10-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1 to

Form 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER   005-34249

LATTICE INCORPORATED

(Exact name of registrant as specified in charter)

DELAWARE

(State or other jurisdiction of

incorporation or organization)

22-2011859

(I.R.S. Employer

Identification No.)

7150 N. Park Drive, Suite 500, Pennsauken, New Jersey 08109

(Address of principal executive offices) (Zip Code)

Registrant’s telephone Number: (856) 910-1166

Securities registered under Section 12(b) of the Exchange Act: None.

Securities registered under Section 12(g) of the Exchange Act: Common Stock,

$.01 par value

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained in this form, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes x No o

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The aggregate market value of the voting and non-voting common stock held by non-affiliates, based on the closing price of such common stock as reported on the OTC Bulletin Board as of June 30, 2014 was approximately $6,750,326.

As of March 31, 2015, the issuer had 53,879,348 outstanding shares of Common Stock. 

EXPLANATORY NOTE

This Amendment No. 1 to the Anual Report on Form 10-K is being filed solely to furnish the Interactive Data files as Exhibit 101, in accordance with Rule 405 of Regulation S-T. No other changes have been made to the Form 10-K, as originally filed on March 31, 2015.

2

ITEM 15. EXHIBITS.

101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.DEF	XBRL Definition Linkbase Document
101.LAB	XBRL Label Linkbase Document
101.PRE	XBRL Presentation Linkbase Document

3

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	LATTICE INCORPORATED
Date: April 3, 2015	By: /s/ Paul Burgess
	Paul Burgess
	President, Chief Executive Officer
	and Director
Date: April 3, 2015	By: /s/ Joe Noto
	Joe Noto
	Chief Financial Officer and Principal
	Accounting Officer

4

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18 - Sale of Assets of Discontinued Operations (Tables)

12 Months Ended

Dec. 31, 2014

Discontinued Operations and Disposal Groups [Abstract]

Asset Purchase agreement

Consideration received from sale of Government assets:
Cash	$	200,000
Seller notes assumed by buyer		282,456
Note receivable from buyer**		700,000
Total consideration	$	1,182,456
Other Contingencies considerations:
3% of gross revenues on Phase II of an SBIR contract for 24 months if awarded.		–
Pay up to $100,000 for each of the next two years in the event that certain contract are rebid and funded		–
Total consideration received on sale of assets		1,182,456
Carrying value of Lattice Government assets sold (see below)		661,013
Gain (loss) on sale of Government segment assets	$	521,443
Carrying value of assets disposed of:
Goodwill and intangibles	$	842,933
Non-controlling interest		(120,133	)
Deferred tax liability		(61,787	)
	$	661,013

Services segment included in the net income (loss) from discontinued operations

	Twelve Months Ended December 31,
	2014		2013
Revenue	$	–	$	603,616
Cost of Revenue		–		300,033
Gross Profit		–		303,583
		–		50.3	%
Selling, general and administrative expenses		–		749,086
Amortization expense		–		80,448
Income (loss) from operations		–		(525,951	)
Interest expense		–		(10,179	)
Gain on sale of discontinue operation		–		521,443
Income (Loss) before taxes		–		(14,687	)
Income taxes (benefit)		–		(32,397	)
Net income (loss) from Discontinued operations	$	–	$	(17,710	)

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11 - Income Taxes (Details-Deferred taxes) (USD $)	Dec. 31, 2014	Dec. 31, 2013
Income Tax Disclosure [Abstract]
Current	$ 0	$ 0
Deferred	0	0
The components of the deferred tax assets (liability) as of:
Net operating loss carryforward	8,231,803	7,721,735
Stock base compensation	534,917	455,984
Executive compensation	13,000	40,200
Total Deferred tax Asset	8,779,720	8,217,919
Valuation allowance for Deferred tax asset	(8,779,720)	(8,217,919)
Deferred tax asset	$ 0	$ 0

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7 - Asset Purchase - Innovisit (Details) (Innovisit, USD $)	Nov. 01, 2013
Innovisit
Purchase price: Note Payable	$ 590,000
Preliminary Allocation of Purchase Price:
Intangible assets: Software (Video conferencing)	302,794
Intangible assets: Contract backlog	148,406
Tangible assets: Cash	5
Tangible assets: Inventory	138,795
Total purchase price allocation	$ 590,000

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11 - Income Taxes (Details Narrative) (USD $)	Dec. 31, 2014
Income Tax Disclosure [Abstract]
Net operating loss carryforward	$ 25,000,000

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6 - Stockholders' Deficit (Details-Warrant activity) (Warrants, USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Warrants
Number of shares under warrants outstanding, Beginning	4,778,233	3,778,233
Number of shares under warrants, Granted	0	1,950,000
Number of shares under warrants, Exercised	0	0
Number of shares under warrants, Cancelled/expired	0	(950,000)
Number of shares under warrants outstanding, Ending	4,778,233	4,778,233
Number of shares under warrant, Vested and exercisable	4,778,233	4,778,233
Weighted Average Exercise price, Warrants outstanding Beginning	$ 0.67	$ 0.81
Weighted Average Exercise price, Warrants Granted		$ 0.11
Weighted Average Exercise price, Warrants Cancelled/expired		$ 0.10
Weighted Average Exercise price, Warrants outstanding Ending	$ 0.67	$ 0.67
Weighted Average Remaining Contractual term in Years, warrants outstanding beginning	3 years 6 months	3 years
Weighted Average Remaining Contractual term in Years, Warrants granted		4 years
Weighted Average Remaining Contractual term in Years, warrants outstanding ending	2 years 6 months	3 years 6 months

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7 - Asset Purchase - Innovisit (Tables)

12 Months Ended

Dec. 31, 2014

Business Combinations [Abstract]

Purchase price to acquired net assets

	Amount
Purchase price:
Note Payable	$	590,000
Preliminary Allocation of Purchase Price:
Intangible assets:
Software (Video conferencing)	$	302,794
Contract backlog		148,406
Tangible assets:
Cash		5
Inventory		138,795
Total purchase price allocation	$	590,000

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12. Commitments (Details Narrative) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Commitments and Contingencies Disclosure [Abstract]
Rent expense	$ 99,652	$ 110,826

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19 - Note Receivable

12 Months Ended

Dec. 31, 2014

Notes to Financial Statements

Note Receivable

As part of sale of Lattice Government assets on April 2, 2013, the Company received a promissory note from purchaser for $700,000 which carries 3% annum interest rate payable in 12 equal quarterly installments payments of $61,216 over a 3 year period first installment being July 31, 2013 with each successive payment being on the 15th day of the month following close each calendar quarter. The note is secured by personal guarantee by the principal owner of purchaser. As of December 31, 2014, these payments have not been made and the Company had filed a lawsuit in the Superior Court of New Jersey to collect same. While the defendants in this lawsuit threatened litigation counter claims, none was ever filed and the Company has, as of this date, reached a settlement of this case for $575,000 payable over three years that is in the course of being finalized.

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8 - Intangible assets (Details-Annual amortization schedule) (USD $)	Dec. 31, 2014	Dec. 31, 2013
Goodwill and Intangible Assets Disclosure [Abstract]
2015	$ 130,000
2016	130,000
2017	130,000
2018	130,000
Thereafter	130,012
Total	$ 650,012	$ 895,439

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3 - Property and Equipment (Details) (USD $)	Dec. 31, 2014	Dec. 31, 2013
Property, Plant and Equipment [Abstract]
Computers, fixtures and equipment	$ 3,335,840	$ 3,157,730
Less : accumulated depreciation	(2,643,642)	(2,296,018)
Total Property and Equipment	$ 692,198	$ 861,712

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12 - Commitments (Tables)

12 Months Ended

Dec. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Future minimum lease payments operating leases

	Operating
	Leases
2015		32,140
Total minimum lease payments	$	32,140

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9 - Fair Value of Derivative Instruments (Details - Level 3) (Fair Value, Inputs, Level 3 [Member], USD $)	Dec. 31, 2014	Dec. 31, 2013
Fair value derivative liability	$ 840,963	$ 122,698
Fair Value, Measurements, Recurring [Member] | Warrants
Fair value derivative liability	69,795	122,698
Fair Value, Measurements, Recurring [Member] | Convertible Note [Member]
Fair value derivative liability	$ 771,198

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16 - Patent Licensing Agreement (Details Narrative) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Amortization of patent	$ 245,427	$ 162,963
Patents [Member]
Amortization of patent	$ 130,000	$ 130,000

XML

6 - Stockholders' Deficit (Details-Assumptions)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Terms in years minimum		10 years
Warrants
Weighted average fair value minimum		8.00%
Weighted average fair value maximum		14.00%
Risk-free interest rate minimum		73.00%
Risk-free interest rate maximum		172.00%
Volatility minimum		15910.00%
Volatility maximum		17920.00%
Terms in years minimum		4 years
Terms in years maximum		4 years 2 months 12 days
Dividend yield		0.00%

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3 - Property and Equipment

12 Months Ended

Dec. 31, 2014

Property, Plant and Equipment [Abstract]

Property and Equipment

A summary of the major components of property and equipment is as follows:

	December 31, 2014			December 31, 2013
Computers, fixtures and equipment	$	3,335,840		$	3,157,730
Less: accumulated depreciation		(2,643,642	)		(2,296,018	)
Total	$	692,198		$	861,712

Depreciation expense for December 31, 2014 and 2013 was $347,625 and $263,511 respectively.

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18 - Sale of Assets of Discontinued Operations: (Details-Income discontinued operations) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Discontinued Operations and Disposal Groups [Abstract]
Revenue	$ 0	$ 603,616
Cost of Revenue	0	300,033
Gross Profit	0	303,583
Selling, general and administrative expenses	0	749,086
Amortization expense	0	80,448
Income (loss) from operations	0	(525,951)
Interest expense	0	(10,179)
Gain on sale of discontinued operation	0	521,443
Income (Loss) before taxes	0	(14,687)
Income taxes (benefit)	0	(32,397)
Net income (loss) from Discontinued operations	$ 0	$ 0

XML

3 - Property and Equipment (Details Narrative) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Property, Plant and Equipment [Abstract]
Depreciation expense	$ 347,625	$ 263,511

XML

3 - Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2014

Property, Plant and Equipment [Abstract]

Property and Equipment

	December 31, 2014			December 31, 2013
Computers, fixtures and equipment	$	3,335,840		$	3,157,730
Less: accumulated depreciation		(2,643,642	)		(2,296,018	)
Total	$	692,198		$	861,712

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1 - Organization and summary of significant accounting policies (Policies)

12 Months Ended

Dec. 31, 2014

Organization And Summary Of Significant Accounting Policies Policies

Organization

a)         Organization

Lattice Incorporated (the “Company”) 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. In September 2006 the Company purchased all of the issued and outstanding shares of the common stock of Lattice Government Services, Inc., (“LGS”) (formerly Ricciardi Technologies Inc. (“RTI”)). LGS 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 through prime contractors of such governmental agencies. LGS’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 December 2009 we changed RTI’s name to Lattice Government Services Inc. In January 2007, we changed our name from Science Dynamics Corporation to Lattice Incorporated. On May 16, 2011 we acquired 100% of the shares of Cummings Creek Capital, a holding Company which itself owns 100% of the shares of CLR Group Limited. (“CLR”). CLR is a government contractor which complements our Government Services business by expanding markets and service offerings. Together the SMEI, RTI and CLR acquisitions formed our federal government services business unit. Through 2012 we operated in two segments, our federal government services unit and our telecommunication services business.

