SOURCE: Lattice Incorporated

Lattice Incorporated

November 22, 2010 11:00 ET

Lattice Announces Third Quarter 2010 Earnings

Communication Services Revenue up 217%

PENNSAUKEN, NJ--(Marketwire - November 22, 2010) - 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 third quarter ended September 30, 2010.

Total revenue for the quarter was $3.1 million compared to $3.9 million for the quarter ended September 30, 2009. Net loss was ($142,988) or EPS of ($0.01) compared with net loss of ($301,881) or EPS of ($0.02) in the same quarter of 2009.

Gross profit for the third quarter was $1.29 million compared to $1.25 million a year ago. Gross margin for the quarter was 41.5% compared to 32.1% for the same quarter of 2009. The increase in Gross Profit percentage was mainly attributable to a decrease in lower margin subcontracted or pass-thru revenues relative to higher margin in-house labor.

Total operating expense for the quarter was $1.43 million, a decrease of 14.7% from $1.68 million in the comparable period a year ago.

CEO Paul Burgess said, "Government Services revenue, which represented 71% of total company revenue, decreased 39.3% in the quarter primarily due to task orders that ended in 2009 and funding delays on DOD government programs. The decrease consisted primarily of a decline in lower margin subcontractor or pass-through revenues. The majority of bids we currently have and are waiting on are awards with new agencies or new contracts that add to our current contract base. We also have entered into a number of teaming agreements with other government contractors enabling us to provide services on current contracts they already have been awarded. The addition of new contracts will also decrease the concentrated risk we currently have on revenues concentrated in our SPAWAR contracts.

"The decline in Government Services revenue was partially offset by new business from our rapidly growing Communications Services, which was up 217% in the quarter. This was mainly attributable to the new direct service model launched in late 2009, which accounted for $475,000 or 164% of the increase versus the year ago quarter.

"Although we expect government services revenue to be an important part of our mix of business, we expect to see the percentage of business from our Communications Services segment continue to grow. In the quarter, Communications Services revenue was 29% of the total, up from 7% of the total a year ago.

"Historically our revenue from our Communications Services segment has been derived from wholesaling product and services to service providers providing telecom services to correctional facilities. Last year we moved out beyond this to begin offering direct services to end-user inmate facilities either directly or through partnership arrangements. This has enabled us to move into an addressable market of over $1.2 billion a year.

"So we are pleased with the growth from the communications segment. Last week we announced new contracts in Oregon and Washington. I expect we will have additional announcements in the near future.

"Finally, our new business model requires us to upfront capital investment in equipment with each new contract win. To date, we have secured equipment financing to support our contract wins. In addition, we have made a $1.3 million investment in licensing technology that we expect will contribute to our growth," Burgess said.

The company will host a conference call today with CEO Paul Burgess and CFO Joseph Noto at 12:30 pm ET to review the company's financial results and respond to questions and comments. To participate in this call, dial 1-877-941-4775 any time after 12:20 pm ET. International callers should dial 1-480-629-9761. The conference ID number is 4387147.

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 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

                                                September 30,  December 31,
                                                    2010          2009
                                                  unaudited     audited
                                                ------------  ------------
ASSETS:
Current assets:
Cash and cash equivalents                       $    301,148  $    212,616
Accounts receivable                                3,185,846     3,560,293
Inventories                                           29,402        29,402
Other current assets                                 276,839       133,405
                                                ------------  ------------
     Total current assets                          3,793,235     3,935,716

Property and equipment, net                          264,872       264,753
Goodwill                                           3,599,386     3,599,386
Other intangibles, net                             1,761,049       977,455
Other assets                                          46,512        54,259
                                                ------------  ------------
     Total assets                               $  9,465,054  $  8,831,569
                                                ------------  ------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                                $  1,743,343  $  1,780,143
Accrued expenses                                   1,762,690     1,719,831
Deferred revenues                                     51,250             -
Customer advances                                    263,516        94,954
Notes payable - current                              932,153     1,503,742
Derivative liability                                 148,383       161,570
                                                ------------  ------------
     Total current liabilities                     4,901,335     5,260,240
Long term liabilities:
Notes Payable - long term                          1,259,953       188,466
Deferred tax liabilities                             256,513       440,832
                                                ------------  ------------
     Total long term liabilities                   1,516,466       629,298
                                                ------------  ------------
     Total liabilities                             6,417,801     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                        39,736,457    38,925,743
Accumulated deficit                              (36,598,894)  (35,851,892)
                                                ------------  ------------
                                                   3,457,495     3,342,832
Stock held in treasury, at cost                     (558,096)     (558,096)
                                                ------------  ------------
Equity Attributable to shareowners of Lattice
 Incorporated                                      2,899,399     2,784,736
                                                ------------  ------------
Equity Attributable to noncontrolling interest       147,854       157,295
                                                ------------  ------------
Total liabilities and shareholders' equity      $  9,465,054  $  8,831,569
                                                ============  ============



                  LATTICE INCORPORATED AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF OPERATIONS


