**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549




**FORM
      10-Q**




(Mark
      One)




**x QUARTERLY
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE** **ACT
      OF 1934**




**FOR
      THE QUARTERLY PERIOD ENDED MARCH 31, 2008.**




*COMMISSION
      FILE NUMBER 000-10690*




**LATTICE
      INCORPORATED**


(Exact
      Name of Registrant as Specified in its Charter)





Delaware
            
            22-2011859(State or other jurisdiction of
            
            (I.R.S. Employerincorporation or organization)
            
            Identification No.)7150 N. Park Drive, Pennsauken, New Jersey
            
            08109(Address of principal executive offices)
            
            (Zip code)




Issuer's telephone number: (856)
      910-1166




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 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 xNo o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.




Large
                accelerated filero
            Accelerated
                fileroNon-accelerated
                filero
            Smaller
                reporting company x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes oNo
x




**APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS**


**DURING
      THE PRECEDING FIVE YEARS**




Indicate
      by check mark 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 oNo o




**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: As of May 19, 2008, there were 16,817,370
      outstanding shares of the Registrant's Common Stock, $.01 par
      value.








**LATTICE
      INCORPORATED**


**MARCH
      31, 2008 QUARTERLY REPORT ON FORM 10-Q**




**TABLE
      OF CONTENTS**


**Page****PART
                I - FINANCIAL INFORMATION**Item
                1. Financial Statements
            2Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            10Item
                3. Quantitative and Qualitative Disclosures About Market
                Risk
            15Item 4. Controls
              and
              Procedures
            15**PART
                II - OTHER INFORMATION**Item
                1. Legal Proceedings
            16Item
                1A. Risk Factors
            16Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            16Item
                3. Defaults Upon Senior Securities
            16Item
                4. Submission of Matters to a Vote of Security Holders
            16Item
                5. Other Information
            16Item
                6. Exhibits
            16**SIGNATURES**


1


**LATTICE
                INCORPORATED AND SUBSIDIARIES****CONSOLIDATED
                BALANCE SHEETS**




**March
                  31,**
              
              **December
                  31,****2008**
              
              **2007****(Unaudited)**
              
              **(Audited)**ASSETS:Current
                  assets:Cash
                  and cash equivalents
              
              $
              1,068,177
              
              $
              769,915Accounts
                  receivable, net
              
              
              2,989,094
              
              
              3,839,744Inventories
              
              
              65,846
              
              
              65,846Other
                  current assets
              
              
              86,080
              
              
              127,801Total
                  current assets
              
              
              4,209,197
              
              
              4,803,306Property
                  and equipmen, net
              
              
              40,448
              
              
              27,530Goodwill
              
              
              7,629,632
              
              
              7,629,632Other
                  intangibles, net
              
              
              4,982,014
              
              
              5,354,071Other
                  assetes
              
              
              101,099
              
              
              118,623Total
                  assets
              
              $
              16,962,390
              
              $
              17,933,162LIABILITIES
                  AND SHAREHOLDERS' EQUITYCurrent
                  liabilities:Accounts
                  payable
              
              $
              1,353,307
              
              $
              2,716,411Accrued
                  expenses
              
              
              1,571,170
              
              
              1,252,916Due
                  to former "RTI" Stockholder's
              
              
              1,500,000
              
              
              1,500,000Customer
                  deposits
              
              
              15,000
              
              
              15,000Deferred
                  revenue
              
              
              15,000
              
              
              -Notes
                  payable
              
              
              1,621,662
              
              
              1,050,254Derivative
                  liability
              
              
              7,037,432
              
              
              7,217,099Total
                  current liabilities
              
              
              13,113,571
              
              
              13,751,680Deferred
                  tax liabilities
              
              
              2,487,746
              
              
              2,661,954Minority
                  interest
              
              
              187,177
              
              
              214,599Shareholders'
                  equity Preferred Stock - .01 par value
              
              
              88,387
              
              
              88,38710,000,000
                  shares authorized, 8,838,686 issued and outstanding Common stock
                  - .01 par
                  value, 200,000,000 authorized,
              
              
              168,425
              
              
              168,42516,842,428
                  issued, and 16,829,428 outstanding Additional paid-in
                  capital
              
              
              36,864,734
              
              
              36,854,901Accumulated
                  deficit
              
              
              (35,549,817
              )
              
              (35,408,951
              )1,571,729
              
              
              1,702,762Common
                  stock held in treasury, at cost
              
              
              (397,833
              )
              
              (397,833
              )Shareholders'
                  equity
              
              
              1,173,896
              
              
              1,304,929Total
                  liabilities and shareholders' equity
              
              $
              16,962,390
              
              $
              17,933,162





See
      accompanying notes to the consolidated financial statements.


2





**LATTICE
                INCORPORATED AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF OPERATIONS****(UNAUDITED)**




**Three
                  Months Ended March 31,****2008**
              
              **2007**Revenue
                  - Technology Services
              
              $
              3,354,013
              
              $
              2,887,079Revenue
                  - Technology Products
              
              
              236,893
              
              
              289,402Total
                  Revenue
              
              
              3,590,906
              
              
              3,176,481Cost
                  of Revenue - Technology Services
              
              
              2,369,326
              
              
              1,383,262Cost
                  of Revenue - Technology Products
              
              
              88,538
              
              
              89,192Total
                  cost of revenue
              
              
              2,457,864
              
              
              1,472,454Gross
                  Profit
              
              
              1,133,042
              
              
              1,704,027Operating
                  expenses:Selling,
                  general and administrative
              
              
              1,069,640
              
              
              1,128,724Research
                  and development
              
              
              149,735
              
              
              109,041Amortization
                  expense
              
              
              372,057
              
              
              520,428Total
                  operating expenses
              
              
              1,591,432
              
              
              1,758,193Income
                  (Loss) from operations
              
              
              (458,390
              )
              
              (54,166
              )Other
                  income (expense):Derivative
                  income (expense)
              
              
              179,667
              
              
              (845,365
              )Extinguishment
                  loss
              
              
              -
              
              
              (157,130
              )Interest
                  expense
              
              
              (50,821
              )
              
              (385,803
              )Finance
                  expense
              
              
              (452
              )
              
              (5,000
              )Total
                  other income (expense)
              
              
              128,394
              
              
              (1,393,298
              )Minority
                  Interest
              
              
              27,422
              
              
              (47,043
              )Loss
                  before taxes
              
              
              (302,574
              )
              