As part of the Company’s strategy to focus on its higher growth potential communications business, the Company decided during the first quarter of 2013 to exit the Government services segment, which derived its revenues mainly from contracts with federal government Dept of Defense agencies either as prime contractor or as a subcontractor to another prime contractor. On April 2, 2013, we entered an Asset Purchase Agreement (“Purchase Agreement”) with Blackwatch International, Inc. (“Blackwatch”), a Virginia corporation, pursuant to which we primarily sold our government Dept. of Defense (DoD) contract vehicles for approximately $1.2 million. These assets essentially comprised our federal government services segment operations. The Company retained the residual assets and liabilities of Lattice Government Services, Inc. We ceased operations of the federal government business back in April, 2013 coinciding with the sale of assets to Blackwatch. For the years ended 2014 and 2013 the financial results of the government services business are being reported as discontinued operations.

On November 1, 2013 we closed on the purchase of certain of assets with Innovisit, LLC. The assets mainly acquired included; awarded contracts, customer lists, and its intellectual property rights to the video visitation software assets. Under the agreement, the workforce and operating infrastructure supporting Innovisit’s business operations are being transferred to Lattice, including but not limited to certain employees, and leases. This acquisition complimented the product offering of our telecom services business.

In 2013, we set up a wholly owned subsidiary, Lattice Communications Inc. to enable us to do business in Canada. During 2014, we started operating a call center and collecting fee income for processing prepaid deposits for a large Canadian telecom provider who previously purchased Lattice technology systems used to provide call provisioning services to correctional facilities located in Canada.

Basis of Presentation Going Concern

b)         Basis of Presentation Going Concern

At December 31, 2014, our working capital deficiency was approximately $3,099,000 which compared to a working capital deficiency of $4,524,000 at December 31, 2013. The decrease in deficiency for 2014 was mainly due to; (i) the reduction of notes payable classified as current either through cash payments or by exchange issuance of common and (ii) the paydown of a $600,000 debt facility maturing June 2014 with the proceeds from the $1.5 million convertible note maturing May 15, 2017, which closed in May 2014. Cash from operations and available capacity on current credit facilities are insufficient to cover liabilities currently due and the liabilities which will mature over the next twelve months. Additionally, we are extended on payables with trade creditors. We have several payment arrangements in place but face continuing pressures with trade creditors regarding overdue payables. These conditions raise substantial doubt regarding our ability to continue as a going concern. Our ability to continue as a going concern is highly dependent upon our ability to improve our operating cash flow, maintain our credit lines and secure additional capital. Management is currently engaged in raising capital with a goal of raising approximately $4,000,000, the proceeds of which to be used to improve working capital and strengthen our balance sheet. Securing sufficient capital for our growth strategy may also reduce doubts about our ability to operate as a going concern. There is no assurance, however, that we will succeed in raising this additional financing and obtain the capital sufficient to provide for all of our liquidity needs. In the event we fail to obtain the additional capital needed and/or restructure our existing debts with current creditors, we may be required to curtail our operations significantly.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the requirements of the Securities and Exchange Commission (“SEC”). The financial statements include all normal and recurring adjustments that are necessary for a fair presentation of the Company’s consolidated financial position and operating results.

Principles of Consolidation

c)         Principles of Consolidation

The consolidated financial statements include 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 non-controlling interest. Investments in affiliates over which the Company has significant influence but not a controlling interest are carried on the equity basis of accounting.

Use of Estimates

d)         Use of Estimates

The preparation of these financial statements in accordance with accounting principles generally accepted in the United States (US GAAP) requires management to make estimates and assumptions that affect the reported amounts in the consolidated 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.

Fair Value Disclosures

e)         Fair Value Disclosures

Management believes that the carrying values of financial instruments, including, cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value as a result of the short-term maturities of these instruments. As discussed in Note 1(m), derivative financial instruments are carried at fair value.

The carrying values of the Company’s long-term debts and capital lease obligations approximates their fair values based upon a comparison of the interest rates and terms of such debt to the rates and terms of debt currently available to the Company.

Cash and Cash Equivalents

f)          Cash and Cash Equivalents

The Company maintains its cash balances with various financial institutions. Balance at various times during the year may exceed Federal Deposit Insurance Corporation limits.

Inventories

g)         Inventories

Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out basis.

Income Taxes

h)         Income Taxes

We account for uncertain tax positions using a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, based on the technical merits. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as we have to determine the probability of various possible outcomes. We re-evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision. We did not recognize any additional tax benefit or additional charges to our tax provision during 2014 and 2013. As of December 31, 2014 and 2013, the Company has no liability related to uncertain tax positions.

The Company’s 2011, 2012, 2013 and 2014 federal and state tax returns remain subject to examination by the respective taxing authorities. In addition, net operating losses and research tax credits arising from prior years are also subject to examination at the time that they are utilized in future years. Neither the Company’s federal or state tax returns are currently under examination.

Revenue Recognition

i)         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.

Direct Call Provisioning Services:

Revenues related to collect and prepaid calling services generated by communication services are recognized during the period in which the calls are made. In addition, during the same period, the Company records the related telecommunication costs for validating, transmitting, billing and collection, and line and long distance charges, along with commissions payable to the facilities and allowances for uncollectible calls, based on historical experience.

Wholesaled technology:

We sell telephony systems with embedded proprietary software to other service providers.  We recognize revenue when the equipment is shipped to the customer.

Breakage:

In compliance with regulatory tariffs, we recognize as income prepaid deposits which have aged beyond six to nine months and the customer has not requested a refund of the unused deposit.

Prepaid Cards:

We also sell prepaid phone cards to end user facilities on a wholesale basis.  We recognize revenue on prepaid phone cards when they are either shipped or emailed to customer end user facilities.

Software Maintenance:

We offer software maintenance and support contracts to customers who purchase our technology systems. These are unbundled and invoiced separately and revenue is recognized ratably over the life of the contract.

Revenues Recognition for Construction Projects:

Revenues from construction contracts are included in contract revenue in the consolidated statements of operations and are recognized under the percentage-of-completion accounting method. The percent complete is measured by the cost incurred to date compared to the estimated total cost of each project. This method is used as management considers expended cost to be the best available measure of progress on these contracts, the majority of which are completed within one year, but may occasionally extend beyond one year. Inherent uncertainties in estimating costs make it at least reasonably possible that the estimates used will change within the near term and over the life of the contracts.

Contract costs include all direct material and labor costs and those indirect costs related to contract performance and completion. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. General and administrative costs are charged to expense as incurred.

Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income. Such revisions are recognized in the period in which they are determined. An amount equal to contract costs incurred that are attributable to claims is included in revenue when realization is probable and the amount can be reliably estimated.

Costs and estimated earnings in excess of billings are comprised principally of revenue recognized on contracts (on the percentage-of-completion method) for which billings had not been presented to customers because the amount were not billable under the contract terms at the balance sheet date. Amounts are billed based on contractual terms. Billings in excess of costs and estimated earnings represent billings in excess of revenues recognized.

Share-based payments

j)          Share-based payments

On January 1, 2006, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification 718-10, Accounting for Share-based payment, to account for compensation costs under its stock option plans and other share-based arrangements.  ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the consolidated financial statements based on their fair values.

For purposes of estimating fair value of stock options, we use the Black-Scholes-Merton valuation technique. For the years ended December 31, 2014 and 2013, there was approximately $453,000 and $706,000 of total unrecognized compensation cost related to unvested share-based compensation awards granted under the equity compensation plans which do not include the effect of future grants of equity compensation, if any. The $453,000 will be amortized over the weighted average remaining service period.

Depreciation, amortization and long-lived assets

k)        Depreciation, Amortization and Long-Lived Assets:

Long-lived assets include:

Property, plant and equipment - These assets are recorded at original cost. 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.

Identifiable intangible assets - The Company amortizes the cost of other intangibles over their useful lives unless such lives are deemed indefinite. Amortizable intangible assets are tested for impairment based on undiscounted cash flows and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are not amortized; however, they are tested annually for impairment and written down to fair value as required.

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 fair value is less than the carrying value of these assets.

Fair Value of Financial Instruments

l)         Fair Value of Financial Instruments 

In accordance with FASB ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund.  Unobservable inputs reflect the Fund’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  The fair value hierarchy is categorized into three levels based on the inputs as follows:

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

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

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

As of December 31, 2014 and December 31, 2013, the derivative liabilities amounted to $840,963 and $122,698.  In accordance with the accounting standards the Company determined that the carrying value of these derivatives approximated the fair value using the level 3 inputs.

Derivative Financial Instruments and Registration Payment Arrangements

m)       Derivative Financial Instruments and Registration Payment Arrangements

Derivative financial instruments, as defined in Financial Accounting Standard, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets. The Company generally does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has entered into various types of financing arrangements to fund its business capital requirements, including convertible debt and other financial instruments indexed to the Company’s own stock. These contracts require careful evaluation to determine whether derivative features embedded in host contracts require bifurcation and fair value measurement or, in the case of freestanding derivatives (principally warrants) whether certain conditions for equity classification have been achieved. In instances where derivative financial instruments require liability classification, the Company is required to initially and subsequently measure such instruments at fair value. Accordingly, the Company adjusts the fair value of these derivative components at each reporting period through a charge to income until such time as the instruments require classification in stockholders’ equity (deficit). See Note 9 for additional information.

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

Segment Reporting

n)        Segment Reporting

FASB ASC 280-10-50, “Disclosure about Segments of an Enterprise and Related Information” requires use of the “management approach” model for segment reporting.  The “management approach” model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. The Company exited its government services business in April 2013 and is reporting the operating results of that unit as discontinued operations in the consolidated financial reports. Accordingly, the Company operates in one segment during the year ended December 31, 2014 (Telecom services).

Basic and diluted income (loss) per common share

o)        Basic and Diluted Income (Loss) Per Common Share:

The Company calculates income (loss) per common share in accordance with ASC Topic 260, “Earnings Per Share”. Basic and diluted income (loss) per common share is computed based on the weighted average number of common shares outstanding. Common share equivalents (which consist of convertible preferred stock, options and warrants) are excluded from the computation of diluted loss per share since the effect would be anti-dilutive. Common share equivalents which could potentially dilute basic earnings per share in the future, and which were excluded from the computation of diluted loss per share, totaled approximately 69 million shares and 58 million shares at December 31, 2014 and 2013, respectively.

Recent accounting pronouncements

p)        Recent accounting pronouncements

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40).  The amendments in this Update provide guidance in accounting principles generally accepted in the United States of America about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures.  The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.  This ASU is not expected to have a significant impact on the Company's consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update's core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

We do not believe there would have been a material effect on the accompanying consolidated financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period.

Reclassification

q)        Reclassifications

Certain prior years amounts have been reclassified to conform to current year presentation.

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12 - Commitments (Details) (USD $)	Dec. 31, 2014
Commitments and Contingencies Disclosure [Abstract]
2015	$ 32,140
Total minimum lease payments	$ 32,140

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4 - Notes payable (Details) (USD $)	Dec. 31, 2014	Dec. 31, 2013
Total notes payable	$ 2,701,724	$ 2,675,608
Less current maturities	(1,418,067)	(2,601,724)
Long-term debt	0	100,000
Note payable to shareholder/director
Total notes payable	192,048	192,048
Note payable
Total notes payable	1,066,019	1,999,676
Note payable, Innovisit
Total notes payable	160,000	510,000
Line of Credit [Member]
Total notes payable	$ 0	$ 0

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4 - Notes payable (Tables)

12 Months Ended

Dec. 31, 2014

Debt Disclosure [Abstract]

Notes payable

	December 31, 2014			December 31, 2013
Bank line-of-credit (a)	$	–		$	–
Notes payable to shareholder/director (b)		192,048			192,048
Notes payable (c)		1,066,019			1,999,676
Note payable, Innovisit (d)		160,000			510,000
Total notes payable		1,418,067			2,701,724
Less current maturities		(1,418,067	)		(2,601,724	)
Long-term debt*	$	–		$	100,000

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5. Convertible Notes (Tables)

12 Months Ended

Dec. 31, 2014

Convertible Notes Payable [Abstract]

Convertible notes assumptions used

	December 31, 2014			Inception
Closing stock price	$	0.10		$	0.13
Conversion price	$	0.13		$	0.13
Expected volatility		125	%		135	%
Remaining term (years)		2.38			2.96
Risk-free rate		0.90	%		0.77	%
Expected dividend yield		0	%		0	%

Schedule of convertible notes

	December 31, 2014			December 31, 2013
Convertible notes	$	1,500,000		$	–
Discount on convertible notes		(1,223,923	)		–
Accumulated amortization of discount		102,287			–
Total convertible notes	$	378,364		$	–

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2 - Accounts Receivable

12 Months Ended

Dec. 31, 2014

Receivables [Abstract]

Accounts Receivable

The Company evaluates its accounts receivable on a customer-by-customer basis and has determined that an allowance for doubtful accounts of approximately $15,000 was necessary at December 31, 2014 related to its trade receivables.

