accepted the resignation of its current President and Chief Executive Officer, Jon Latorella. On May 23, 2007, the Board appointed Paul Colangelo, formerly of Lexis Nexis as Chief Executive Officer however due to a previously signed non-compete, Mr. Colangelo resigned on June 24, 2007. Upon the resignation of Mr. Colangelo, the Board appointed James Fields, the acting Chief Financial Officer since March of 2003, as Chief Executive Officer. On August 14, 2008, the Board announced that Mr. Latorella stepped down as Chairman and that it had appointed James C. Fields, its current President and Chief Executive Officer as Chairman. CRITICAL ACCOUNTING POLICIES We have identified the policies below as 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. 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. Revenue associated with our Worldwide Information product is recognized upon delivery to the customer of a CD-ROM, provided that no significant obligations remain, evidence of the arrangement exists, the fee is fixed or determinable and collectibility is reasonably assured. Information in our Worldwide Information product is updated and released either quarterly or twice a year. In the case of our LocatePLUS product, we charge a fee to customers, which varies based upon the type and quantity of information requested. Capitalizing on the synergies gained through the Companies acquisitions, in 2004, Worldwide was able to utilize the technology acquired through Voicepower Technologies, when it merged into Dataphant, to develop the industry's first ever searchable 10 non-published and cell phone CD-ROM. This product became Worldwide's fastest growing CD-ROM product to date. In addition, Worldwide, using the search capabilities built into the CD-ROM search engine, has expanded beyond CD-ROMs. Worldwide recently entered into an exclusive partnership with the State of New Hampshire's Department of Safety to implement its technology on the state's Intranet. Sonia Bejjani, Company co-founder and President of Worldwide, was profiled in "Women to Watch in 2005" by Women's Business Boston, January 2005 issue. Revenue from our LocatePLUS product is recognized when there is either an agreed upon royalty fee or the requested information is downloaded, there is evidence of an arrangement, the fee is fixed or determinable, and collectability is reasonably assured. We charge our fees to customers' credit cards (approximately 60% of our current LocatePLUS customer base) or invoice customers for such fees on a monthly basis (approximately 40% of our LocatePLUS customer base). During 2004, our LocatePLUS online customer base exceeded 16,500 customers. Within that customer base the subscriptions for ChoicePlan billing plans, which are billing plans for committed revenue per customer ranging from $25 per month to $5,000 per month, increased to 700 customers. In addition, we made a significant change to our billing practice in 2004, with the implementation of a new minimum usage fee. Revenue from our Entersect product is recognized when certifications are purchased online (and paid for via credit card) or the requested information is downloaded, there is evidence of an arrangement, the fee is fixed or determinable, and collectibility is reasonably assured. Revenue from Dataphant is generated exclusively through inter-company sales to our other wholly owned subsidiaries and eliminated on consolidation. Our costs 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, 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 nine months ended September 30, 2008 and 2007, we recorded $1,053,189 and $1,236,958 respectively, in costs related to these agreements. 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. Our selling and marketing expenses consist of salaries and commissions paid to sales representatives for the products that we offer, as well as direct mail advertising campaigns and magazine and Internet-banner advertisements. 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. Interest income consists of earnings on our cash and cash equivalents, short-term investments and notes receivable. Interest expense is primarily attributable to various notes issued through September 30, 2008. As of September 30, 2008, we had gross notes payable (current and long-term) totaling $4,960,604. We have incurred significant net losses since our inception. We incurred net losses of approximately $400,000 during the nine months ended September 30, 2008 and $94,000 during the three months ended September 30, 2008. Our accumulated deficit as of September 30, 2008 was approximately $49.4 million. On March 20, 2007, we issued a secured convertible debenture to Cornell Capital Partners in the aggregate principal amount of $6,000,000 of which $3,000,000 was advanced immediately. The second installment of $2,000,000 will 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 will be advanced immediately prior to the date the Registration Statement is declared effective by the Commission. The Debentures mature on the third anniversary of the date of issuance. The holder of the Debentures may convert at 11 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. Under the Purchase Agreement the debentures are secured by substantially all of the Company's, and its wholly owned subsidiaries' assets. Under the Purchase Agreement, we also issued to Cornell 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. THREE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2007 