**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form
      10-QSB/A**





(Mark
      One)





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





FOR
      THE
      QUARTERLY PERIOD ENDED MARCH 31, 2007




o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
      EXCHANGE ACT





FOR
      THE
      TRANSITION PERIOD FROM __________ TO __________


COMMISSION
      FILE NUMBER ________________________________





**LATTICE
      CORPORATION**


(Name
      of
      small business issuer in its charter)




**DELAWARE**
            
            **22-2011859**(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)





**7150
      N. Pennsauken, New Jersey 08109**


(Address
      of principal executive offices)





Issuer’s
      telephone Number: **(856)
      910-1166**





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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 x No 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 21, 2007, the issuer had 16,629,848
      outstanding shares of Common Stock , $.01 par value per share.





Transitional
      Small Business Disclosure Format (check one): Yes o No x









**LATTICE
      CORPORATION**


**MARCH
      31, 2007 QUARTERLY REPORT ON FORM 10-QSB**




**TABLE
      OF CONTENTS**







**Page****PART
                I - FINANCIAL INFORMATION**Item
                1.       Financial Statements
            2Item
                2.       Management’s Discussion and Analysis or
                Plan of Operation
            16Item
                3.       Controls and Procedures
            22**PART
                II - OTHER INFORMATION**Item
                1.       Legal Proceedings
            23Item
                2.       Unregistered Sales of Equity Securities
                and Use of Proceeds
            23Item
                3.       Defaults Upon Senior
                Securities
            23Item
                4.       Submission of Matters to a Vote of
                Security Holders
            23Item
                5.       Other Information
            23Item
                6.       Exhibits and Reports on Form
                8-K
            23**SIGNATURES**
            24








**Explanatory
        Note**
  The
        Company’s Quarterly Report on Form 10-QSB for the quarterly period ended March
        31, 2007 is being amended by this Amendment No. 1 to correct two typographical
        error and to included additional disclosure related to Impairment of Long-Lived
        Assets, in the report as originally filed with the SEC on May 21, 2007. The
        typographical errors, which occurred during the process of converting the
        report
        to html format for filing with the SEC, the additional disclosure is being
        provided in accordance with comments from the SEC, include the
        following:
  In
        the
        Unaudited Consolidated Statements of income on page 3, the $7,712 total other
        income (expenses) has been corrected to ($1,288).
  In
        the
        Unaudited Consolidated Statements of income on page 3, the ($93,497) Net
        loss
        has been corrected to ($102,497).
  In
        the
        Unaudited Notes to Consolidated Financial Statements on page 6 Note
        1 **** Organization
        and Summary of Significant Accounting Policies (f) Goodwill additional
        disclosure provided.


**PART
      I - FINANCIAL INFORMATION**




**LATTICE
        INCORPORATED (FORMALLY SCIENCE DYNAMICS CORPORATION) AND
        SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
  
 March
                  31, 2007
              
              December
                  31, 2006(unaudited)ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              240,739
              
              $
              392,275Accounts
                  receivable - trade
              
              
              3,087,553
              
              
              2,412,164Inventories
              
              
              65,674
              
              
              64,442Other
                  current assets
              
              
              129,741
              
              
              698,514Total
                  current assets
              
              
              3,523,707
              
              
              3,567,395Property
                  and equipment, net
              
              
              33,061
              
              
              37,187Goodwill
              
              
              2,547,866
              
              
              2,547,866Other
                  Intangibles, net
              
              
              6,823,807
              
              
              7,344,235Other
                  assets
              
              
              96,701
              
              
              122,935Total
                  assets
              
              $
              13,025,142
              
              $
              13,619,618LIABILITIES
                  AND SHAREHOLDERS' EQUITY (DEFICIT)Current
                  liabilities:Customer
                  deposits
              
              $
              15,000
              
              $
              15,000Deferred
                  Revenue
              
              
              33,874
              
              
              62,495Accounts
                  payable
              
              
              983,671
              
              
              892,773Accrued
                  expenses
              
              
              940,013
              
              
              1,736,754Current
                  maturities notes payable
              
              
              1,607,178
              
              
              1,998,189Derivative
                  Liability
              
              
              13,047,396
              
              
              19,873,782Total
                  current liabilities
              
              
              16,627,132
              
              
              24,578,993Non-Current
                  Deferred Tax Liabilities
              
              
              406,162
              
              
              406,162Minority
                  Interest
              
              
              182,604
              
              
              135,561Shareholders'
                  equity - (Deficit)Preferred
                  stock - .01 par value10,000,000
                  shares authorized 8,826,087 and 1,000,000 issued
              
              
              88,261
              
              
              10,000Common
                  stock - .01 par value, 200,000,000 shares authorized, 16,642,428
                  and16.642.428
                  issued 16,629,848 and 16.629.848 outstandingin
                  2007 and 2006 respectively
              
              
              166,425
              
              
              166,425Additional
                  paid-in capital
              
              
              3,205,731
              
              
              25,571,152(Deficit)
              
              
              (36,953,340
              )
              
              (36,850,842
              )(3,792,923
              )
              
              (11,103,265
              )Common
                  stock held in treasury, at cost
              
              
              (397,833
              )
              
              (397,833
              )Total
                  shareholders' equity (Deficit)
              
              
              (4,190,756
              )
              
              (11,501,098
              )Total
                  liabilities and shareholders' Equity
              
              $
              13,025,142
              
              $
              13,619,618
  The
        accompanying notes are an integral part of these consolidated financial
        statements
  2
 **LATTICE
        INCORPORATED (FORMALLY SCIENCE DYNAMICS CORPORATION) AND
        SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 (UNAUDITED)
 
 Three
                  Months Ended March 31,2007
              
              2006Sales
                  - Technology Products
              
              $
              289,402
              
              $
              423,890Sales
                  - Technology Services
              
              
              2,887,079
              
              
              917,917Total
                  Sales
              
              
              3,176,481
              
              
              1,341,807Cost
                  of Sales - Technology Products
              
              
              89,192
              
              
              154,120Cost
                  of Sales - Technology Services
              
              
              1,383,262
              
              
              478,248Total
                  Cost of Sales
              
              
              1,472,454
              
              
              632,368Total
                  Gross Profit
              
              
              1,704,027
              
              
              709,439Operating
                  costs and expenses:Research
                  and development
              
              
              109,041
              
              
              109,134Selling,
                  general and administrative
              
              
              1,649,152
              
              
              504,6061,758,193
              
              
              613,740Operating
                  Income(loss) before other income (expenses)
              
              
              (54,166
              )
              
              95,699Other
                  income (expense):Derivative
              
              
              (1,684,074
              )
              
              —Extinguishment
                  (gain)
              
              
              2,073,589
              
              
              —Interest
                  Expense
              
              
              (385,803
              )
              
              (129,890
              )Finance
                  Expense
              
              
              (5,000
              )
              
              (8,043
              )Total
                  Other income (expenses)
              
              
              (1,288
              )
              
              (137,933
              )Net
                  Income (Loss) before Minority Interest
              
              
              (55,454
              )
              
              (42,234
              )Minority
                  Interest
              
              
              47,043
              
              
              (7,442
              )Net
                  Loss
              
              $
              (102,497
              )
              $
              (49,676
              )Net
                  Loss per Common Share -Basic and Diluted
              
              $
              (0.00
              )
              $
              (0.00
              )Weighted
                  average shares outstanding basic and diluted
              