The Company determined that an allowance for doubtful accounts was necessary at December 31, 2013 related to its incurred cost claim receivables attributable to the Company’s discontinued Federal government operations. These claims with Federal Dept. of Defense agencies relate to prior year contracts where costs have exceeded the customer’s funded value of the task ordered on our cost reimbursement type contract vehicles. Unapproved claims included as a component of our accounts receivable totaled approximately $1,555,000 before a reserve allowance of $311,000 as of December 31, 2013. As of December 31, 2014, there was no further basis to increase the reserve for these claims. Accordingly, the reserve allowance for these claims remained at $311,000. These unapproved claims represent the additional costs recoverable on our cost recoverable type contract vehicles as supported by our actual incurred cost submissions or actual rate filings with the DCAA (Defense Contract Audit Agency) compared to the provisional (budgetary) rates used for billing under these contracts. We are in the final stages with the Defense Contract Audit Agency (DCAA) in the review of these claims. Based on evaluations by management and information and recent communications with DCAA, management believed that a reserve allowance estimate of 20% of these receivables was appropriate in 2014. Accordingly, the Company recorded bad debt expense of $311,000 in 2013 which is included as a component of loss from discontinued operations in the Consolidated Statement of Operations.

Consistent with industry practice and since we are currently engaged in the closing out these claims with DCAA, we have classified the remaining $1,244,000 of receivables as current assets.

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6 - Stockholder's Deficit (Tables)

12 Months Ended

Dec. 31, 2014

Equity [Abstract]

Summary of warrant activity

	Number of shares under warrants	Weighted Average Exercise price		Weighted Average Remaining Contractual term in Years	Aggregate Intrinsic Value
Outstanding at December 31, 2012	3,778,233	$	0.81	3	$	–
Granted	1,950,000	$	0.11	4		–
Exercised	-					–
Cancelled/expired	(950,000)	$	0.10			–
Outstanding at December 31, 2013	4,778,233	$	0.67	3.5	$	–
Granted	-
Exercised	-
Cancelled/expired	-
Outstanding at December 31, 2014	4,778,233	$	0.67	2.5	$	–
Vested and exercisable at December 31, 2014	4,778,233
Vested and exercisable at December 31, 2013	4,778,223
	2013
Weighted average fair value	$0.08  -  $0.14
Risk-free interest rate	73%  -  1.72%		.
Volatility	159.1%  -  179.2%
Terms in years	4  -  4.2
Dividend yield	0%

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1 - Organization and summary of significant accounting policies (Details Narrative) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Working capital deficit	$ (3,099,000)	$ (4,524,000)
Uncertain tax positions	0	0
Unrecognized compensation cost	453,000	706,000
Derivative liabilities	$ 840,963	$ 122,698
Anitdilutive shares excluded from EPS	69,000,000	58,000,000

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9 - Fair Value of Derivative Instruments (Details - changes) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Change in fair value	$ (505,658)	$ 65,064
Fair Value, Inputs, Level 3 [Member]
Fair value of derivative, beginning balance	122,698
Derivative liability of embedded conversion feature	1,223,923
Change in fair value	(505,658)
Fair value of derivative, ending balance	$ 840,963

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CONSOLIDATED BALANCE SHEETS (USD $)	Dec. 31, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 255,954	$ 312,703
Accounts receivable	2,248,931	1,897,856
Inventories	1,531	9,330
Note receivable - current	90,000	350,000
Costs and gross profit in excess of billings	449,129	0
Other current assets	465,654	40,681
Total current assets	3,511,199	2,610,570
Property and equipment, net	692,198	861,712
Other intangibles, net	650,012	895,439
Note receivable - long term	485,000	350,000
Other assets	76,071	46,071
Total assets	5,414,480	4,763,792
Current liabilities:
Accounts payable	1,377,187	1,075,651
Accrued expenses	2,475,140	2,264,260
Customer advances	1,187,225	1,023,966
Notes payable - current, net of discount	1,418,067	2,601,724
Derivative liability	69,765	122,698
Deferred revenue	82,628	45,797
Total current liabilities	6,610,012	7,134,096
Long term liabilities:
Derivative liability	771,198	0
Convertible note payable, net of debt discount	378,364	0
Note payable	0	100,000
Total long term liabilities	1,149,562	100,000
Total liabilities	7,759,574	7,234,096
Shareholders' Equity (Deficit)
Common stock - .01 par value, 200,000,000 authorized, 53,879,348 and 35,304,714 issued and outstanding respectively	538,794	353,047
Common stock subscribed - 500,000 shares	5,000	0
Additional paid-in capital	45,485,245	43,714,377
Accumulated deficit	(47,893,655)	(46,066,499)
Accumulated other comprehensive income	2,451	0
Stockholders' Equity before Treasury Stock	(1,786,998)	(1,912,208)
Stock held in treasury, at cost	(558,096)	(558,096)
Total shareholders' equity (deficit)	(2,345,094)	(2,470,304)
Total liabilities and shareholders' equity (deficit)	5,414,480	4,763,792
Series A Preferred Stock
Shareholders' Equity (Deficit)
Preferred stock - .01 par value	54,058	65,758
Series B Preferred Stock
Shareholders' Equity (Deficit)
Preferred stock - .01 par value	10,000	10,000
Series C Preferred Stock
Shareholders' Equity (Deficit)
Preferred stock - .01 par value	5,200	5,200
Series D Preferred Stock
Shareholders' Equity (Deficit)
Preferred stock - .01 par value	$ 5,909	$ 5,909

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5 - Convertible Note (Details - Convertible notes) (USD $)	Dec. 31, 2014	Dec. 31, 2013
Convertible Notes Payable [Abstract]
Convertible notes	$ 1,500,000	$ 0
Discount on convertible notes	(1,223,923)	0
Accumulated amortization of discount	102,287
Total convertible notes	$ 378,364	$ 0

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Cash flow from operating activities:
Net Loss	$ (1,802,048)	$ (1,002,326)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Operating activities discontinued operations	0	48,050
Gain on disposition of discontinued Government segment assets	0	(521,443)
Write-off of Note Receivable	125,000	0
Derivative (income) expense	(505,658)	65,064
Amortization of intangible assets	245,427	162,963
Stock issued for service	184,762	74,400
Amortization of debt discount	329,538	64,547
Gain on extinguishment of debt	0	(76,371)
Amortization of deferred financing fees	80,018	53,035
Share-based compensation	232,156	84,799
Depreciation	347,625	263,511
(Increase) decrease in:
Accounts receivable	(351,075)	518,936
Inventories	7,799	0
Costs in excess of billings	(449,129)	45,797
Deposits	(30,000)	0
Other current assets	(25,251)	183,581
Increase (decrease) in:
Accounts payable and accrued liabilities	551,852	43,784
Deferred revenue	36,831	0
Customer advances	163,259	567,036
Total adjustments	943,154	1,577,689
Net cash (used in) provided by operating activities	(858,894)	575,363
Cash flows from investing activities:
Cash paid for equipment	(178,111)	(304,184)
Proceeds from the sale of discontinued operations	0	231,670
Net cash used in investing activities	(178,111)	(72,514)
Cash flows from financing activities:
Net borrowings (payments) on revolving credit facility	0	(232,807)
Cash paid for financing fees	(155,000)	0
Payments on capital equipment lease	0	(25,371)
Payments on Notes Payable - discontinued operations	0	(56,352)
Payments on notes payable	(1,223,636)	(940,000)
Proceeds from the issuance of common stock issued, net	796,441	0
Proceeds from notes payable	1,500,000	1,085,000
Proceeds from common stock subscribed	60,000	0
Payments on director loans	0	(50,984)
Net cash provided by (used in) financing activities	977,805	(220,514)
Effect of exchange rate changes on cash	2,451	0
Net increase (decrease) in cash and cash equivalents	(56,749)	282,335
Cash and cash equivalents - beginning of period	312,703	30,368
Cash and cash equivalents - end of period	255,954	312,703
Supplemental cash flow information
Interest paid in cash	202,002	311,826
Summary of non-cash investing and financing activities
Conversion of notes payable into common stock	227,272	0
Conversion of accrued interest into common stock	39,546	0
Dividends declared but not paid	25,108	0
Common stock issued for principle payment on note payable	60,000	0
Recording of derivative activity	1,223,923	0
Common stock issued as prepayment for services	162,740	0
Common stock issued for deferred financing fees	162,000	0
Common stock issued to settle liability	$ 25,000	$ 0

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13 - Share-Based Payments (Details-Option activity) (Options [Member], USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Options [Member]
Number of shares Outstanding, Beginning Balance	16,944,500	7,366,500
Number of shares Granted		9,670,000
Number of shares Exercised		0
Number of shares Cancelled/expired	(428,500)	(92,000)
Number of shares Outstanding, Ending Balance	16,516,000	16,944,500
Number of shares Vested and exercisable	10,519,500	7,994,500
Weighted average exercise price Outstanding, Beginning Balance	$ 0.10	$ 0.08
Weighted average exercise price Granted		$ 0.12
Weighted average exercise price Cancelled/expired	$ 0.08	$ 0.08
Weighted average exercise price Outstanding, Ending Balance	$ 0.10	$ 0.10
Weighted average remaining contractual life Outstanding, Ending Balance	3 years 3 months 18 days	2 years 1 month 6 days
Weighted average remaining contractual life Granted		10 years
Aggregate intrinsic value Outstanding, Ending Balance	$ 142,330

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9. Fair Value of Derivative Instruments (Tables)

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Schedule of derivatives on a recurring basis

Derivatives:

	Level 3		Total
December 31, 2014:
Convertible Note	$	60,765	$	60,765
Warrants	$	771,198	$	771,198

	Level 3		Total
December 31, 2013:
Warrants	$	122,698	$	122,698

Level 3 summary

	December 31, 2014
Beginning Balance	$	122,698
Initial recognition - Derivative liability of embedded conversion feature of the Convertible Notes		1,223,923
Change in fair value		(505,658	)
Ending Balance	$	840,963

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16 - Patent Licensing Agreement

12 Months Ended

Dec. 31, 2014

Patent Licensing Agreement

Patent Licensing Agreement

On January 4, 2010 the Company entered into a patent licensing agreement for $1,300,000 supporting its communication services products. The $1,300,000 was paid in full as of June 30, 2010. The $1,300,000 was accounted for as intangible property and is being amortized over 120 months. Accordingly $130,000 of amortization expense was included as a component of the communication segment’s cost of sales for the years ended December 31, 2014 and December 31, 2013, respectively.