Revenues. Revenues from our Worldwide InformationTM CD-ROM product decreased to $134,253 for the three months ended September 30, 2008 from $140,121 for the three months ended September 30, 2007, a decrease of 4%. Revenues from our Internet-based products increased to $1,428,010 for the three months ended September 30, 2008, as compared to $1,353,538 for the three months ended September 30, 2007, an increase of 5%. Revenue from channel partners decreased to $554,903 from $618,079 a decrease of 10%. Revenues from our wireless product, LocatePLUS AnyWhere , were $1,439 during the three months ended September 30, 2008 as compared to $2,513 during the three months ended September 30, 2007, a decrease of 43%. Costs of revenues. For the three months ended September 30, 2008, costs of revenues for Worldwide InformationTM were $8,440 as compared to $16,548 for the three months ended September 30, 2007, a decrease of 49%. This decrease is primarily because certain data sets are only available for purchase on a monthly or quarterly basis and therefore the expense for these data sets are recognized when data becomes available from vendors. For the three months ended September 30, 2008, our costs of revenues associated with LocatePLUS online and channel were $372,532 as compared to $424,699 for the three months ended September 30, 2007, a decrease of 12%. Selling and marketing expenses. Selling and marketing expenses for the three months ended September 30, 2008 were $420,945 as compared to $358,751 for the three months ended September 30, 2007, an increase of 17%. The primary reason for the increase is due to the expansion and hiring of additional sales and marketing personnel as well as an increased presence at local and national trade shows. General and administrative expenses. General and administrative expenses for the three months ended September 30, 2008 were $1,213,056 as compared to $1,439,767 for the three months ended September 30, 2007, a decrease of 16%. This decrease is attributable to a greater awareness of expenses and the downsizing of personnel. Research and Development expenses. Research and development expenses for the three months ended September 30, 2008 were $48,531 as compared to $17,884 for the three months ended September 30, 2007, an increase of 171%. This increase is attributable to the expensing of certain prepaid assets during the third quarter. Severance expense. For the three months ended September 30, 2008 and 2007, no severance expense was recorded. Interest income. No interest income was recorded for the three months ended September 30, 2008 or 2007. Interest expense. Interest expense increased to $150,516 for the three months ended September 30, 2008, from $120,223 for the three months ended September 30, 2007, an increase of 25%. This expense is primarily attributable to interest payments being made on certain notes payable. 12 Other Income. Other income decreased to $855 for the three months ended September 30, 2008, down from other income of $2,226 for the three months ended September 30, 2007, a decrease of 61%. This revenue stream consists of outside individuals requesting reports on their own person. Financing Related Expenses. During the three months ended September 30, 2008, no financing related expenses were recorded. During the three months ended September 30, 2007, we recorded financing expenses related to registration rights in the amount of $271,025. This was related to penalties associated with a financing completed in 2005 for the non-filing of a registration statement. NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2007 Revenues. Revenues from our Worldwide InformationTM CD-ROM product decreased to $356,028 for the nine months ended September 30, 2008 from $394,570 for the nine months ended September 30, 2007, a decrease of 10%. Revenues from our Internet-based products increased to $4,302,311 for the nine months ended September 30, 2008, as compared to $4,241,366 for the nine months ended September 30, 2007, an increase of 1%. Revenue from channel partners increased to $1,671,402 from $1,627,417, an increase of 3%. Revenues from our wireless product, LocatePLUS AnyWhere , were $4,858 during the nine months ended September 30, 2008 as compared to $7,320 during the nine months ended September 30, 2007, a decrease of 33%. This decrease is attributable to a decrease in the marketing of this product. Costs of revenues. For the nine months ended September 30, 2008, costs of revenues for Worldwide InformationTM were $38,623 as compared to $30,381 for the nine months ended September 30, 2007, an increase of 27%. The primary reason for this increase is the addition of several new data sets. For the nine months ended September 30, 2008, our costs of revenues associated with LocatePLUS online and channel were $1,053,189 as compared to $1,236,958 for the nine months ended September 30, 2007, a decrease of 15%. Selling and marketing expenses. Selling and marketing expenses for the nine months ended September 30, 2008 were $1,182,850 as compared to $1,128,399 for the nine months ended September 30, 2007, an increase of 15%. The primary reason for the increase is due to the expansion and hiring of additional sales and marketing personnel as well as an increased presence at local and national trade shows. General and administrative expenses. General and administrative expenses for the nine months ended September 30, 2008 were $3,845,182 as compared to $4,472,172 for the nine months ended September 