For Immediate Release
| Contact: | |
| Lattice Incorporated | CCG Elite Investor Relations |
| Paul Burgess, CEO | Crocker Coulson, President |
| Phone: +(1) 856-910-1166 x.2111 | Phone: +(1) 646-213-1915 |
Email: pburgess@sysmanagement.com | Email: crocker.coulson@ccgir.com |
| | Ed Job, CFA |
| | Phone: +(1) 646-213-1914 |
| | Email: ed.job@ccgir.com |
Lattice Incorporated Reports Second Quarter 2008 Results, and Announces Conference Call
PENNSAUKEN, N.J., August 19, 2008 - Lattice Incorporated (OTC: LTTC) (“Lattice” or the “Company”), a provider of advanced information and communications technology solutions to key government agencies and enterprise customers, today announced second quarter 2008 results.
Second Quarter 2008 Highlights
| · | Total revenues increased slightly year-over-year to $3.73 million |
| · | Net income applicable to common shares was $4.2 million |
| · | Income per fully diluted share was $0.03 |
“We are very pleased with the progress we made during the second quarter on the execution of our business plan, and in particular with the share exchange agreement that has greatly simplified our capital structure and we this believe will provide us with the financial flexibility to refocus our efforts on growing our business,” said Paul Burgess, Lattice’s Chief Executive Officer. “We are also pleased with our top line performance in this difficult environment as well as the significant improvement in our bottom line during the quarter. As we look to the future we will continue to strengthen our marketing and business development organization to build on our unique technologies to accelerate our growth into 2009.”
Second Quarter 2008 Results
Lattice’s total revenue in the second quarter 2008 was slightly up at $3.73 million, compared to $3.72 million in the same period last year. Revenue generation was driven by follow-on orders from key existing contracts. Services and solutions to the Federal government accounted for 95% of the Company’s revenues in the quarter.
Cost of revenues increased to $2.7 million from $1.7 million in the same period of 2007. Gross profit in the second quarter was $1.0 million compared to $2.0 million in the comparable period of 2008. As a percent of revenues, gross profit margin was 27.2% in the second quarter of 2008, down from 54.7% in the second quarter of 2007. The year-over-year reduction in gross profit and gross margin was primarily due to an increase in the use of sub-contractors on programs the Company is the prime-contractor to support the delivery of its JPMIS Seaport-e contract as well as other government contract vehicles.
Operating expense for the second quarter of 2008 was $1.9 million, down from $2.0 million in the comparable period of 2007. Operating expense in the second quarter of 2008 included selling, general and administrative expense of $1.4 million, $150,000 of which was non-recurring legal expenses, research and development of $109 thousand and amortization of $372 thousand. Adjusting for non-recurring items, operating expenses would have been down approximately 14%, reflecting a reduction in headcount in the period associated with a higher reliance on subcontractors.
The Company posted an operating loss for the second quarter of $903 thousand which compared to operating loss of $20 thousand in the second quarter of 2007. The operating loss for the second quarter of 2008 included non-cash amortization expense of $372 thousand related to intangible assets associated with the acquisition of RTI in 2006 and SMEI in 2005, compared to a non-cash amortization expense of $520 thousand in the same period in 2007.
Other income in the second quarter of 2008 was $5.0 million, including approximately $2.6 million associated with the stock-exchange agreement in the quarter that significantly reduced the Company’s derivative liability.
Net income was $4.2 million, or $0.03 per fully diluted share, compared to a net income of $1.7 million, or approximately $0.0 per diluted share in the year ago period.
Six Months 2008 Results
For the six months ended June 30, 2008, net revenue was $7.3 million, up 6.1% from $6.9 million in the comparable period of 2007. Gross profit for the six months ended June 30, 2008 was $2.1 million, a decrease from $3.7 million in the comparable period of 2007. The decrease was attributed to a significant increase in use of sub-contractors to deliver on the Company’s contract vehicles. Gross margin decreased to 29% in the six months ended June 30, 2008 from 54% in the six months ended June 30, 2007.Operating loss for the six months ended June 30, 2008 was $1.3 million, up from $74,210 in the comparable period in 2007. Net Income for the six months ended June 30, 2008 was $4.1 million, up from $235 thousand in the comparable period in 2007. Fully diluted earnings per share were $0.03 for the six months ended in June 30, 2008.
Recent Events
On June 30, 2008, Lattice entered into a stock exchange agreement (“Exchange Agreement”) with Barron Partners LP (“Barron”), pursuant to which, Barron agreed to the cancellation of certain unregistered warrants of the Company. This Exchange Agreement significantly improved the Company’s balance sheet by lowering derivative liabilities by approximately $4.1 million, provided a one-time gain on the extinguishment of approximately $2.6 million, and reduced fully diluted share count by approximately 20 million shares.
Conference Call
The Company will host a conference call at 5:00 p.m. ET on August 20, 2008, to discuss the second quarter 2008 results. Joining Paul Burgess, Lattice’s Chief Executive Officer, will be Joe Noto, Chief Financial Officer. To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: +1(866) 864-4336. The conference ID for the call is 61230338.