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11 - Income Taxes (Tables)

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Provision benefit and deferred tax assets

	December 31,
	2014			2013
Current		–			–
Deferred		–			–
The components of the deferred tax assets (liability) as of:
Net operating loss carryforward	$	8,231,803		$	7,721,735
Stock base compensation		534,917			455,984
Executive compensation		13,000			40,200
Total Deferred tax Asset		8,779,720			8,217,919
Valuation allowance for Deferred tax asset		(8,779,720	)		(8,217,919	)
Deferred tax asset		–			–

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18 - Sale of Assets of Discontinued Operations

12 Months Ended

Dec. 31, 2014

Discontinued Operations and Disposal Groups [Abstract]

Sale of Assets of Discontinued Operations

As part of the Company’s strategy to focus on its higher growth potential communications business, the Company decided during the first quarter to exit the Government Services segment which derived its revenues mainly from contracts with federal government Dept of Defense agencies either as prime contractor or as a subcontractor to another prime contractor. On April 2, 2013, we entered an Asset Purchase Agreement (“Purchase Agreement”) with Blackwatch International, Inc. (“Blackwatch”), a Virginia corporation, pursuant to which we primarily sold our government Dept. of Defense (DoD) contract vehicles for approximately $1.2 million. These assets essentially comprised our Government Services segment operations. The Company retained the residual assets and liabilities of Lattice Government services, Inc. The Company recorded a gain of to $521,443 on the sale of these assets during the quarter ended June 30 2013, which represents the excess of the sales price over the book or carrying value of the assets sold detailed in tabular form below:

On April 2, 2013 Company entered into an Asset Purchase agreement With Blackwatch International, Inc. as follows:

Consideration received from sale of Government assets:
Cash	$	200,000
Seller notes assumed by buyer		282,456
Note receivable from buyer**		700,000
Total consideration	$	1,182,456
Other Contingencies considerations:
3% of gross revenues on Phase II of an SBIR contract for 24 months if awarded.		–
Pay up to $100,000 for each of the next two years in the event that certain contract are rebid and funded		–
Total consideration received on sale of assets		1,182,456
Carrying value of Lattice Government assets sold (see below)		661,013
Gain (loss) on sale of Government segment assets	$	521,443
Carrying value of assets disposed of:
Goodwill and intangibles	$	842,933
Non-controlling interest		(120,133	)
Deferred tax liability		(61,787	)
	$	661,013

** 3% annum interest rate, 12 equal quarterly installments payments of $61,216.03 over a 3 year period first installment being 7/31/2013 with each successive payment being on the 15th day of the month following close each calendar quarter.

With the Company’s decision to exit the Government services business, the results of operations and cash flows from this business have been classified as discontinued operations.

The following table shows the results of operations of Lattice Government Services segment for the twelve months ended December 31, 2014 and 2013 which are included in the net income (loss) from discontinued operations: 

	Twelve Months Ended December 31,
	2014		2013
Revenue	$	–	$	603,616
Cost of Revenue		–		300,033
Gross Profit		–		303,583
		–		50.3	%
Selling, general and administrative expenses		–		749,086
Amortization expense		–		80,448
Income (loss) from operations		–		(525,951	)
Interest expense		–		(10,179	)
Gain on sale of discontinue operation		–		521,443
Income (Loss) before taxes		–		(14,687	)
Income taxes (benefit)		–		(32,397	)
Net income (loss) from Discontinued operations	$	–	$	(17,710	)

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1 - Organization and summary of significant accounting policies

12 Months Ended

Dec. 31, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and summary of significant accounting policies

a)         Organization

Lattice Incorporated (the “Company”) 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. In September 2006 the Company purchased all of the issued and outstanding shares of the common stock of Lattice Government Services, Inc., (“LGS”) (formerly Ricciardi Technologies Inc. (“RTI”)). LGS 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 through prime contractors of such governmental agencies. LGS’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 December 2009 we changed RTI’s name to Lattice Government Services Inc. In January 2007, we changed our name from Science Dynamics Corporation to Lattice Incorporated. On May 16, 2011 we acquired 100% of the shares of Cummings Creek Capital, a holding Company which itself owns 100% of the shares of CLR Group Limited. (“CLR”). CLR is a government contractor which complements our Government Services business by expanding markets and service offerings. Together the SMEI, RTI and CLR acquisitions formed our federal government services business unit. Through 2012 we operated in two segments, our federal government services unit and our telecommunication services business.

As part of the Company’s strategy to focus on its higher growth potential communications business, the Company decided during the first quarter of 2013 to exit the Government services segment, which derived its revenues mainly from contracts with federal government Dept of Defense agencies either as prime contractor or as a subcontractor to another prime contractor. On April 2, 2013, we entered an Asset Purchase Agreement (“Purchase Agreement”) with Blackwatch International, Inc. (“Blackwatch”), a Virginia corporation, pursuant to which we primarily sold our government Dept. of Defense (DoD) contract vehicles for approximately $1.2 million. These assets essentially comprised our federal government services segment operations. The Company retained the residual assets and liabilities of Lattice Government Services, Inc. We ceased operations of the federal government business back in April, 2013 coinciding with the sale of assets to Blackwatch. For the years ended 2014 and 2013 the financial results of the government services business are being reported as discontinued operations.

On November 1, 2013 we closed on the purchase of certain of assets with Innovisit, LLC. The assets mainly acquired included; awarded contracts, customer lists, and its intellectual property rights to the video visitation software assets. Under the agreement, the workforce and operating infrastructure supporting Innovisit’s business operations are being transferred to Lattice, including but not limited to certain employees, and leases. This acquisition complimented the product offering of our telecom services business.

In 2013, we set up a wholly owned subsidiary, Lattice Communications Inc. to enable us to do business in Canada. During 2014, we started operating a call center and collecting fee income for processing prepaid deposits for a large Canadian telecom provider who previously purchased Lattice technology systems used to provide call provisioning services to correctional facilities located in Canada.

b)         Basis of Presentation Going Concern

At December 31, 2014, our working capital deficiency was approximately $3,099,000 which compared to a working capital deficiency of $4,524,000 at December 31, 2013. The decrease in deficiency for 2014 was mainly due to; (i) the reduction of notes payable classified as current either through cash payments or by exchange issuance of common and (ii) the paydown of a $600,000 debt facility maturing June 2014 with the proceeds from the $1.5 million convertible note maturing May 15, 2017, which closed in May 2014. Cash from operations and available capacity on current credit facilities are insufficient to cover liabilities currently due and the liabilities which will mature over the next twelve months. Additionally, we are extended on payables with trade creditors. We have several payment arrangements in place but face continuing pressures with trade creditors regarding overdue payables. These conditions raise substantial doubt regarding our ability to continue as a going concern. Our ability to continue as a going concern is highly dependent upon our ability to improve our operating cash flow, maintain our credit lines and secure additional capital. Management is currently engaged in raising capital with a goal of raising approximately $4,000,000, the proceeds of which to be used to improve working capital and strengthen our balance sheet. Securing sufficient capital for our growth strategy may also reduce doubts about our ability to operate as a going concern. There is no assurance, however, that we will succeed in raising this additional financing and obtain the capital sufficient to provide for all of our liquidity needs. In the event we fail to obtain the additional capital needed and/or restructure our existing debts with current creditors, we may be required to curtail our operations significantly.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and the requirements of the Securities and Exchange Commission (“SEC”). The financial statements include all normal and recurring adjustments that are necessary for a fair presentation of the Company’s consolidated financial position and operating results.

c)         Principles of Consolidation

The consolidated financial statements include 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.

d)         Use of Estimates

The preparation of these financial statements in accordance with accounting principles generally accepted in the United States (US GAAP) requires management to make estimates and assumptions that affect the reported amounts in the consolidated 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)         Fair Value Disclosures

Management believes that the carrying values of financial instruments, including, cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value as a result of the short-term maturities of these instruments. As discussed in Note 1(m), derivative financial instruments are carried at fair value.

The carrying values of the Company’s long-term debts approximates their fair values based upon a comparison of the interest rates and terms of such debt to the rates and terms of debt currently available to the Company.

f)          Cash and Cash Equivalents

The Company maintains its cash balances with various financial institutions. Balance at various times during the year may exceed Federal Deposit Insurance Corporation limits.

g)         Inventories

Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out basis.

h)         Income Taxes

We account for uncertain tax positions using a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, based on the technical merits. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as we have to determine the probability of various possible outcomes. We re-evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision. We did not recognize any additional tax benefit or additional charges to our tax provision during 2014 and 2013. As of December 31, 2014 and 2013, the Company has no liability related to uncertain tax positions.

The Company’s 2011, 2012, 2013 and 2014 federal and state tax returns remain subject to examination by the respective taxing authorities. In addition, net operating losses and research tax credits arising from prior years are also subject to examination at the time that they are utilized in future years. Neither the Company’s federal or state tax returns are currently under examination.

i)         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.

Direct Call Provisioning Services:

Revenues related to collect and prepaid calling services generated by communication services are recognized during the period in which the calls are made. In addition, during the same period, the Company records the related telecommunication costs for validating, transmitting, billing and collection, and line and long distance charges, along with commissions payable to the facilities and allowances for uncollectible calls, based on historical experience.

Wholesaled technology:

We sell telephony systems with embedded proprietary software to other service providers.  We recognize revenue when the equipment is shipped to the customer.

Breakage:

In compliance with regulatory tariffs, we recognize as income prepaid deposits which have aged beyond six to nine months and the customer has not requested a refund of the unused deposit.

Prepaid Cards:

We also sell prepaid phone cards to end user facilities on a wholesale basis.  We recognize revenue on prepaid phone cards when they are either shipped or emailed to customer end user facilities.

Software Maintenance:

We offer software maintenance and support contracts to customers who purchase our technology systems. These are unbundled and invoiced separately and revenue is recognized ratably over the life of the contract.

Revenues Recognition for Construction Projects:

Revenues from construction contracts are included in contract revenue in the consolidated statements of operations and are recognized under the percentage-of-completion accounting method. The percent complete is measured by the cost incurred to date compared to the estimated total cost of each project. This method is used as management considers expended cost to be the best available measure of progress on these contracts, the majority of which are completed within one year, but may occasionally extend beyond one year. Inherent uncertainties in estimating costs make it at least reasonably possible that the estimates used will change within the near term and over the life of the contracts.

Contract costs include all direct material and labor costs and those indirect costs related to contract performance and completion. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. General and administrative costs are charged to expense as incurred.

Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income. Such revisions are recognized in the period in which they are determined. An amount equal to contract costs incurred that are attributable to claims is included in revenue when realization is probable and the amount can be reliably estimated.

Costs and estimated earnings in excess of billings are comprised principally of revenue recognized on contracts (on the percentage-of-completion method) for which billings had not been presented to customers because the amount were not billable under the contract terms at the balance sheet date. Amounts are billed based on contractual terms. Billings in excess of costs and estimated earnings represent billings in excess of revenues recognized.

j)          Share-based payments

On January 1, 2006, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification 718-10, Accounting for Share-based payment, to account for compensation costs under its stock option plans and other share-based arrangements.  ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the consolidated financial statements based on their fair values.

For purposes of estimating fair value of stock options, we use the Black-Scholes-Merton valuation technique. For the years ended December 31, 2014 and 2013, there was approximately $453,000 and $706,000 of total unrecognized compensation cost related to unvested share-based compensation awards granted under the equity compensation plans which do not include the effect of future grants of equity compensation, if any. The $453,000 will be amortized over the weighted average remaining service period.

k)        Depreciation, Amortization and Long-Lived Assets:

Long-lived assets include:

Property, plant and equipment - These assets are recorded at original cost. 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.

Identifiable intangible assets - The Company amortizes the cost of other intangibles over their useful lives unless such lives are deemed indefinite. Amortizable intangible assets are tested for impairment based on undiscounted cash flows and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are not amortized; however, they are tested annually for impairment and written down to fair value as required.