              (1,494,507
              )Income
                  taxes benefit
              
              
              (174,208
              )
              
              -Net
                  loss
              
              $
              (128,366
              )
              $
              (1,494,507
              )Reconciliation
                  of net income loss income applicable to common
                  shareholders:Net
                  loss
              
              $
              (128,366
              )
              $
              (1,494,507
              )Series
                  B Preferred stock dividend
              
              
              (12,500
              )
              
              (12,500
              )Loss
                  applicable to common stockholders
              
              $
              (140,866
              )
              $
              (1,507,007
              )Loss
                  per common shareBasic
              
              $
              (0.01
              )
              $
              (0.09
              )Diluted
              
              $
              (0.01
              )
              $
              (0.09
              )Weighted
                  average shares:Basic
              
              
              16,828,428
              
              
              16,629,848Diluted
              
              
              16,828,428
              
              
              16,629,848





See
      accompanying notes to the consolidated financial statements.




3





**LATTICE
                INCORPORATED AND SUBSIDIARIES****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****(UNAUDITED)**





**Three Months Ended March 31,****2008**
            
            **2007**Cash
                flow from operating activities:Net
                loss before preferred dividends
            
            $
            (128,366
            )
            $
            (1,494,507
            )Adjustments
                to reconcile net loss to net used for provided by operating
                activities:Derivative
                (income) expense
            
            
            (179,667
            )
            
            845,365Amortization
                of intangible assets
            
            
            372,057
            
            
            520,428Amortization
                of debt discount (effective method)
            
            
            -
            
            
            205,809Amortization
                of deferred financing
            
            
            -
            
            
            118,207Deferred
                income taxes
            
            
            (174,208
            )Minority
                interest
            
            
            (27,422
            )
            
            47,043Preferred
                stock dividend
            
            
            
            
            
            -Share-based
                compensation
            
            
            9,833
            
            
            61,440Depreciation
            
            
            3,676
            
            
            4,125Changes
                in operating assets and liabilities:(Increase)
                decrease in:Accounts
                receivable
            
            
            850,650
            
            
            (675,389
            )Inventories
            
            
            -
            
            
            (1,232
            )Other
                current assets
            
            
            41,721
            
            
            8,090Other
                assets
            
            
            17,524
            
            
            26,235Increase
                (decrease) in:Accounts
                payable and accrued liabilities
            
            
            (1,057,349
            )
            
            180,911Deferred
                revenue
            
            
            15,000
            
            
            (28,621
            )Total
                adjustments
            
            
            (128,185
            )
            
            1,312,411Net
                cash used for operating activities
            
            
            (256,551
            )
            
            (182,096
            )Cash
                Used in investing activities:Purchase
                of equipment
            
            
            (16,594
            )
            
            -Net
                cash used for investing activities
            
            
            (16,594
            )
            
            -Cash
                flows from financing activities:Payments
                on notes payable
            
            
            (66,000
            )
            
            (45,000
            )Bank
                line-of-credit (payments) borrowings, net
            
            
            637,407
            
            
            (81,570
            )Net
                cash provided by (used for) by financing activities
            
            
            571,407
            
            
            (126,570
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            298,262
            
            
            (308,666
            )Cash
                and cash equivalents - beginning of period
            
            
            769,915
            
            
            392,275Cash
                and cash equivalents - end of period
            
            $
            1,068,177
            
            $
            83,609Supplemental
                cash flow informationInterest
                paid in cash
            
            $
            19,302
            
            $
            40,315Preferred
                stock dividend
            
            $
            12,500
            
            $
            12,500





See
      accompanying notes to the consolidated financial statements.


4


**LATTICE
      INCORPORATED AND SUBSIDIARIES**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      1- Organization and summary of significant accounting
      policies:**





**a)
      Organization:**





Lattice
      Incorporated (the "Company") was incorporated in the State of Delaware in May
      1973 and commenced operations in July 1977. The Company began as a provider
      of
      specialized solutions to the telecom industry. Throughout its history Lattice
      has adapted to the changes in this industry by reinventing itself to be more
      responsive and open to the dynamic pace of change experienced in the broader
      converged communications industry of today. Currently Lattice provides advanced
      solutions for several vertical markets. The greatest change in operations is
      in
      the shift from being a component manufacturer to a service provider which
      includes developing software applications for clients based on its core platform
      technology. To further its strategy of becoming a service provider, the Company
      acquired a majority interest in Systems Management Engineering, Inc, (“SMEI”) in
      February 2005 and purchased all of the issued and outstanding common shares
      of
      Ricciardi Technologies Inc. “(RTI”) in September 2006. .RTI was founded in 1992
      and provides software consulting and development services for the command and
      control of biological sensors and other Department of Defense requirements
      to
      United States federal governmental agencies either directly or though prime
      contractors of such governmental agencies. RTI’s proprietary products include
      SensorView, which provides clients with the capability to command, control
      and
      monitor multiple distributed chemical, biological, nuclear, explosive and
      hazardous material sensors. With the SMEI and the RTI acquisitions,
      approximately 93% of the Company’s revenues are derived from solution services.
      In January 2007, we changed our name from Science Dynamics Corporation to
      Lattice Incorporated.





**b)
      Basis of Presentation:**





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with generally accepted accounting principles for interim
      financial information and with the instructions to Item 310 of Regulation S-B.
      Accordingly; they do not include all of the information and footnotes required
      by generally accepted accounting principles for complete financial statements.
      For further information, refer to the financial statements and footnotes thereto
      included in the Company's annual report for Form 10-KSB for the year ended
      December 31, 2007. In the opinion of management, all adjustments (consisting
      of
      normal recurring accruals) considered necessary for a fair presentation have
      been included. Operating results for the three month period ended March 31,
      2008
      are not necessarily indicative of the results that may be expected for the
      year
      ended December 31, 2008.





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the satisfaction of liabilities
      in the normal course of business. The Company has a working capital deficiency
      of $8,904,370 including non-cash derivative liabilities of $7,037,432. During
      2007 the Company recorded a liability of $1,500,000 in connection with an
      earn-out provision of its securities purchase agreement with the former owners
      of RTI. The Company does not have sufficient working capital to settle this
      obligation coming due on May 31, 2008. Accordingly, this condition raises doubt
      regarding the Company’s ability to continue as a going concern. The Company’s
      ability to continue as a going concern is dependent upon its ability to obtain
      adequate financing to satisfy this obligation.





