SOURCE: Lattice Incorporated

Lattice Incorporated

March 31, 2011 09:40 ET

Lattice Announces 2010 Financial Results

Conference Call Today at 12:00 Noon EDT

PENNSAUKEN, NJ--(Marketwire - March 31, 2011) - Lattice Incorporated (OTCBB: LTTC), a provider of advanced technological solutions to key government agencies and enterprise customers, announced today the company's financial results for the year ended December 31, 2010.

FY 2010 Review

--  Telecom services segment revenues increased 220% to $3.6 million
    compared to $1.1 million in 2009.
--  The company generated positive cash flow from operations of $777,000,
    compared to negative ($119,000) in 2009.
--  Gross margin increased to 37.2% for 2010 from 33.6% in 2009.
--  Total revenues decreased 13.2% to $13.5 million in 2010, compared to
    $15.6 million in 2009.
--  Adjusted operating income, a non-GAAP measure (after adding back
    non-cash amortization, depreciation and share-based compensation) was
    $357,000 positive for 2010. (A reconciliation to reported loss from
    operations is provided on the last page of the attached schedules)
--  Loss from operation decreased 53% from $1.9 million in 2009 to $907,000
    in 2010.
--  Earnings per share loss decreased from $0.08 per share in 2009 to $0.06
    per share in 2010.

CEO Paul Burgess said, "2010 has been a year of significant and positive change for Lattice. A year ago we reported our successful transition to a service model for our telecom business that we anticipated would provide us with stronger monthly recurring revenues. During the year we announced various new contracts for our correctional facility call management services in the U.S. and in Europe. I am pleased to report that for the full year 2010 our Telecom Business segment comprised 26% of our total revenues, compared to just 7% of total revenues in the prior year.

"With the February 2011 financing of $1 million to support the growth of our communications business, we anticipate further expansion of our telecom business both domestically and internationally. We are confident there are some exciting developments on the horizon for this rapidly developing business, and we are looking forward to providing updates on our progress.

"Our wholly-owned subsidiary Lattice Government Services continued to be awarded contracts during the year, including a prime contract with the United States Air Force to develop a system for detecting improvised explosive devices, and a Homeland Security Contract for smuggled currency detection.

"Although total revenue decreased 13% for the year, this was primarily due to a decrease in lower margin subcontracted revenues under existing contract vehicles in our government services business. Our gross profit as a percentage of net sales increased to 37.2% for 2010, compared to 33.6% for 2009, and on the bottom line, our per share loss narrowed to $0.06 from $0.08," Burgess said.

The company will host a conference call with CEO Paul Burgess and CFO Joseph Noto today, Thursday, March 31 at 12:00 p.m. noon EDT. To participate in this call, dial 1-877-941-8602 any time after 11:50 a.m. EDT. International callers should dial 1-480-629-9811. If an operator is needed at anytime during the call press the star followed by the zero button.

An audio replay of the call will be available at http://www.hawkassociates.com for approximately 90 days after the call.

Financial tables are attached.

About Lattice Incorporated

Lattice Incorporated is a provider of advanced information and communications technology solutions to the government and commercial markets. The company's technology services division designs, deploys and manages advanced technological solutions at key government agencies and for mid- to large-sized enterprises. Lattice's technology products division consists of several core proprietary platforms used to develop customized software applications with military grade security in a number of different markets. For more information, visit http://www.latticeincorporated.com.

An investment profile about Lattice Incorporated may be found at http://www.hawkassociates.com/lttcprofile.aspx.

An online investor relations kit including copies of press releases, current price quotes, stock charts and other valuable information for investors may be found at http://www.hawkassociates.com. To receive free e-mail notification of future releases for this company, sign up at http://www.hawkassociates.com/about/alert/.

Safe Harbor Statement

Safe-Harbor Statement under the Private Securities Litigation Reform Act of 1995: This press release may contain forward-looking information within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including all statements that are not statements of historical fact regarding the intent, belief or current expectations of the company, its directors or its officers with respect to, among other things: (i) the company's financing plans; (ii) trends affecting the company's financial condition or results of operations; (iii) the company's growth strategy and operating strategy; and (iv) the risk factors disclosed in the Company's periodic reports filed with the SEC. The words "may," "would," "will," "expect," "estimate," "anticipate," "believe," "intend" and similar expressions and variations thereof are intended to identify forward-looking statements. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the company's ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors including the risk factors disclosed in the company's Forms 10-K previously filed with the SEC.