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 fair value is less than the carrying value of these assets.

l)         Fair Value of Financial Instruments 

In accordance with FASB ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund.  Unobservable inputs reflect the Fund’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  The fair value hierarchy is categorized into three levels based on the inputs as follows:

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

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

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

As of December 31, 2014 and December 31, 2013, the derivative liabilities amounted to $840,963 and $122,698.  In accordance with the accounting standards the Company determined that the carrying value of these derivatives approximated the fair value using the level 3 inputs.

m)       Derivative Financial Instruments and Registration Payment Arrangements

Derivative financial instruments, as defined in Financial Accounting Standard, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets. The Company generally does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has entered into various types of financing arrangements to fund its business capital requirements, including convertible debt and other financial instruments indexed to the Company’s own stock. These contracts require careful evaluation to determine whether derivative features embedded in host contracts require bifurcation and fair value measurement or, in the case of freestanding derivatives (principally warrants) whether certain conditions for equity classification have been achieved. In instances where derivative financial instruments require liability classification, the Company is required to initially and subsequently measure such instruments at fair value. Accordingly, the Company adjusts the fair value of these derivative components at each reporting period through a charge to income until such time as the instruments require classification in stockholders’ equity (deficit). See Note 9 for additional information.

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

n)        Segment Reporting

FASB ASC 280-10-50, “Disclosure about Segments of an Enterprise and Related Information” requires use of the “management approach” model for segment reporting.  The “management approach” model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. The Company exited its government services business in April 2013 and is reporting the operating results of that unit as discontinued operations in the consolidated financial reports. Accordingly, the Company operates in one segment during the year ended December 31, 2014 (Telecom services).

o)        Basic and Diluted Income (Loss) Per Common Share:

The Company calculates income (loss) per common share in accordance with ASC Topic 260, “Earnings Per Share”. Basic and diluted income (loss) per common share is computed based on the weighted average number of common shares outstanding. Common share equivalents (which consist of convertible preferred stock, options and warrants) are excluded from the computation of diluted loss per share since the effect would be anti-dilutive. Common share equivalents which could potentially dilute basic earnings per share in the future, and which were excluded from the computation of diluted loss per share, totaled approximately 69 million shares and 58 million shares at December 31, 2014 and 2013, respectively.

p)        Recent accounting pronouncements

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40).  The amendments in this Update provide guidance in accounting principles generally accepted in the United States of America about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures.  The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.  This ASU is not expected to have a significant impact on the Company's consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update's core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

We do not believe there would have been a material effect on the accompanying consolidated financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period.

q)        Reclassifications

Certain prior years amounts have been reclassified to conform to current year presentation.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Dec. 31, 2014	Dec. 31, 2013
Shareholders' equity
Preferred stock, par value	$ 0.01	$ 0.01
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	53,879,348	35,304,714
Common stock, shares outstanding	53,879,348	35,304,714
Series A Preferred Stock
Shareholders' equity
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	9,000,000	9,000,000
Preferred stock, shares issued	5,405,815	6,575,815
Preferred stock, shares outstanding	5,405,815	6,575,815
Series B Preferred Stock
Shareholders' equity
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	1,000,000	1,000,000
Preferred stock, shares outstanding	502,160	502,160
Series C Preferred Stock
Shareholders' equity
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	520,000	520,000
Preferred stock, shares issued	520,000	520,000
Preferred stock, shares outstanding	520,000	520,000
Series D Preferred Stock
Shareholders' equity
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	636,400	636,400
Preferred stock, shares issued	590,910	590,910
Preferred stock, shares outstanding	590,910	590,910

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11 - Income Taxes

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Taxes

The tax provision (benefit) for the years ended December 31, 2014 and 2013 consists of the following:

	December 31,
	2014			2013
Current		–			–
Deferred		–			–
The components of the deferred tax assets (liability) as of:
Net operating loss carryforward	$	8,231,803		$	7,721,735
Stock base compensation		534,917			455,984
Executive compensation		13,000			40,200
Total Deferred tax Asset		8,779,720			8,217,919
Valuation allowance for Deferred tax asset		(8,779,720	)		(8,217,919	)
Deferred tax asset		–			–

As of December 31, 2014 and 2013, the Company generated a net operating loss carry forwards of approximately $25,000,000 available expiring 2018-2030.

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2014	Mar. 28, 2015	Jun. 30, 2014
Document And Entity Information
Entity Registrant Name	Lattice INC
Entity Central Index Key	0000350644
Document Type	10-K
Document Period End Date	Dec. 31, 2014
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 6,750,326
Entity Common Stock, Shares Outstanding		37,501,813
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2014

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12 - Commitments

12 Months Ended

Dec. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments

a)     Operating Leases

The Company leases its office, sales and manufacturing facilities under non-cancelable operating leases with varying terms expiring through 2015. The leases generally provide that the Company pay the taxes, maintenance and insurance expenses related to the leased assets.

We currently have two leases for office facilities located in the United States with lease expirations occurring through May 31, 2015. The total average monthly rent for these leases during the year ended December 31, 2014 is approximately $8,304 per month.

Future minimum lease commitments as of December 31, 2014 as follows:

	Operating
	Leases
2015		32,140
Total minimum lease payments	$	32,140

Total rent expense was $99,652 and $110,826 for the year ended December 31, 2014 and 2013 respectively.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATION (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Condensed Consolidated Statements Of Operation
Revenue	$ 8,941,060	$ 8,269,834
Cost of Revenue	5,335,888	5,460,873
Gross Profit	3,605,172	2,808,961
Operating expenses:
Selling, general and administrative	4,204,421	2,771,176
Research and development	886,410	659,178
Total operating expenses	5,090,831	3,430,354
Loss from operations	(1,485,659)	(621,393)
Other income (expense):
Derivative income (expense)	505,658	(65,064)
Financing fees	(80,018)	(53,035)
Gain on extinguishment of debt	0	29,658
Other income (expense)	2,090	46,713
Write-off of note receivable	(125,000)	0
Interest expense	(619,119)	(356,915)
Total other income (expense)	(316,389)	(398,643)
Loss before taxes	(1,802,048)	(1,020,036)
Income taxes	0	0
Net Loss from continuing operations	(1,802,048)	(1,020,036)
Net Loss from operations of discontinued component	0	(503,733)
Gain on sale of assets discontinued component	0	521,443
Net income (loss) from operations of discontinued component	0	0
Net loss	(1,802,048)	(1,002,326)
Preferred Stock Dividend	(25,108)	(25,108)
Net Loss Available to Common Stockholders	(1,827,156)	(1,027,434)
Basic net income (oss) per common share - From continuing operations	$ (0.04)	$ (0.03)
Basic net income (loss) per common share - From discontinued operations	$ 0	$ 0
Diluted (Loss) per common share - From continuing operations	$ (0.04)	$ (0.03)
Diluted (Loss) per common share - From discontinued operations	$ 0	$ 0
Weighted average shares - Basic	46,068,220	33,582,936
Weighted average shares - Diluted	46,068,220	33,582,936
Comprehensive net loss	(1,802,048)	(1,002,326)
Foreign currency translation gain (loss)	2,451	0
Comprehensive income (loss)	$ (1,799,597)	$ (1,002,326)

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6 - Stockholders' Deficit

12 Months Ended

Dec. 31, 2014

Equity [Abstract]

Stockholders' Deficit

Common Stock

General

The preferred shares have a par value of $.01 per share, and the Company is authorized to issue 11,156,400 shares. The preferred stock of the Company shall be issued by the board of directors of the Company in one or more classes or one or more series within an class, and such classes or Series shall have such voting powers, full or limited, or no voting powers, and such designations, preferences, limitations or restrictions as the board of directors of the Company may determine, from time to time. Currently issued and outstanding are designated Series A, B, C and D.

The common stock shares have a par value of $.01 per share and the Company is authorized to issue 200,000,000 shares, each share shall be entitled to cast one vote for each share held at all stockholders’ meeting for all purposes, including the election of directors. The common stock does not have cumulative voting rights.

2013 Issuances:

On April 24, 2013, we issued 1,142,848 common shares to Barron Partners L.P. Such shares were issuable upon the March 20, 2013 exercise of conversion rights associated with 320,000 shares of Series A Preferred Stock owned by Barron Partners.

During fiscal year 2013 we issued 578,333 Common shares for services valued at $74,400.

On December 30, 2013, we issued 145,000 Common shares as compensation to placement agent for financing fees

On December 30, 2013, we issued 822,024 Common shares in exchange and cancelation of 950,000 warrants outstanding, the fair value of the exchanged warrants was less than the fair value of stock issued.

2014 Issuances:

On January 14, 2014, we issued 1,178,562 common shares to Barron Partners L.P. Such shares were issuable upon the exercise of conversion rights associated with 330,000 shares of Series A Preferred Stock owned by Barron Partners.

On March 18, 2014, we issued 1,321,418 common shares to Barron Partners L.P. Such shares were issuable upon the exercise of conversion rights associated with 370,000 shares of Series A Preferred Stock owned by Barron Partners. 

On August 28, 2014, we issued 1,678,558 common shares to Barron Partners L.P. Such shares were issuable upon the exercise of conversion rights associated with 470,000 shares of Series A Preferred Stock owned by Barron Partners. 

During the quarter ended March 31, 2014, the Company issued 8,860,489 restricted common shares at a price of $0.12 per share in a series of private placements for a gross financing amount of $1,063,259. Of which, net cash proceeds of $796,441 were received and $266,818 was derived from the conversion of principal and accrued interest on existing notes with several investors.

During the quarter ended March 31, 2014, the Company issued 500,000 shares to Icotech in exchange for a $60,000 cash installment on the seller note payable in conjunction with the purchase of the Innovisit assets.

During the quarter ended June 30, 2014, the Company sold 500,000 shares restricted common shares at a price of $0.12 per share in a private placement with an investor for a gross financing amount of $60,000. As of December 31, 2014, the shares had not been issued.

During the quarter ended September 30, 2014, the Company issued 1,000,000 restricted common shares as compensation to a service provider. The shares were valued at $0.12 per share resulting in total compensation expense of $120,000. This expense is being amortized ratably over the service period ending December 31, 2014.

During the quarter ended September 30, 2014, the Company issued 1,350,000 shares as fees to the placement agent for the convertible note issued in May 2014. The shares were valued at $0.12 per share or a total fee of $162,000 which is included as a component of deferred financing fees and is being amortized over the term of the note.

During the quarter ended September 30, 2014, the Company issued 227,273 common shares to Paul Burgess, CEO previously carried as a liability (Shares to be issued) pursuant to a common stock subscription for an investment of $25,000 or $0.11 per share.

During the quarter ended December 31, 2014, Lattice entered into a consulting services agreement with Mr. Stewart and his affiliate, Blairsden Resources LLC and Mr. Wurwarg and his affiliate, Roxen Advisors LLC. Messrs. Stewart and Wurwarg, newly appointed directors of Lattice Incorporated, each received 1,000,000 restricted common shares as compensation for services rendered to Lattice over a twelve month period. The stock was valued at $0.08 per share or a total of $160,000 under Generally Accepted Accounting Principles (GAAP) and is being amortized ratably over the twelve month period ending November 30, 2015.

During the quarter ended December 31, 2014, Lattice issued 458,334 shares of common stock valued at $47,500 as compensation for services to a marketing consulting firm (“CMA”).

We did not issue any employee options or warrants during the year ended December 31, 2014.

2013 Warrant Issuances:

In February 2013 we issued 800,000 warrants with a 4 year term and a strike price of $0.11 per share in conjunction with $600,000 debt financing with an investor. These warrants were canceled in exchange for common shares issued December 2013 (see 2013 issuances above). These warrants had a fair value of $64,547.