              
              16,629,848
              
              
              8,984,150
 
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
  3
 
 **LATTICE
        INCORPORATED (FORMALLY SCIENCE DYNAMICS CORPORATION) AND
        SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 (UNAUDITED)
  Three
                  Months Ended March 31,2007
              
              2006Cash
                  flows from operating activities: Net (loss)
              
              $
              (102,497
              )
              
              (49,676
              )Adjustments
                  to reconcile net (loss) to net cash provided by (used for) operating
                  activities:Depreciation
              
              
              4,125
              
              
              20,940Amortization
                  Intangible assets
              
              
              520,428
              
              
              56,690Financing
                  expense non cash
              
              
              5,000
              
              
              8,043Derivative
                  Expense
              
              
              1,684,074
              
              
              —Non
                  Cash interest Derivative
              
              
              113,207
              
              
              36,180Amortization
                  of Debt Discount
              
              
              205,809
              
              
              —Extinguishment
                  gain
              
              
              (2,073,589
              )
              
              —Minority
                  interest
              
              
              47,043
              
              
              7,442Stock
                  base compensation
              
              
              61,440
              
              
              —Changes
                  in operating assets and liabilities:(Increase)
                  decrease in:Accounts
                  receivable
              
              
              (675,389
              )
              
              (320,390
              )Inventories
              
              
              (1,232
              )
              
              4,106Other
                  current assets
              
              
              8,090
              
              
              (37,049
              )Other
                  assets
              
              
              26,235
              
              
              (2,100
              )Increase
                  (decrease) in:Accounts Payable and  accrued expenses
              
              
              180,911
              
              
              154,883Customer
                  Deposits
              
              
              —
              
              
              16,111Deferred
                  revenue
              
              
              (28,621
              )
              
              —Total
                  adjustments
              
              
              77,531
              
              
              (55,144
              )Net
                  cash provided by (used for) operating activities
              
              
              (24,966
              )
              
              (104,820
              )Cash
                  flows from financing activities:Payments
                  of Short term note payable
              
              
              (45,000
              )
              
              —Net
                  borrowing (Payment)on Revolving AR credit facility
              
              
              (81,570
              )
              
              166,591Net
                  cash (used in) provided by financing activities
              
              
              (126,570
              )
              
              166,591Net increase (decrease) in cash and cash equivalents
              
              
              (151,536
              )
              
              61,771Cash
                  and cash equivalents - beginning of period
              
              
              392,275
              
              
              53,997Cash
                  and cash equivalents - end of period
              
              $
              240,739
              
              $
              115,768Supplemental
                  Information:Interest
                  Paid
              
              $
              40,315
              
              $
              54,527
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
  4
  **LATTICE
        INCORPORATED (FORMALLY SCIENCE DYNAMICS CORPORATION) AND
        SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 (unaudited)
 
 **Note
        1- Organization and Summary of Significant Accounting
        Policies**
 
 **a)
        Organization**
 
 Lattice
        Incorporated (Formally known as Science Dynamics Corporation and referred
        to
        herein as) (the "Company", "Latiice " ) was incorporated in the State of
        Delaware 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 solution
        provider focused on developing applications through software on its core
        platform technology. To further its strategy of becoming a solutions provider,
        the Company acquired a majority interest in “SMEI” in February 2005. With the
        SMEI acquisition, approximately 90% of the Company’s revenues are derived from
        solution services. In September 2006 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. In January,
        2007,
        we changed our name to Lattice Incorporated.
  **b)
        Basis of Financial Statement Presentation**
 
 The
        accompanying unaudited 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, 2006. 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,
        200
        are not necessarily indicative of the results that may be expected for the
        year
        ended December 31, 2007.
 
 The
        Company’s auditors have expressed a going concern opinion in their audit reports
        for 2006 and 2005. Management acknowledges the basis for the going concern
        opinion, given the Company’s historical net losses and working capital deficits.
        However, it should be noted that the Company has made significant improvements
        in its operating performance in 2006. The Company has increased its sales
        by
        approximately 76.9% compared to 2005, through organic growth and acquisitions,
        posted positive operating income of $455,886 versus an operating loss of
        $1,006,881 in 2005 and was able to increase the availability of its revolving
        credit facility financing from $1M to $2M with the refinancing of the PFC
        facility with GBBF. Additionally, upon the effectiveness of its restated
        certificate of incorporation on February 2, 2007, the Company was able to
        convert its $4.5M note with Barron to Series A Preferred Stock. Given these
        events collectively and the anticipation that the positive trends will continue,
        management expects the going concern opinion to be removed from future filings.
 
 The
        accompanying financial statements include the operating results of Systems
        Management Engineering Systems, Inc. (SMEI), a majority owned (86%) subsidiary
        of Lattice. On February 14, 2005 the Company recorded on its Balance Sheet
        a
        Minority Interest Liability of $171,995 representing the net asset value
        not
        acquired by the Company. The carrying value of the minority interest of $171,995
        has increased to $182,604 at March 31, 2007 giving effect to the SMEI’s net
        operating results. The carrying value increased by $47,043 in the three months
        ended March 31, 2007 giving effect to the portion of SMEI’s net operating profit
        allocable to minority shareholders.
 
 5
 
 **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.
 
 **d)
        Use of Estimates** :
 
 The
        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.
  **e)
        Stock-Based Compensation -** On
        January 1, 2006, the Company adopted the fair value recognition provisions
        of
        Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting
        Standards (“SFAS”) No. 123(R), *Accounting
        for Stock-Based Compensation* , to
        account for compensation costs under its stock option plans. The Company
        previously utilized the intrinsic value method under Accounting Principles
        Board
        Opinion No. 25, *Accounting
        for Stock Issued to Employees (as amended)* (“APB
        25”). Under the intrinsic value method prescribed by APB 25, no compensation
        costs were recognized for the Company’s stock options because the option
        exercise price in its plans equals the market price on the date of grant.
        Prior
        to January 1, 2006, the Company only disclosed the pro forma effects on net
        income and earnings per share as if the fair value recognition provisions
        of
        SFAS 123(R) had been utilized.
  In
        adopting SFAS No. 123, the Company elected to use the modified prospective
        method to account for the transition from the intrinsic value method to the
        fair
        value recognition method. Under the modified prospective method, compensation
        cost is recognized from the adoption date forward for all new stock options
        granted and for any outstanding unvested awards as if the fair value method
        had
        been applied to those awards as of the date of grant. For the three months
        ended
        March 31, 2007 and 2006, stock-based compensation expense was $61,440 and
        $0.00
        respectively. As of March 31, 2007, there was approximately $312,000 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. $312,000 will be
        amortized over the weighted average remaining service period of two
        years.
 
 **f)
        Depreciation, Amortization and Long-Lived Assets**
 
 Long-lived
        assets include:
 
 Property,
        plant and equipment - These assets are recorded at original cost and increased
        by the cost of any significant improvements after purchase. The Company
        depreciates the cost evenly over the assets' estimated useful lives. For
        tax
        purposes, accelerated depreciation methods are used as allowed by tax
        laws.
 
