x
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ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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¨
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Delaware
|
20-2027651
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(State
or other jurisdiction
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(I.R.S.
Employer Identification No.)
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of
incorporation or organization)
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7226
Lee DeForest Drive, Suite 203
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21046
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Columbia,
MD
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(Zip
Code)
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(Address
of principal executive offices)
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Title of each class
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Name of each exchange on
which registered
|
||
Common
stock, $.0001 par value per share
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NASDAQ Capital Market
|
||
Warrants
to purchase common stock, $.0001 par value per share
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NASDAQ
Capital Market
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||
Units,
each consisting of one share of common stock, $.0001 par value and two
warrants to purchase shares of common stock, $.0001 par
value
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NASDAQ
Capital
Market
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Large
accelerated filer o
|
Accelerated
filer o
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Non-accelerated
filer o
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[Do not check if a smaller
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Smaller
reporting company x
|
reporting
company]
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Page
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PART
I
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|||
Item
1.
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Business
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7
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Item
1A.
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Risk
Factors
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16
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Item
1B.
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Unresolved
Staff Comments
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26
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Item
2.
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Properties
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26
|
|
Item
3.
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Legal
Proceedings
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26
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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26
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PART
II
|
|||
Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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27
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Item
6.
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Selected
Financial Data
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28
|
|
Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
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28
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Item
7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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39
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|
Item
8.
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Financial
Statements and Supplementary Data
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40
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|
Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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41
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Item
9A(T).
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Controls
and Procedures
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41
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|
Item
9B.
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Other
Information
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42
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PART
III
|
|||
Item
10.
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Directors,
Executive Officers and Corporate Governance
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42
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Item
11.
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Executive
Compensation
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42
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|
Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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42
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Item
13.
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Certain
Relationships and Related Transactions and Director
Independence
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42
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Item
14.
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Principal
Accounting Fees and Services
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42
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PART
IV
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|||
Item
15.
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Exhibits,
Financial Statement Schedules
|
43
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Signatures
|
47
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·
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our mission-critical services
business, its advantages and our strategy for continuing to pursue our
business;
|
·
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anticipated dates on which we
will begin providing certain services or reach specific milestones in the
development and implementation of our business
strategy;
|
·
|
expectations as to our future
revenue, margin, expenses, cash flows and capital
requirements;
|
·
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expectations as to our
materialization of our
backlog;
|
·
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our
integration of acquired businesses;
|
·
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the amount of cash available to
us to execute our business
strategy;
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·
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continued compliance with
government regulations;
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·
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statements about industry
trends;
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·
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geopolitical events and
regulatory changes; and
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·
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other statements of expectations,
beliefs, future plans and
strategies.
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·
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implement our strategic plan,
including our ability to make acquisitions and the performance and future
integration of acquired
businesses;
|
·
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deliver services and products
that meet customer demands and generate acceptable
margins;
|
·
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increase sales volume by
attracting new customers, retaining existing customers and growing the
overall number of customers to minimize a significant portion of our
revenues being dependent on a limited number of
customers;
|
·
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risks relating to revenues and
backlog under customer contracts, many of which can be cancelled on short
notice;
|
·
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manage
and meet contractual terms of complex
projects;
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·
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uncertainty related to current
economic conditions;
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·
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attract
and retain qualified management and other
personnel;
|
·
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demand
for our services and products;
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·
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meet
all of the terms and conditions of our debt obligations;
and
|
·
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our
liquidity.
|
|
·
|
competitive
utility rate analysis in deregulated
areas;
|
|
·
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obtaining
energy certificates and carbon offset certificates for capital
expenditures on both renewable energy based initiatives as well as
replacement initiatives; and
|
|
·
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participation
in demand response programs.
|
|
·
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energy
audits;
|
|
·
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facility
consolidation; and
|
|
·
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performance
based contracting initiatives that create capital from energy
savings on replacement
projects.
|
|
IT
Solutions. These services are partially performed by our in-house
staff and done in conjunction with our teaming partners and
include:
|
|
·
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Data
center strategic planning;
|
|
·
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Data
center optimization;
|
|
·
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Virtualization
and consolidation of servers and storage devices;
and
|
|
·
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Data
center relocation planning and
implementation.
|
|
·
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Assisting
customers with disposal and acquisition of mission-critical
assets;
|
|
·
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Site
assessments, evaluation and
selection;
|
|
·
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Conceptual
design and in depth budget and cost
analysis;
|
|
·
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Financial
modeling and market research;
|
|
·
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Utility
assessment;
|
|
·
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Telecommunication
service assessment;
|
|
·
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Cost
and payback analysis; and
|
|
·
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Phased
investment strategy for development of speculative
space.
|
|
·
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Finding
sale and lease back alternatives for our
customers;
|
|
·
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Matching
customers up with leasing partners to finance major equipment
purchases;
|
|
·
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Finding
equity partners for our customers developing speculative projects;
and
|
|
·
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Performance
contract financing for gy related capital
projects.
|
·
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Focus on
selling consulting services. Our past experience in
selling project-related services has demonstrated the importance of
focusing on the sale of consulting business at the top of the Solutions
Path. Focusing on the top of the Solutions Path offers the following
advantages applicable to government, government-related and commercial
customers:
|
·
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Develop a customer relationship
at the initiation of a project, therefore maximizing the sales
opportunity;
|
·
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Because consulting engagements
are less expansive than project-wide engagements, purchase authority often
resides at lower levels of management, which increases probability of
closure;
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·
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Limit exposure to competition
since the fee is relatively low and the services are in specialized areas
where we can demonstrate our technical depth and expertise in
mission-critical facilities to the
customer;
|
·
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Increase the probability of
conversion (selling subsequent phases) because the customer is comfortable
with the performance and price of initial services;
and
|
·
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Position us on the “customer’s
side of the table,” which teams us with the customer on a
consolidated mission and distinguishes us from typical contractors
and firms associated with equipment
suppliers.
|
·
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Growing
Professional Sales Staff. To drive growth in revenues,
we have expanded our sales staff to include account executives for
existing and future regional sales offices. We intend to
pursue select account executives and additional sales staff built
around our project execution model. Each sales professional is
responsible for achieving specific objectives and is managed
closely.
|
·
|
Maintaining
and Enhancing Key Alliances. Maintaining key alliances is
also crucial to sales development and growth and often provides us with
introductions to the customers of our alliance partners. These alliances
reside with IT consulting firms, specialty mission-critical engineering
firms, application service providers and internet service providers. Key
alliance opportunities also reside in other firms within the market sector
such as equipment manufacturers, product suppliers, property management
firms, developers, IT system integrators and firmware providers. In
addition, we seek to maintain alliances and enter into teaming or
partnering relationships with minority contracting firms and hub zone
companies. These firms are natural alliance partners and can provide us
with valuable entry into government contracting relationships. In turn, we
can provide these contractors and hub zone companies with valuable
mission-critical design, engineering, and contracting experience to which
they might not otherwise have access. We have entered into several key
strategic alliances with large IT corporations to provide engineering,
design, and construction management
services.
|
·
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Geographic
Expansion and Strategic Acquisitions. We believe that expanding our
presence in additional markets through establishing regional offices is a
key to our future success. Our acquisitions of Comm Site, Innovative,
Rubicon, and SMLB expand our presence in the Washington D.C. metro area,
Boston, New York/New Jersey, Atlanta, Houston, Miami
and Chicago. Our acquisitions have expanded our customer
base, allowed us to offer a broader scope of services and supported our
current growth in technology consulting projects. In the future, we intend
to pursue strategic acquisitions that cost-effectively add new customers,
regional coverage, specific federal agency contracting experience, or
complementary expertise to accelerate our access to existing or new
markets.
|
·
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Establishing
a National Operations Center. A significant part of our
strategy for growth in our facilities management services business was to
establish and maintain a National Operations Center (“NOC”) to service
customers on a nationwide basis. A NOC is a central location for
monitoring the customer’s critical infrastructure systems, addressing
alarm conditions within these systems, and controlling certain systems via
remote interface.
|
·
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Marketing
Initiatives.