**c)
      Principles of consolidation** :





The
      consolidated financial statements included the accounts of the Company and
      all
      of its subsidiaries in which a controlling interest is maintained. All
      significant inter-company accounts and transactions have been eliminated in
      consolidation. For those consolidated subsidiaries where Company ownership
      is
      less than 100%, the outside stockholders' interests are shown as minority
      interests. Investments in affiliates over which the Company has significant
      influence, but not a controlling interest are carried on the equity
      basis.





**d)
      Use of estimates** :





The
      preparation of these financial statements in accordance with accounting
      principles generally accepted in the United States of America (US GAAP) requires
      management to make estimates and assumptions that affect the reported amounts
      in
      the financial statements and accompanying notes. These estimates form the basis
      for judgments made about the carrying values of assets and liabilities that
      are
      not readily apparent from other sources. Estimates and judgments are based
      on
      historical experience and on various other assumptions that the Company believes
      are reasonable under the circumstances. However, future events are subject
      to
      change and the best estimates and judgments routinely require adjustment. US
      GAAP requires estimates and judgments in several areas, including those related
      to impairment of goodwill and equity investments, revenue recognition,
      recoverability of inventory and receivables, the useful lives of long lived
      assets such as property and equipment, the future realization of deferred income
      tax benefits and the recording of various accruals. The ultimate outcome and
      actual results could differ from the estimates and assumptions used.


5





**e)**  **Revenue
      Recognition**:





Revenue
      is recognized when all significant contractual obligations have been satisfied
      and collection of the resulting receivable is reasonably assured. Revenue from
      product sales is recognized when the goods are shipped and title passes to
      the
      customer.





The
      company applies the guidance of SOP-97-2 with regards to its software products
      sold under its Technology Products segment. Under this guidance, the Company
      determined that its product sales do not contain multiple deliverables for
      an
      extended period beyond delivery where bifurcation of multiple elements is
      necessary. The software is embedded in the products sold and shipped. Revenue
      is
      recognized upon delivery, installation and acceptance by the customer. PCS
      (post-contract support) and upgrades are billed separately and when rendered
      or
      delivered and not contained in the original arrangement with the customer.
      Installation services are included with the original customer arrangement but
      are rendered at the time of delivery of the product and invoicing.




In
      our
      Technology Services segment, our revenues are derived from IT and business
      process outsourcing services under cost-plus, time-and-material, and fixed-price
      contracts, which may extend up to 5 years. For fixed-price contracts, revenues
      are generally recorded as delivery is made. For time-and-material contracts,
      revenues are computed by multiplying the number of direct labor-hours expended
      in the performance of the contract by the contract billing rates and adding
      other billable direct costs. Under cost-plus contracts, revenues are recognized
      as costs are incurred and include an estimate of applicable fees earned.
      Services provided over the term of these arrangements may include, network
      engineering, architectural guidance, database management, expert programming
      and
      functional area expert analysis   Revenue is generally recognized when the
      product or service is provided and the amount earned is not contingent upon
      any
      further event.




Our
      fixed
      price contracts are primarily based on unit pricing (labor hours) or level
      of
      effort As such, the Company recognizes revenue for the number of units delivered
      in any given fiscal period. Accordingly, these contracts do not fall within
      the
      scope of SOP 81-1, *Accounting
      for Performance of Construction-Type and Certain Production-Type
      Contracts* , where
      revenue is recognized on the percentage-of-completion method using costs
      incurred in relation to total estimated costs.





**f)
      Share-based payments:**





On
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      Financial Accounting Standards Board Statement of Financial Accounting Standards
      (“SFAS”) No. 123(R), *Accounting
      for Share-based payments* , to
      account for compensation costs under its stock option plans and other
      share-based arrangements. Prior to January 1, 2006, the Company utilized the
      intrinsic value method under Accounting Principles Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* .
      Statement 123R requires all share-based payments to employees, including grants
      of employee stock options, to be recognized in the financial statements based
      on
      their fair values. For purposes of estimating fair value of stock options,
      we
      use the Black-Scholes-Merton valuation technique. For the three months ended
      March 31, 2008 and 2007, share-based payment expense was $9,833 and $61,440,
      respectively. As of March 31, 2008, there was approximately $118,000 of total
      unrecognized compensation cost related to unvested share-based compensation
      awards granted under the equity compensation plans, which does not include
      the
      effect of future grants of equity compensation, if any. The $118,000 will be
      charged to operations over the weighted average remaining service period of
      two
      years.





**g)
      Derivative financial instruments and registration payment
      arrangements:**





Derivative
      financial instruments, as defined in Financial Accounting Standard No. 133, *Accounting
      for Derivative Financial Instruments and Hedging Activities* (“FAS
      133”), consist of financial instruments or other contracts that contain a
      notional amount and one or more underlying (e.g. interest rate, security price
      or other variable), require no initial net investment and permit net settlement.
      Derivative financial instruments may be free-standing or embedded in other
      financial instruments. Further, derivative financial instruments are initially,
      and subsequently, measured at fair value and recorded as liabilities or, in
      rare
      instances, assets. The Company generally does not use derivative financial Company’s
      own stock. These contracts require careful evaluation to determine whether
      derivative features embedded in host contracts require bifurcation and fair
      value measurement or, in the case of freestanding derivatives (principally
      warrants) whether certain conditions for equity classification
      has been achieved. In instances where derivative financial instruments require
      liability classification, the Company is required to initially
      and subsequently measure such instruments at fair value. Accordingly, the
      Company adjusts the fair value of these derivative components at each reporting
      period through a charge to income until such time as the instruments acquire
      classification in stockholders’ equity. See Note 5 for additional
      information.