 **Goodwill**
 
 Goodwill
        represents the difference between the purchase price of an acquired business
        and
        the fair value of the net assets. The Company reviews goodwill for impairment
        annually and whenever events or changes in circumstances indicate its carrying
        value may not be recoverable in accordance with FASB Statement No. 142. The
        provisions of Statement 142 require that a two-step impairment test be performed
        on goodwill. In the first step, the Company compares the fair value of each
        reporting unit, as measured by discounted cash flows, to its carrying value
        to
        determine if there is an indication that potential impairment may exist.
        Significant assumptions include projected revenue growth rates and operating
        margins used to calculate projected future cash flows, risk adjusted discount
        rates and future economic and market conditions. Each time goodwill is tested
        for impairment, the Company reviews its assumptions and makes appropriate
        adjustments, if any, based on facts and circumstances available at that time.
 
 The
        Company’s reporting units are consistent with the reportable segments identified
        in Note 3 of the Notes to Consolidated Financial Statements. The reporting
        units
        are determined based on the fact that discrete financial information is
        available for each unit so that management is able to regularly review the
        operating results of each unit and the components included in each unit have
        similar economic characteristics. Goodwill is allocated to the reporting
        units
        based on the reporting unit’s expected benefit from the combination. The
        reporting units are reviewed on an annual basis and if necessary, the Company
        reassigns goodwill according to the benefit received by the different reporting
        units. If the fair value of the reporting unit exceeds the carrying value
        of the
        net assets assigned to that unit, goodwill is not considered impaired and
        the
        Company is not required to perform further testing. If the carrying value
        of the
        net assets assigned to the reporting unit exceeds the fair value of the
        reporting unit, then the Company must perform the second step of the impairment
        test in order to determine the implied fair value of the reporting unit’s
        goodwill. To determine the implied fair value of the reporting unit’s goodwill,
        the reporting unit’s fair value is allocated to the reporting unit’s assets and
        liabilities in accordance with SFAS No. 141, Business Combinations. The
        difference between the reporting unit’s fair value and the sum of the amounts
        assigned to the reporting unit’s individual assets and liabilities is the
        implied fair value of the reporting unit’s goodwill. If the carrying value of a
        reporting unit’s goodwill exceeds its implied fair value, then the Company would
        record an impairment loss equal to the difference.
 
 6
 
 **g)
        Derivative Financial Instruments**
 
 The
        Company generally does not use derivative financial instruments to hedge
        exposures to cash-flow or market risks. However, certain other financial
        instruments, such as warrants and embedded conversion features that are indexed
        to the Company’s common stock, are classified as liabilities when either (a) the
        holder possesses rights to net-cash settlement or (b) physical or net-share
        settlement is not within the control of the Company. In such instances, net-cash
        settlement is assumed for financial accounting and reporting, even when the
        terms of the underlying contracts do not provide for net-cash settlement.
        Such
        financial instruments are initially recorded at fair value and subsequently
        adjusted to fair value at the close of each reporting period.
 
 **h)
        Recent Accounting Pronouncements** In
        February 2007, the FASB issued Statement of Financial Accounting Standards
        No.
        159, *The
        Fair Value Option for Financial Assets and Financial
        Liabilities* , (“FAS
        159”). FAS 159 permits entities to choose to measure many financial instruments
        and certain other items at fair value. The objective is to improve financial
        reporting by providing entities with the opportunity to mitigate volatility
        in
        reported earnings caused by measuring related assets and liabilities differently
        without having to apply complex hedge accounting provisions. FAS 159 is
        effective for fiscal years beginning after November 15, 2007. The Company
        does
        not believe that FAS 159 will have any material effect on its financial
        statements.
  **Note
        2- Acquisition of "RTI" Stock**
  On
        September 19, 2006, the Company, closed on its Stock Purchase Agreement with
        Ricciardi Technologies Inc. (RTI) and the holders of all of the outstanding
        common stock of RTI. The Company completed the acquisition of 19,685 shares
        of
        the outstanding common stock of RTI which shares constitute 100% of the issued
        and outstanding shares of capital stock of RTI on a fully diluted basis.
        As
        consideration for such shares of RTI the Company paid (i)$3,500,000 in cash,
        and
        issued (ii) 5,000,000 shares of common stock, (iii)a $500,000 promissory
        note
        payable in full twelve months from the closing, and (iv)1,000,000 shares
        of the
        Company's Series B Convertible Preferred stock. Each share of Series B Preferred
        Stock will automatically convert into common stock on September 18, 2007,
        at the
        conversion rate of 8 1/3 shares of common stock, subject to adjustment in
        the
        event of stock dividends, splits and other distributions. The Company may
at any
        time until September 18, 2007 redeem the Series B Preferred Stock at a
        redemption price of $0.50 per share. To secure the indemnification obligations
        of the former RTI stockholder, a portion of the purchase price, consisting
        of
        $350,000 and 5,833,333 shares of common stock was placed in escrow for a
        period
        of 18 months. The common stock issued was valued based upon an average of
        five
        days preceding and five days following the date that the Company and RTI
        agreed
        to all significant terms of the Agreement, and such terms were publicly
        disseminated.
 
 As
        part
        of the purchase price the Company agreed to pay the former RTI stockholders
        up
        to an additional $1,500,000 depending on RTI's EBITDA for the twelve-month
        period ending on the first anniversary of the Closing date. If RTI's EBITDA
        is
        at least $2,250,000 but less than $2,500,000, the former RTI stockholders
        receive $750,000 and if the EBITDA for such twelve month period is at least
        $2,500,000, they will receive $1,500,000.
 
 Pursuant
        to the RTI agreement the Company is to deliver to the RTI employees incentive
        stock options to purchase 200,000 shares of common stock at an exercise price
        of
        $0.60. In addition, during the two years following the closing, the Company
        shall grant the RTI employees an additional 50,000 shares in each year of
        the
        two year period at an exercise price equal to the market price on the date
        of
        issuance. These options have three year vesting and a ten year
        life.
 
 7
 
 The
        total
        purchase price amounted to $7,820,617 and was allocated as follows, based
        upon
        the fair value of assets acquired and liabilities assumed:
  Category
              
              AmountCurrent
                  assets
              
              $
              1,230,027Property
                  and equipment
              
              
              1,473Intangible
                  assets
              
              
              7,490,612Deposits
              
              
              9,406Current
                  liabilities
              
              
              (910,901
              )$
              7,820,617
 
 Intangible
        assets acquired consisted of the following:
 
 LifeCustomer
                  relationships
              
              
              5
              
              $
              3,382,517Know
                  how and processes
              
              
              5
              
              
              2,924,790Goodwill
              
              
              —
              
              
              484,033Contractual
                  backlog
              
              
              1
              
              
              534,272Employment
                  contract
              
              
              1
              
              
              165,000$
              7,490,612
  The
        Company recorded amortization of $463,738 in March 31, 2007 related to the
        intangible assets listed above. The Company believes that the expansion into
        this business affords it an opportunity for synergy, thus justifying the
        amount
        of goodwill attributed to the acquisition of RTI. Due to certain limitations
        imposed by the Internal Revenue Service, the Company does not expect goodwill
        to
        result in any deductible amounts in the near future.
  8
 
 **Note
        3- Segment Reporting**
 
 Management
        views its business as two operating units, Technology Products and Technology
        Services.
  Three
                  Months Ended
              
              Three
                  Months EndedMarch
                  31, 2007
              
              March
                  31, 2005RevenueTechnology
                  Products
              
              $
              289,402
              
              $
              423,890Technology
                  Services
              
              
              2,887,079
              
              
              917,917Total
                  Consolidated Revenue
              
              $
              3,176,481
              
              $
              1,341,807Gross
                  ProfitTechnology
                  Products
              