We have expanded our current localized marketing campaign
to a regional and national level. This will involved intensifying the
marketing of our consulting and engineering services to private sector end
users, major government contractors, and existing and potential alliance
partners on regional and national basis through a focused marketing
program, involving:
|
·
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Selected
media advertising;
|
·
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Trade
show attendance;
|
·
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Conducting
technical seminars in local target markets;
and
|
·
|
Producing
a marketing campaign for distribution at a national
level.
|
Name
|
Age
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Position with the Company
|
||
Harvey
L. Weiss
|
66
|
Vice-Chairman
of the Board
|
||
Thomas
P. Rosato
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57
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Chief
Executive Officer and Director
|
||
Gerard
J. Gallagher
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52
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President,
Chief Operating Officer and Director
|
||
Timothy
C. Dec
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50
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Chief
Financial Officer
|
•
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demands
on management related to the increase in our size after the
acquisition;
|
•
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the
disruption of ongoing business and the diversion of management’s attention
from the management of daily operations to the integration of
operations;
|
•
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failure
to fully achieve expected synergies and costs
savings;
|
|
|
•
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unanticipated
impediments in the integration of departments, systems, including
accounting systems, technologies, books and records and procedures, as
well as in maintaining uniform standards, controls, including internal
control over financial reporting required by the Sarbanes-Oxley Act of
2002, procedures and policies;
|
•
|
loss
of customers or the failure of customers to contract for incremental
services that we expect them to
contract;
|
•
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failure
to perform services that are contracted by customers during the
integration period;
|
•
|
higher
integration costs than anticipated;
and
|
|
|
•
|
difficulties
in the assimilation and retention of highly qualified, experienced
employees, many of whom are geographically
dispersed.
|
·
|
we do not achieve the perceived
benefits of each acquisition as rapidly as, or to the extent anticipated
by, financial or industry analysts;
or
|
·
|
the effect of the acquisitions on
our financial results is not consistent with the expectations of financial
or industry analysts.
|
·
|
our customers cancel a
significant number of
contracts;
|
·
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we fails to win a significant
number of its existing contracts upon re-bid;
or
|
·
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we complete the required work
under a significant number of our non-recurring projects and cannot
replace them with similar
projects.
|
·
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Fluctuations in revenue earned on
contracts;
|
·
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Commencement, completion and
termination of contracts, especially contracts relating to our major
customers;
|
·
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Declines in backlog that are not
replaced;
|
·
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Additions and departures of key
personnel;
|
·
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Strategic
decisions by us and our competitors, such as acquisitions, divestitures,
spin-offs, joint ventures, strategic investments and changes in business
strategy;
|
·
|
General
economic conditions;
|
·
|
Contract mix and the extent of
subcontractor use; and
|
·
|
Any seasonality of our
business.
|
•
|
lack
of developed legal systems to enforce contractual
rights;
|
•
|
greater
risk of uncollectible accounts and longer collection
cycles;
|
•
|
currency
exchange rate fluctuations;
|
•
|
imposition
of governmental controls;
|
•
|
political
and economic instability;
|
•
|
changes
in U.S. and other national government policies affecting the markets for
our services;
|
•
|
changes
in regulatory practices, tariffs and
taxes;
|
•
|
potential
non-compliance with a wide variety of non-U.S. laws and regulations;
and
|
•
|
general
economic and political conditions in these foreign
markets.
|
Item
1B.
|
UNRESOLVED
STAFF COMMENTS
|
Item
2.
|
PROPERTIES
|
Item
3.
|
LEGAL
PROCEEDINGS
|
Item
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
Votes
For
|
Votes
Withheld
|
|||||||
C.
Thomas McMillen
|
8,787,627 | 1,235,579 | ||||||
Thomas
P. Rosato
|
8,780,354 | 1,242,852 | ||||||
John
Morton, III
|
9,939,283 | 83,923 |
Item
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Common Stock
|
Warrants
|
Units
|
||||||||||||||||||||||
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
||||||||||||||||||
Year ended December 31, 2008
|
||||||||||||||||||||||||
First
Quarter
|
$ | 4.85 | $ | 3.85 | $ | 0.55 | $ | 0.36 | $ | 6.00 | $ | 4.75 | ||||||||||||
Second
Quarter
|
$ | 5.04 | $ | 2.35 | $ | 0.44 | $ | 0.13 | $ | 5.57 | $ | 2.55 | ||||||||||||
Third
Quarter
|
$ | 2.70 | $ | 1.20 | $ | 0.13 | $ | 0.02 | $ | 2.55 | $ | 1.30 | ||||||||||||
Fourth
Quarter
|
$ | 1.74 | $ | 0.80 | $ | 0.04 | $ | 0.01 | $ | 1.74 | $ | 0.65 | ||||||||||||
Year
ended December 31, 2007
|
||||||||||||||||||||||||
First
Quarter
|
$ | 5.70 | $ | 5.23 | $ | 0.94 | $ | 0.20 | $ | 7.50 | $ | 6.00 | ||||||||||||
Second
Quarter
|
$ | 5.60 | $ | 4.91 | $ | 0.95 | $ | 0.57 | $ | 7.36 | $ | 6.04 | ||||||||||||
Third
Quarter
|
$ | 6.53 | $ | 5.13 | $ | 1.80 | $ | 0.63 | $ | 10.00 | $ | 6.50 | ||||||||||||
Fourth
Quarter
|
$ | 6.06 | $ | 4.77 | $ | 1.30 | $ | 0.47 | $ | 8.50 | $ | 6.00 |
Item
6.
|
SELECTED
FINANCIAL DATA
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
December 31,
|
December 31,
|
|||||||
2008
|
2007
|
|||||||
Technology
consulting
|
$ | 4.0 | $ | 3.9 | ||||
Construction
management
|
48.7 | 154.1 | ||||||
Facilities
management
|
10.5 | 14.9 | ||||||
Total
|
$ | 63.2 | $ | 172.9 |
Successor
|
Predecessor
|
|||||||||||
For the period
|
||||||||||||
For the Year Ended December 31,
|
January 1, to
|
|||||||||||
2008
|
2007
|
January 19, 2007
|
||||||||||
Revenue
|
$ | 0.4 | $ | 0.4 | $ | - | ||||||
Cost
of revenue
|
3.9 | 4.3 | 0.1 | |||||||||
Selling,
general and administrative
|
0.7 | 0.6 | - |
Successor
|
Predecessor
|
|||||||||||
For the period
|
||||||||||||
For the Year Ended December 31,
|
Janaury 1, to
|
|||||||||||
2008
|
2007
|
January 19, 2007
|
||||||||||
Cash
provided by (used in) operations
|
$ | 3,814,499 | $ | (4,554,792 | ) | $ | 656,001 | |||||
Cash
provided by (used in) investing
|
(2,364,384 | ) | 26,286,893 | (127,602 | ) | |||||||
Cash
provided by (used in) financing
|
(2,174,168 | ) | (8,567,238 | ) | (1,567,920 | ) | ||||||
Net
increase (decrease) in cash
|
$ | (724,053 | ) | $ | 13,164,863 | $ | (1,039,521 | ) |
Successor
|
||||||||||||
For the Year Ended December
31,
|
||||||||||||
2008
|
2007
|
Change
|
||||||||||
Net
loss
|
$ | (32,934,225 |
)
|
$ | (7,377,111 |
)
|
$ | (25,557,114 |
)
|
|||
Adjustments
to reconcile net loss to net cash provided by (used in)
operations:
|
||||||||||||
Impairment
loss on goodwill and other intangibles
|
25,989,943 | - | 25,989,943 | |||||||||
Amortization
of intangibles
|
3,344,804 | 2,562,741 | 782,063 | |||||||||
Stock
and warrant-based compensation
|
2,031,496 | 1,405,728 | 625,768 | |||||||||
Other
non-cash items
|
603,134 | (247,228 |
)
|
850,362 | ||||||||
Net
adjustments to reconcile net income for non-cash items
|
31,969,377 | 3,721,241 | 28,248,136 | |||||||||
Net
change in working capital
|
4,779,347 | (898,922 |
)
|
5,678,269 | ||||||||
Cash
provided by (used in) operations
|
3,814,499 | (4,554,792 |
)
|
8,369,291 | ||||||||
Cash
provided by (used in) investing
|
(2,364,384 |
)
|
26,286,893 | (28,651,277 |
)
|
|||||||
Cash
used in financing
|
(2,174,168 |
)
|
(8,567,238 |
)
|
6,393,070 | |||||||
Net
increase (decrease) in cash
|
$ | (724,053 |
)
|
$ | 13,164,863 | $ | (13,888,916 |
)
|
·
|
Increase in
net loss. We had a
$25.6 million increase in our net loss due to $28.2 million of
increased non-cash items consisting primarily of amortization, impairment
loss on goodwill and other intangibles and stock based compensation.