If you are unable to participate in the call at this time, a replay will be available on August 20, at 8:00 p.m. ET, thru August 25, 2008. To access the replay, dial +1(800)642-1687 international callers should dial +1(706)645-9291 and enter the conference ID 61230338.
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.
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.
- FINANCIAL TABLES FOLLOW -
LATTICE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | Six Months Ended June 30, | | Three Months Ended June 30, | |
| | | 2008 | | 2007 | | 2008 | | 2007 | |
| | | | | | | | | | |
| Revenue - Technology Services | | $ | 6,881,682 | | $ | 6,265,887 | | $ | 3,527,669 | | $ | 3,378,808 | |
| Revenue - Technology Products | | | 437,311 | | | 630,487 | | | 200,418 | | | 341,085 | |
| Total Revenue | | | 7,318,993 | | | 6,896,374 | | | 3,728,087 | | | 3,719,893 | |
| | | | | | | | | | | | | | |
| Cost of Revenue - Technology Services | | | 5,003,050 | | | 2,945,113 | | | 2,633,724 | | | 1,561,851 | |
| Cost of Revenue - Technology Products | | | 168,016 | | | 212,170 | | | 79,478 | | | 122,978 | |
| Total cost of revenue | | | 5,171,066 | | | 3,157,283 | | | 2,713,202 | | | 1,684,829 | |
| | | | | | | | | | | | | | |
| Gross Profit | | | 2,147,927 | | | 3,739,091 | | | 1,014,885 | | | 2,035,064 | |
| | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | |
| Selling, general and administrative | | | 2,547,727 | | | 2,567,147 | | | 1,436,837 | | | 1,438,424 | |
| Research and development | | | 217,657 | | | 205,298 | | | 109,172 | | | 96,257 | |
| Amortization expense | | | 744,114 | | | 1,040,856 | | | 372,057 | | | 520,428 | |
| Total operating expenses | | | 3,509,498 | | | 3,813,301 | | | 1,918,066 | | | 2,055,109 | |
| | | | | | | | | | | | | | |
| Loss from operations | | | (1,361,571 | ) | | (74,210 | ) | | (903,181 | ) | | (20,045 | ) |
| | | | | | | | | | | | | | |
| Other income (expense): | | | | | | | | | | | | | |
| Derivative income (expense) | | | 2,554,590 | | | 1,060,882 | | | 2,374,923 | | | 1,906,247 | |
| Extinguishment (gain) loss | | | 2,607,525 | | | (157,130 | ) | | 2,607,525 | | | - | |
| Interest expense | | | (81,446 | ) | | (479,002 | ) | | (30,625 | ) | | (93,198 | ) |
| Finance expense | | | (1,466 | ) | | (14,318 | ) | | (1,014 | ) | | (9,318 | ) |
| Total other income (expense) | | | 5,079,203 | | | 410,432 | | | 4,950,809 | | | 1,803,731 | |
| | | | | | | | | | | | | | |
| Minority Interest | | | 55,419 | | | (101,179 | ) | | 27,997 | | | (54,136 | ) |
| | | | | | | | | | | | | | |
| Income before taxes | | | 3,773,051 | | | 235,043 | | | 4,075,625 | | | 1,729,550 | |
| | | | | | | | | | | | | | |
| Income taxes benefit | | | (348,416 | ) | | - | | | (174,208 | ) | | - | |
| | | | | | | | | | | | | | |
| Net income | | $ | 4,121,467 | | $ | 235,043 | | $ | 4,249,833 | | $ | 1,729,550 | |
| | | | | | | | | | | | | | |
| Reconciliation of net income loss | | | | | | | | | | | | | |
| Income applicable to common shareholders: | | | | | | | | | | | | | |
| Net income | | $ | 4,121,467 | | $ | 235,043 | | $ | 4,249,833 | | $ | 1,729,550 | |
| Series B Preferred stock dividend | | | (25,000 | ) | | (25,000 | ) | | (12,500 | ) | | (12,500 | ) |
| Income applicable to common stockholders | | $ | 4,096,467 | | $ | 210,043 | | $ | 4,237,333 | | $ | 1,717,050 | |
| | | | | | | | | | | | | | |
| Income per common share | | | | | | | | | | | | | |
| Basic | | $ | 0.24 | | $ | 0.01 | | $ | 0.25 | | $ | 0.10 | |
| Diluted | | $ | 0.03 | | $ | (0.02 | ) | $ | 0.03 | | $ | - | |
| | | | | | | | | | | | | | |
| Weighted average shares: | | | | | | | | | | | | | |
| Basic | | | 16,829,428 | | | 16,642,428 | | | 16,829,428 | | | 16,642,428 | |
| Diluted | | | 56,250,208 | | | 64,230,056 | | | 54,403,291 | | | 64,230,056 | |
LATTICE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | June 30, | | December 31, | |
| | | 2008 | | 2007 | |
| | | (Unaudited) | | (Audited) | |
| ASSETS: | | | | | | | |
| Current assets: | | | | | | | |
| Cash and cash equivalents | | $ | 600,058 | | $ | 769,915 | |
| Accounts receivable, net | | | 3,680,606 | | | 3,839,744 | |
| Inventories | | | 56,708 | | | 65,846 | |
| Other current assets | | | 116,093 | | | 127,801 | |