              $
              200,210
              
              $
              269,770Technology
                  Services
              
              
              1,503,817
              
              
              439,669Total
                  Gross Profit
              
              $
              1,704,027
              
              $
              708,439
 
 **Note 4
        - Notes payable**
 
 Notes
        payable consists of the following as of March 31, 2007 and December 31,
        2006:
 
 2007
              
              2006Revolving
                  credit facility**(a)**
              
              
              509,178
              
              $
              590,749Notes
                  Payable - Stockholders/Officers**(b)**
              
              
              848,000
              
              
              893,000Short
                  term notes payable**(c)**
              
              
              250,000
              
              
              250,000Convertible
                  note**(d)**
              
              
              —
              
              
              264,440Total
                  notes payable
              
              
              1,607,178
              
              
              1,998,189Less
                  current maturities, associated with notes payable
              
              
              (1,607,178
              )
              
              (1,998,189
              )Long-term
                  debt
              
              $
              —
              
              $
              —
 
  9
 
 **(a)
        Revolving Line of credit**
  On
        November 10, 2006, the Company secured a Line of Credit facility with Greater
        Bay Business Funding ("GBBF") for $2,000,000. The line is primarily secured
        by
        the Company's accounts receivables. The Advance Rate is 85%. Interest on
        the
        line will be charged at the rate of prime plus 6%. Upon securing the line
        with
        GBBF, the Company repaid in full and closed out the credit facility with
        Presidential Financial Group. The total outstanding balance on this facility
        as
        of March 31, 2007 and December 31, 2006 was $509,178 and $590,749 respectively.
        Additionally, the Company incurred an up-front fee of $20,000 which is being
        amortized ratably over the twelve month term of the facility. As of March
        31,
        2007, 11,667 remain unamortized
  **(b)
        Notes Payable Stockholders/officers**
  The
        Company has a short-term loan payable with a former officer and stockholder
        of
        the Company amounting to $98,000, this note bears interest of 8% per annum.
        The
        note is an unsecured demand note.
  At
        December 31, 2006 the Company has a short term notes payable of $250,000
        with a
        director of the Company. This note is collateralized by proceeds from the
        future
        sale of the New Jersey Net Operating Loss in 2006, upon approval from the
        State
        of NJ. In the event, the Company is not approved for this program; the Company
        will repay this note and accrued interest from operating cash flows. The
        note
        bears interest at 20% per annum and is payable at maturity date of December
        31,
        2007.
  As
        part
        of the RTI acquisition the Company issued a note in the amount of $500,000
        to
        the former Stockholders of RTI as part of the purchase price. The note is
        payable no later than September 17, 2007 and bears an interest rate of 10%
        per
        annum.
 
 **(c)
        Short term notes**
 
 In
        connection with the September 18, 2006 omnibus amendment and waiver agreement
        with Laurus the Company entered into a Term Note for $250,000 with Laurus.
        The
        Term Note bears interest at a rate per annum equal to the prime rate published
        in The Wall Street Journal from time to time, plus 3%, but shall not be less
        than 8%. Interest payments are due monthly, in arrears, commencing on September
        19, 2006 and ending on the maturity date which is September 18,
        2007.
 
 10
  **(d)
        2006 Barron Financing Agreement**
 
 Convertible
        Promissory Notes
 
 On
        September 19, 2006, the Company entered into a financing arrangement that
        provided for the issuance of $4,500,000, 6.0% Convertible Promissory Notes,
        due
        May 31, 2007, and warrants to purchase 25,000,000 shares of common stock.
        Proceeds, which were net of $404,851 in cash financing costs, amounted to
        $4,045,149. Proceeds from this financing arrangement were allocated to the
        fair
        value of the conversion option and warrants, based upon their fair values,
        because share-settlement of these instruments is not within the Company’s
        control. The following table reflects the components of the initial
        allocation:
  Financial
                  instrument:Warrant
                  derivative
              
              $
              13,895,090Compound
                  derivative
              
              
              8,113,451Convertible
                  notes payable
              
              
              --Financing
                  costs, net of cash costs of $404,851
              
              
              (867,357
              )Day-one
                  derivative loss
              
              
              (17,096,035
              )$
              4,045,149
  The
        derivative warrants were issued in two traunches, each having terms of five
        years. The traunches have exercise prices of $0.5 and $1.20, respectively.
        The
        Company fair valued the derivative warrants using the Black-Scholes-Merton
        Technique using a volatility factor of 90.76% and a risk free interest rate
        of
        $4.69%. The Company uses the Black-Scholes-Merton valuation technique for
        warrants because this technique embodies all of the assumptions necessary
        to
        fair value non-complex instruments.
 
 The
        compound derivative comprises certain derivative features embedded in the
        host
        convertible note payable contract including the conversion feature,
        anti-dilution protections and certain redemption features. These instruments
        were combined into one compound derivative and bifurcated from the host
        instrument at fair value. The Company applied the Monte-Carlo valuation
        technique to fair value this derivative because Monte Carle embodies all
        assumptions (including credit risk, interest rate risk, conversion/redemption
        behaviors) necessary to fair value complex, compound derivative financial
        instruments.
 
 Since
        the
        derivative financial instruments are required to be recorded, both initially
        and
        subsequently at fair values, there were insufficient proceeds to allocate
        any
        amount to the Convertible Notes Payable and, accordingly, it has no carrying
        value on the inception date. In addition, proceeds were insufficient to record
        the fair values of the derivative financial instruments, resulting in a day-one
        derivative loss of $17,096,035. It should be noted that derivative instruments
        will be adjusted to fair value at each reporting date. Fair values are highly
        influenced by our trading stock price and volatility, changes in our credit
        risk
        and market interest rates.
  11
  The
        Company amortized the discount on the Convertible Notes Payable resulting
        from
        the initial allocation over the term of the debt instrument using the effective
        method.
 
 On
        February 2, 2007, upon filing of the Restated Certificate of Incorporation,
        the
        Convertible Notes Payable was automatically converted into Series A Preferred
        Stock. Based upon the Company’s evaluation of the terms and conditions of the
        Series A Preferred Stock, the Company concluded that the Preferred Stock
        was
        more akin to equity rather than debt and thus have been classified as
        stockholders’ equity. Since the conversion features on the debenture had been
        bifurcated from the convertible debt host contract and recorded as a liability,
        there was no equity conversion feature remaining in the debt instrument for
        accounting purposes. Therefore, for accounting purposes, both liabilities
        (i.e.
        the debt host contract and the bifurcated derivative liability) were subject
        to
        extinguishment accounting.
 
 On
        February 7, 2007, the Company entered into an amendment agreement in which
        the
        investors amended the Securities Purchase Agreement and Registration Rights
        Agreement, and provided for (i) the waiver of all accrued and unpaid liquidated
        damages for not filing the registration statement in 60 days as is required
        in
        the registration rights agreement and (ii) the extension to a later date
        of
        certain mandated events, such as the re-composition of the Board. On February
        7,
        2007, the Company issued warrants to purchase 1.9 million shares of common
        stock
        as compensation to the investors for this amendment, valued at approximately
        $1,031,000 using the Black-Scholes-Merton technique. Since the warrants met
        the
        eight conditions for equity classification provided in EITF 00-19, the fair
        value of these warrants was classified as equity. This debt modification
        was
        deemed to be a modification rather than a debt extinguishment since it did
        not
        rise to the requirements of EITF 96-19 to be deemed a debt extinguishment.
        The
        Company recorded the modification in conjunction with the preferred stock
        conversion which resulted in a derivative expense of $838,709 for the amount
        of
        the warrant consideration that was allocated to the derivative instruments
        and
        an extinguishment gain of $1,199,589 related to the conversion.
 