                  LATTICE INCORPORATED AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS

                                                  December 31, December 31,
                                                      2010         2009
                                                  -----------  -----------
ASSETS:
Current assets:
Cash                                              $   324,149  $   212,616
Accounts receivable                                 3,059,342    3,560,293
Inventories                                            22,052       29,402
Other current assets                                  246,589      133,405
                                                  -----------  -----------
    Total current assets                            3,652,132    3,935,716

Property and equipment, net                           258,258      264,753
Goodwill                                            3,599,386    3,599,386
Other intangibles, net                              1,588,909      977,455
Other assets                                           46,512       54,259
                                                  -----------  -----------
    Total assets                                  $ 9,145,197  $ 8,831,569
                                                  -----------  -----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                                  $ 2,066,862  $ 1,780,143
Accrued expenses                                    1,717,271    1,719,831
Deferred revenues                                      67,879            -
Customer advances                                     103,869       94,954
Notes payable - current                               885,592    1,503,742
Derivative liability                                  228,108      161,570
                                                  -----------  -----------
    Total current liabilities                       5,069,581    5,260,240
Long term liabilities:
Notes Payable - long term                           1,367,548      188,466
Deferred tax liabilities                              256,512      440,832
                                                  -----------  -----------
    Total long term liabilities                     1,624,060      629,298
                                                  -----------  -----------
    Total liabilities                               6,693,641    5,889,538
                                                  -----------  -----------


Shareholders' equity
Preferred Stock - .01 par value
    Series A 9,000,000 shares authorized
     7,530,681 and 7,567,685 issued respectively       75,307       75,677
    Series B 1,000,000 shares authorized
     1,000,000 issued and 502,160 outstanding          10,000       10,000
    Series C 520,000 shares authorized  520,000
     issued                                             5,200        5,200
Common stock - .01 par value, 200,000,000
 authorized, 22,942,437 and 17,810,281 issued,
 22,639,450 and 17,507,294 outstanding
 respectively                                         229,425      178,104
Additional paid-in capital                         39,853,503   38,925,743
Accumulated deficit                               (37,293,357) (35,851,892)
                                                  -----------  -----------
                                                    2,880,078    3,342,832
Stock held in treasury, at cost                      (558,096)    (558,096)
                                                  -----------  -----------
Equity Attributable to shareowners of Lattice
 Incorporated                                       2,321,982    2,784,736
                                                  -----------  -----------
Equity Attributable to noncontrolling interest        129,574      157,295
                                                  -----------  -----------
Total liabilities and shareholders' equity        $ 9,145,197  $ 8,831,569
                                                  ===========  ===========





                  LATTICE INCORPORATED AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                               DECEMBER 31,

                                                      2010         2009
                                                  -----------  -----------

Sales                                             $13,538,319  $15,595,433



Cost of sales                                       8,507,902   10,355,860

                                                  -----------  -----------
Gross Profit                                        5,030,417    5,239,573

Operating  expenses:
       Selling, general and administrative          4,830,024    5,189,848
       Research and development                       549,186      541,783
       Impairment loss                                      -      235,301
       Amortization expense                           558,546    1,196,992
                                                  -----------  -----------
       Total operating expenses                     5,937,756    7,163,924

                                                  -----------  -----------
Loss from operations                                 (907,339)  (1,924,351)

Other income (expense):
       Derivative expense                            (154,323)      39,036
       Extinguishment (loss)                         (130,055)           -
       Interest expense                              (436,676)    (237,088)
                                                  -----------  -----------
       Total other income                            (721,054)    (198,052)

Noncontrolling interest                                27,721       35,985

                                                  -----------  -----------
(Loss) before taxes                                (1,600,672)  (2,086,418)

Income taxes (benefit)                               (184,320)    (759,451)

                                                  -----------  -----------
Net loss                                           (1,416,352)  (1,326,967)

