Note 3 - Notes payable

Notes payable consists of the following as of June 30, 2011 and December 31, 2010:

	June 30, 2011			December 31, 2010

Bank line-of-credit (a)	$	156,214		$	259,826
Note Payable – (b)		-			531,000
Notes payable to Stockholder/director (c)		145,514			159,260
Capital lease payable (d)		27,398			53,054
Note Payable (e)		1,250,000			1,250,000
Notes payable Cummings Creek/CLR (f)		641,725			-
Note Payable – stockholder (g)		200,000			-
Total notes payable		2,420,851			2,253,140
Less current maturities		(1,713,113	)		(885,592	)
Long-term debt	$	707,738		$	1,367,548

(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 of Wachovia Bank, N.A. 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.

In addition, pursuant to the Action Agreement, the Company granted Action Capital a security interest in certain assets of the Company including all, accounts receivable, contract rights, rebates and books and records pertaining to the foregoing (the “Action Lien”). On June 11, 2010, Action Capital and I. Wistar Morris entered into an agreement under which $1,250,000 of the collateral otherwise securing advances covered by the Action Agreement are subordinated to a new security interest securing an additional loan from Morris.

The outstanding balance owed on the line at June 30, 2011 and December 31, 2009 was $156,214 and $259,826 respectively. At June 30, 2011 our interest rate was approximately 13.25%.

(b) Note Payable

In February 2010 (“effective date”) the former RTI shareholders assigned their interest in the note to a third party, at which time the Company amended the terms of the note to pay interest only and extend the maturity for 18 months with a balloon payment on August 19, 2012. The holder has a call option on the principal balance of $531,000 which includes $31,000 in deferred financing fees after twelve months from the effective date upon written notification 45 days in advance. The call option was exercised and the note was paid in full during the quarter ended March 31, 2011. The balance at June 30, 2011 and December 31, 2010 was $0 and $531,000 respectively.

The Company has a term note payable with a director of the Company totaling $145,514 and $159,260 at June 30, 2011 and December 31, 2010, respectively. The 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 will be paid.

(d) Capital Lease Payable

On June 16, 2009 Lattice entered an equipment lease financing agreement with Royal Bank America Leasing to purchase approximately $130,000 in equipment for our communication services. The terms of which included monthly payments of $5,196 per month over 32 months and a $1.00 buy-out at end of the lease term. As of June 30, 2011 and December 31, 2010, the outstanding balance was $27,398 and $53,055, respectively.

(e) Note 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 is being amortized over the life of the note as additional interest expense. The note matures June 30, 2012 and payment of principal will be due at that time in the lump sum value of $1,250,000 including any unpaid interest. 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 June 30, 2012 totaling $1,287,500 including the final interest payment. The note is secured by certain receivables totaling $1,250,000. 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 $1,250,000. As of the date of this filing, the Company is current with all interest payments.

(f) Notes payable Cummings Creek / CLR

In conjunction wth the Cumming Creek Capital / CLR acquisition, Lattice assumed notes totaling $699,300 comprised of three notes each with the former principles of CLR Group. The notes bear interest on the unpaid principal amount until paid in full, at a rate of four percent (4.0%) per annum payable quarterly. The Company will pay the unpaid principal amount as follows: beginning on May 31, 2011, the Company will make equal payments of principal on the first day of each calendar quarter totaling $58,275 (i.e., January 1, April 1, July 1 and October 1), until February 15, 2014. The Company paid the initial quarterly principal payments totaling $58,275 on May 31, 2011. Accordingly, the unpaid balance of the notes totaled $641,725 at June 30, 2011.

(g) – Note Payable – stockholder

During the quarter, we issued a two year promissory note payable for $200,000 to a shareholder of the Company. The Note bear s interest of 12% per year The Company is required to pay interest quarterly on a calendar basis starting with a pro-rata interet payment on June 30, 2011. On May 15, 2013 the maturity date, the principal amount of $200,000 will be due along with any unpaid and accrued interest.