SOURCE: Lattice Incorporated

Lattice Incorporated

May 16, 2011 16:00 ET

Lattice Announces Q1 2011 Financial Results, Communications Division Revenues of $1M, and Major Acquisition in Government Services Division

Conference Call Today at 4:30 p.m. EDT

PENNSAUKEN, NJ--(Marketwire - May 16, 2011) - Lattice Incorporated (OTCBB: LTTC), a provider of secure technology solutions to key government agencies and enterprise customers, announced today the company's financial results for the first quarter ended March 31, 2011. The company also announced the acquisition of Cummings Creek Capital, the holding company for CLR Group, a provider of technology solutions to government that will be merged with the operations of Lattice Government Services.

Total revenue for the quarter ended March 31, 2011 was $3.3 million compared to $3.7 million for the quarter ended March 31, 2010. Net loss was ($523,000) or EPS of ($0.02) compared with net loss of ($532,000) or EPS of ($0.02) in 2010. Telecom services segment revenues increased 22% to $1.0 million compared to $0.8 million in the same quarter a year ago, and comprised 31% of the total revenues for the first quarter.

Gross profit for the quarter was $1.17 million compared to $1.19 million a year ago. Gross margin was 35.6% compared to 31.8%. Total operating expense for the quarter was $1.37 million, a decrease of 7.2% from $1.48 million in the comparable period a year ago. As a percentage of sales, operating expenses increased to 41.9% from 39.5% for 2010.

CEO Paul Burgess said, "CLR brings us a strong technology platform that will help increase the scale and feature capabilities of our Government Services Division. Based in O'Fallon, IL, CLR has a strong record of delivering technology and systems for the U.S. Military, including the U.S. Transportation Command, NASA, the Air Force Material Command, and the Air Mobility Command.

"The Cummings Creek - CLR Group acquisition will add approximately $4 million in annualized revenues. In addition, CLR CEO Ralph Alexander, with more than 30 years of building and managing businesses, will play a key role in scaling up our government segment operations.

"Significantly, this was the first million dollar revenue quarter for our rapidly growing telecom business, reflecting the relevance of Lattice offerings to correctional facilities in both the U.S. and Europe. Lattice now provides call management services for secure facilities in 11 states as well as the U.K and Gibraltar.

"During this quarter, Lattice management, directors and other accredited investors invested over a half million dollars to support the growth of our company. This was in addition to the private financing of $1.2 million by an institutional investor. The proceeds of which are being used for working capital and to support the expansion of our Telecom Business. We also strengthened our board of directors with the addition of former NTSB Chairman Mark Rosenker and telecommunications strategist John Boyd.

"We have a lot to look forward to in the coming quarters with rapid growth of our telecom business, and the acquisition is a major boost to our government solutions business," Burgess said.

Lattice will host a conference call with CEO Paul Burgess and CFO Joseph Noto today, Monday, May 16 at 4:30 p.m. EDT. To participate in this call, dial 1-888-549-7704 after 4:20 p.m. EDT. International callers should dial 1-480-629-9810. 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.

About Lattice Incorporated

Lattice Incorporated is a provider of advanced information and communications technology solutions to the government and commercial markets. The company's Government Services division designs, deploys, and manages secure technology solutions at key government agencies. Lattice's Communications Solutions division develops customized software applications and systems for secure facilities.

A complete profile of Lattice, including copies of press releases and a current price quote, may be found at http://www.latticeinc.com.

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


                                                  March 31,   December 31,
                                                    2011          2010
                                                  unaudited     audited
                                                ------------  ------------
ASSETS:
Current assets:
Cash and cash equivalents                       $    701,972  $    324,149
Accounts receivable                                3,143,611     3,059,342
Inventories                                           22,051        22,052
Subscription receivable                              224,500
Other current assets                                 202,855       246,589
                                                ------------  ------------
  Total current assets                             4,294,989     3,652,132

Property and equipment, net                          335,631       258,258
Goodwill                                           3,599,386     3,599,386
Other intangibles, net                             1,451,683     1,588,909
Other assets                                          46,512        46,512
                                                ------------  ------------
  Total assets                                  $  9,728,201  $  9,145,197
                                                ------------  ------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                                $  1,895,376  $  2,066,862
Accrued expenses                                   1,680,971     1,717,271
Deferred revenues                                     10,000        67,879
Customer deposits                                     96,737       103,869
Other liabilities                                    200,000             -
Notes payable                                        317,428       885,592
Derivative liability                                 469,025       228,108
                                                ------------  ------------
  Total current liabilities                        4,669,537     5,069,581
Long term liabilities:
Long term debt                                     1,355,657     1,367,548
Deferred tax liabilities                             171,008       256,512
                                                ------------  ------------ 
  Total long term liabilities                      1,526,665     1,624,060
                                                ------------  ------------
  Total liabilities                                6,196,202     6,693,641
                                                ------------  ------------


Shareholders' equity
Preferred Stock - .01 par value
  Series A 9,000,000 shares authorized
   7,530,681 and 7,530,681 issued respectively        75,307        75,307
  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
  Series D 454,546 shares authorized  454,546
   issued                                              4,545             -
Common stock - .01 par value, 200,000,000
 authorized, 27,698,241 and 22,942,427 issued,
 27,395,254 and 22,639,450 outstanding
 respectively                                        276,983       229,425
Additional paid-in capital                        41,414,093    39,853,503
Accumulated deficit                              (37,822,460)  (37,293,357)
                                                ------------  ------------
                                                   3,963,668     2,880,078
Stock held in treasury, at cost                     (558,096)     (558,096)
                                                ------------  ------------
Equity Attributable to shareowners of Lattice
 Incorporated                                      3,405,572     2,321,982
                                                ------------  ------------
Equity Attributable to noncontrolling interest       126,427       129,574
                                                ------------  ------------
Total liabilities and shareholders' equity      $  9,728,201  $  9,145,197
                                                ============  ============

See accompanying notes to the consolidated financial statements.