Excluding non-cash items, our net loss decreased $2.7 million from the
preceding year. This improvement in operating cash flows is
primarily attributable to the increased volume in the construction
management revenue and the addition of Innovative and Rubicon, while
maintaining a relatively fixed-cost infrastructure for most of the
year.
|
·
|
Decrease in
working capital. Net
changes in operating assets and liabilities increased approximately $5.7
million accounting for the remaining increase in operating cash flows. The
increase was attributable primarily to $4.5 million associated with
unusual timing on contracts. We received more cash receipts close to
year-end not allowing the corresponding payments to vendors to be made.
Management generally seeks to balance customer and vendor cash flows via
contractual terms standard to our
industry.
|
·
|
Acquisitions. Cash used
for acquisitions decreased $15.9 million as we acquired a single company
with a net cash investment of $2.0 million in the year ended December 31,
2008, compared to the acquisition of four companies with a net cash
investment of $18.1 million in the year ended December 31, 2007, resulting
in a net cash investment of approximately $18.0 million. We abandoned
acquisition efforts in 2008 due to the contraction in the economy and
credit markets.
|
·
|
Sale of
investments held in Trust. Upon the approval of the
TSS/Vortech acquisition in 2007, we sold approximately $44.7 million
in trust investments to fund the cash portion the acquisition of
TSS/Vortech and related operations, and repay dissenting shareholders
electing to receive their IPO proceeds
back.
|
·
|
Repayment of
seller notes. Debt services was
approximately $2.2 million in both 2008 and 2007. During the year ended
December 31, 2008, we repaid $2.0 million of unsecured promissory
notes that were issued to the Rubicon sellers upon achievement of certain
financial targets at December 31, 2007 and June 30,
2008.
|
·
|
Repurchase of common
stock. During the first quarter of 2007, we used $6.4 million to
repurchase our common stock associated with the election of
conversion rights by our dissenting shareholders in connection with
our acquisition of TSS/Vortech and a share buyback program. The share
buyback program was suspended in the third quarter of 2007;
however, during 2008, we repurchased 17,505 shares at an average
price of $3.15 per share for employee taxes associated with net issuance
of vesting restricted stock.
|
Less
than
|
||||||||||||
Total
|
1 Year
|
1-3 Years
|
||||||||||
Long-term
debt, including interest
|
$ | 6,707,940 | $ | 1,823,665 | $ | 4,884,275 | ||||||
Operating
leases
|
2,257,416 | 922,820 | 1,334,596 | |||||||||
Contractual
purchase commitments
|
36,006,335 | 36,006,335 | - | |||||||||
Total
|
$ | 44,971,691 | $ | 38,752,820 | $ | 6,218,871 |
Item
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Item
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Index to Financial Statements and Financial Statement Schedule
|
Number
|
|||
Financial
Statements:
|
||||
Reports
of Independent Registered Public Accounting Firm
|
F-1 | |||
Consolidated
Balance Sheets as of December 31, 2008 and December 31,
2007
|
F-3 | |||
Consolidated
Statements of Operations for the years ended December 31, 2008 (Successor)
and December 31, 2007 (Successor), and for the period from January 1, 2007
through January 19, 2007 (Predecessor)
|
F-4 | |||
Consolidated
Statements of Stockholders’ Equity for the years ended December 31, 2008
(Successor) and December 31, 2007 (Successor) and Consolidated
Statements of Members’ Equity for the period from January 1,
2007 through January 19, 2007 (Predecessor).
|
F-5 | |||
Consolidated
Statements of Cash Flows for the years ended December 31, 2008 (Successor
and December 31, 2007 (Successor) and for the period from January 1, 2007
through January 19, 2007 (Predecessor)
|
F-6 | |||
Notes
to Consolidated Financial Statements
|
F-7 | |||
Financial
Statement Schedules:
|
||||
Schedule
- II Valuation Accounts
|
43 |
/s/ GRANT THORNTON LLP
|
|
Baltimore,
Maryland
|
|
March
31, 2009
|
/s/ GRANT THORNTON LLP
|
|
Baltimore,
Maryland
|
|
March
28, 2008
|
Successor (Fortress International Group, Inc.)
|
||||||||
December 31,
|
December 31,
|
|||||||
2008
|
2007
|
|||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 12,448,157 | $ | 13,172,210 | ||||
Contract
and other receivables, net
|
21,288,660 | 18,349,140 | ||||||
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
3,742,530 | 1,322,254 | ||||||
Prepaid
expenses and other current assets
|
539,124 | 301,487 | ||||||
Income
taxes receivable
|
- | 893,322 | ||||||
Total
current assets
|
38,018,471 | 34,038,413 | ||||||
Property
and equipment, net
|
824,487 | 1,044,545 | ||||||
Goodwill
|
4,811,000 | 20,714,967 | ||||||
Intangible
assets, net
|
13,559,234 | 21,089,136 | ||||||
Other
assets
|
225,853 | 512,000 | ||||||
Total
assets
|
$ | 57,439,045 | $ | 77,399,061 | ||||
Liabilities
and Stockholders’ Equity
|
||||||||
Current
Liabilities
|
||||||||
Notes
payable, current portion
|
$ | 1,688,845 | $ | 1,650,306 | ||||
Accounts
payable and accrued expenses
|
24,394,990 | 16,121,492 | ||||||
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
6,047,765 | 3,880,279 | ||||||
Total
current liabilities
|
32,131,600 | 21,652,077 | ||||||
Notes
payable, less current portion
|
311,709 | 348,661 | ||||||
Convertible
notes
|
4,000,000 | 7,500,000 | ||||||
Other
liabilities
|
137,198 | 44,648 | ||||||
Total
liabilities
|
36,580,507 | 29,545,386 | ||||||
Commitments
and Contingencies
|
- | - | ||||||
Stockholders’
Equity
|
||||||||
Preferred
stock- $.0001 par value; 1,000,000 shares authorized; no shares issued or
outstanding
|
- | - | ||||||
Common
stock- $.0001 par value, 100,000,000 shares authorized; 12,797,296 and
12,150,400 issued; 12,621,716 and 11,992,325 outstanding at December
31, 2008 and December 31, 2007, respectively
|
1,279 | 1,214 | ||||||
Additional
paid-in capital
|
61,262,218 | 55,268,012 | ||||||
Treasury
stock, 175,580 and 158,075 shares at cost at December 31, 2008 and
December 31, 2007, respectively
|
(869,381 | ) | (814,198 | ) | ||||
Accumulated
deficit
|
(39,535,578 | ) | (6,601,353 | ) | ||||