In October 2013, we issued 150,000 warrants with a 4 year term and a strike price of $0.11 per share in conjunction with $110,000 debt financing with an investor. These warrants had a fair value of $16,185. These warrants were canceled in exchange for common shares issued December 2013 (see 2013 issuances above).

In December 2013, we issued 1,000,000 warrants with a 4 year term and a strike price of $0.11 per share in conjunction with $600,000 debt financing with an investor. These warrants had a fair value of $140,343.

2014 Warrant Issuances:

No issuances.

Summary of our warrant activity and related information for 2014 and 2013

	Number of shares under warrants	Weighted Average Exercise price		Weighted Average Remaining Contractual term in Years	Aggregate Intrinsic Value
Outstanding at December 31, 2012	3,778,233	$	0.81	3	$	–
Granted	1,950,000	$	0.11	4		–
Exercised	-					–
Cancelled/expired	(950,000)	$	0.10			–
Outstanding at December 31, 2013	4,778,233	$	0.67	3.5	$	–
Granted	-
Exercised	-
Cancelled/expired	-
Outstanding at December 31, 2014	4,778,233	$	0.67	2.5	$	–
Vested and exercisable at December 31, 2014	4,778,233
Vested and exercisable at December 31, 2013	4,778,223
	2013
Weighted average fair value	$0.08  -  $0.14
Risk-free interest rate	73%  -  1.72%		.
Volatility	159.1%  -  179.2%
Terms in years	4  -  4.2
Dividend yield	0%

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5. Convertible Notes

12 Months Ended

Dec. 31, 2014

Convertible Notes Payable [Abstract]

5. Convertible Notes

On May 30, 2014, the Company entered into a Note Purchase and Security Agreement with Lattice Funding, LLC (“Lender”), a Pennsylvania limited liability company affiliated with Cantone Asset Management, LLC. The Company delivered a secured promissory note (the “Note”) in the principal sum of $1,500,000, bearing interest at 8% per annum and maturing on May 15, 2017. Interest on the Note is payable quarterly. Outstanding principal may be converted into restricted common stock. The Company also executed UCC financing statements, securing the Note with proceeds of certain agreements.

Each $10,000 of note principal is convertible into 75,000 common shares at an exercise price of $0.133333 per share any time after November 30, 2014, to be adjusted for splits, reorganizations, stock dividends and similar corporate events (anti-dilution provisions).  If the market price of Lattice common equals or exceeds twice the exercise price and certain other conditions are met, the Company may call the Note at face value for the purpose of forcing conversion of the balance of the Note into common stock.

The Note contains a provision whereby the conversion price is adjustable upon the occurrence of certain events, including the issuance of common stock or common stock equivalents at a price which is lower than the current conversion price. Under FASB ASC 815-40-15-5, the embedded conversion feature is not considered indexed to the Company’s own stock and, therefore does not meet the scope exception in FASB ASC 815-10-15 and thus needs to be accounted for as a derivative liability. The initial fair value at May 30, 2014 of the embedded conversion feature was estimated at $1,223,923 and recorded as a derivative liability, resulting in a net carrying value of the note at May 30, 2014 of $276,077 ($1,500,000 face value less $1,223,923 debt discount). On December 31, 2014 the derivative was valued at $771,198 which resulted in derivative income of $452,725 for the year ended December 31, 2014. The debt discount was amortized using the effective interest method and was $1,121,636 at December 31, 2014 resulting in a finance charge of $102,287 for the year ended December 31, 2014 included in the consolidated statement of operations. The fair value of the embedded conversion feature is estimated at the end of each quarterly reporting period using the Monte Carlo model.

Inherent in the Monte Carlo Valuation model are assumptions related to expected volatility, remaining life, risk-free rate and expected dividend yield.  For the Convertible Notes using a Monte Carlo model, we estimate the probability and timing of potential future financing and fundamental transactions as applicable.  The assumptions used by the Company are summarized below:

Convertible Notes

	December 31, 2014			Inception
Closing stock price	$	0.10		$	0.13
Conversion price	$	0.13		$	0.13
Expected volatility		125	%		135	%
Remaining term (years)		2.38			2.96
Risk-free rate		0.90	%		0.77	%
Expected dividend yield		0	%		0	%

Convertible notes consist of the following at December 31, 2014 and December 31, 2013:

	December 31, 2014			December 31, 2013
Convertible notes	$	1,500,000		$	–
Discount on convertible notes		(1,223,923	)		–
Accumulated amortization of discount		102,287			–
Total convertible notes	$	378,364		$	–

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17 - Litigation

12 Months Ended

Dec. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Litigation

From time to time, lawsuits are threatened or filed against us in the ordinary course of business. Such lawsuits typically involve claims from customers, former or current employees, and vendors related to issues common to our industry. Such threatened or pending litigation also can involve claims by third-parties, either against customers or ourselves, involving intellectual property, including patents. A number of such claims may exist at any given time. In certain cases, derivative claims may be asserted against us for indemnification or contribution in lawsuits alleging use of our intellectual property, as licensed to customers, infringes upon intellectual property of a third-party. Per FASB ASC 450-20-25; recognition of a contingency loss may only be made if the event is (1) probable and (2) the amount of the loss can be reasonably estimated. There were no liabilities of this type at December 31, 2014 and December 31, 2013. In June 2013, the Company was served a writ of garnishment with respect to our note receivable from the sale of our governmental services segment due to a default on the December 13, 2011 note payable (see footnote 2(c)). In October 2013, the Company reached a settlement arrangement whereby the holder agreed to forbear any further collection actions against the Company in exchange for $280,000 payable as follows; $240,000 on October 10, 2013 and then $10,000 payable monthly over four months starting November 10, 2013. $280,000 was paid by the Company as of the date of this filing. However, the holder had asserted that the payments were late, and that the holder is entitled to an additional $80,000 payment. The Company settled this matter in full during the quarter ended June 30, 2014 for $32,500 paid in cash. The Note is now fully satisfied and the Note holder has released all related claims. As part of the sale of Lattice Government assets on April 2, 2103, the Company received a promissory note from Balckwatch International, Inc. for $700,000 which carried a 3% annum interest rate payable in 12 equal quarterly installments of $61,216 over a 3 year period, first installment being July 31, 2013 with each successive payment being on the 15^th day of the month following close of each quarter. This promissory note was secured by a personal guarantee of James Dramby, the principal owner of Blackwatch International, Inc. As of December 31, 2014 , these payments have not been made and the Company had filed a lawsuit in the Superior Court of New Jersey to collect same. While the defendants in this lawsuit threatened litigation counter claims, none was ever filed and the Company has, as of this date, reached a settlement of this case for $575,000 payable over three years that is in the course of being documented.

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13 - Share-Based Payments

12 Months Ended

Dec. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Payments

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.

b)     2008 Employee Stock Option Plan

The Company’s board of directors approved the adoption of the Company’s 2008 incentive stock option Plan. The maximum number of shares available for issuance under the Plan is 10,000,000. 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.

The board approved the issuance of options to purchase an aggregate 9,670,000 shares of the Company’s common stock to various employees, officers and directors of the company during December 31, 2013. No options were approved or issued in 2014. The Company recorded stock base compensation expense of $232,156 and $77,877 for the year ended December 31, 2014 and 2013, respectively under both plans.

We use the Black-Scholes option pricing model to estimate on the grant date the fair value of share-based awards in determining our share-based compensation. The following weighted-average assumptions were used for grants made under the stock options plans for the years ended December 31, 2013. No options were issued in 2014.

	2013
Expected Volatility		174	%
Expected term		10 years
Risk-Free interest rate		2.86	%
Dividend yield		0	%
Annual forfeiture rate		10	%
Weighted-average estimated fair value of options granted	$	0.1094

Transactions involving stock options awarded under the Plan described above during the years ended December 31, 2014 and 2013

	Number of shares			Weighted Average Exercise price		Weighted Average Remaining Contractual term in Years		Aggregate Intrinsic Value
Outstanding at December 31, 2012		7,366,500		$	0.08		4.7	$	–
Granted		9,670,000		$	0.12		10.0
Exercised
Cancelled/expired		(92,000	)	$	0.08
Outstanding at December 31, 2013		16,944,500		$	0.10		2.1	$	–
Granted		–
Exercised		–
Cancelled/expired		(428,500	)	$	0.08
Outstanding at December 31, 2014		16,516,000		$	0.10		3.3	$	142,330
Vested and exercisable at December 31, 2014		10,519,500
Vested and exercisable at December 31, 2013		7,994,500

c)     Employee Stock Purchase Plan

In 2002 the Company established an Employee Stock Purchase Plan. The Plan is to provide eligible employees of the Company and its designated subsidiaries with an opportunity to purchase common stock of the Company through accumulated payroll deductions and to enhance such employees’ sense of participation in the affairs of the Company and its designated subsidiaries. It is the intention of the Company to have the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Internal Revenue Code of 1986. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. The maximum number of shares of the Company’s common stock which shall be made available for sale under the Plan shall be two million (2,000,000) shares. There were no shares issued under the Plan in 2014 or 2013.

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9 - Fair Value of Derivative Instruments

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value of Derivative Instruments

Warrants:

The consolidated balance sheet caption derivative liabilities include warrants and convertible note, the warrants issued in connection with the 2005 Laurus Financing Arrangement, and the 2006 Omnibus Amendment and Waiver Agreement with Laurus. These derivative financial instruments are indexed to an aggregate of 758,333 shares of the Company’s common stock as of December 31, 2014 and December 31, 2013 and are carried at fair value. The balance at December 31, 2014 was $69,765 compared to $122,698 at December 31, 2013. The convertible note issued May 30, 2104 (See Note 5) is indexed to 11,250,028 shares of the Company’s common stock and is carried at fair value of $771,198 at December 31, 2014.

The valuation of the derivative warrant liabilities is determined using a Black-Scholes Merton Model. Freestanding derivative instruments, consisting of warrants and options that arose from the Laurus financing are valued using the Black-Scholes-Merton valuation methodology because that model embodies all of the relevant assumptions that address the features underlying these instruments. Significant assumptions used in the Black Scholes models as December 31, 2014 included conversion or strike price of $0.10; historical volatility factor of 123.01% based upon forward terms of instruments, and a risk free rate of 2.17% and remaining life 7.72 years.

In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, the following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and December 31, 2013:

Derivatives:

	Level 3		Total
December 31, 2014:
Warrants	$	69,765	$	69,765
Convertible Note	$	771,198	$	771,198

	Level 3		Total
December 31, 2013:
Warrants	$	122,698	$	122,698

Level 3 financial instruments consist of certain embedded conversion features. The fair value of these embedded conversion features that have exercise reset features are estimated using a Monte Carlo valuation model. The Company adopted the disclosure requirements of ASU 2011-04, “Fair Value Measurements,” during the year ended December 31, 2014. The unobservable input used by the Company was the estimation of the likelihood of a reset occurring on the embedded conversion feature of the Convertible Notes.  These estimates of the likelihood of completing an equity raise that would meet the criteria to trigger the reset provisions are based on numerous factors, including the remaining term of the financial instruments and the Company’s overall financial condition.

The following table summarizes the changes in fair value of the Company’s Level 3 financial instruments for the period ended December 31, 2014.

	December 31, 2014
Beginning Balance	$	122,698
Initial recognition - Derivative liability of embedded conversion feature of the Convertible Notes		1,223,923
Change in fair value		(505,658	)
Ending Balance	$	840,963

Changes in the unobservable input values would likely cause material changes in the fair value of the Company’s Level 3 financial instruments. The significant unobservable input used in the fair value measurement is the estimation of the likelihood of the occurrence of a change to the conversion price based on the contractual terms of the financial instruments. A significant increase (decrease) in this likelihood would result in a higher (lower) fair value measurement.