| Total current assets | | | 4,453,465 | | | 4,803,306 | |
| | | | | | | | |
| Property and equipment, net | | | 52,784 | | | 27,530 | |
| Goodwill | | | 6,879,632 | | | 7,629,632 | |
| Other intangibles, net | | | 4,609,957 | | | 5,354,071 | |
| Other assetes | | | 44,795 | | | 118,623 | |
| Total assets | | $ | 16,040,633 | | $ | 17,933,162 | |
| | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | |
| Current liabilities: | | | | | | | |
| Accounts payable | | $ | 1,718,116 | | $ | 2,716,411 | |
| Accrued expenses | | | 1,772,512 | | | 1,252,916 | |
| Contigent liabilities | | | 900,000 | | | 1,500,000 | |
| Customer deposits | | | 15,000 | | | 15,000 | |
| Notes payable | | | 1,624,866 | | | 1,050,254 | |
| Derivative liability | | | 793,974 | | | 7,217,099 | |
| Total current liabilities | | | 6,824,468 | | | 13,751,680 | |
| | | | | | | | |
| Deferred tax liabilities | | | 2,313,538 | | | 2,661,954 | |
| Minority interest | | | 159,180 | | | 214,599 | |
| | | | | | | | |
| Shareholders' equity | | | | | | | |
| Preferred Stock - .01 par value 10,000,000 shares authorized, 8,838,686 issued and outstanding | | | 93,587 | | | 88,387 | |
| Common stock - .01 par value, 200,000,000 authorized, 16,842,428 issued, and 16,829,428 outstanding | | | 168,425 | | | 168,425 | |
| Additional paid-in capital | | | 38,166,752 | | | 36,854,901 | |
| Accumulated deficit | | | (31,287,484 | ) | | (35,408,951 | ) |
| | | | 7,141,280 | | | 1,702,762 | |
| Common stock held in treasury, at cost | | | (397,833 | ) | | (397,833 | ) |
| Shareholders' equity | | | 6,743,447 | | | 1,304,929 | |
| Total liabilities and shareholders' equity | | $ | 16,040,633 | | $ | 17,933,162 | |
LATTICE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | Six Months Ended June 30, | |
| | | 2008 | | 2007 | |
| | | | | | |
| Cash flow from operating activities: | | | | | | | |
| Net income before preferred dividends | | $ | 4,121,467 | | $ | 235,043 | |
| | | | | | | | |
| Adjustments to reconcile net loss to net used for operating activities: | | | | | | | |
| Derivative income | | | (2,554,590 | ) | | (1,060,882 | ) |
| Amortization of intangible assets | | | 744,114 | | | 1,040,856 | |
| Amortization of debt discount (effective method) | | | - | | | 205,809 | |
| Amortization of deferred financing | | | - | | | 127,525 | |
| Extinguishment loss | | | (2,607,525 | ) | | 157,130 | |
| Deferred income taxes | | | (348,416 | ) | | - | |
| Minority interest | | | (55,419 | ) | | 101,179 | |
| Share-based compensation | | | 56,041 | | | 122,880 | |
| Depreciation | | | 15,579 | | | 8,250 | |
| Changes in operating assets and liabilities: | | | | | | | |
| (Increase) decrease in: | | | | | | | |
| Accounts receivable | | | 159,138 | | | (1,559,695 | ) |
| Inventories | | | 9,138 | | | (21,887 | ) |
| Other current assets | | | 11,708 | | | 36,167 | |
| Other assets | | | 65,839 | | | 26,380 | |
| Increase (decrease) in: | | | | | | | |
| Accounts payable and accrued liabilities | | | (328,698 | ) | | 603,196 | |
| Deferred revenue | | | - | | | (62,495 | ) |
| Total adjustments | | | (4,833,091 | ) | | (275,587 | ) |
| Net cash used for operating activities | | | (711,624 | ) | | (40,544 | ) |
| Cash Used in investing activities: | | | | | | | |
| Purchase of equipment | | | (32,844 | ) | | - | |
| Net cash used for investing activities | | | (32,844 | ) | | - | |
| Cash flows from financing activities: | | | | | | | |
| Payments on notes payable | | | (84,500 | ) | | (68,000 | ) |
| Bank line-of-credit borrowings (payments), net | | | 659,111 | | | (11,557 | ) |
| Net cash provided by (used for) by financing activities | | | 574,611 | | | (79,557 | ) |
| Net decrease in cash and cash equivalents | | | (169,857 | ) | | (120,101 | ) |
| Cash and cash equivalents - beginning of period | | | 769,915 | | | 392,275 | |
| Cash and cash equivalents - end of period | | $ | 600,058 | | $ | 272,174 | |
| | | | | | | | |
| Supplemental cash flow information Interest paid in cash | | $ | 56,194 | | $ | 215,685 | |
| Supplemental disclosures of Non-Cash Investing & Financing Activities Goodwill | | | (750,000 | ) | | - | |
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