6





As
      previously stated, derivative financial instruments are initially recorded
      at
      fair value and subsequently adjusted to fair value at the close of each
      reporting period. The Company estimates fair values of derivative financial
      instruments using various techniques (and combinations thereof) that are
      considered to be consistent with the objective measuring fair values. In
      selecting the appropriate technique, management considers, among other factors,
      the nature of the instrument, the market risks that it embodies and the expected
      means of settlement. For less complex derivative instruments, such as
      free-standing warrants, the Company generally uses the Black-Scholes-Merton
      option valuation technique because it embodies all of the requisite assumptions
      (including trading volatility, dividend yield, estimated terms and risk free
      rates) necessary to fair value these instruments. For complex derivative
      instruments, such as embedded conversion options, the Company generally uses
      the
      Flexible Monte Carlo valuation technique because it embodies all of the
      requisite assumptions (including credit risk, interest-rate risk and
      exercise/conversion behaviors) that are necessary to fair value these more
      complex instruments. For forward contracts that contingently require net-cash
      settlement as the principal means of settlement, the Company projects and
      discounts future cash flows applying probability-weightage to multiple possible
      outcomes. Estimating fair values of derivative financial instruments requires
      the development of significant and subjective estimates that may, and are likely
      to, change over the duration of the instrument with related changes in internal
      and external market factors. In addition, option-based techniques are highly
      volatile and sensitive to changes in the trading market price of our common
      stock, which has a high-historical volatility. Since derivative financial
      instruments are initially and subsequently carried at fair values, our income
      (loss) will reflect the volatility in these estimate and assumption
      changes.





h)  Fair
      Value of Financial Instruments





On
      January 1, 2008, the Company adopted SFAS No. 157. SFAS No. 157, Fair Value
      Measurements, defines fair value, establishes a three-level valuation hierarchy
      for disclosures of fair value measurement and enhances disclosures requirements
      for fair value measures. The carrying amounts reported in the balance sheets
      for
      current assets and current liabilities qualified as financial instruments are
      a
      reasonable estimate of fair value because of the short period of time between
      the origination of such instruments and their expected realization and their
      current market rate of interest. The three levels are defined as
      follow:





·
            Level
                1 — inputs to the valuation methodology are quoted prices (unadjusted)
                for
                identical assets or liabilities in active
                markets.





·
            Level
                2 — inputs to the valuation methodology include quoted prices for similar
                assets and liabilities in active markets, and inputs that are observable
                for the assets or liability, either directly or indirectly, for
                substantially the full term of the financial
                instruments.





·
            Level
                3 — inputs to the valuation methodology are unobservable and significant
                to the fair value.





As
      of
      March 31, 2008 and December 31, 2007, the derivative liabilities amounted to
      $7,037,432 and $7,217,099, respectively. In accordance with SFAS 157, the
      Company determined that the carrying value of these derivatives approximated
      the
      fair value using the level 1 inputs.





**Note
      2- Contingent Consideration due former “RTI” owners:**





During
      2007, the Company recorded a liability of $1,500,000 related to an additional
      contingent purchase consideration (earn-out) payable to the former RTI
      stockholders upon the attainment of certain “EBITDA” thresholds. The liability
      amount of $1,500,000 was recorded as an increase in goodwill. The computation
      of
      the EBITDA was calculated as defined in the September 2006 “RTI” purchase
      agreement. The payment is payable in May 2008 per the agreement.





**Note
      3- Segment reporting:**





Management
      views its business as two operating units, Technology Products and Technology
      Services.




Three Months
              Ended
            
            Three Months
              EndedMarch 31, 2008
            
            March 31, 2007RevenueTechnology
                Products
            
            $
            236,893
            
            $
            289,402Technology
                Services
            
            
            3,354,013
            
            
            2,887,079Total
                Consolidated Revenue
            
            $
            3,590,906
            
            $
            3,176,481Gross
                ProfitTechnology
                Products
            
            $
            148,355
            
            $
            200,210Technology
                Services
            
            
            984,687
            
            
            1,503,817Total
                Gross Profit
            
            $
            1,133,042
            
            $
            1,704,027





Total
                Assets
            
            March 31, 2008Technology
                Products Assets
            
            $
            1,051,430Technology
                Services Assets
            
            
            15,910,960Total
                Consolidated Assets
            
            $
            16,962,390


7





**Note 4
      - Notes payable**





Notes
      payable consists of the following as of March 31, 2008:





2008
            
            2007Bank
                line-of-credit**(a)**
            
            $
            1,377,662
            
            $
            740,254Notes
                payable to Stockholders/Officers**(b)**
            
            
            244,000
            
            
            310,000Total
                notes payable
            
            
            1,621,662
            
            
            1,050,254Less
                current maturities
            
            
            (1,621,662
            )
            
            1,050,254Long-term
                debt
            
            $
            -
            
            $
            -





**(a)
      Bank line-of-credit:**




On
      March
      7, 2008, Lattice Incorporated (the “Company”) entered into a Loan and Security
      Agreement (the “Loan Agreement”) with the Private Bank of Peninsula (“Private
      Bank”) pursuant to which Private Bank agreed to extend a line of credit of up to
      $4.0 million to the Company. Pursuant to the Loan Agreement, the Company can
      request advances on the line-of-credit, which in the aggregate cannot exceed
      85%
      of the Company’s eligible accounts receivable. The line-of-credit bears interest
      at 3% above the Prime Rate (8.25% at March 31, 2008. The outstanding balance
      at
      March 31, 2008 was $1,377,662.





Upon
      execution of the new line-of-credit the Company paid the balance of $538,913
      on
      their former revolving line-of-credit.





**(b)
      Notes payable stockholders/officers:**




At
      March
      31, 2008 the Company has a short-term loan payable to a former officer and
      stockholder of the Company totaling $19,000. This note bears interest of 8.0%
      per annum. The note is an unsecured demand note.





At
      March
      31, 2008 the Company has a short term note payable of $225,000 with a director
      of the Company. The note bears interest at 20% per annum and is payable monthly
      at $12,500 from February 2008 to April 2008, than $32,812 until paid in
      full.