Total
stockholders' equity
|
20,858,538 | 47,853,675 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 57,439,045 | $ | 77,399,061 |
Predecessor
|
||||||||||||
For the period
|
||||||||||||
January 1,
|
||||||||||||
Successor for the Year Ended December 31,
|
through
|
|||||||||||
2008
|
2007
|
January 19, 2007
|
||||||||||
Results
of Operations:
|
||||||||||||
Revenue
|
$ | 102,531,778 | $ | 50,455,823 | $ | 1,412,137 | ||||||
Cost
of revenue
|
86,734,358 | 42,071,361 | 1,108,276 | |||||||||
Gross
profit
|
15,797,420 | 8,384,462 | 303,861 | |||||||||
Operating
expenses:
|
||||||||||||
Selling,
general and administrative
|
19,240,300 | 14,563,111 | 555,103 | |||||||||
Depreciation
and amortization
|
468,094 | 394,913 | 33,660 | |||||||||
Amortization
of intangibles
|
2,762,045 | 2,109,222 | - | |||||||||
Impairment
loss on goodwill and other intangibles
|
25,989,943 | - | - | |||||||||
Total
operating costs
|
48,460,382 | 17,067,246 | 588,763 | |||||||||
Operating
loss
|
(32,662,962 | ) | (8,682,784 | ) | (284,902 | ) | ||||||
Interest
income (expense), net
|
(205,652 | ) | 806,518 | 3,749 | ||||||||
Loss
from operations before income taxes
|
(32,868,614 | ) | (7,876,266 | ) | (281,153 | ) | ||||||
Income
tax expense (benefit)
|
65,611 | (499,155 | ) | - | ||||||||
Net
loss
|
$ | (32,934,225 | ) | $ | (7,377,111 | ) | $ | (281,153 | ) | |||
Per
Common Share (Basic and Diluted):
|
||||||||||||
Basic
and diluted net income (loss) (1)
|
$ | (2.68 | ) | $ | (0.63 | ) | $ | - | ||||
Weighted
average common shares outstanding-basic and diluted
|
12,270,546 | 11,698,895 | - |
(Accumulated
|
||||||||||||||||||||||||||||
Additional
|
Deficit)
|
Total
|
||||||||||||||||||||||||||
Common Stock
|
Paid-in
|
Treasury Stock
|
Retained
|
Shareholders'
|
||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Shares
|
Amount
|
Earnings
|
Equity
|
||||||||||||||||||||||
Balance
at January 1, 2007
|
9,550,000 | $ | 955 | $ | 34,819,062 | - | $ | - | $ | 775,758 | $ | 35,595,775 | ||||||||||||||||
Issuance
of common stock related to acquisitions
|
2,831,968 | 283 | 15,463,276 | - | - | - | 15,463,559 | |||||||||||||||||||||
Purchase
of treasury stock 379,075, retired 221,000 shares
|
(221,000 | ) | (22 | ) | (1,221,795 | ) | 158,075 | (814,198 | ) | - | (2,036,015 | ) | ||||||||||||||||
Reclassify
common stock subject to possible redemption 1,559,220
shares
|
- | - | 8,388,604 | - | - | - | 8,388,604 | |||||||||||||||||||||
Repurchase
of shares from dissenting shareholders, net of tax effect of deferred
interest
|
(756,100 | ) | (76 | ) | (4,160,289 | ) | - | - | - | (4,160,365 | ) | |||||||||||||||||
Discount
received on repayment of promissory note to officer
|
- | - | 500,000 | - | - | - | 500,000 | |||||||||||||||||||||
Warrant
exercise
|
14,700 | 1 | 73,499 | - | - | - | 73,500 | |||||||||||||||||||||
Stock
based compensation
|
730,832 | 73 | 1,405,655 | - | - | - | 1,405,728 | |||||||||||||||||||||
Net
loss for the year
|
- | - | - | - | - | (7,377,111 | ) | (7,377,111 | ) | |||||||||||||||||||
Balance
at December 31, 2007
|
12,150,400 | 1,214 | 55,268,012 | 158,075 | (814,198 | ) | (6,601,353 | ) | 47,853,675 | |||||||||||||||||||
Issuance
of common stock for the SMLB acquisition
|
96,896 | 10 | 462,765 | - | - | - | 462,775 | |||||||||||||||||||||
Promissory
note due to officers converted to stock
|
466,667 | 47 | 3,499,953 | - | - | - | 3,500,000 | |||||||||||||||||||||
Purchase
of treasury stock
|
- | - | - | 17,505 | (55,183 | ) | - | (55,183 | ) | |||||||||||||||||||
Stock
based compensation
|
83,333 | 8 | 2,031,488 | - | - | - | 2,031,496 | |||||||||||||||||||||
Net
loss for the year
|
- | - | - | - | - | (32,934,225 | ) | (32,934,225 | ) | |||||||||||||||||||
Balance
at December 31, 2008
|
12,797,296 | $ | 1,279 | $ | 61,262,218 | 175,580 | $ | (869,381 | ) | $ | (39,535,578 | ) | $ | 20,858,538 |
Predecessor
|
||||
Members'
|
||||
Equity
|
||||
Balance
at January 1, 2007
|
$ | 3,732,115 | ||
Distributions
|
(1,561,639 | ) | ||
Net
loss for the period
|
(281,153 | ) | ||
Balance
at January 19, 2007
|
$ | 1,889,323 |
Predecessor
|
||||||||||||
For the period
|
||||||||||||
January 1,
|
||||||||||||
Successor for the Year Ended December 31,
|
through
|
|||||||||||
2008
|
2007
|
January 19, 2007
|
||||||||||
Cash Flows from Operating Activities:
|
||||||||||||
Net loss
|
$ | (32,934,225 | ) | $ | (7,377,111 | ) | $ | (281,153 | ) | |||
Adjustments to
reconcile net loss to net cash provided by (used
in) operating activities:
|
||||||||||||
Depreciation
and amortization
|
468,094 | 394,913 | 33,660 | |||||||||
Amortization
of intangibles
|
3,344,804 | 2,562,741 | - | |||||||||
Impairment
loss on goodwill and other intangibles
|
25,989,943 | - | - | |||||||||
Allowance
for doubtful accounts
|
119,728 | 79,611 | - | |||||||||
Stock
and warrant-based compensation
|
2,031,496 | 1,405,728 | - | |||||||||
Benefit
from income taxes
|
- | (499,155 | ) | - | ||||||||
Other
non-cash income, net
|
15,312 | (222,597 | ) | - | ||||||||
Changes
in operating assets and liabilities, net of the effects from
acquisitions:
|
||||||||||||
Contracts
and other receivables
|
(2,671,636 | ) | (11,057,579 | ) | 3,698,863 | |||||||
Costs
and estimated earnings in excess of billings on
uncompleted contracts
|
(2,420,276 | ) | 652,937 | (1,078,505 | ) | |||||||
Prepaid
expenses and other current assets
|
(237,536 | ) | (50,988 | ) | (108,618 | ) | ||||||
Due
from affiliates
|
- | - | 519,923 | |||||||||
Other
assets
|
1,075,013 | 425,972 | (42,968 | ) | ||||||||
Accounts
payable and accrued expenses
|
7,175,362 | 7,689,253 | (1,861,306 | ) | ||||||||
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
1,781,182 | 2,149,719 | 419,676 | |||||||||
Other
liabilities
|
77,238 | (708,236 | ) | (643,571 | ) | |||||||
Net
cash provided by (used in) operating activities
|
3,814,499 | (4,554,792 | ) | 656,001 | ||||||||
Cash
Flows from Investing Activities:
|
||||||||||||
Purchase
of property and equipment
|
(269,824 | ) | (357,974 | ) | (127,602 | ) | ||||||
Sale
of investments held in trust
|
- | 44,673,994 | - | |||||||||
Purchase
of TSS/Vortech, net of cash received
|
- | (11,519,151 | ) | - | ||||||||
Purchase
of Comm Site of South Florida, Inc.