30, 2007, a decrease of 14%. This decrease is attributable to a greater awareness of expenses and the downsizing of personnel. Research and Development expenses. Research and development expenses for the nine months ended September 30, 2008 were $111,690 as compared to $97,274 for the nine months ended September 30, 2007, an increase of 15%. This increase is attributable to the expensing of certain prepaid assets. Severance expense. For the nine months ended September 30, 2008, no severance expense was recorded. Severance expense for the nine months ended September 30, 2007 was $250,000, this expense was attributable to the resignation of Jon Latorella, the President and Chief Executive Officer. As part of this resignation, Mr. Latorella received a one-time severance of $250,000. Interest income. No interest income was recorded for the nine months ended September 30, 2008. Interest income for the nine months ended September 30, 2007 totaled $48,383. Interest expense. Interest expense increased to $518,116 for the nine months ended September 30, 2008, from $445,258 for the nine months ended September 30, 2007, an increase of 16%. This expense is primarily attributable to interest payments being made on certain notes payable. Other Income. Other income decreased to $6,392 for the nine months ended September 30, 2008, down from other income of $9,708 for the nine months ended September 30, 2007, a decrease of 34%. This revenue stream consists of outside individuals requesting reports on their own person. 13 Financing Related Expenses. During the nine months ended September 30, 2008, no financing related expenses were recorded. During the nine months ended September 30, 2007, we recorded financing expenses related to registration rights in the amount of $3,165,093. This was related to penalties associated with a financing completed in 2005 for the non-filing of a registration statement. LIQUIDITY AND CAPITAL RESOURCES From our incorporation in 1996 through December 31, 2005, we raised approximately $43 million through a series of private placements and public offerings of equity and convertible debt to fund marketing and sales efforts and develop our products and services. As of September 30, 2008, our cash and cash equivalents totaled $ 129,134. In connection with an offering that closed on August 15, 2005 we entered into a Purchase Agreement with certain institutional and accredited investors relating to the private placement of convertible term notes issued by the Company in the principal amount of $8,965,000 and warrants to purchase up to 41,189,000 shares of our capital stock. Of the proceeds from this offering, approximately $4.1 million was used to retire current secured convertible notes, and the remainder will be used for general working capital. All of the notes are convertible, and the warrants are exercisable, first into as many shares of our Class A Voting Common Stock, par value $0.01 per share, as are available for issuance at the time of conversion or exercise, and then into shares of our Class B Non-Voting Common Stock, par value $0.01 per share. As part of our agreement with these investors, we have agreed to seek the approval from our stockholders of the recapitalization of each outstanding share of our Class A Voting Common Stock and our Class B Non-Voting Common Stock into a single class of voting common stock, as well as a one-for-fifty reverse split of this new class of common stock. If our stockholders approve these measures, the notes will automatically convert into shares of the new class of common stock, and any unexercised warrants will be exercisable for shares of that class of stock as well. As there are currently no unissued shares of our Class A Voting Common Stock that are not otherwise reserved for issuance, we anticipate that these notes and warrants will be exercisable for shares of either our Class B Non-Voting Common Stock or the newly created class of common stock, if approved. Without taking into consideration interest payable on the notes, the notes are convertible into 89,650,000 shares of our common stock (regardless of class) at a current conversion rate of $0.10 per share and the warrants are exercisable for ten years from the date they were issued for up to 41,189,000 shares of our common stock (regardless of class) at a current exercise price of $0.15 per share. The conversion price of the notes and the exercise price of the warrants are each subject adjustment for a variety of events, including, for example, payment of dividends, certain mergers or asset sales, and certain securities issuances. In conjunction with this offering, we also entered into related Registration Rights and Voting Agreements. On November 14, 2005, at the annual meeting of the shareholders, the recapitalization was approved by a majority of the outstanding shares of both classes of stock. On December 12, 2005, we completed the plan of recapitalization which triggered the mandatory conversion of certain notes payable in the amount of $8,965,000 into 1,793,000 of the new common stock. On December 29, 2005, we entered into an Investment Agreement with Dutchess Private Equities Fund II, L.P. Pursuant to that Investment Agreement, we received proceeds of $1,500,000 by issuing a note payable convertible into 300,000 shares of Common Stock at $5.00 per share and 200,000 founders shares and Common Stock purchase warrant for 750,000 shares with an exercise price of $5.00 per share. We also entered into an agreement