 In
        accordance with FAS 5, the Company had accrued a liability for the liquidated
        damages of $874,000. Upon receipt of the waiver of the liquidating damages,
        this
        amount was recorded as a gain on extinguishment.
 
 During
        December 2006, the Financial Accounting Standards Board issued FASB Staff
        Position (FSP) EITF 00-19-2, Accounting
        for Registration Payment Arrangements , which
        amended Financial Accounting Standard No. 133 Accounting
        for Derivative Financial Instruments and Hedging Activities .
        Generally, the amendment provides for the exclusion of registration payments,
        such as the liquidated damages that the Company has incurred, from the
        consideration of classification of financial instruments, previously required
        under FAS133 and EITF 00-19. Rather, registration payments are to be accounted
        for pursuant to Financial Accounting Standard No. 5 Accounting
        for Contingencies , which
        provides for the recognition of registration payments when they are both
        probably and reasonably estimable. The FSP was adopted by the Company on
        January
        1, 2007, as was required by the new accounting pronouncement. However, the
        Company had previously applied the view (provided in EITF 05-04) that
        registration payments required recognition pursuant to FAS 5.
  Adoption
        of the FSP involved management’s reevaluation of the conditions for equity or
        liability classification of existing derivative financial instruments pursuant
        to the revised criteria of EITF 00-19. As a result of the reevaluation,
        management concluded that the warrants, associated with the 2006 Barron
        financing agreement, and classified as liabilities, did not meet the eight
        conditions for equity classification provided in EITF 00-19, and are continued
        to be recorded as liabilities and adjusted to fair value each quarter. There
        were two traunches of Series C warrants to purchase 4,891,000 shares of common
        stock each that had been considered “tainted” due to the conversion features in
        the Barron financing. These warrants were initially recorded as liabilities
        when
        the Company entered into the Barron financing on September 19, 2006 at which
        time it lost the ability to net share-settle all of its obligations. The
        company
        affected a 1 for 10 reverse stock split February 2, 2007 at which time it
        regained the ability to net share-settle all of its obligations. Since the
        Series C warrants met the eight conditions for equity classification provided
        in
        EITF 00-19, the fair value of these warrants ($462,517) was reclassified
        to
        equity. The fair value of the warrants was determined using the
        Black-Scholes-Merton valuation technique.
 
 12
  **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 27,358,333 and 6,307,242 shares
        of
        the Company’s common stock as of March 31, 2007 and 2006, respectively, and are
        carried at fair value. The following tabular presentations set forth information
        about the derivative instruments for the quarter ended March 31, 2007 and
        2006:
  Derivative
                  income (expense)
              
              Quarter
                  ended
                March
                  31, 2007
              
              Quarter
                  ended
                March
                  31, 2006Conversion
                  features
              
              $
              (
                  1,305,829
              )
              $
              264,752Warrant
                  derivative
              
              $
              (
                  322,600
              )
              $
              105,275
 
 Liabilities
              
              March
                  31, 2007
              
              March
                  31, 2006Compound
                  derivative
              
              $
              -
              
              
              ($
                  255,462
              )Warrant
                  derivative
              
              
              ($
                  13,033,396
              )
              
              ($
                  207,000
              )
 
  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 included: conversion or strike prices ranging
        from
        $0.1 - $1.10; volatility factors ranging from 88.21% - 148.83% based upon
        forward terms of instruments; terms-remaining term for all instruments; and
        a
        risk free rate ranging from 4.54% - 4.65%. Fair value for forward-based features
        (principally the interest reset feature) is determined using the income
        approach; generally discounted cash flows.
 
 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.
        During the first quarter of 2007, the embedded derivatives were recorded
        at fair
        value prior to the conversion into shares of Series A Preferred Stock. The
        compound embedded derivative instruments are 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. Significant assumptions included in the Flexible Monte
        Carlo included: conversion or strike price of $0.23; volatility factor of
        157.20% based upon forward terms of instruments; terms-remaining term for
        all
        instruments; equivalent interest rate risk of 11.81% and equivalent yield
        rate
        of 11.59%.
 
 Equivalent
        amounts reflect the net results of multiple modeling simulations that the
        Monte
        Carlo Simulation methodology applies to underlying assumptions.
  **Note 6
        Common Stock/Preferred Stock**
  February
        2, 2007 the Company affected a one-for-ten reverse stock split restating
        the
        common shares from 166,424,280 to 16,642,428.. All reference to shares has
        been
        restated to reflect the reverse.
 
  February
        2, 2007 the Company file a restated certificate of incorporation with the
        State
        of Delaware, upon the effectiveness the principal and interest due on the
        Barrons note was automatically converted into7,826,087 shares of the Company's
        Series A Preferred Stock as is determined by dividing the principal amount
        of
        the note by the Conversion Price, which initially is $.575.
  Each
        share of Series A Preferred Stock is convertible into 25 shares of common
        stock
        subject to adjustment in certain instances, including the issuance by the
        Company of common stock at a price which is less than the conversion price
        applicable to the Series A Preferred Stock, which is initially $0.023 per
        share,
        subject to adjustment
  13
  **Note
        7-Stock Based Compensation**
  **a)**  **2002
        Employee Stock option plan**
 
 On
        November 6, 2002 the stockholders approved the adoption of The Company's
        2002
        Employee Stock Option Plan. Under the Plan, options may be granted which
        are
        intended to qualify as Incentive Stock Options ("ISOs") under Section 422
        of the
        Internal Revenue Code of 1986 (the"Code") or which are not ("Non-ISOs") intended
        to qualify as Incentive Stock Options thereunder. The maximum number of options
        made available for issuance under the Plan are two million (2,000,000) options.
        The options may be granted to officers, directors, employees or consultants
        of
        the Company and its subsidiaries at not less than 100% of the fair market
        value
        of the date on which options are granted. The term of each Option granted
        under
        the Plan shall be contained in a stock option agreement between the Optionee
        and
        the Company.
 
 On
        January 1, 2006 the Company adopted Statement of Financial Accounting Standards
        ("SFAS") No.123 (Revised 2004), "Share Based Payment," ("SFAS 123R"), using
        the
        modified prospective method. In accordance with SFAS 123R, the Company measures
        the cost of employee services received in exchange for an award of
 equity
        instruments based on the grant-date fair value of the award. That cost is
        recognized over the period during which an employee is required to provide
        service in exchange for the award - the requisite service period. The Company
        determines the grant-date fair value of employee share options using the
        Black-Scholes option-pricing model.
 
 Under
        the
        modified prospective approach, SFAS 123R applies to new awards and to awards
        that were outstanding on January 1, 2006 that are subsequently modified,
        repurchased or cancelled. Under the modified prospective approach, compensation
        cost recognized for the first quarter of fiscal 2006 includes compensation
        cost
        for all share-based payments granted prior to, but not yet vested on, January
        1,
        2006, based on the grant-date fair value estimated in accordance with the
        pro
        forma provisions of SFAS 123, and compensation cost for
 all
        share-based payments granted subsequent to January 1, 2006, based on the
        grant-date fair value estimated in accordance with the provisions of SFAS
        123R.
        Prior periods were not restated to reflect the impact of adopting the new
        standard.
  Number
                  of
              
              Number
                  of
              
              Weighted-Options
              
              Options
              
              AverageAvailable
              
              Outstanding
              
              Exercise
                  PriceBalance
                  January 1, 2007
              
              
              467,000
              
              
              1,371,000
              
              $
              1.00Options
                  granted under Plan
              
              
              —
              
              
              —Options
                  expired
              
              
              —
              
              
              —Balance
                  March 31, 2007
              
              
              467,000
              
              
              1,371,000
              
              $
              1.00
  No
        options were issued in March 31, 2007 and 2006.
 