**Note
      5 - Derivative financial instruments:**





The
      balance sheet caption derivative liabilities consist of (i) embedded conversion
      features and (ii) the Warrants, issued in connection with the 2005 Laurus
      Financing Arrangement, the 2006 Omnibus Amendment and Waiver Agreement with
      Laurus, and the 2006 Barron Financing Arrangement. These derivative financial
      instruments are indexed to an aggregate of 40,483,333 shares of the Company’s
      common stock as of March 31, 2008 and December 31, 2007, respectively, and
      are
      carried at fair value. The following tabular presentations set forth information
      about the derivative instruments as of March 31, 2008 and December 31,
      2007:


8




Derivative
                income (expense)
            
            Three months
              ended
              March 31, 2008
            
            Three months
              ended
              March 31, 2007Conversion
                features
            
            $
            -
            
            
            (467,120
            )Warrant
                derivative
            
            $
            179,667
            
            
            (378,245
            )





Liabilities
            
            March 31, 2008
            
            December 31,
              2007Compound
                derivative
            
            $
            -
            
            
            -Warrant
                derivative
            
            $
            (7,037,432
            )
            
            (7,217,099
            )








The
      valuation of the derivative warrant liabilities is determined using Level 1
      inputs in a Black Scholes Merton Model. Freestanding derivative instruments,
      consisting of warrants and options that arose from the Laurus and Barron
      financing are valued using the Black-Scholes-Merton valuation methodology
      because that model embodies all of the relevant assumptions that address the
      features underlying these instruments. Significant assumptions used in the
      Black
      Scholes models as of March 31, 2008 included conversion or strike prices ranging
      from $0.1 - $1.10; volatility factors ranging from 114.52% - 132.79% based
      upon
      forward terms of instruments; terms-remaining term for all instruments; and
      a
      risk free rate ranging from 2.46% - 3.88%.





Embedded
      derivative instruments consist of multiple individual features that were
      embedded in the convertible debt instruments. The Company evaluated all
      significant features of the hybrid instruments and, where required under current
      accounting standards, bifurcated features for separate report classification.
      These features were, as attributable to each convertible note, aggregated into
      one compound derivative financial instrument for financial reporting purposes.
      The compound embedded derivative instruments were valued using the Flexible
      Monte Carlo methodology because that model embodies certain relevant assumptions
      (including, but not limited to, interest rate risk, credit risk, and
      Company-controlled redemption privileges) that are necessary to value these
      complex derivatives.  Since the conversion feature no longer required
      bifurcation as of February 2, 2007, there was no compound derivative recorded
      as
      of March 31, 2008. There expense recorded in the three months ended March 31,
      2007 related to the fair value adjustments on the embedded derivative instrument
      from the period from January 1, 2007 through February 2, 2007.


9


**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**




The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with our consolidated financial
      statements and related notes included elsewhere in this report. References
      in
      this section to "Lattice Inc." the "Company," "we," "us," and "our" refer to
      Lattice Incorporated and our direct and indirect subsidiaries on a consolidated
      basis unless the context indicates otherwise.




This
      quarterly report may contain forward looking statements relating to our
      Company's future economic performance, plans and objectives of management for
      future operations, projections of revenue mix and other financial items that
      are
      based on the beliefs of, as well as assumptions made by and information
      currently known to, our management. The words "expects, intends, believes,
      anticipates, may, could, should" and similar expressions and variations thereof
      are intended to identify forward-looking statements. The cautionary statements
      set forth in this section are intended to emphasize that actual results may
      differ materially from those contained in any forward looking
      statement.





The
      following discussion and analysis should be read in conjunction with the
      consolidated financial statements, included herewith. This discussion should
      not
      be construed to imply that the results discussed herein will necessarily
      continue into the future, or that any conclusion reached herein will necessarily
      be indicative of actual operating results in the future. Such discussion
      represents only the best present assessment of our management.




**GENERAL
      OVERVIEW**





Lattice
      Incorporated was incorporated in the State of Delaware in May 1973 and commenced
      operations in July 1977. We have been developing and delivering secure
      technologically advanced communication solutions for over twenty-five years
      and
      recently expanded our product offering to include IT service solutions with
      the
      acquisition of 86% of Systems Management Engineering, Inc. ("SMEI") on February
      14, 2005. In September 2006, pursuant to a Stock Purchase Agreement, dated
      as of
      September 12, 2006 (the "RTI Agreement"), the Company purchased all of the
      issued and outstanding shares of the common stock of Ricciardi Technologies
      Inc.
      ("RTI"). RTI was founded in 1992 and provides software consulting and
      development services for the command and control of biological sensors and
      other
      Department of Defense requirements to United States federal governmental
      agencies either directly or though prime contractors of such governmental
      agencies RTI's proprietary products include SensorView, which provides clients
      with the capability to command, control and monitor multiple distributed
      chemical, biological, nuclear, explosive and hazardous material sensors. RTI
      is
      headquartered in Manassas, Virginia. The purchase of RTI's common stock was
      completed on September 19, 2006.




We
      intend
      to continue the expansion of our sales efforts both within the federal
      government secure software solutions space and commercial accounts. We continue
      to build upon our recent success in these markets by expanding our marketing
      efforts through our direct sales strategy. Our strong contract backlog has
      given
      us an opportunity to expand our existing revenue base. With regards to our
      acquisition strategy, we will continue to pursue profitable companies with
      proprietary products and services we can sell to our existing customers and
      which have synergies with our existing business.





The
      information in this report contains forward-looking statements within the
      meaning of the Private Securities Litigation Reform Act of 1995. This Act
      provides a "safe harbor" for forward-looking statements to encourage companies
      to provide prospective information about themselves so long as they identify
      these statements as forward looking and provide meaningful cautionary statements
      identifying important factors that could cause actual results to differ from
      the
      projected results. All statements other than statements of historical fact
      made
      in this report are forward looking. In particular, the statements herein
      regarding industry prospects and future results of operations or financial
      position are forward-looking statements. Forward-looking statements reflect
      management's current expectations and are inherently uncertain. Our actual
      results may differ significantly from management's expectations.





The
      following discussion and analysis should be read in conjunction with the
      financial statements and notes thereto included elsewhere in this report and
      with our annual report on Form 10-KSB for the fiscal year ended December 31,
      2007. This discussion should not be construed to imply that the results
      discussed herein will necessarily continue into the future, or that any
      conclusion reached herein will necessarily be indicative of actual operating
      results in the future. Such discussion represents only the best present
      assessment of our management.





**RESULTS
      OF OPERATIONS**





THREE
      MONTHS ENDED MARCH 31, 2008 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
      2007




REVENUES:





Total
      revenues for the three months ended March 31, 2008 increased by $414,425or
      13%
      to $3,590,906 compared to $3,176,481 for the three months ended March 31, 2007.
      Our Technology Services segment which represents revenues from professional
      engineering services to Federal government Dept of Defense (DoD) agencies
      accounted for 93% of total revenues. Compared to prior year, our revenues this
      quarter were negatively impacted by delays in follow-on task orders from some
      of
      our existing government client agencies as discussed in our 10K 2007 filing.
      The
      revenue decline attributable to these delays were favorably offset by revenues
      on our Seaport-e (JPM-IS) contract awarded to our RTI subsidiary in July 2007.
      We have recently (May 2008) been awarded a follow-on task order on our Armed
      Forces Medical Intelligence Center (AFMIC) contract vehicle and anticipate
      follow-on awards with other client agencies.