                  LATTICE INCORPORATED AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF OPERATION
                                MARCH 31,


                                                    2011          2010
                                                ------------  ------------

Revenue                                         $  3,269,867  $  3,741,058

Cost of Revenue                                    2,104,483     2,552,846

                                                ------------  ------------
Gross Profit                                       1,165,384     1,188,212
                                                ------------  ------------

Operating  expenses:
  Selling, general and administrative              1,113,914     1,181,322
  Research and development                           152,261       155,531
  Amortization expense and depreciation expense      105,400       140,596
                                                ------------  ------------
  Total operating expenses                         1,371,575     1,477,449

                                                ------------  ------------
Loss from operations                                (206,191)     (289,237)

Other income (expense):
  Derivative expense                                (272,917)      (95,947)
  Extinguishment (loss)                                    -      (130,055)
  Other income                                             -             -
  Interest expense                                  (132,370)      (81,771)
                                                ------------  ------------
  Total other income                                (405,287)     (307,773)
                                                ------------  ------------

Minority Interest                                      3,147         3,147

                                                ------------  ------------
Income before taxes                                 (608,331)     (593,863)

Income taxes (benefit)                               (85,504)      (61,440)

                                                ------------  ------------
Net loss                                            (522,827)     (532,423)

Reconciliation of net loss to
Loss applicable to common shareholders:
  Net loss                                          (522,827)     (532,423)
  Preferred stock dividends                           (6,277)       (6,777)
                                                ------------  ------------
Loss applicable to common stockholders              (529,104)     (539,200)
                                                ============  ============

Loss per common share
  Basic                                         $      (0.02) $      (0.02)
  Diluted                                       $      (0.02) $      (0.02)

Weighted average shares:
  Basic                                           23,432,084    22,639,450
  Diluted                                         23,432,084    22,639,450


See accompanying notes to the consolidated financial statements.




                  LATTICE INCORPORATED AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                        March 31,
                                                --------------------------
                                                    2011          2010
                                                ------------  ------------

Cash flow from operating activities:

Net loss                                        $   (522,826) $   (532,423)

  Adjustments to reconcile net income  to net
   cash provided by (used in) operating
   activities:
  Derivative expense                                 272,917        95,947
  Amortization of intangible assets                  137,228       172,136
  Deferred income taxes                              (85,504)      (61,440)
  Extinguishment loss                                      -       130,055
  Minority interest                                   (3,147)       (3,147)
  Share-based compensation                           119,833       131,275
  Depreciation                                        18,339        14,745
Changes in operating assets and liabilities:
(Increase) decrease in:
  Accounts receivable                                (84,269)     (322,082)
  Other current assets                                43,734        27,525
  Other assets                                             -         6,997
Increase (decrease) in:
  Accounts payable and accrued liabilities          (214,063)    1,410,829
  Deferred revenues                                  (57,879)            -
  Customer advances                                   (7,132)       84,923
                                                ------------  ------------
Total adjustments                                    140,057     1,687,763
                                                ------------  ------------
  Net cash provided by (used for) operating
   activities                                       (382,769)    1,155,340
Cash Used in investing activities:

  Purchase of intangibles                                  -    (1,300,000)
  Purchase of equipment                              (95,712)      (26,706)
                                                ------------  ------------

  Net cash used for investing activities             (95,712)   (1,326,706)
                                                ------------  ------------
Cash flows from financing activities:
  Revolving credit facility (payments)
   borrowings, net                                   (27,252)      373,579
  Payments on capital equipment lease                (12,195)       (9,189)
  Payments on Notes                                 (531,000)            -
  Proceeds from issuance of securities, net        1,436,361       250,000
  Loans paid director                                 (9,610)      (75,009)
                                                ------------  ------------
  Net cash provided by (used in) financing
   activities                                        856,304       539,381
                                                ------------  ------------
  Net increase (decrease) in cash and cash
   equivalents                                       377,823       368,015
                                                ------------  ------------
Cash and cash equivalents - beginning of period      324,149       212,616
                                                ------------  ------------
Cash and cash equivalents - end  of period      $    701,972  $    580,631
                                                ============  ============

Supplemental cash flow information
  Interest paid in cash                         $    113,620  $     81,771
  Taxes paid                                    $          -  $          -
Supplemental disclosures of Non-Cash Investing
 & Financing Activities
  Proceeds from Factoring agreement paid
   directly to Private Bank Facility
  Exercise of warrants
  Common Stock                                         1,231
    Derivative liabilities                           (31,999)
  Additional paid in capital                           30,768
  Conversion of preferred shares into common               -       (14,370)
  Conversion of preferred shares into common               -        51,322
  Additional paid in capital
(36,951)
  Exchange of warrants for preferred series A
    Derivative liabilities                                          87,785
    Additional paid in Capital                             -       453,840


See accompanying notes to the consolidated financial statements.




Lattice Incorporated


Reconciliation of reported loss from operations
(as reported) to  income from operations
(as adjusted)  (Non-GAAP measure):
                                                        March 31,
                                                --------------------------
                                                    2011          2010
                                                ------------  ------------

Loss from operations- as reported               $   (206,191) $   (289,237)
Addback non-cash items:
Amortization expense                                 137,228       172,136
Impairment loss                                            -             -
Amortization expense (Operating expenses)                  -             -
Depreciaton expense                                   18,339        14,745
Share-based compensation (SG&A)                      119,833       131,275
                                                ------------  ------------
Income from operations (Adjusted)               $     69,209  $     28,919
                                                ============  ============

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