 The
        weighted-average fair value per share of the options granted during 2007
        and
        2006 was estimated on the date of grant using the Black-Scholes option pricing
        model, The following assumptions were used to estimate the fair value of
        the
        options at grant date based on the following:
  14
 
 2007
              
              2006Risk-Free
                  interest rate
              
              
              4.65
              %
              
              4.92
              %Expected
                  dividend yield
              
              
              
              
              
              —Expected
                  stock price volatility
              
              
              156
              %
              
              156
              %Expected
                  option Life
              
              
              10
                  years
              
              
              10
                  years
  **Warrants**
 
 On
        February 8, 2007 the company issued a warrant to purchase 1,900,000 shares
        of
        its common stock at an exercise price of $0.50, as consideration for an
        amendment to the September 19, 2006 Securities purchase agreement, which
        extended the filing date of a registration statement from 60 days from September
        19, 2006 to no later than February 12, 2007. It also extended the date to
        have
        an independent board, and an audit committee comprised of not less than three
        directors, a majority of whom are independent directors, and a compensation
        committee to February 12, 2007
  
 15





**Item
      2.**  **Management’s
      Discussion and Analysis or Plan of Operation.**




**GENERAL
      OVERVIEW**




Lattice
      Incorporated (Formally Science Dynamics Corporation) 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 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.




For
      the
      quarter ended March 31, 2007, the company has continued to demonstrate improved
      operating performance. The positive “Adjusted Operating Income” (reported
      operating loss of ($54,166) plus non-cash depreciation and amortization of
      $524,553 and share-based compensation of $61,440). These results are especially
      encouraging when compared to the same period a year ago which shows an increase
      in Adjusted Operating Income of 200%+. The company's improved results are a
      direct reflection of the company's efforts to manage our costs effectively,
      the
      acquisition of “RTI” in the third quarter of 2006 and the expansion of our
      existing contracts and addition of new contracts.




The
      Company's management believes “Adjusted Operating Income”, a non-GAAP financial
      measure, is an important financial metric to monitor operating performance.
      The
      Company also believes “Adjusted Operating Income" provides meaningful insight to
      its investors in understanding the Company's operating performance.




For
      the
      three months ended March 31, 2007 and 2006, the Company's “Adjusted Operating
      Income” reconciles to reported operating income as follows:





For
                the three months ended
              March
                31,2007
            
            2006Reported
                Operating Income (Loss)
            
            $
            (54,166
            )
            $
            95,699Add-back:Non-cash
                Depreciation & Amortization expenses
            
            $
            524,553
            
            $
            77,630Share-based
                Compensation
            
            $
            61,440
            
            $
            —Adjusted
                Operating Income
            
            $
            531,827
            
            $
            173,329





16




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.





**Item
      2.**  **Management’s
      Discussion and Analysis or Plan of Operation.**





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,
      2006. 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.








Revenues
      for the three months ended March 31, 2007 were $3,176,481, compared to
      $1,341,807 for the three months ended March 31, 2006. This represents an
      increase of $1,834,674, or 237% comparing the two periods. The increase in
      revenue for the three months ended March 31, 2007 includes the results of “RTI”
which was acquired in the third quarter of 2006. Excluding the “RTI”
acquisition, revenues increased by $376,319 or 28% compared to the year ago
      period.




Product
      revenues decreased $134,488, or 32%, during the three months ended March 31,
      2007 compared to the same period in fiscal 2006. Product revenues are sensitive
      to unit shipments on a quarter to quarter basis and should be viewed on a full
      year basis.





Service
      revenues increased $2,084,196, or 227% to $3,002,113 during the three months
      ended March 31, 2007 compared to the same period in fiscal 2006. The increase
      in
      revenues included the results of”RTI” which was acquired in the third quarter of
      2006. Excluding “RTI”, service revenues increased by $625,841 or
      68%.





Gross
      profit increased by $994,588, or 140%, to $1,704,027 for the three months ended
      March 31, 2007 compared to $709,439 for the three months ended March 31, 2006.
      The increase in gross profit included the results of “RTI” acquired in the third
      quarter of 2006. Excluding RTI, gross margin increased by $174,588 or 25%,
      which
      was in line with our revenue growth.





For
      the
      three months ended March 31, 2007, Research and development expenses were
      $109,041 compared to $109,134 for the three months ended March 31,
      2006.





For
      the
      three months ended March 31, 2007, selling, general and administrative expenses
      totaled $1,649,152 compared to $504,606 for the period ended March 31, 2006
      for
      an increase of $1,144,546, or 227%.





The
      increase in selling, general and administrative expenses included the results
      of
“RTI”, which was acquired in the third quarter of 2006. Excluding RTI, selling,
      general and administrative increased $274,688 or 54%. The increase in baseline
      selling, general and administrative expenses was primarily attributable to:
      non-cash share-based compensation of $61,440 in the current quarter, executive
      salaries of $56,000 (waived in the first quarter of 2006), and an overall
      increase in operating expenses.


17




Interest
      and finance expense was $390,803 and $137,933 for the three months ended March
      31, 2007 and 2006, respectively. This was an increase of $252,870. Included
      in
      the current quarter expense of $390,803 was non-cash amortization totaling
      $315,000 of debt discount and finance fees related to the $4.5M Barron
      convertible promissory note. The note was converted to equity (Series “A”
Preferred Stock) during the current quarter.








Our
      net
      loss was **$** 102,497 **** for the
      three months ended March 31, 2007 compared to a net loss of **$** 49,676 **** for the
      three months ended March 31, 2006. The current quarter net loss included
      non-cash amortization expenses related to acquired intangibles totaling $520,428
      compared to amortization expense of $56,690 in the year ago period.




**Liquidity
      and Capital Resources**





As
      of
      March 31, 2007 our cash balance was $240,739, compared to $392,275 at December
      31, 2006. Total current assets at March 31, 2007 were $3,523,707 compared to
      $3,567,395 at December 31, 2006. Current liabilities totaling $16,627,132 at
      March 31, 2007 which includes non-cash derivative liabilities of $13,047,396.
      Excluding the non-cash derivative liabilities, current liabilities totaled
      $3,579,736 at March 31, 2007. We currently plan to use our cash balance and
      cash
      generated from operations for increasing our working capital reserves and paying
      down short term debt coming due in the next twelve months. Management believes
      that the current cash on hand, additional cash expected from operations in
      fiscal 2007 and the availability on our line of credit facility will be
      sufficient to cover our working capital requirements for fiscal
      2007.





Our
      accounts receivable at March 31, 2007 was $2,980,145, compared to $2,412,164
      at
      December 31, 2006. The change in accounts receivable is primarily due to; slower
      collections with certain government agencies.