|
- | (150,000 | ) | - | ||||||||
Purchase
of Innovative Power Solutions, net of cash received
|
- | (1,614,452 | ) | - | ||||||||
Purchase
of Rubicon Integration LLC, net of cash received
|
- | (4,745,524 | ) | - | ||||||||
Purchase
of SMLB, net of cash acquired
|
(2,094,560 | ) | - | - | ||||||||
Net
cash provided by (used in) investing activities
|
(2,364,384 | ) | 26,286,893 | (127,602 | ) | |||||||
Cash
Flows from Financing Activities:
|
||||||||||||
Payments
on notes payable
|
(2,118,985 | ) | (242,413 | ) | (6,281 | ) | ||||||
Payment
on promissory note payable to officer
|
- | (2,000,000 | ) | - | ||||||||
Payment
on shareholder advance
|
- | (20,000 | ) | - | ||||||||
Payment
to shareholders electing to redeem their shares
in connection with the TSS/Vortech
acquisition
|
- | (4,342,310 | ) | - | ||||||||
Repurchase
of treasury stock
|
(55,183 | ) | (2,036,015 | ) | - | |||||||
Warrant
exercise
|
- | 73,500 | - | |||||||||
Members'
distributions
|
- | - | (1,561,639 | ) | ||||||||
Net
cash used in financing activities
|
(2,174,168 | ) | (8,567,238 | ) | (1,567,920 | ) | ||||||
Net
increase (decrease) in cash
|
(724,053 | ) | 13,164,863 | (1,039,521 | ) | |||||||
Cash,
beginning of period
|
13,172,210 | 7,347 | 2,361,838 | |||||||||
Cash,
end of period
|
$ | 12,448,157 | $ | 13,172,210 | $ | 1,322,317 | ||||||
Supplemental
disclosure of cash flow information:
|
||||||||||||
Cash
paid for interest
|
$ | 392,038 | $ | 523,268 | $ | 368 | ||||||
Cash
paid for taxes
|
24,602 | 593,196 | - | |||||||||
Supplemental
disclosure of non-cash investing activities:
|
||||||||||||
Issuance
of common stock in connection with the acquisition of SMLB
|
$ | 462,775 | $ | - | $ | - | ||||||
Issuance
of common stock in connection with the acquistion of
TSS/Vortech
|
- | 14,211,359 | - | |||||||||
Issuance
of common stock in connection with the acquistion of
Innovative
|
- | 150,075 | - | |||||||||
Issuance
of common stock in connection with the acquistion of
Rubicon
|
- | 1,080,800 | - | |||||||||
Promissory
notes payable issued in connection with the acquistion of
SMLB
|
120,572 | - | - | |||||||||
Promissory
notes payable issued in connection with the acquistion of
TSS/Vortech
|
- | 10,000,000 | - | |||||||||
Prommissory
note issued in connection with the acquistion of
Innovative
|
- | 564,611 | - | |||||||||
Promissory
notes payable issued in connection with the acquistion of
Rubicon
|
2,127,577 | 1,517,753 | - | |||||||||
Issuance
of accounts payable in connection with the acquisition of
Innovative
|
353,187 | - | - | |||||||||
Issuance
of accounts payable in connection with the acquisition
of Rubicon
|
489,437 | - | - | |||||||||
Accrual
of acquisitions
|
- | - | - | |||||||||
Supplemental
disclosure of non-cash financing activities:
|
||||||||||||
Promissory
notes payable issued to officers converted to common stock
|
$ | 3,500,000 | $ | - | $ | - | ||||||
Discount
received on note repayment from officer
|
- | 500,000 | - |
(1)
|
Basis
of Presentation and Significant Accounting
Policies
|
Depreciable
|
||||
Lives
|
||||
Vehicles
|
5 | |||
Trade
equipment
|
5 | |||
Leasehold
improvements
|
Various
|
|||
Furniture
and fixtures
|
7 | |||
Computer
equipment and software
|
2-7 |
(2)
|
Accounts
Receivable
|
(3)
|
Acquisitions
|
|
·
|
2008
Contact Signings- Rubicon achieved certain revenue bookings targets
established in the purchase agreement, entitling the sellers to unsecured
promissory notes of approximately $0.4 million and $1.6 million at June
30, 2008 and December 31, 2008, respectively, based on achievement of the
financial targets through those respective dates. The issuance
of the unsecured promissory notes (see Note 8) resulted in a corresponding
increase in goodwill.
|
|
·
|
2008
Earn-out- Additionally, Rubicon achieved certain 2008 earnings
targets established in the purchase agreement, entitling the sellers to an
earn-out payment of approximately $0.5 million which is included in
accrued payables at December 31, 2008. Subject to terms and
conditions outlined in the purchase agreement, the payment is due in the
second quarter of 2009.
|
·
|
TSS/Vortech has a broad range of
experience, contacts and service offerings in the mission-critical
facility industry. TSS/Vortech has a very experienced and committed
management team with strong core competencies. TSS has a significant
number of personnel with security clearances which is important in the
homeland security
industry.
|
Amortizable
|
||||||||||||||||||||||||
TSS/Vortech
|
Innovative
|
Rubicon
|
SMLB
|
Total
|
Lives in Years
|
|||||||||||||||||||
Finite
Lived-Intangible assets:
|
||||||||||||||||||||||||
In-place
contracts
|
$ | 406,200 | $ | 350,000 | $ | 50,000 | $ | 230,000 | $ | 1,036,200 |
1-1.25
|
|||||||||||||
Customer
relationships
|
14,100,000 | 560,000 | 2,970,000 | - | 17,630,000 |
5-8
|
||||||||||||||||||
Non
competition agreement
|
- | 50,600 | 685,000 | 5,000 | 740,600 |
2
|
||||||||||||||||||
Gross
carrying amount
|
14,506,200 | 960,600 | 3,705,000 | 235,000 | 19,406,800 | |||||||||||||||||||
Indefinite
Lived-Intangible assets:
|
||||||||||||||||||||||||
Trade
name
|
4,930,000 | 60,000 | 460,000 | - | 5,450,000 |
Indefinite
|
||||||||||||||||||
Total
allocated finite and indefinite intangibles
|
$ | 19,436,200 | $ | 1,020,600 | $ | 4,165,000 | $ | 235,000 | $ | 24,856,800 |
For the Year
|
||||
Ended
|
||||
December 31, 2007
|
||||
(unaudited)
|
||||
Proforma
revenue
|
$ | 63,303,645 | ||
Proforma
operating loss
|
(8,095,834 | ) | ||
Proforma
pretax loss
|
(7,413,017 | ) | ||
Proforma
net loss
|
(7,360,482 | ) | ||
Pro
forma basic and diluted net loss per share
|
$ | (0.59 | ) | |
Weighted
average common shares
|
12,476,570 |
TSS/Vortech
|
Commsite
|
IPSI
|
Rubicon
|
SMLB, Ltd.
