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

The following discussion and analysis should be read in conjunction with the financial statements and notes thereto included elsewhere in this report and with our annual report on Form 10-K for the fiscal year ended December 31, 2008. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

GENERAL OVERVIEW

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

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

We derive substantially all of our revenues from governmental contracts under which we act as both a prime contractor and indirectly as a subcontractor. Revenues from government contracts accounted for approximately $3,506,525 or 92% of our overall revenues for the three months ended March 31, 2009. Of our total government contract revenues, approximately 90% were from Prime contract vehicles.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2008

REVENUES:

Total revenues for the three months ended March 31, 2009 increased by $216,977 or 6.0% to $3,807,883 compared to $3,590,906 for the three months ended March 31, 2008. Our Goverment Services segment which represents revenues from professional engineering services to Federal government Dept of Defense (DoD) agencies accounted for 92.1% of total revenues. The increase was mainly attributable to a formula based price increase on our cost plus contracts which is based on our projected indirect overhead costs relative to our direct labor costs. Cost plus contracts accounted for approximately 80% of our government service revenues for the quarter ended March 31, 2009.

GROSS MARGIN:

Gross margin for the three months ended March 31, 2009 was $1.252,719, an increase of $119,677or 10.6% compared to the $1,133,042 for three months ended March 31, 2008. Gross margin, as a percentage of revenues, increased to 32.9% from 31.6% for the same period in 2008. The increase in percentage was mainly due to a higher percentage (7.9%) of overall revenues attributable to higher margin technology products compared to 6.6% in the year ago period combined with an increase in our government service margins. Our government service margins were increased to 30.4% from 28.4% prior year. The increase was mainly attributable to the rate increase on our cost plus contract vehicles and higher margin on our subcontractor revenues partially offset by an unfavorable shift in revenue mix towards subcontractor revenues. Lower margin subcontractor revenues as a percentage of our total government services revenue was 58% versus 49% in the year ago quarter.

RESEARCH AND DEVELOPMENT EXPENSES:

Research and development expenses consist primarily of salaries and related personnel costs, and consulting fees associated with product development in our Technology Products segment. For the three months ended March 31, 2009, research and development expenses increased slightly to $152,494 as compared to $149,735 for the three months ended March 31, 2008. Management believes that continual enhancements of the Company's existing products are required to enable the Company to maintain its current competitive position.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:

Selling, General and administrative ("SG&A") expenses consist primarily of expenses for management, fringe benefits, indirect overhead, finance, administrative personnel, legal, accounting, consulting fees, sales commissions, marketing, facilities costs, corporate overhead and depreciation expense. For the three months ended March 31, 2009, SG&A expenses increased to $1,118,308 from $1,069,640 in the comparable period prior year. As a percentage of revenues, SG&A was 29.4% for the current quarter ended March 31, 2009 versus 29.8% in the comparable period a year ago. The increase in expense was mainly attributable to investments in sales and marketing staff late in the 4th quarter of 2008.

AMORTIZATION EXPENSES:

Non-cash amortization expenses related to intangible assets acquired in the acquisitions of RTI and SMEI are stated separately in our statement of operations.. Amortization expense for the three months ended March 31, 2009 was $299,248 compared to $372,057 for the three months ended March 31, 2008. The decrease is attributed to certain intangibles being fully amortized in 2008.

INTEREST EXPENSE:

Interest Expense increased to $76,191 for the three months ended March 31, 2009 compared to $50,821 for the three months ended March 31, 2008. Interest expense in 2009 was comprised primarily of interest charges on its revolving line-of-credit and short term notes. The increase is attributed to higher interest rate we pay on our line of credit versus prior year level combined with interest expense incurred on the RTI note.

DERIVATIVE INCOME (EXPENSE):

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

                                Three months         Three months
                                   ended                ended
                               March 31, 2009       March 31, 2008
Derivative income (expense)
Conversion features           $                    $
Warrant derivative            $       (172,443 )   $        179,667

NET INCOME:

The Company's net loss for the three months ended March 31, 2009 was $403,081compared to net loss of $128,366 for the three months ended March 31, 2008. Net income is influenced by the matters discussed in the other sections of this MD&A. However, it should be noted that the net income in the current quarter included non-cash derivative expense of $172,433 versus a non-cash derivative gain of 179,667 in the prior year quarter accounting for $352,000 unfavorable impact to net income when making a prior year comparison.