10





GROSS
      MARGIN:





Gross
      margin for the three months ended March 31, 2008 was $1,133,042, a decrease
      of
      $570,985 or 34% compared to the $1,704,027 for three months ended March 31,
      2007. Our gross margin, as a percentage of revenues, decreased to 32% from
      54%
      for the same period in 2007. The decrease in percentage was mainly due to a
      higher component of our costs of sales attributable to an increased use of
      subcontractors in support of our government contracts, primarily the JPM-IS
      Seaport-e contract a material contract awarded in July 2007.





RESEARCH
      AND DEVELOPMENT EXPENSES:





Research
      and development expenses consist primarily of salaries and related personnel
      costs, and consulting fees associated with product development in our Technology
      Products segment.





For
      the
      three months ended March 31, 2008, research and development expenses increased
      to $149,735 as compared to $109,041 for the three months ended March 31,
      2007.





Management
      believes that continual enhancements of the Company's existing products are
      required to enable the Company to maintain its current competitive
      position.


SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES:





Selling,
      General and administrative ("SG&A") expenses consist primarily of expenses
      for management, finance, administrative personnel, legal, accounting, consulting
      fees, sales commissions, marketing, facilities costs, corporate overhead and
      depreciation expense. For the three months ended March 31, 2008 SG&A
      expenses decreased to $1,069,640 from $1,128,724 in the comparable period prior
      year. As a percentage of revenues, SGA was 29.8% for the current quarter ended
      March 31, 2008 versus 35.5% in the comparable period a year ago.





AMORTIZATION
      EXPENSES:





Non-cash
      amortization expenses related to intangible assets acquired in the acquisitions
      of RTI and SMEI are stated separately in our statement of operations.
      Amortization expense for the three months ended March 31, 2008 was $372,057
      compared to $520,428 in the year ago period.




INTEREST
      EXPENSE:





Interest
      Expense decreased to $50,821 for the three months ended March 31, 2008 compared
      to $385,803 for the three months ended March 31, 2007. Interest expense
      decreased in 2008 due to the conversion of the $4,500,000 convertible note
      in
      February 2007, and payment of short term debt in 2007 of approximately $900,000.
      Interest expense for the 1 st quarter
      2008 was comprised mainly of the interest charges on the Company’s revolving
      line-of-credit and short term notes.





DERIVATIVE
      INCOME (EXPENSE):





The
      following table is derived from Note 5 in the accompanying financial
      statements.





Three months
              ended
              March 31, 2008
            
            Three months
              ended
              March 31, 2007Derivative income
                (expense)Conversion
                features
            
            $
            -
            
            $
            (467,120
            )Warrant
                derivative
            
            $
            179,667
            
            $
            (378,245
            )


11


As
      provided in the discussion of the Company’s accounting policies in Note 1,
      derivative financial instruments are recorded initially and subsequently at
      fair
      value. The Company estimates fair values of derivative financial instruments
      using various techniques (and combinations thereof) that are considered to
      be
      consistent with the objective measuring of fair values. In selecting the
      appropriate technique, management considers, among other factors, the nature
      of
      the instrument, the market risks that it embodies and the expected means of
      settlement. For less complex derivative instruments, such as free-standing
      warrants, the Company generally uses the Black-Scholes-Merton option valuation
      technique because it embodies all of the requisite assumptions (including
      trading volatility, estimated terms and risk free rates) necessary to fair
      value
      these instruments. For complex derivative instruments, such as embedded
      conversion options, the Company generally uses the Flexible Monte
      Carlo valuation technique because it embodies all of the requisite assumptions
      (including credit risk, interest-rate risk and exercise/conversion behaviors)
      that are necessary to fair value these more complex instruments. For forward
      contracts that contingently require net-cash settlement as the principal means
      of settlement, the Company projects and discounts future cash flows applying
      probability-weight age to multiple possible outcomes. Estimating fair values
      of
      derivative financial instruments requires the development of significant and
      subjective estimates that may, and are likely to change over the duration of
      the
      instrument with related changes in internal and external market factors. In
      addition, option-based techniques are highly volatile and sensitive to changes
      in the trading market price of our common stock, which has a high-historical
      volatility. Since derivative financial instruments are initially and
      subsequently carried at fair values, the Company’s income (loss) will reflect
      the volatility in these estimates and assumption changes.




It
      should
      be noted that during February 2007, the Company was able to reclassify the
      conversion feature in the above table to stockholders’ equity. Accordingly, no
      further fair value adjustments will arise from this feature. However, the
      warrants continue to require liability classification and fair value
      measurement. As noted in the preceding paragraph, the effects on our future
      income will be affected, possibly significantly, by the changes in the
      assumptions underlying our valuation techniques.





NET
      LOSS:





The
      Company's net loss for the three months ended March 31, 2008 was $($128,366)
      compared to a net loss of ($1,494,507) for the three months ended March 31,
      2007. Net income (loss) is influenced by the matters discussed in the other
      sections of this MD&A. However, it should be noted that the net loss in the
      current quarter included a non-cash derivative gain of $179,667 and an income
      tax benefit of $174,208 related to the carrying value of deferred tax
      liabilities.





LOSS
      APPLICABLE TO COMMON STOCKHOLDERS:





Loss
      applicable to common stock gives effect to cumulative undeclared dividends
      on
      the Company’s Series B Preferred Stock amounting to $12,500 and $12,500 for the
      three months ended March 31, 2008 and 2007, respectively. Loss applicable to
      common stockholders’ serves as the numerator in our basic earnings per common
      share calculation. The Company will continue to reflect cumulative preferred
      stock dividends until the preferred stock is converted into common, if
      ever.





LIQUIDITY
      AND CAPITAL RESOURCES





Going
      concern considerations:





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the satisfaction of liabilities
      in the normal course of business. The Company has a working capital deficiency
      of $8,904,374 including non-cash derivative liabilities of $7,037,432. During
      2007 the Company recorded a liability of $1,500,000 in connection with an
      earn-out provision of its securities purchase agreement with the former owners
      of RTI. Due to the working capital deficiency, the Company does not have
      sufficient working capital to settle this obligation coming due on May 31,
      2008.
      This condition raises doubt regarding the Company’s ability to continue as a
      going concern. The Company’s ability to continue as a going concern is dependent
      upon its ability to obtain adequate financing to satisfy this obligation.