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14 - Benefit Plan (Details Narrative) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Compensation and Retirement Disclosure [Abstract]
Pension expense	$ 0	$ 0

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7 - Asset Purchase - Innovisit

12 Months Ended

Dec. 31, 2014

Business Combinations [Abstract]

Asset Purchase - Innovisit

On November 1, 2013, we acquired certain assets which included; awarded contracts, customer lists, and intellectual property rights to Video Visitation software from Innovisit LLC (“Innovisit”), an Alabama limited liability company. Under the asset purchase agreement, the workforce and operating infrastructure supporting Innovisit’s business operations are being transferred to Lattice, including but not limited to certain employees, and leases.

As part of the consideration, we delivered a $590,000 secured promissory note, payable in several installments between November 30, 2013 and January 31, 2015. We have paid $430,000 of the note leaving $160,000 remaining at December 31, 2104. We also entered an employment agreement with Scott Pritchett, who has joined our organization as a manager. Under his three year employment contract, Mr. Pritchett is compensated at a base salary of $100,000 as well as commissions based upon realization of agreed upon revenue targets.

The total purchase price of $590,000 was allocated to Innovisit’s net tangible and intangible assets based upon their estimated fair values as of November 1, 2013.

The table below summarizes the preliminary allocation of the purchase price to the acquired net assets based on their estimated fair values as of November 1, 2013 and the associated estimated useful lives at that date.

	Amount
Purchase price:
Note Payable	$	590,000
Preliminary Allocation of Purchase Price:
Intangible assets:
Software (Video conferencing)	$	302,794
Contract backlog		148,406
Tangible assets:
Cash		5
Inventory		138,795
Total purchase price allocation	$	590,000

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8 - Intangible assets

12 Months Ended

Dec. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible assets

In accordance with The Goodwill and Other Intangibles Topic of the ASC 350, goodwill and indefinite-lived intangible assets are tested for impairment annually, and interim impairment tests are performed whenever an event occurs or circumstances change that indicate that it is more likely than not that an impairment has occurred. December 31 has been established for the annual impairment review.

Determining the fair value of intangible assets is judgmental in nature and requires the use of significant estimates and assumptions including, but not limited to, revenue growth rates, future market conditions and strategic plans. The Company cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of goodwill. Such events may include, but are not limited to, the impact of the economic environment, a material negative change in relationships with significant customers; or strategic decisions made in response to economic and competitive conditions.

The tables below present amortizable intangible assets as of December 31, 2014 and 2013:

	Gross Carrying		Accumulated			Impairment		Net Carrying		Weighted average remaining amortization
	Amount		Amortization			charge		Amount		period
December 31, 2014
Amortizable intangible assets:
IP Rights Agreement		1,300,000		(649,988	)		–		650,012	2.86 years
Customer contracts		148,406		(148,406	)		–		--	--
	$	1,448,406	$	(798,394	)	$	–	$	650,012

	Gross Carrying		Accumulated			Impairment		Net Carrying		Weighted average remaining amortization
	Amount		Amortization			charge		Amount		period
December 31, 2013
Amortizable intangible assets:
IP Rights Agreement		1,300,000		(519,988	)		–		780,012	3.86 years
Customer contracts		148,406		(32,979	)		–		115,427	0.58 years
	$	1,448,406	$	(552,967	)	$	–	$	895,439

Total intangible amortization expense was $245,427 and $162,979 for the years ended December 31, 2014 and 2013, respectively.

Future estimated annual intangibles amortization expense as of December 31, is as follows:

2015		130,000
2016		130,000
2017		130,000
2018		130,000
Thereafter		130,012
Total	$	650,012

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10 - Dividends

12 Months Ended

Dec. 31, 2014

Dividends [Abstract]

Dividends

The Company accrued and recorded dividends payable on the 520,160 shares of 5% Series B Preferred Stock for the years ended December 31, 2014 and 2013. Dividends have not been declared and cannot be paid as long as the Company has an outstanding balance on its revolving line of credit.

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18 .Sale of Assets of Discontinued Operations: (Details-Disposition of assets) (Blackwatch International, USD $)	3 Months Ended
	Apr. 02, 2013
Blackwatch International
Cash	$ 200,000
Seller notes assumed by buyer	282,456
Note receivable from buyer	700,000
Total consideration	1,182,456
Carrying value of Lattice Government assets sold	661,013
Gain (loss) on sale of Government segment assets	521,443
Goodwill and Intangible assets, net	842,933
Non-controlling interest	(120,133)
Deferred tax liability	(61,787)
Disposal group carrying value	$ 661,013

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8 - Intangible assets (Tables)

12 Months Ended

Dec. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Amortizable assets

The tables below present amortizable intangible assets as of December 31, 2014 and 2013:

	Gross Carrying		Accumulated			Impairment		Net Carrying		Weighted average remaining amortization
	Amount		Amortization			charge		Amount		period
December 31, 2014
Amortizable intangible assets:
IP Rights Agreement		1,300,000		(649,988	)		–		650,012	2.86 years
Customer contracts		148,406		(148,406	)		–		--	--
	$	1,448,406	$	(798,394	)	$	–	$	650,012

	Gross Carrying		Accumulated			Impairment		Net Carrying		Weighted average remaining amortization
	Amount		Amortization			charge		Amount		period
December 31, 2013
Amortizable intangible assets:
IP Rights Agreement		1,300,000		(519,988	)		–		780,012	3.86 years
Customer contracts		148,406		(32,979	)		–		115,427	0.58 years
	$	1,448,406	$	(552,967	)	$	–	$	895,439

Schedule of future intangible amortization expense

2015		130,000
2016		130,000
2017		130,000
2018		130,000
Thereafter		130,012
Total	$	650,012

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8 - Intangible assets (Details Narrative) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Goodwill and Intangible Assets Disclosure [Abstract]
Total intangible amortization expense	$ 245,427	$ 162,963

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15 - Major Customers and Concentrations

12 Months Ended

Dec. 31, 2014

Risks and Uncertainties [Abstract]

Major Customers and Concentrations

The company’s telecom service revenues for 2013 included approximately $1.6 million or 19% of total revenues derived from a wholesale contractual relationship with a large Tier 1 telecom provider serving several end-user correctional facilities. This contractual relationship terminated during 2014 with the main facility ending May 2014.

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20. Foreign Currency Translation

12 Months Ended

Dec. 31, 2014

Foreign Currency [Abstract]

Foreign Currency Translation

The Company’s reporting currency is U.S. Dollars. The functional currency of the Company’s subsidiary in Canada is the Canadian dollar. The translation from the Canadian dollar to U.S. dollars is performed for the consolidated balance sheet accounts using exchange rates in effect at the consolidated balance sheet date and for the consolidated statement of operations using the average exchange rate in effect during the period. The resulting translation adjustments are recorded as a component of Accumulated Other Comprehensive Income (Loss). Foreign currency translation gains and losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency are included in the consolidated statements of operations.

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8 - Intangible assets (Details-Amortization table) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Gross Carrying Amount	$ 1,448,406	$ 1,448,406
Accumulated Amortization	(798,394)	(552,967)
Impairment charge	0	0
Net Carrying Amount	650,012	895,439
IP Rights Agreement
Gross Carrying Amount	1,300,000	1,300,000
Accumulated Amortization	(649,988)	(519,988)
Impairment charge	0	0
Net Carrying Amount	650,012	780,012
Weighted average remaining amortization period	2 years 10 months 10 days	3 years 10 months 10 days
Customer contracts
Gross Carrying Amount	148,406	148,406
Accumulated Amortization	(148,406)	(32,979)
Impairment charge	0	0
Net Carrying Amount	$ 0	$ 895,439
Weighted average remaining amortization period		6 months 29 days

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2 - Accounts Receivable (Details Narrative) (USD $)	Dec. 31, 2014
Allowance for doubtful accounts, trade receivables	$ 15,000
Unapproved claims
Accounts Receivable	1,555,000
Allowance for doubtful accounts	$ 311,000

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $)	Preferred Stock	Common Stock	Common Stock Subscriptions	Additional Paid-In Capital	Accumulated Comprehensive Income	Accumulated Deficit	Treasury Stock	Total
Beginning balance, value at Dec. 31, 2012	$ 90,067	$ 326,166		$ 43,338,352		$ (45,039,065)	$ (558,096)	$ (1,842,576)
Beginning balance, shares at Dec. 31, 2012	9,006,726	32,616,509					302,987
Net income (loss)						(1,002,326)		(1,002,326)
Common stock issued for services, shares		578,333
Common stock issued for services, value		5,783		68,617				74,400
Issuance of common stock subscribed, value								0
Common stock issued for financing fees, shares		145,000
Common stock issued for financing fees, value		1,450		20,300				21,750
Common stock issued for conversion of Series A Preferred, shares	(320,000)	1,142,848
Common stock issued for conversion of Series A Preferred, value	(3,200)	11,428		(8,228)
Common stock issued for exchange of warrants, shares		822,024
Common stock issued for exchange of warrants, value		8,220		(8,220)
Common stock warrants issued with debt financing				221,075				221,075
Share-based compensation				82,481				82,481
Foreign currency translation adjustment								0
Dividends - Series B Preferred						(25,108)		(25,108)
Ending balance, value at Dec. 31, 2013	86,867	353,047		43,714,377		(46,066,499)	(558,096)	(2,470,304)
Ending balance, shares at Dec. 31, 2013	8,686,726	35,304,714					302,987
Net income (loss)						(1,802,048)		(1,802,048)
Common stock issued for services, shares		1,458,334
Common stock issued for services, value		14,583		152,917				167,500
Issuance of common stock subscribed, shares			500,000
Issuance of common stock subscribed, value			5,000	55,000				60,000
Common stock issued for financing fees, shares		1,350,000
Common stock issued for financing fees, value		13,500		148,500				162,000
Common stock issued for conversion of Series A Preferred, shares	(1,170,000)	4,178,538
Common stock issued for conversion of Series A Preferred, value	(11,700)	41,786		(30,086)
Common stock issued in exchange for principal payment on note, shares		500,000
Common stock issued in exchange for principal payment on note, value		5,000		55,000				60,000
Common stock issued in private placement in exchange for debt, shares		2,223,484
Common stock issued in private placement in exchange for debt, value		22,235		244,583				266,818
Common stock issued in private placement, shares		6,864,278
Common stock issued in private placement, value		68,643		752,798				821,441
Common stock issued to Directors for services, shares		2,000,000
Common stock issued to Directors for services, value		20,000		160,000				180,000
Share-based compensation				232,156				232,156
Foreign currency translation adjustment					2,451			2,451
Dividends - Series B Preferred						(25,108)		(25,108)
Ending balance, value at Dec. 31, 2014	$ 75,167	$ 538,794	$ 5,000	$ 45,485,245	$ 2,451	$ (47,893,655)	$ (558,096)	$ (2,345,094)
Ending balance, shares at Dec. 31, 2014	7,516,726	53,879,348	500,000				302,987

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4 - Notes payable

12 Months Ended

Dec. 31, 2014

Debt Disclosure [Abstract]

Notes payable

Notes payable consists of the following as of December 31, 2014 and December 31, 2013:

	December 31, 2014			December 31, 2013
Bank line-of-credit (a)	$	–		$	–
Notes payable to shareholder/director (b)		192,048			192,048
Notes payable (c)		1,066,019			1,999,676
Note payable, Innovisit (d)		160,000			510,000
Total notes payable		1,418,067			2,701,724
Less current maturities		(1,418,067	)		(2,601,724	)
Long-term debt	$	–		$	100,000

(a) Bank Line-of-Credit

On July 17, 2009, the Company and its wholly-owned subsidiary, Lattice Government Services (formally “RTI”), entered into a Financing and Security Agreement (the “Action Agreement”) with Action Capital Corporation (“Action Capital”). 