We
      have
      approximately $1,100,000 of short term debt coming due by end of fiscal 2007.
      We
      plan to pay this with proceeds generated from anticipated operating cash flows,
      our current cash position and the availability on our line of credit facility.
      Our outstanding balance on the $2.0M line of credit facility was $509,000 at
      March 31, 2007.




At
      March
      31, 2007 the Company had no long term debt.




**Financings**





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.




Pursuant
      to the RTI Agreement, the consideration for stock of RTI consisted of (a)
      $3,500,000, which was paid from the proceeds of the sale of the Note and
      Warrants to Barron Partners LP (as descussed below) (b) 5,000,000 shares of
      common stock, (c) a $500,000 promissory note (the "RTI Note"), which if not
      paid
      sooner must be paid in full on the earlier of (i) twelve months from the closing
      date of the transaction, which was September 19, 2006 (the "closing
      date")   or (ii) the consummation of a transfer of all or
      substantially all of the assets or equity securities of the Company to a third
      party, and (b) 1,000,000 shares of the Company's Series B Convertible Preferred
      Stock. To secure the indemnification obligations of the former RTI stockholders,
      a portion of the purchase price, consisting of $350,000 and 583,333 shares
      of
      common stock was placed in escrow for a period of 18 months, subject to any
      claims that may arise under the agreement during the 18-month warranty survival
      period.




Each
      share of Series B Preferred Stock will automatically convert into common stock
      on September 18, 2007, at the conversion rate of 8 1/3 shares of commons stock,
      subject to adjustment in the event of stock dividends, splits and other
      distributions, combinations of shares or reverse splits or other
      recapitalizations. The Company may at any time until September 18, 2007, redeem
      the Series B Preferred Stock at a redemption price of $0.50 per
      share.




18





As
      part
      of the purchase price for price for RTI stock, the Company agreed to pay the
      former RTI stockholders up to an additional $1,500,000 depending on the
      technology’s services segment EBITDA for the twelve-month period ending on the
      first anniversary of the Closing Date. If the segments EBITDA is at least
      $2,250,000 but less than $2,500,000, the former RTI stockholders receive
      $750,000, and if the EBITDA for such twelve month period is at least $2,500,000,
      the former RTI stockholders will receive $1,500,000.




Pursuant
      to the RTI Agreement, the Company is to deliver to the RTI's employee’s
      incentive stock options to purchase 200,000 shares of common stock at an
      exercise price equal to the greater of: (i) the market price on the closing
      date
      and (ii) the volume-weighted average price per share for the fifteen (15) days
      prior to the Closing Date. The grant of the options shall be subject to approval
      by the Company, with approval not to be unreasonably withheld. During the two
      years following the closing, the Company shall grant the RTI employees incentive
      stock options to purchase 50,000 shares in each year of the two year period.
      These options shall have an exercise price equal to the greater of: (i) the
      closing market price and (ii) the volume-weighted average price per share for
      the fifteen (15) days prior to the date of each such grant. The options will
      have a ten-year term and shall vest equally in each year in first three years
      and such vesting shall accelerate if (i) such employee is terminated without
      cause or without good reason or (ii) upon a change of control of the
      Company.




Pursuant
      to the RTI Agreement, to secure the Company's payment obligations under the
      RTI
      Note, the Company and each owner of the issued and outstanding shares of RTI's
      capital stock executed a Pledge Agreement. Pursuant to the Pledge Agreement,
      15.24% of the share of RTI's capital stock purchased by the Company is being
      held in escrow until the payment in full by the Company' of the RTI
      Note.




The
      RTI
      transaction was financed through a private placement with Barron Partners LP,
      a
      private investment partnership based in New York. The Company sold Barron a
      convertible subordinated promissory note in the principal amount of $4.5 million
      (the "Note"), a warrant to purchase up to 12.5 million shares of the company's
      common stock at an exercise price of $0.50 per share and a warrant to purchase
      up to 12.5 million shares of the Company's common stock at an exercise price
      of
      $1.25 per share which expire in Sept, 2011. The private placement closed on
      September 19, 2006. As a result of the filing of our amended and restated
      certificate of incorporation with the State of Delaware, on February 2, 2007,
      the principal and interest due on the Barron note automatically converted
      into 7,826,087 shares of series A preferred stock.




Each
      share of Series A Preferred Stock is convertible into 2.5 shares of common
      stock
      subject to adjustment in certain instances, including the issuance by the
      Company of common stock at a price which is less than the conversion price
      applicable to the Series A Preferred Stock (the "Series A Conversion Price"),
      which is initially $.23 per share, subject to adjustment.




The
      Purchase Agreement as well as the certificate of designation for the Series
      A
      Preferred Stock and Warrants provide for an adjustment in the conversion price
      of the note and Series A Preferred Stock and the exercise price of the Warrants
      if the Company's earnings before interest, taxes, depreciation and amortization
      is less than a specified amount per share, on a fully-diluted basis, with a
      maximum reduction of 30% for each year. The target EBITDA per share is $0.19
      for
      2006 and $0.549 for 2007. The amount of reduction per year is the percentage
      shortfall. Thus, a 15% shortfall will result in a 15% reduction in the
      applicable conversion or exercise price then in effect. For purpose of
      determining fully-diluted, all shares of Common Stock issuable upon conversion
      of convertible securities and upon exercise of warrants and options shall be
      deemed to be outstanding, regardless of whether (i) such shares are treated
      as
      outstanding for determining diluted earnings per share under GAAP, (ii) such
      securities are "in the money," or (iii) such shares may be issued as a result
      of
      the 4.9% Limitation. The per share amounts are adjusted in accordance with
      GAAP
      to reflect any stock dividend, split, distribution, reverse split or combination
      of shares or other recapitalization, including the reverse split effected by
      the
      restated certificate of incorporation.




19





On
      February 8, 2007 the company issued a warrant to purchase 1,900,000 shares
      of
      its common stock at an exercise price of $0.50, as consideration for an
      amendment to the September 19, 2006 Securities purchase agreement, which
      extended the filing date of a registration statement from 60 days from September
      19, 2006 to no later than February 12, 2007. It also extended the date to have
      an independent board, and an audit committee comprised of not less than three
      directors, a majority of whom are independent directors, and a compensation
      committee to February 12, 2007 (will be tied to the derivatives)




The
      Company entered into a Omnibus Amendment and Waiver Agreement with Laurus Master
      Fund, LTD ("Laurus"), dated September 18, 2006 (the "Laurus Agreement") for
      the
      purpose of amending, restating and waiving certain terms of (i) the Amended
      and
      Restated Secured Convertible Term Note, issued as of February 11, 2005 and
      amended and restated as of July 21, 2006 (as amended and restated, amended,
      modified and supplemented from time to time, the "Term Note") by the Company
      to
      Laurus, (ii) the Securities Purchase Agreement, dated as of February 11, 2005
      (as amended, modified or supplemented from time to time, the "Purchase
      Agreement") by and between the Company and Laurus, (iii) the Common Stock
      Purchase Warrant, issued as of February 11, 2005 by the Company to Laurus (as
      amended and restated, amended, modified and supplemented from time to time,
      the
      "Initial Warrant"), (iv) the Common Stock Purchase Warrant, issued as of
      November 18, 2005 by the Company to Laurus (as amended and restated, amended,
      modified and supplemented from time to time, the "Additional Warrant") and
      (v)
      the Forbearance Agreement, dated as of July 21, 2006 between the Company and
      Laurus (as amended, modified or supplemented from time to time, the "Forbearance
      Agreement"). The Company issued 100,000 common shares and paid $500,000 in
      cash in conjunction with the July 21, 2006 agreement.