Working
      capital and other activities:




The
      Company’s working capital deficiency as of March 31, 2008 amounts to $8,904,374
      compared to a deficiency of $13,103,425 as of March 31, 2007. Included in the
      deficiency was $7,037,432 of non-cash derivative liabilities. Excluding
      derivative liabilities, current assets of $4,209,197 compared to current
      liabilities of $6,076,139. Included in current liabilities is the earn-out
      liability of $1,500,000 payable in cash by May 31, 2008 due the former owners
      of
      the RTI which was acquired September 2006.


12


For
      the
      three month period ended March 31, 2008, cash and cash equivalents increased
      to
      $1,068,177from $769,915 at December 31, 2007.





Net
      cash
      used by operating activities was $256,551 for the three months ended March
      31,
      2008 compared to net cash used by operating activities of $24,966 in the
      corresponding three month period ended March 31, 2007.





Net
      cash
      provided by financing activities was $571,407 for the three months ended March
      31, 2008 compared to net cash used by financing of $126,570 in the corresponding
      three months ended March 31, 2007.





Short-term
      notes at March 31, 2008 totaled $1,621,662 compared to $1,050,254 at December
      31, 2007. Included in short term notes $244,000 payable in full by December
      31,
      2008. (See Note 4 to the Financial Statements for a discussion of these
      liabilities)





As
      discussed in our 10-KSB filing, the Company does not have the adequate liquidity
      to pay the earn-out of $1,500,000 coming due May 31, 2008 and is actively
      engaged in seeking alternative financing to satisfy this liability. As of this
      filing, the Company has not secured the financing required. There can be no
      assurance that the Company will be able to refinance the earn-out arrangement
      or
      secure the necessary financing needed to pay this liability.  In the
      absence of improved operating results and access to capital resources, the
      Company could face substantial liquidity problems.





**OFF
      BALANCE SHEET ARRANGEMENTS:**





We
      do not
      have any off balance sheet arrangements that are reasonably likely to have
      a
      current or future effect on our financial condition, revenues, results of
      operations, liquidity or capital expenditures.





**CRITICAL
      ACCOUNTING POLICIES AND SENSITIVE ESTIMATES:**





**SENSITIVE
      ESTIMATES:**





The
      Company’ financial statements have been prepared in accordance with accounting
      principles generally accepted in the United States (US GAAP). The preparation
      of
      these financial statements requires management to make estimates and assumptions
      that affect the reported amounts in the financial statements and accompanying
      notes. These estimates form the basis for judgments made about the carrying
      values of assets and liabilities that are not readily apparent from other
      sources. Estimates and judgments are based on historical experience and on
      various other assumptions that the Company believes are reasonable under the
      circumstances. However, future events are subject to change and the best
      estimates and judgments routinely require adjustment. US GAAP requires estimates
      and judgments in several areas, including those related to impairment of
      goodwill and equity investments, revenue recognition, recoverability of
      inventory and receivables, the useful lives long lived assets such as property
      and equipment, the future realization of deferred income tax benefits and the
      recording of various accruals. The ultimate outcome and actual results could
      differ from the estimates and assumptions used.





**Derivative
      Financial Instruments:**





Derivative
      financial instruments are initially recorded at fair value and subsequently
      adjusted to fair value at the close of each reporting period. The Company
      estimates fair values of derivative financial instruments using various
      techniques (and combinations thereof) that are considered to be consistent
      with
      the objective measuring of fair values. In selecting the appropriate technique,
      management considers, among other factors, the nature of the instrument, the
      market risks that it embodies and the expected means of settlement. For less
      complex derivative instruments, such as free-standing warrants, the Company
      generally uses the Black-Scholes-Merton option valuation technique because
      it
      embodies all of the assumptions (including trading volatility, estimated terms
      and risk free rates) necessary to fair value these instruments. For complex
      derivative instruments, such as embedded conversion options, the Company
      generally uses the Flexible Monte Carlo valuation technique because it embodies
      all of the requisite assumptions (including credit risk, interest rate risk
      and
      exercise/conversion behaviors) that are necessary to fair value these more
      complex instruments. For forward contracts that contingently require net-cash
      settlement as the principal means of settlement, the Company projects and
      discounts future cash flows applying probability-weightage to multiple possible
      outcomes. Estimating fair values of derivative financial instruments, requires
      the development of significant and subjective estimates that may, and are likely
      to, change over the duration of the instrument with related changes in internal
      and external market factors. In addition, option-based techniques are highly
      volatile and sensitive to changes in the trading market price of our common
      stock, which has a high-historical volatility. Since derivative financial
      instruments are initially and subsequently carried at fair values, our income
      (loss) will reflect the volatility in these estimate and assumption
      changes.


13


**Revenue
      Recognition:**





Revenue
      is recognized when all significant contractual obligations have been satisfied
      and collection of the resulting receivable is reasonably assured. Revenue from
      product sales is recognized when the goods are shipped and title passes to
      the
      customer.





The
      company applies the guidance of SOP-97.2, "Interim Guidance for Conducting
      Aggregate Exposure and Risk Assessments," with regards to its software products.
      Under this guidance, the Company determined that its product sales do not
      contain multiple deliverables for an extended period beyond delivery where
      bifurcation of multiple elements is necessary. The software is embedded in
      the
      products sold and shipped. Revenue is recognized upon delivery, installation
      and
      acceptance by the customer. PCS (post contract customer support) and upgrades
      are billed separately and when rendered or delivered and not contained in the
      original arrangement with the customer. Installation services are included
      with
      the original customer arrangement but are rendered at the time of delivery
      of
      the product and invoicing.





The
      Company provides IT and business process outsourcing services under
      time-and-material, fixed-price contracts, which may extend up to 5 years.
      Services provided over the term of these arrangements may include, network
      engineering, architectural guidance, database management, expert programming
      and
      functional area expert analysis   Revenue is generally recognized when the
      product or service is provided and the amount earned is not contingent upon
      any
      further event.