where we may, at our discretion, periodically "put" or require Dutchess to purchase shares of our Common Stock. The aggregate amount that Dutchess is obligated to pay for our shares will not exceed $10.0 million. For each share of Common Stock purchased under the Investment Agreement, Dutchess will pay 93% of the lowest closing bid price on the Over-the-Counter Bulletin Board (or other principal market on which our 14 Common Stock is traded) during the ten day period immediately following the date on which we give notice to Dutchess of our intention to put such stock. Our ability to put the shares under the Investment Agreement is conditioned upon us registering the shares of Common Stock with the Securities and Exchange Commission and satisfaction of certain other customary closing conditions. On July 21, 2006 we issued a Debenture to Dutchess Private Equities Fund, LP , a related private equities fund and received proceeds of $750,000. The Debenture is due on July 21, 2011 and pays twelve per cent (12%) interest. Interest and principal are payable at such times and under such conditions are outlined in the Debenture. The Debenture is convertible into shares of our Common Stock at the lesser of $.70 per share or 75% of the lowest closing bid price during the 20 trading days next preceding the date of conversion (collectively, the two funds "Dutchess"). The holder may not convert if it would cause the holder to own more than 4.9% of the outstanding Common Stock of the Company. On March 20, 2007, we issued a secured convertible debenture to Cornell Capital Partners in the aggregate principal amount of $6,000,000 of which $3,000,000 was advanced immediately. The second installment of $2,000,000 will 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 will be advanced immediately prior to the date the Registration Statement is declared effective by the Commission. The Debentures mature on the third anniversary of the date of issuance. 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. Under the Purchase Agreement the debentures are secured by substantially all of the Company's, and its wholly owned subsidiaries' assets. Under the Purchase Agreement, we also issued to Cornell 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. COMMITMENTS AND CONTINGENCIES OPERATING LEASES We lease office space and equipment under various operating lease agreements which terminate on various dates through 2012. Future minimum payments under our non-cancelable operating leases total $1,664,749. CAPITAL LEASES Through September 30, 2008, we entered into certain long-term equipment lease agreements. These agreements are classified as capital leases and expire in 2008. Future minimum lease payments under our non-cancelable capital leases total $7,760. 15 LICENSE AGREEMENTS The following represents the contractual obligation and commercial commitments as of September 30, 2008. LESS THAN 1-3 CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR YEARS ----------- ------------ ----------- Long-Term Debt including current portion $ 4,960,604 $ 3,459,625 $ 1,500,979 Capital Leases 7,660 7,660 - Operating Leases 1,664,749 497,770 1,166,979 License Agreements 240,000 200,000 40,000 ----------- ------------ ----------- Total $ 6,873,013 $ 4,165,055 $ 2,707,958 =========== ============ =========== RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In February 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard 155 - Accounting for Certain Hybrid Financial Instruments ("SFAS 155"), which eliminates the exemption from applying SFAS 133 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instruments. SFAS 155 also allows the election of fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to a re-measurement event. Adoption is effective for all financial instruments acquired or issued after the beginning of the first fiscal year that begins after September 15, 2006. Early adoption is permitted. The adoption of SFAS 155 is not expected to have a material effect on our consolidated financial position, results of operations or cash flows. In March 2006, the FASB issued Statement of Financial Accounting Standard 156 - Accounting for Servicing of Financial Assets ("SFAS 156"), which requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value. SFAS 156 permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. Adoption is required as of the beginning of the first fiscal year that begins after September 15, 2006. Early adoption is permitted. The adoption of SFAS 156 is not expected to have a material effect on our consolidated financial position, results of operations or cash flows In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29." APB Opinion No. 29, "Accounting for Non-monetary Transactions," is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. SFAS No. 153 amends APB Opinion No. 29, eliminating the exception to fair value accounting for non-monetary exchanges of similar productive assets and replaces it with a general exception to fair value accounting for non-monetary exchanges that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The statement is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not expect this statement to have a material impact on its financial statements. OFF-BALANCE-SHEET ARRANGEMENTS The Company has no off-balance-sheet arrangements currently in effect or in effect during the quarter ended September 30, 2008, including but not limited to any guarantee contracts that has the characteristics defined in paragraph 3 of FASB Interpretation No. 45 (November 2002), as amended; any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement, any obligation that could be accounted for as a derivative instrument, or any obligation arising out of a variable interest (as referenced in FASB Interpretation No. 46, as amended). 