|
Total
|
|||||||||||||||||||
Cash
|
$ | 11,000,000 | $ | 150,000 | $ | 1,747,000 | $ | 4,590,141 | $ | 2,000,000 | $ | 19,487,141 | ||||||||||||
Common
stock
|
14,211,359 | - | 150,075 | 1,080,800 | 462,775 | 15,905,009 | ||||||||||||||||||
Promissory
notes to sellers
|
10,000,000 | - | 930,208 | 4,134,767 | 120,572 | 15,185,547 | ||||||||||||||||||
Acquistion
costs
|
1,841,468 | - | 112,420 | 198,043 | 151,133 | 2,303,064 | ||||||||||||||||||
Total
purchase price
|
37,052,827 | 150,000 | 2,939,703 | 10,003,751 | 2,734,480 | 52,880,761 | ||||||||||||||||||
Assets
|
||||||||||||||||||||||||
Cash
and equivalents
|
1,322,317 | - | 244,968 | 42,660 | 56,573 | 1,666,518 | ||||||||||||||||||
Contracts
and other receivables
|
6,261,988 | 5,200 | 466,852 | 637,132 | 387,612 | 7,758,784 | ||||||||||||||||||
Costs
and estimated earnings
|
1,559,045 | - | 274,002 | 37,688 | - | 1,870,735 | ||||||||||||||||||
Prepaid
expenses
|
233,894 | - | 12,855 | - | - | 246,749 | ||||||||||||||||||
Total
current assets
|
9,377,244 | 5,200 | 998,677 | 717,480 | 444,185 | 11,542,786 | ||||||||||||||||||
Property
and equipment - net
|
904,689 | 10,177 | 163,947 | 3,048 | - | 1,081,861 | ||||||||||||||||||
Goodwill-Investment
in Subsidiary
|
15,739,472 | 134,623 | 1,351,786 | 5,606,153 | 2,542,909 | 25,374,943 | ||||||||||||||||||
Identifiable
intangibles, net
|
19,436,200 | - | 1,020,600 | 4,165,000 | 271,000 | 24,892,800 | ||||||||||||||||||
Other
Assets
|
64,158 | - | - | - | - | 64,158 | ||||||||||||||||||
Total
assets
|
45,521,763 | 150,000 | 3,535,010 | 10,491,681 | 3,258,094 | 62,956,548 | ||||||||||||||||||
Liabilities
|
||||||||||||||||||||||||
Notes
payable, current
|
72,808 | - | 6,684 | - | - | 79,492 | ||||||||||||||||||
Accounts
payable and accrued expenses
|
6,653,886 | - | 398,903 | 487,930 | 137,310 | 7,678,029 | ||||||||||||||||||
Income
taxes payable
|
- | - | 114,075 | - | - | 114,075 | ||||||||||||||||||
Billings
in excess of costs
|
1,662,718 | - | 67,842 | - | 386,304 | 2,116,864 | ||||||||||||||||||
Total
current liabilities
|
8,389,412 | - | 587,504 | 487,930 | 523,614 | 9,988,460 | ||||||||||||||||||
Long-Term
Liabilities
|
||||||||||||||||||||||||
Notes
payable, less current portion
|
79,524 | - | - | - | - | 79,524 | ||||||||||||||||||
Other
long term liabilities
|
- | - | 7,803 | - | - | 7,803 | ||||||||||||||||||
Total
liabilities
|
8,468,936 | - | 595,307 | 487,930 | 523,614 | 10,075,787 | ||||||||||||||||||
Allocated
purchase price
|
$ | 37,052,827 | $ | 150,000 | $ | 2,939,703 | $ | 10,003,751 | $ | 2,734,480 | $ | 52,880,761 |
(4)
|
Investment
Held in Trust
|
(5)
|
Property
and Equipment
|
December 31,
|
Decmber 31,
|
|||||||
2008
|
2007
|
|||||||
Vehicles
|
$ | 164,576 | $ | 164,576 | ||||
Trade
equipment
|
139,143 | 135,482 | ||||||
Leasehold
improvements
|
500,040 | 500,040 | ||||||
Furniture
and fixtures
|
38,694 | 32,753 | ||||||
Computer
equipment and software
|
852,545 | 606,607 | ||||||
1,694,998 | 1,439,458 | |||||||
Less
accumulated depreciation
|
(870,511 | ) | (394,913 | ) | ||||
Property
and equipment, net
|
$ | 824,487 | $ | 1,044,545 |
(6)
|
Goodwill
and Other Intangibles
|
Fair Value
|
||||||||||||
December 31, 2007
|
Adjustments
|
December 31, 2008
|
||||||||||
TSS/Vortech
|
$ | 15,739,472 | $ | - | $ | 15,739,472 | ||||||
Commsite
|
134,623 | - | 134,623 | |||||||||
IPSI
|
942,323 | 409,463 | 1,351,786 | |||||||||
Rubicon
|
3,898,549 | 1,707,604 | 5,606,153 | |||||||||
SMLB,
Ltd.
|
- | 2,542,909 | 2,542,909 | |||||||||
Total
|
$ | 20,714,967 | $ | 4,659,976 | $ | 25,374,943 |
December 31,
|
December 31,
|
|||||||
2008
|
2007
|
|||||||
Gross
carrying amount of goodwill
|
$ | 25,374,943 | $ | 20,714,967 | ||||
Impairment
loss on goodwill
|
(20,563,943 | ) | - | |||||
Net
goodwill
|
$ | 4,811,000 | $ | 20,714,967 |
December 31,
|
December 31,
|
|||||||
2008
|
2007
|
|||||||
Finite
Lived-Intangible assets:
|
||||||||
In-place
contracts
|
$ | 1,036,200 | 806,277 | |||||
Customer
relationships
|
17,630,000 | 16,660,000 | ||||||
Non
competition agreement
|
740,600 | 735,600 | ||||||
Gross
carrying amount
|
19,406,800 | 18,201,877 | ||||||
Accumulated
amortization
|
(5,907,566 | ) | (2,562,741 | ) | ||||
Net
finite lived-intangible assets
|
$ | 13,499,234 | $ | 15,639,136 | ||||
Indefinite
Lived-Intangible assets:
|
||||||||
Trade
name
|
5,450,000 | 5,450,000 | ||||||
Impairment
loss on other intangibles
|
(5,390,000 | ) | - | |||||
Net
indefinite lived-intangible assets
|
60,000 | 5,450,000 | ||||||
Net
intangible assets
|
$ | 13,559,234 | $ | 21,089,136 |
(7)
|
Basic
and Diluted Net Loss Per Common
Share
|
Successor
|
||||||||
For the Year Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Net
income (loss)
|
$ | (32,934,225 | ) | $ | (7,377,111 | ) | ||
Basic
and diluted weighted average common shares
|
12,270,546 | 11,698,895 | ||||||
Net
income (loss) per share
|
$ | (2.68 | ) | $ | (0.63 | ) |
(8)
|
Notes
Payable
|
December 31,
|
December 31,
|
|||||||
2008
|
2007
|
|||||||
Convertible,
unsecured promissory note, due 2012 (6.0%)
|
$ | 4,000,000 | $ | 7,500,000 | ||||
Unsecured
promissory note, due 2008 (6.0%)
|
- | 1,517,753 | ||||||
Unsecured
promissory note, due 2009 (6.0%)
|
1,575,618 | - | ||||||
Unsecured
promissory note, due 2010 (6.0%)
|
120,572 | - | ||||||
Unsecured
promissory note, due 2011 (6.0%)
|
283,457 | 394,611 | ||||||
Vehicle
notes
|
20,907 | 86,603 | ||||||
Total
debt
|
6,000,554 | 9,498,967 | ||||||
Less
current portion
|
1,688,845 | 1,650,306 | ||||||
Total
debt, less current portion
|
$ | 4,311,709 | $ | 7,848,661 |
December 31,
|
||||
2008
|
||||
2009
|
$ | 1,688,845 | ||
2010
|
2,492,699 | |||
2011
|
1,485,676 | |||
2012
|
333,334 | |||
Total
|
$ | 6,000,554 |
(9)
|
Employee Benefit
Plans
|
Weighted
|
||||||||
Average
|
||||||||
Grant Date
|
||||||||
Number
|
Fair Value
|
|||||||
Unvested
December 31, 2006
|
- | $ | - | |||||
Granted
restricted stock
|
970,833 | 5.47 | ||||||
Vested
restricted stock
|
(730,833 | ) | 5.43 | |||||
Unvested
December 31, 2007
|
240,000 | $ | 5.47 | |||||
Granted
restricted stock and units
|
512,000 | 1.53 | ||||||
Vested
restricted stock and units
|
(83,333 | ) | 5.15 | |||||
Unvested
December 31, 2008
|
668,667 | $ | 2.49 |
(10)
|
Common Stock
Repurchases
|
(11)
|
Options to Purchase Units
and Warrants
|
(12)
|
Preferred
Stock
|
(13)
|
Income
Taxes
|
For the Year Ended
|
||||||||
December 31,
|
||||||||
2008
|
2007
|
|||||||
Current:
|
||||||||
Federal
|
$ | - | $ | (897,283 | ) | |||
State
|