**Impairments
      of long-lived assets:**





At
      least
      annually, the Company reviews all long-lived assets with determinate lives
      for
      impairment. Long-lives assets subject to this evaluation include property and
      equipment and intangible assets that amount to $12,655,770 (or 75%) of total
      assets at March 31, 2008. The Company considers the possibility that impairments
      may exist when indicators of impairment are present. In the event that
      indicators are identified or, if within management’s normal evaluation cycle,
      the Company establishes the presence of possible impairment by comparing asset
      carrying values to undiscounted projected cash flows. The preparation of cash
      flow projections requires management to develop many estimates about the
      Company’s performance. These estimates include consideration of revenue streams
      from existing customer bases, the potential increase and decrease in customer
      sales activity and potential changes in the Company’s direct and indirect costs.
      In addition, if the carry values of long-lived assets exceed undiscounted cash
      flow, the Company would estimate the impairment based upon discounted cash
      flow.
      The development of discount rates necessary to develop this cash flow
      information requires additional assumptions, including the development of market
      and risk adjusted rates for discounting cash flows. While management utilizes
      all available information in developing these estimates, actual results are
      likely to be different from those estimates.





Goodwill
      represents the difference between the purchase price of an acquired business
      and
      the fair value of the net assets of businesses the Company has acquired.
      Goodwill is not amortized. Rather, the Company tests goodwill for impairment
      annually (or in interim periods if events or changes in circumstances indicate
      that its carrying amount may not be recoverable) by comparing the fair value
      of
      each reporting unit, as measured by discounted cash flows, to the carrying
      value
      of the reporting unit to determine if there is an indication that potential
      impairment may exist. One of the most significant assumptions underlying this
      process is the projection of future sales. The Company reviews its assumptions
      when goodwill is tested for impairment and makes appropriate adjustments, if
      any, based on facts and circumstances available at that time. While management
      utilizes all available information in developing these estimates, actual results
      are likely to be different than those estimates.


14




**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK.**




N/A.




**ITEM
      4. CONTROLS AND PROCEDURES.**





**Evaluation
      of Disclosure Controls and Procedures**




Our
      management is responsible for establishing and maintaining a system of
      disclosure controls and procedures (as defined in Rule 13a-15(e)) under the
      Exchange Act) that is designed to ensure that information required to be
      disclosed by the Company in the reports that we file or submit under the
      Exchange Act is recorded, processed, summarized and reported, within the time
      specified in the Commission's rules and forms. Disclosure controls and
      procedures include, without limitation, controls and procedures designed to
      ensure that information required to be disclosed by an issuer in the reports
      that it files or submits under the Exchange Act is accumulated and communicated
      to the issuer's management, including its principal executive officer or
      officers and principal financial officer or officers, or persons performing
      similar functions, as appropriate to allow timely decisions regarding required
      disclosure.




Pursuant
      to Rule 13a-15(b) under the Exchange Act the Company carried out an evaluation
      with the participation of the Company’s management, including Paul Burgess, the
      Company’s Chief Executive Officer (“CEO”) and Joe Noto, the Company’s Chief
      Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure
      controls and procedures (as defined under Rule 13a-15(e) under the Exchange
      Act)
      as of the three months ended March 31, 2008. Based upon that evaluation, the
      Company’s CEO and CFO concluded that the Company’s disclosure controls and
      procedures were not effective to ensure that information required to be
      disclosed by the Company in the reports that the Company files or submits under
      the Exchange Act, is recorded, processed, summarized and reported, within the
      time periods specified in the SEC’s rules and forms, and that such information
      is accumulated and communicated to the Company’s management, including the
      Company’s CEO and CFO, as appropriate, to allow timely decisions regarding
      required disclosure. As
      disclosed in the Company’s 10-KSB for the year ended December 31, 2007, the
      Company’s CEO and CFO concluded that the limited financial backgrounds of
      certain members of the Company’s executive management team beyond its CFO are
      inhibiting its financial reporting process. The Company intends to hire
      additional personnel with more substantial financial backgrounds but has not
      done so to date.





**Changes
      in internal controls**




Our
      management, with the participation our Chief Executive Officer and Chief
      Financial Officer, performed an evaluation as to whether any change in our
      internal controls over financial reporting  occurred during the 2008
      Quarter ended March 31, 2008.  Based on that evaluation, our Chief
      Executive Officer and our Chief Financial Officer concluded that no change
      occurred in the Company's internal controls over financial reporting during
      the
      2008 Quarter ended March 31, 2008 that has materially affected, or is reasonably
      likely to materially affect, the Company's internal controls over financial
      reporting.


15


**PART
      II**




**OTHER
      INFORMATION**




**ITEM
      1 - LEGAL PROCEEDINGS**




We
      are
      not a party to any pending legal proceeding, nor is our property the subject
      of
      a pending legal proceeding, that is not in the ordinary course of business
      or
      otherwise material to the financial condition of our business. None of our
      directors, officers or affiliates is involved in a proceeding adverse to our
      business or has a material interest adverse to our business.




**ITEM
      1A. RISK FACTORS**




There
      have been no material changes from the Risk Factors described in our Annual
      Report on Form 10-KSB for the fiscal year ended December 31, 2007.




**ITEM
      2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**




None.




**ITEM
      3 - DEFAULTS UPON SENIOR SECURITIES**




None.




**ITEM
      4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS**




None.




**ITEM
      5 - OTHER INFORMATION**




None.




**Item
      6. Exhibits**





**Exhibit**
              **Number**
            
            **Description**31.1
            
            Certification
                by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
                of the Exchange Act31.2
            
            Certification
                by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
                of the Exchange Act32.1
            
            Certification
                by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
                of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of
                the
                United States Code32.2
            
            Certification
                by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
                of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of
                the
                United States Code


16


**SIGNATURES**




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.





**DATE:
      May 20, 2008**





**LATTICE
              INCORPORATED***BY:*
            */S/
                PAUL BURGESS**PAUL
                BURGESS**CHIEF
                EXECUTIVE OFFICER*
              *(PRINCIPAL
                EXECUTIVE*
              *OFFICER),
                SECRETARY AND*
              *DIRECTOR*





*BY:*
            */S/
                JOE NOTO***
            *JOE
                NOTO***
            *CHIEF
                FINANCIAL OFFICER*
              *(PRINCIPAL
                ACCOUNTING*
              *OFFICER)
                AND DIRECTOR*


17