16 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 US 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. Our management, including the Chief Financial Officer and Chief Executive Officer evaluated the effectiveness of our internal control over financial reporting as of December 31, 2007. Based on our evaluation for the period ended December 31, 2007, James C. Fields, 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 weakness (as such term is defined under the Public Company Accounting Oversight Board Auditing Standard No. 2) in our internal controls over financial reporting. It is concluded that because material weaknesses exist, internal controls over financial reporting are not effective at this time. The material weakness relate to the financial closing process, a lack of segregation of financial responsibilities and the need for additional qualified financial accounting personnel. Based on the evaluation performed, disclosure controls and procedures were not effective for the twelve months ended December 31, 2007. During the nine months ended September 30, 2008, we have taken actions to remediate the reportable conditions and material weakness, 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. 17 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are involved in litigation from time to time in the ordinary course of our business. We do not believe that the outcome of any pending or threatened litigation will have a material adverse effect on our financial position or results of operations. However, as is inherent in legal proceedings where issues may be decided by finders of fact, there is a risk that unpredictable decisions adverse to our business could be reached. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. On March 20, 2007, we issued a secured convertible debenture to Cornell Capital Partners in the aggregate principal amount of $6,000,000 of which $3,000,000 was advanced immediately. The second installment of $2,000,000 will 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 will be advanced immediately prior to the date the Registration Statement is declared effective by the Commission. The Debentures mature on the third anniversary of the date of issuance. 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. Under the Purchase Agreement the debentures are secured by substantially all of the Company's, and its wholly owned subsidiaries' assets. Under the Purchase Agreement, we also issued to Cornell 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. ITEM 3. DEFAULTS UPON SENIOR SECURITIES On December 11, 2007, we received a letter dated December 6, 2007 ( the "Notice Letter"), 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"). Management is currently working with YA towards a resolution. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. On September 15, 2008, the Company hosted its Annual Shareholder meeting where the following individuals proposed by management were elected by a majority of those shares of Common stock present and voting: James Fields, to serve a three year term. Rich Nagle, to serve a three year term. Ralph Caruso, to serve a two year term. Paul DeRoche, to serve a one year term. David Skerrett, to serve a one year term. In addition, at the annual meeting, a proposition set forth by Management and the Board to increase the authorized shares of the Company from twenty five million shares to one hundred million shares was not approved 18 ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. EXHIBITS 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. 31.2 Certification of Acting Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Acting 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 September 30, 2008, we filed a Form 8-K and reported under item 8.01 that at the Annual Meeting, the individuals proposed by Management were elected and appointed to the Board of Directors. On August 14, 2008, we filed a Form 8-K and reported under item 5.02 that Mr. Latorella had stepped down as Chairman of the Board and that James C. Fields, the current President and CEO had been appointed to the position of Chairman. On August 14, 2008, we filed a Form 8-K and reported under item 2.02 reporting unaudited second quarter financial results. In addition, we also attached under item 7.01 a shareholder letter. On June 2, 2008, we filed a Form 8-K and reported under item 1.01 that the Board of Directors has entered into an employment agreement with James C. Fields, its current President and Chief Executive Officer. Additionally, we reported under item 5.02 that the Board of Directors had elected two new members to the Board. On January 7, 2008, we filed a Form 8-K and reported under item 2.04 that by letter received December 11, 2007, dated December 6, 2007 ( the "Notice Letter"), YA Global Investments, L.P., (formerly known as Cornell Capital Partners, L.P.) notified the Company of certain Events of Default under the Secured Convertible Debenture dated March 20, 2007 of the Company (the "Debenture"). * * * 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/ James C. Fields James C. Fields President and November 14, 2008 Chief Executive Officer