65,611 | - | ||||||
Deferred:
|
||||||||
Federal
|
(6,417,646 | ) | (1,730,703 | ) | ||||
State
|
(970,138 | ) | (347,573 | ) | ||||
Total
provision (benefit) for income taxes before valuation
allowance
|
$ | (7,387,784 | ) | $ | (2,975,559 | ) | ||
Change
in valuation allowance
|
7,387,784 | 2,476,404 | ||||||
Total
provision (benefit) for income taxes
|
$ | 65,611 | $ | (499,155 | ) |
December 31,
|
||||||||
Gross curent deferred taxes:
|
2008
|
2007
|
||||||
Deferred
tax assets:
|
||||||||
Bad
debts
|
$ | - | $ | 22,123 | ||||
Accrued
expenses
|
300,227 | 17,719 | ||||||
Net
operating loss carryover
|
- | 412,632 | ||||||
Deferred
compensation
|
- | 142,191 | ||||||
Gross
current deferred tax assets before valuation allowance
|
300,227 | 594,665 | ||||||
Valuation
allowance
|
(183,998 | ) | (445,180 | ) | ||||
Gross
current deferred tax assets
|
$ | 116,229 | $ | 149,485 | ||||
Deferred
tax liabilities:
|
||||||||
Tax
accounting differnces for long-term contracts
|
- | (75,899 | ) | |||||
Prepaid
expenses
|
(116,229 | ) | (59,535 | ) | ||||
Deferred
current tax liabilities
|
(116,229 | ) | (135,434 | ) | ||||
Net
current deferred taxes
|
- | 14,051 | ||||||
Non-current
deferred taxes:
|
||||||||
Deferred
tax assets:
|
||||||||
Net
operating loss carryover
|
$ | 2,881,715 | $ | 1,219,628 | ||||
Amortization
of goodwill and other
|
5,317,834 | - | ||||||
Expenses
deferred for income tax purposes
|
- | 325,521 | ||||||
Deferred
compensation
|
937,714 | 521,945 | ||||||
Depreciation
|
97,536 | 63,453 | ||||||
Other
carryovers and credits
|
14,969 | - | ||||||
Gross
non-current deferred tax assets before valuation allowance
|
9,249,768 | 2,130,547 | ||||||
Valuation
allowance
|
(9,249,768 | ) | (1,595,059 | ) | ||||
Gross
non-current deferred tax assets
|
- | 535,488 | ||||||
Deferred
tax liabilities:
|
||||||||
Amortization
of goodwill and other
|
- | (549,539 | ) | |||||
Deferred
non-current tax liabilities
|
- | (549,539 | ) | |||||
Net
non-current deferred taxes
|
$ | - | $ | (14,051 | ) |
For the Year
|
||||||||
Ended Decemeber 31,
|
||||||||
2008
|
2007
|
|||||||
Federal
statutory rate
|
34.0 | % | 34.0 | % | ||||
State
tax, net of income tax benefit
|
0.0 | % | 0.0 | % | ||||
Effect
of permanent differences
|
-14.0 | % | -0.3 | % | ||||
Effect
of valuation allowance
|
-20.0 | % | -27.4 | % | ||||
Total
|
0.0 | % | 6.3 | % |
Successor
|
Predecessor
|
|||||||||||
For the Year Ended December 31,
|
January 19,
|
|||||||||||
2008
|
2007
|
2007
|
||||||||||
Revenue
|
||||||||||||
CTS
Services, LLC
|
$ | 201,902 | $ | 183,532 | 1,800 | |||||||
Chesapeake
Systems, LLC
|
2,410 | 105,965 | - | |||||||||
Chesapeake
Mission Critical, LLC
|
93,385 | 106,627 | - | |||||||||
S3
Integration, LLC
|
7,667 | - | - | |||||||||
Total
|
$ | 305,364 | $ | 396,124 | 1,800 | |||||||
Cost
of Revenue
|
||||||||||||
CTS
Services, LLC
|
$ | 2,944,485 | $ | 3,439,631 | 82,032 | |||||||
Chesapeake
Systems, LLC
|
147,931 | 161,178 | - | |||||||||
Chesapeake
Mission Critical, LLC
|
105,516 | 144,924 | - | |||||||||
Chesapeake
Tower Systems, Inc.
|
- | 1,052 | 8,225 | |||||||||
S3
Integration, LLC
|
203,735 | 267,848 | - | |||||||||
LH
Cranston & Sons, Inc.
|
111,950 | 234,252 | - | |||||||||
Telco
P&C, LLC
|
383,268 | 29,174 | - | |||||||||
Total
|
$ | 3,896,885 | $ | 4,278,059 | 90,257 | |||||||
Selling,
general and administrative
|
||||||||||||
Office
rent paid on Chesapeake sublease agmt
|
$ | 257,825 | $ | 207,671 | $ | 16,016 | ||||||
Office
rent paid to TPR Group Re Three, LLC
|
394,440 | 384,271 | 26,472 | |||||||||
Vehicle
repairs to Automotive Technologies, Inc.
|
- | 4,442 | 656 | |||||||||
Total
|
$ | 652,265 | $ | 596,384 | 43,144 |
Successor
|
Predecessor
|
|||||||||||
December 31,
|
December 31,
|
January 19,
|
||||||||||
2008
|
2007
|
2007
|
||||||||||
Accounts receivable/(payable):
|
||||||||||||
CTS
Services, LLC
|
$ | 50,437 | $ | 44,821 | $ | 231,135 | ||||||
CTS
Services, LLC
|
(584,460 | ) | (2,969,671 | ) | (207,195 | ) | ||||||
Chesapeake
Systems, LLC
|
- | 611 | - | |||||||||
Chesapeake
Systems, LLC
|
- | (873 | ) | - | ||||||||
Chesapeake
Mission Critical, LLC
|
15,900 | 104,397 | - | |||||||||
Chesapeake
Mission Critical, LLC
|
- | (18,950 | ) | - | ||||||||
Chesapeake
Tower Systems, Inc.
|
- | - | 2,336 | |||||||||
Chesapeake
Tower Systems, Inc.
|
- | - | (8,225 | ) | ||||||||
Telco
P&C, LLC
|
(21,154 | ) | (8,000 | ) | - | |||||||
LH
Cranston & Sons, Inc.
|
(67,455 | ) | (11,575 | ) | - | |||||||
S3
Integration, LLC
|
- | 150 | ||||||||||
S3
Integration, LLC
|
(53,630 | ) | (60,556 | ) | (42,918 | ) | ||||||
Total
Accounts receivable
|
66,337 | $ | 149,829 | 233,621 | ||||||||
Total
Accounts (payable)
|
$ | (726,699 | ) | $ | (3,069,625 | ) | $ | (258,338 | ) |
|
A)
|
Summary
|
Payments Due by Period
|
||||||||||||||||||||
Total
|
2009
|
2010
|
2011
|
2012
|
||||||||||||||||
Long-term debt
|
$ | 6,707,940 | $ | 1,823,665 | $ | 2,985,429 | $ | 1,560,471 | $ | 338,375 | ||||||||||
Operating
leases
|
2,257,416 | 922,820 | 695,758 | 582,698 | 56,140 | |||||||||||||||
Contractual
purchase commitments
|
36,006,335 | 36,006,335 | - | - | - | |||||||||||||||
Total
|
$ | 44,971,691 | $ | 38,752,820 | $ | 3,681,187 | $ | 2,143,169 | $ | 394,515 |
|
B)
|
Leases
|
C)
|
Legal
Matters
|
D)
|
Employment
Agreements
|
Successor
|
||||||||||||||||
2008 Quarter Ended
|
December 31,
|
September 30,
|
June 30,
|
March 31,
|
||||||||||||
Revenue
|
$ | 37,168,297 | $ | 25,781,523 | $ | 20,149,876 | $ | 19,432,080 | ||||||||
Operating
loss
|
(21,382,289 | ) | (3,518,156 | ) | (5,505,380 | ) | (2,257,130 | ) | ||||||||
Net
loss
|
(21,421,789 | ) | (3,217,911 | ) | $ | (5,994,318 | ) | $ | (2,300,200 | ) | ||||||
Net
income per share – basic and diluted
|
(1.70 | ) | (0.26 | ) | (0.50 | ) | (0.19 | ) | ||||||||
2007 Quarter Ended
|
December 31,
|
September 30,
|
June 30,
|
March 31,
|
||||||||||||
Revenue
|
$ | 18,223,808 | $ | 12,692,772 | $ | 10,862,307 | $ | 8,676,937 | ||||||||
Operating
loss
|
(1,645,046 | ) | (2,725,168 | ) | (2,650,115 | ) | (1,662,454 | ) | ||||||||
Net
loss
|
(1,165,087 | ) | (2,621,052 | ) | (2,558,964 | ) | (1,032,008 | ) | ||||||||
Net
loss per share – basic and diluted
|
(0.10 | ) | (0.22 | ) | (0.21 | ) | (0.09 | ) |
Predecessor
|
||||
January 1, 2007
|
||||
through
|
||||
January 19,2007
|
||||
Revenue
|
$ | 1,412,137 | ||
Operating
income (loss)
|
(284,902 | ) | ||
Net
income
|
(281,153 | ) |
Item
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
Item
9A(T).