                            Three Months Ended       Nine Months Ended
                              September 30,             September 30,
                             2010        2009         2010         2009
                          ----------  ----------  -----------  -----------

Revenue                   $3,122,870  $3,922,064  $10,237,621  $11,896,647

Cost of Revenue            1,828,355   2,664,733    6,362,975    8,105,743
                          ----------  ----------  -----------  -----------


Gross Profit               1,294,515   1,257,331    3,874,646    3,790,904

Operating  expenses:
  Selling, general and
   administrative          1,158,344   1,247,510    3,480,887    3,628,756
  Research and
   development               134,331     132,917      417,706      409,141
  Amortization expense
   and depreciation
   expense                   139,636     299,248      418,906      897,744
                          ----------  ----------  -----------  -----------
  Total operating
   expenses                1,432,311   1,679,675    4,317,499    4,935,641

                          ----------  ----------  -----------  -----------
Loss from operations        (137,796)   (422,344)    (442,853)  (1,144,737)

Other income (expense):
  Derivative Income
   (expense)                  35,075       7,498      (74,598)     (56,572)
  Extinguishment (loss)            -           -     (130,055)           -
  Other income                     -           -            -            -
  Interest expense          (104,854)    (58,043)    (280,694)    (184,158)
                          ----------  ----------  -----------  -----------
  Total other income         (69,779)    (50,545)    (485,347)    (240,730)
                          ----------  ----------  -----------  -----------

Minority Interest              3,147       7,653        9,441       18,100

                          ----------  ----------  -----------  -----------
Income before taxes         (204,428)   (465,236)    (918,759)  (1,367,367)

Income taxes (benefit)       (61,440)   (163,355)    (184,320)    (490,065)

                          ----------  ----------  -----------  -----------
Net loss                    (142,988)   (301,881)    (734,439)    (877,302)

Reconciliation of net
 loss to
Loss applicable to common
 shareholders:
  Net loss                  (142,988)   (301,881)    (734,439)    (877,302)
  Preferred stock
   dividends                  (6,277)     (6,277)     (18,831)     (18,831)
                          ----------  ----------  -----------  -----------
Loss applicable to common
 stockholders               (149,265)   (308,158)    (753,270)    (896,133)

Loss per common share
  Basic                   $    (0.01) $    (0.02) $     (0.03) $     (0.05)
  Diluted                 $    (0.01) $    (0.02) $     (0.03) $     (0.05)

Weighted average shares:
  Basic                   22,942,437  16,739,444   22,372,198   16,727,592
  Diluted                 22,942,437  16,739,444   22,372,198   16,727,592





                  LATTICE INCORPORATED AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                    Nine Months ended
                                                      September 30,
                                                --------------------------
                                                    2010          2009
                                                ------------  ------------
Cash flow from operating activities:
Net loss                                        $   (734,439) $   (877,302)

   Adjustments to reconcile net income  to net
    cash provided by (used in) operating
    activities:
   Derivative expense                                 74,598        56,572
   Amortization of intangible assets                 516,406       897,744
   Deferred income taxes                            (184,320)     (490,065)
   Extinguishment loss                               130,055             -
   Minority interest                                  (9,441)      (18,100)
   Share-based compensation                          393,825       382,541
   Depreciation                                       44,235         9,500
Changes in operating assets and liabilities:               -
(Increase) decrease in:
   Accounts receivable                               374,447      (965,461)
   Other current assets                                8,904      (141,441)
   Other assets                                        7,747           318
Increase (decrease) in:                                                  -
   Accounts payable and accrued liabilities            6,059       102,257
   Deferred revenues                                  51,250             -
   Customer advances                                 168,562        72,625
                                                ------------  ------------
Total adjustments                                  1,582,327       (93,510)
                                                ------------  ------------
   Net cash provided by (used for) operating
    activities                                       847,888      (970,812)
Cash Used in investing activities:
   Purchase of intangibles                        (1,300,000)            -
   Purchase of equipment                             (44,354)      (89,608)
                                                ------------  ------------
   Net cash used for investing activities         (1,344,354)      (89,608)
                                                ------------  ------------
Cash flows from financing activities:
   Revolving credit facility (payments)
    borrowings, net                                 (667,026)       82,454
   Payments on capital equipment lease               (24,641)       (7,994)
   Proceeds from the issuance of Note              1,100,000
   Proceeds from issuance of Series A preferred
    stock                                            250,000             -
   Loans paid director                               (73,335)      (34,453)
                                                ------------  ------------
   Net cash provided by (used in) financing
    activities                                       584,998        40,007
                                                ------------  ------------
   Net increase (decrease) in cash and cash
    equivalents                                       88,532    (1,020,413)
                                                ------------  ------------
Cash and cash equivalents - beginning of period      212,616     1,363,130
                                                ------------  ------------
Cash and cash equivalents - end  of period      $    301,148  $    342,717
                                                ============  ============

Supplemental cash flow information
   Interest paid in cash                        $    280,694  $    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

Contact Information

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    Frank Hawkins
    305-451-1888
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