Reconciliation of net loss to income applicable
 to common shareholders:
       Net (loss)                                  (1,416,352)  (1,326,967)
       Preferred stock dividends                      (25,108)     (25,108)
                                                  -----------  -----------
Loss applicable to common stockholders             (1,441,460)  (1,352,075)

Income (loss) per common share
       Basic                                      $     (0.06) $     (0.08)
       Diluted                                    $     (0.06) $     (0.08)

Weighted average shares:
       Basic                                       22,639,450   16,634,610
       Diluted                                     22,639,450   16,634,610






                  LATTICE INCORPORATED AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                  Year ended December 31,
                                                  ------------------------
                                                      2010         2009
                                                  -----------  -----------

Cash flow from operating activities:
Net loss                                          $(1,416,352) $(1,326,967)

   Adjustments to reconcile net income  to net
    cash provided by (used in) operating
    activities:
   Derivative income                                  154,323      (39,036)
   Amortization of intangible assets                  688,546    1,196,992
   Impairment                                               -      235,301
   Deferred income taxes                             (184,320)    (759,451)
   Extinguishment loss                                130,055            -
   Minority interest                                  (27,721)     (35,985)
   Share-based compensation                           510,870      513,816
   Depreciation                                        64,495       40,797
Changes in operating assets and liabilities:                -
(Increase) decrease in:
   Accounts receivable                                500,951          397
   Other current assets                                12,667      (12,329)
   Other assets                                         7,747          200
Increase (decrease) in:                                                  -
   Accounts payable and accrued liabilities           259,050      (12,223)
   Deferred revenues                                   67,879            -
   Customer advances                                    8,915       79,954
                                                  -----------  -----------
Total adjustments                                   2,193,457    1,208,433
                                                  -----------  -----------
   Net cash provided by (used for) operating
    activities                                        777,105     (118,534)
Cash Used in investing activities:
   Purchase of intangibles                         (1,300,000)           -
   Purchase of equipment                              (58,000)    (284,460)
                                                  -----------  -----------
   Net cash used for investing activities          (1,358,000)    (284,460)
                                                  -----------  -----------
Cash flows from financing activities:
   Revolving credit facility (payments)
    borrowings, net                                  (578,405)    (619,651)
   Payments on capital equipment lease                (41,242)      94,297
   Proceeds from the issuance of Note               1,100,000
   Proceeds from issuance of Series A preferred
    stock                                             250,000            -
   Loans paid director                                (37,920)    (222,166)
                                                  -----------  -----------
   Net cash provided by (used in) financing
    activities                                        692,433     (747,520)
                                                  -----------  -----------
   Net increase (decrease) in cash and cash
    equivalents                                       111,538   (1,150,514)
                                                  -----------  -----------
Cash  - beginning of period                           212,616    1,363,130
                                                  -----------  -----------
Cash  - end  of period                            $   324,154  $   212,616
                                                  ===========  ===========

Supplemental cash flow information
   Interest paid in cash                          $   436,676  $   181,066
   Taxes paid                                               -            -
Supplemental disclosures of Non-Cash Investing &
 Financing Activities
   Purchase of Equipment                                           110,879
   Capital Lease                                                  (110,879)
   Additional Paid Capital                            (36,952)        (720)
   Conversion of preferred shares into  common        (14,370)        (280)
   Conversion of preferred shares into  common         51,322        1,000

   Exchange of warrants for preferred series A              -
     Derivative liabilities                            87,785
     Additional paid in Capital                       453,840
     Deferred financing fees                          150,000





                  LATTICE INCORPORATED AND SUBSIDIARIES

Reconciliation of reported loss from operations
 to adjusted income from operations adjusted
 (Non-GAAP measure):
                                                    2010          2009

Loss from operations- as reported               $   (907,339) $ (1,924,351)
Addback non-cash items:
Amortization expense (Cost of Sales)                 130,000             -
Impairment loss                                            -       235,301
Amortization expense (Operating expenses)            558,546     1,196,992
Depreciation expense (SG&A)                           64,495        40,797
Share-based compensation (SG&A)                      510,870       513,816
                                                ------------  ------------
Income from operations (Adjusted)               $    356,572  $     62,555
                                                ============  ============

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