LIQUIDITY AND CAPITAL RESOURCES

Going concern considerations:

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The going concern basis was due to the Company's historical negative operating cash flow and losses. For the three months ended March 31, 2009 we had negative operating cash of $189,516. and the Company's working capital deficiency at March 31, 2009 of $737,645 including non-cash derivative liabilities of $373,049. These conditions raise doubt regarding the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon its ability to improve near term operating performance; obtain advances under its accounts receivable factoring agreement and to obtain adequate alternative financing sufficient enough to support operations until the necessary operating improvements are made.

On March 11, 2009, Lattice Incorporated (the "Company") entered into an Accounts Receivable Purchase Agreement (the "Agreement") with Republic Capital Access, LLC ("Republic Capital"). The Agreement shall terminate on December 31, 2009 unless otherwise extended by the parties. The maximum amount of receivables purchased under the Agreement shall not exceed $2,500,000.

Pursuant to the terms of the Agreement, Republic Capital agreed to purchase certain eligible receivables of the Company (the "Eligible Receivables") at an initial purchase price equal to 90% of the face amount of the Eligible Receivables (the "Initial Purchase Price"). Within 2 days of the collection of the Eligible Accounts (the "Residual Payment Date"), Republic Capital shall pay the Company an amount equal to the total amount collected less the sum of (i) the Initial Purchase Price; (ii) the Discount Factor (as defined below) owed with respect to the purchased receivable; and (iii) the total of all accrued and unpaid Program Access Fees. On each Residual Payment Date, Republic Capital is entitled to deduct from any collections an amount equal to 0.35% of the face amount of the purchased receivable (the "Discount Factor"). Upon execution of the Agreement, the Company paid Republic Capital an enrollment fee of $12,500. Further, on each Residual Payment Date, an amount equal to the sum of 0.0226% of the daily ending account balance for each day during the applicable period shall be deducted from the amount collected (the "Program Access Fee"). In addition, pursuant to the terms of the Agreement, the Company shall pay Republic Capital a quarterly fee equal to $2,500 if the average account balance for each day is less than $1,500,000.On March 20, 2008, Lattice Incorporated (the "Company") paid off the outstanding balance on its line of credit of $1,465,076 with Private Bank with $800,000 from its cash reserves and the remaining $665,076 advanced by Republic Capital Access. ("RCA").

Working capital and other activities:

The Company's working capital deficiency as of March 31, 2009 amounts to $737,645 compared to a deficiency of $401,614 as of December 31, 2008. Included in the deficiency was $373,049 and $200,606 of non-cash derivative liabilities respectively. Excluding derivative liabilities, at March 31, 2009 our current assets of $3,758,000 compared to current liabilities of $4,122,861.

For the three month period ended March 31, 2009, cash and cash equivalents decreased to $373,664 from $1,363,130 at December 31, 2008 primarily due to the repayment of approximately $755,000 on the Private Bank line of credit.

Net cash used by operating activities was $189,516 for the three months ended March 31, 2009 compared to net cash used for operating activities of $256,551 in the corresponding three month period ended March 31, 2008.

Net cash used by financing activities was $796,950for the three months ended March 31, 2008 compared to net cash provided by financing of $571,407 in the corresponding three months ended March 31, 2008.

Non-current liabilities at March 31, 2009 totaled $487,000 compared to $1,766,098 at December 31, 2008. The decrease is primarily due to the repayment of the Private Bank line of credit.

The Company's negative cash flow from operations of $189,516 for the three months endedMarch 31, 2009 has been mainly financed by the reduction in the Company's cash and cash equivalents.

The following discussion and analysis should be read in conjunction with the financial statements and notes thereto included elsewhere in this report and with our annual report on Form 10-K for the fiscal year ended December 31, 2008. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

OFF BALANCE SHEET ARRANGEMENTS:

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