Pursuant to the terms of the Action Agreement, Action Capital agreed to provide the Company with advances of up to 90% of the net amount of certain acceptable account receivables of the Company (the “Acceptable Accounts”). The maximum amount eligible to be advanced to the Company by Action Capital under the Action Agreement is $3,000,000. The Company will pay Action Capital interest on the advances outstanding under the Action Agreement equal to the prime rate in effect on the last business day of the prior month plus 1%.  In addition, the Company will pay a monthly fee to Action Capital equal to 0.75% of the total outstanding balance at the end of each month.

The outstanding balance owed on the line at December 31, 2014 and December 31, 2013 was $0 and $0 respectively.  At December 31, 2014 and December 31, 2013 the interest rate was approximately 13.25%.

(b) Notes Payable Shareholder/Director

The first note bears interest at 21.5% per annum. During December 2010, the note was amended to flat monthly payments of $6,000 until maturity, December 31, 2013, at which time any remaining interest and or principal was to be paid. This note has an outstanding balance of $24,048 and $75,315 as of December 31, 2014 and December 31, 2013, respectively. Payment of the note is past due; however, the note holder has not invoked his rights under the default provisions of the note.

The second note dated October 14, 2011 had a face value of $168,000 of which the Company received $151,200 in net proceeds during October 2011. The discount of $16,800 was amortized to interest expense over the term of the note. The note carries an annual interest rate of 10% payable quarterly at the rate of $4,200 per quarter. The entire principal on the note of $168,000 was due at maturity on October 14, 2014. The Company is in arrears on interest payments that were due but has accrued the interest costs on the note. The holder has not as of the date of this filing invoked his rights under the default provisions of the note related to the past due principal and interest payments.

(c) Notes Payable

On June 11, 2010, Lattice closed on a note payable for $1,250,000. The net proceeds to the Company were $1,100,000. The $150,000 was amortized over the life of the note as additional interest expense. The note matured June 30, 2012 and payment of principal was due at that time in the lump sum value of $981,655 including any unpaid interest. On June 30, 2012 the holder of the note agreed to an extension for payment in full of the note to October 31, 2012. In addition to the maturity extension, the Company agreed to increase the collateral by $250,000. The note was secured by certain receivables totaling $981,655 and the new secured total is approximately $1,232,000. Until maturity, Lattice is required to make quarterly interest payments (calculated in arrears) at 12% stated interest with the first quarter interest payment of $37,500 due September 30, 2010 and $37,500 due each quarter end thereafter until the final payment comes due October 31, 2012 totaling $1,019,155 including the final interest payment. Concurrent with the note, an intercreditor agreement was signed between Action Capital and Holder where Action Capital has agreed to subordinate the Action Lien on certain government contracts, task orders and accounts receivable totaling $981,655. During November 2011, $268,345 of the original $1,250,000 accounts receivable securing the note was collected, escrowed and paid directly to the note holder by Action Capital thereby reducing the outstanding balance on the note and the collateral to $981,655 at December 31, 2013. During 2014 the Company paid $100,000 each in April and July reducing the principal on this note to $781,655. As of December 31, 2014, there is $781,655 of unpaid principal remaining on this note. As of the date of this filing, the Company is currently in violation under this note agreement from not paying the principal due at the October 31, 2012 maturity date. The Company is current with quarterly interest payments. The holder has not as of the date of this filing invoked his rights under the default provisions of the note.

During the quarter ended June 30, 2011, we issued a two year promissory note payable for $200,000 to a shareholder of the Company.  The note bears interest of 12% per year. The Company is required to pay interest quarterly on a calendar basis starting with a pro-rata interest payment on June 30, 2011. On May 15, 2013 the maturity date, the principal amount of $200,000 became due along with any unpaid and accrued interest. The Company is not in compliance with the terms of the note. As of December 31, 2014, there is $200,000 of unpaid principal remaining on this note. The holder has not as of the date of this filing invoked his rights under the default provisions of the note.

During the quarter ended September 30, 2011, we issued a two year promissory note payable for $227,272 to an investor. The note bears interest of 12% per year. The Company is required to pay interest quarterly on a calendar basis starting with a pro-rata interest payment on September 30, 2011. In conjunction with the Company’s private placement of common stock during the quarter ended March 31, 2014, the Company issued 2,223,484 common shares thereby paying the principal of $227,272 and accrued interest of $39,546.

On December 13, 2011, we converted outstanding invoices that we owed a vendor by converting the liability to a promissory note in the amount of $416,533. The note is payable quarterly over a two year term with principal payments due as follows: December 31, 2011 of $10,000, January 15, 2012 of $50,000, March 31, 2012 of $20,000, June 30, 2012 of $30,000, September 30, 2012 of $30,000, December 31, 2012 of $45,000, March 31, 2013 of $45,000, June 30, 2013 of $55,000, September 30, 2013 of $55,000 and December 31, 2013 of $76,533. The note carries a 12% annual interest rate calculated on the outstanding principal balance payable monthly. As of December 31, 2013, the outstanding balance of the note was $20,000. The Company was in default under this note agreement in that it did not pay certain principal payments when due. In June 2013, the Company was served a writ of garnishment against the note receivable of $700,000 from Blackwatch International Inc. for the outstanding balance due for which we are in default. In October 2013, the Company reached a settlement arrangement whereby the holder agreed to forbear any further collection actions against the Company in exchange for $280,000 payable as follows; $240,000 on October 10, 2013 and then $10,000 payable monthly over four months starting November 10, 2013. The January and February payments totaling $20,000 were paid as of March 31, 2014 leaving a remaining balance of $0 under the settlement arrangement at March 31, 2014. During the quarter ended June 30, 2014 the note holder contended that the Company was not in compliance with the timing of payments of the settlement arrangement. As a result, the Company agreed to settle the note in full for a payment of $32,500 during the quarter ended June 30, 2014. This note was paid in full with cash during June 2014.

On January 23, 2012, we issued several promissory notes to private investors with face values totaling $198,000. The proceeds from the notes totaled $175,000. The discount of $23,000 has been recorded as a deferred financing fee and amortized over the life of the note. The notes bear interest of 12% per year. The Company is required to pay interest quarterly on a calendar basis starting with a pro-rata interest payment on March 31, 2012. During the quarter ended March 31, 2014, the Company paid in cash the principal owed on two of the notes totaling $113,636 leaving a remaining balance owed of $84,364 at December 31, 2014. On January 23, 2014 the maturity date, the principal amount of the notes were due along with any unpaid and accrued interest. As a result, Company is not in compliance with the terms of the note. We are current with interest payments; no default provision has been invoked.

On December 31, 2013, the Company issued a note to an investor for $600,000 for which $411,000 of net proceeds were received. Of the $600,000; $60,000 was an original issue discount of 10% or $60,000, $110,000 was used to pay-off the October 2013 note held by the same investor and $19,000 was used for placement fees and legal expenses. No interest is payable if the $600,000 of principal is paid within three months from the date of this note. If the principal is not paid within that time frame, the note will bear 12% annual interest which accrues on the principal sum beginning March 30, 2014, with interest paid monthly, in arrears, on the last day of the month. Monthly payments of $6,000 per month will be due with first cash payment due April 30, 2014, and will continue until the amount due is paid. In addition to the interest, we agreed to deliver warrants to the lender for the purchase of up to 1,000,000 shares of common stock at an exercise price of $0.11 per share, with anti-dilution provisions covering capital stock changes affecting all shareholders, exercisable for 4 years from the date of issuance. In addition, the Company issued 145,000 shares of common stock. A debt discount of $162,093 was recorded representing the fair value of the warrants and the common stock issued and is being amortized over the term of the note which matures June 30, 2014. The fair value of the warrants was determined using the Black-Scholes pricing model with the following assumptions; dividend yield of 0%, expected volatility of 176.04%, a risk free rate of 1.72% and an expected life of 4 years. The Company also recorded deferred financing fees, of $19,600 representing agency fees which has been fully amortized to expense. The carrying values at December 31, 2014 and December 31, 2013 were $0 and $377,907 respectively. This note was paid in full with the proceeds of the May 30, 2014 financing discussed below.

(d) Note Payable - Innovisit

In conjunction with the purchase of intellectual property and certain other assets of Innovisit (See Note #6) on November 1, 2013, Lattice issued a promissory note for $590,000 to Icotech LLC, the owner of Innovisit.  Lattice agreed to pay to Icotech; (a) $250,000 on November 30, 2013, and four payments of $60,000 on each of January 1, 2014, April 30, 2014, July 31, 2014, and October 31, 2014; and final payment of $100,000 due and payable on January 31, 2015. The note bears no interest on the unpaid principal amount and is secured with the intellectual property acquired. The Company issued 500,000 common shares in lieu of the January 31, 2014 $60,000 installment payment under the note, and paid installments totaling $120,000 in cash, leaving a balance outstanding of $160,000 at December 31, 2014. 

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13 - Share-Based Payments (Details-Assumptions) (USD $)	12 Months Ended
	Dec. 31, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Expected Volatility	174.00%
Expected term	10 years
Fisk-Free interest rate	2.86%
Dividend yield	$ 0
Annual forfeiture rate	10.00%
Weighted-average estimated fair value of options granted	$ 0.1094

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21 - Subsequent Event

12 Months Ended

Dec. 31, 2014

Subsequent Events [Abstract]

Subsequent Event

Management is currently engaged in financing activities to properly capitalize and position the Company to execute its strategic growth plans. As part of these activities, during March, 2015, the Company issued a secured note to an investor for $500,000 for which $422,000 of net proceeds were received. Of the $500,000; $50,000 was an original issue discount or 10% and $28,000 was used for placement fees and legal expenses. Zero interest payable if $500,000 principal is paid within three months from the date of this Note; 14% annual interest accrues on the principal sum beginning June 19, 2015 if the principal remains outstanding, with interest paid monthly, in arrears, on the last day of the month, $5,833 per month with first cash payment due July 19, 2015, and will continue until the amount due is paid. The note is secured with accounts receivable related to service contracts. The net proceeds of $422,000 are to be used for working capital purposes. In addition to the interest, we agreed to deliver 625,000 restricted common shares to the lender.

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13 - Share-Based Payments (Tables)

12 Months Ended

Dec. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock option weighted-average assumptions

	2013
Expected Volatility		174	%
Expected term		10 years
Fisk-Free interest rate		2.86	%
Dividend yield		0	%
Annual forfeiture rate		10	%
Weighted-average estimated fair value of options granted	$	0.1094

Stock option activity

	Number of shares			Weighted Average Exercise price		Weighted Average Remaining Contractual term in Years		Aggregate Intrinsic Value
Outstanding at December 31, 2012		7,366,500		$	0.08		4.7	$	–
Granted		9,670,000		$	0.12		10.0
Exercised
Cancelled/expired		(92,000	)	$	0.08
Outstanding at December 31, 2013		16,944,500		$	0.10		2.1	$	–
Granted		–
Exercised		–
Cancelled/expired		(428,500	)	$	0.08
Outstanding at December 31, 2014		16,516,000		$	0.10		3.3	$	142,330
Vested and exercisable at December 31, 2014		10,519,500
Vested and exercisable at December 31, 2013		7,994,500

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14 - Benefit Plan

12 Months Ended

Dec. 31, 2014

Compensation and Retirement Disclosure [Abstract]

Benefit Plan

The Company has 401K plan which covers all eligible employees. The Company has a discretionary match of employee contributions. The Company made no contribution during the year ended December 31, 2014 or 2103.