Pursuant
      to the Laurus Agreement, on September 19, 2006, Laurus waived each Event of
      Default that may have arisen under Section 4.1 of the Term Note and Section
      3 of
      the Forbearance Agreement solely as a result of the failure by the Company
      to
      make the $32,656 in interest payments due to Laurus on September 1,
      2006.




Pursuant
      to Laurus Agreement, on September 19, 2006, in exchange for the cancellation
      of
      the term note in the principal amount of $2,000,000, the Company (a) paid
      $500,000 in principal amount of the Term Note, (b) issued an amendment and
      restated note in the principal amount of $250,000, and (c) issued a warrant
      to
      purchase up to 1,458,333 shares of common stock (subject to adjustment), upon
      the cashless exercise by the holder thereof for an imputed exercise price of
      $0.10 per share.




Pursuant
      to a letter agreement between the Company and the Keshet Fund LP and Keshet
      L.P.
      (collectively the "Keshet"), the Company agreed to issue 300,000 shares of
      common stock in consideration for the cancellation of all payment obligations
      arising under the convertible notes issued to Keshet by the Company.
      Additionally, the Keshet will, at the Company's expense, terminate all of its
      agreements with the Company, other than in respect of (x) indemnification and
      expense reimbursement provisions of such agreements and such other provisions
      thereof as expressly survive the payment in full of the Obligations and (y)
      any
      options and/or warrants received by Keshet from the Company.




Between
      April 14, 2006 and May 11, 2006 the Company sold 2,274,951 shares of common
      stock and 1,161,587 warrants to purchase additional shares of common stock
      to
      various accredited investors in a private placement. The Company received
      proceeds of $1,293,906 and exchanged $100,000 of accrued expenses for a total
      of
      $1,393,906. The Company used these proceeds for working capital purposes and
      to
      reduce short term debt.




20





**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.





**Summary
      of Significant Accounting Policies**




**Use
      of Estimates** - The
      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.




**Basis
      of Financial Statement Presentation** - The
      Company’s auditors have expressed a going concern opinion in their audit reports
      for 2006 and 2005. Management acknowledges the basis for the going concern
      opinion, given the Company’s historical net losses and working capital deficits.
      However, it should be noted that the Company has made significant improvements
      in its operating performance in 2006. The Company has increased its sales by
      approximately 76.9% compared to 2005, through organic growth and acquisitions,
      posted positive operating income of $455,886 versus an operating loss of
      $1,006,881 in 2005 and was able to increase the availability of its revolving
      credit facility financing from $1M to $2M with the refinancing of the PFC
      facility with GBBF. Additionally, upon the effectiveness of its restated
      certificate of incorporation on February 2, 2007, the Company was able to
      convert its $4.5M note with Barron to Series A Preferred Stock. Given these
      events collectively and the anticipation that the positive trends will continue,
      management expects the going concern opinion to be removed from future
      filings.




**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.





**Derivative
      Financial Instruments** The
      Company generally does not use derivative financial instruments to hedge
      exposures to cash-flow or market risks. However, certain other financial
      instruments, such as warrants and embedded conversion features that are indexed
      to the Company’s common stock, are classified as liabilities when either (a) the
      holder possesses rights to net-cash settlement or (b) physical or net-share
      settlement is not within the control of the Company. In such instances, net-cash
      settlement is assumed for financial accounting and reporting, even when the
      terms of the underlying contracts do not provide for net-cash settlement. Such
      financial instruments are initially recorded at fair value and subsequently
      adjusted to fair value at the close of each reporting period.





**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.
      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
      producst sold and shipped. Revenue is recognized upon delivery, installation
      and
      acceptance by the customer. PCS (postcontract 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 susotmer arrangement but are rendered at the time of delivery
      of
      the product and invoicing.




21





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.




**Depreciation,
      Amortization and Long-Lived Assets**





Long-lived
      assets include:





Property,
      plant and equipment - These assets are recorded at original cost and increased
      by the cost of any significant improvements after purchase. The Company
      depreciates the cost evenly over the assets' estimated useful lives. For tax
      purposes, accelerated depreciation methods are used as allowed by tax
      laws.





Goodwill-
      Goodwill represents the difference between the purchase price of an acquired
      business and the fair value of the net assets. Goodwill is not amortized. 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 to determine if there is an
      indication that potential impairment may exist. One of the most significant
      assumptions is the projection of future sales. The Company reviews its
      assumptions each time goodwill is tested for impairment and makes appropriate
      adjustments, if any, based on facts and circumstances available at that
      time.





Identifiable
      intangible assets - These assets are recorded at original cost. Intangible
      assets with finite lives are amortized evenly over their estimated useful lives.
      Intangible assets with indefinite lives are not amortized.





At
      least
      annually, The Company reviews all long-lived assets for impairment. When
      necessary, charges are recorded for impairments of long-lived assets for the
      amount by which the present value of future cash flows, or some other fair
      value
      measure, is less than the carrying value of these assets.





**Item
      3.**  **Controls
      and Procedures.**





As
      of the
      end of the period covered by this report, we conducted an evaluation, under
      the
      supervision and with the participation of our chief executive officer and chief
      financial officer of our disclosure controls and procedures (as defined in
      Rule
      13a-15(e) and Rule 15d-15(e) of the Exchange Act. Based on that evaluation,
      our Chief Executive Officer and Chief Financial Officer concluded that our
      disclosure controls and procedures are not effective to provide (i) reasonable
      assurance that information we are required to disclose in this report that
      we
      file or submit under the Exchange Act is recorded, processed, summarized and
      reported within the time periods specified in SEC rules and forms, and (ii)
      that
      such information is accumulated and communicated to our management, including
      our chief executive officer and chief financial officer, as appropriate, to
      allow timely decisions regarding required disclosure. Please see subsection
      “Significant Deficiencies in Disclosure Controls and Procedures or Internal
      Controls” below.




Significant
      Deficiencies in Disclosure Controls and Procedures or internal
      Controls




We
      have
      identified the following material weakness in our internal controls. The Company
      has experienced difficulty gaining access to the financial records of its
      subsidiary Ricciardi Technologies, Inc. The Company’s management is taking
      corrective actions in order to ensure timely access to such financial
      records.




22


**PART
      II**




**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
      2.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds.**




Not
      applicable




**Item
      3.**  **Defaults
      Upon Senior Securities.**





Not
      applicable.




**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders.**





Not
      applicable.




**Item
      5.**  **Other
      Information.**





Not
      applicable.




**Item
                6.**
            **Exhibits.**






**Exhibit
                Number**
            
            **Description**3.10
            
            Restated
                Certificate of Incorporation (Incorporated by reference to the
                Registration Statement on Form SB-2 filed on February 12,
                2007.)31.1
            
            Certification
                by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
                of the Exchange Act.31.2
            
            Certification
                by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
                of the Exchange Act.32.1
            
            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 Code.32.2
            
            Certification
                by and 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.





23





**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**LATTICE INCORPORATED**




Date:
                June 12, 2007
            By:
            /s/
                Paul BurgessPaul
                BurgessPresident,
                Chief Executive Officer and
                Director




Date:
                June 12, 2007
            By:
            /s/
                Joe NotoJoe
                NotoChief
                Financial Officer and Principal Accounting
                Officer






24