|
CONTROLS
AND PROCEDURES
|
•
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
company;
|
•
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and
directors of the company; and
|
•
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s assets that
could have a material effect on the financial
statements.
|
Item
9B.
|
OTHER
INFORMATION
|
Item
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
Item
11.
|
EXECUTIVE
COMPENSATION
|
Item
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Item
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Item
14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Item
15.
|
EXHIBITS,
FINANCIAL STATEMENTS SCHEDULES
|
Page
|
|||
Consolidated Financial
Statements:
|
|||
Reports
of Independent Registered Public Accounting Firm
|
F-1
|
||
Consolidated
Balance Sheets as of December 31, 2008 and December 31,
2007
|
F-3
|
||
Consolidated
Statements of Operations for the years ended December 31, 2008 (Successor)
and December 31, 2007 (Successor), and for the period from January 1, 2007
through January 19, 2007 (Predecessor)
|
F-4
|
||
Consolidated
Statements of Stockholders’ Equity for the years ended December 31, 2008
(Successor) and 2007 (Successor) and Consolidated Statements of
Members’ Equity for the period from January 1, 2007 through January
19, 2007 (Predecessor)
|
F-5
|
||
Consolidated
Statements of Cash Flows for the years ended December 31, 2008 (Successor)
and December 31, 2007 (Successor) and for the period from January 1, 2007
through January 19, 2007 (Predecessor)
|
F-6
|
||
Notes
to Consolidated Financial Statements
|
F-7
|
Balance at
|
Balance at
|
|||||||||||||||
Beginning
|
End of
|
|||||||||||||||
Successor
|
of Period
|
Additions
|
Deductions
|
Period
|
||||||||||||
2008
|
||||||||||||||||
Allowance
for doubtful accounts
|
$ | (65,000 | ) | $ | (95,000 | ) | $ | 10,000 | $ | (150,000 | ) | |||||
Allowance
for unrealizable deferred tax assets
|
(2,040,239 | ) | (7,387,784 | ) | - | (9,428,023 | ) | |||||||||
2007
|
||||||||||||||||
Allowance
for doubtful accounts
|
$ | - | $ | (79,611 | ) | $ | 14,611 | $ | (65,000 | ) | ||||||
Allowance
for unrealizable deferred tax assets
|
(2,476,404 | ) | 436,165 | (2,040,239 | ) |
Balance at
|
Balance at
|
|||||||||||||||
Beginning
|
Additions
|
End of
|
||||||||||||||
Predecessor
|
of Period
|
at Cost
|
Deductions
|
Period
|
||||||||||||
January 1, 2007-January 19,
2007
|
||||||||||||||||
Allowance
for doubtful accounts
|
$ | (75,000 | ) | $ | - | $ | - | $ | (75,000 | ) |
Exhibit
Number
|
Description
|
|
|
||
3.1
|
|
Second
Amended and Restated Certificate of Incorporation dated January 19,
2007 (previously filed with the Commission as Exhibit 3.1 to the Current
Report on Form 8-K filed on January 25, 2007 and incorporated herein
by reference)
|
3.1.1
|
Amendment
to the Second Amended and Restated Certificate of Incorporation
(previously filed with the Commission as Exhibit A-1 to the Company’s
Definitive Proxy Statement filed on May 22, 2007 and incorporated herein
by reference)
|
|
3.2
|
Amended
and Restated By-laws (previously filed with the Commission as Exhibit 4.2
to the Company’s Registration Statement on Form S-8 No. 333-142906, filed
on May 14, 2007 and incorporated herein by reference)
|
|
4.1
|
Specimen
Unit Certificate (previously filed with the Commission as Exhibit 4.1 to
the Company’s Registration Statement on Form S-1 No. 333-123504, effective
July 13, 2005 and incorporated herein by
reference)
|
|
4.2
|
Specimen
Common Stock Certificate (previously filed with the Commission as Exhibit
4.2 to the Company’s Registration Statement on Form S-1 No. 333-123504,
effective July 13, 2005 and incorporated herein by
reference)
|
|
4.3
|
Specimen
Warrant Certificate (previously filed with the Commission as Exhibit 4.3
to the Company’s Registration Statement on Form S-1 No. 333-123504,
effective July 13, 2005 and incorporated herein by
reference)
|
|
4.4
|
Warrant
Agreement between Continental Stock Transfer & Trust Company and the
Company (previously filed with the Commission as Exhibit 4.4 to the
Company’s Annual Report on Form 10-KSB for the year ended
December 31, 2005 and incorporated herein by
reference)
|
|
4.4.1
|
Warrant
Clarification Agreement between Continental Stock Transfer & Trust
Company and the Company (previously filed with the Commission as Exhibit
4.5 to the Company’s Quarterly Report on Form 10-QSB for the quarterly
period ended September 30, 2006 and incorporated herein by
reference)
|
|
4.4.2
|
Warrant
Clarification Agreement No. 2 between Continental Stock Transfer &
Trust Company and the Company (previously filed with the Commission as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December
14, 2006 and incorporated herein by reference)
|
|
4.5
|
Unit
Purchase Option (previously filed with the Commission as Exhibit 4.5 to
the Company’s Annual Report on Form 10-KSB for the year ended
December 31, 2005 and incorporated herein by
reference)
|
|
4.5.1
|
Amendment
to Unit Purchase Option (previously filed with the Commission as Exhibit
4.6 to the Company’s Quarterly Report on Form 10-QSB for the quarterly
period ended September 30, 2006 and incorporated herein by
reference)
|
|
4.5.2
|
Amendment
No. 2 to Unit Purchase Option (previously filed with the Commission as
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December
14, 2006 and incorporated herein by reference)
|
|
10.1
|
Second
Amended and Restated Membership Interest Purchase Agreement dated
July 31, 2006 among Fortress America Acquisition Corporation, VTC,
L.L.C., Vortech, L.L.C., Thomas P. Rosato and Gerard J. Gallagher, and
Thomas P. Rosato as Members’ Representative (previously filed with the
Commission as Exhibit 10.1 to the Company’s Quarterly Report on Form
10-QSB for the quarterly period ended September 30, 2006 and incorporated
herein by reference)
|
|
10.2
|
Amendment
to the Second Amended and Restated Membership Interest Purchase Agreement
dated January 16, 2007 among Fortress America Acquisition
Corporation, VTC, L.L.C., Vortech, L.L.C., Thomas P. Rosato and Gerard J.
Gallagher, and Thomas P. Rosato as Members’ Representative (previously
filed with the Commission as Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on January 19, 2007 and incorporated herein by
reference)
|
|
10.3
|
Escrow
Agreement (Balance Sheet Escrow) dated January 19, 2007 among
Fortress America Acquisition Corporation, VTC, L.L.C., Vortech, L.L.C.,
Thomas P. Rosato and Gerard J. Gallagher, Thomas P. Rosato as Members’
Representative, and SunTrust Bank (previously filed with the Commission as
Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on
January 25, 2007 and incorporated herein by
reference)
|
|
10.4
|
Escrow
Agreement (General Indemnity) among Fortress America Acquisition
Corporation, VTC, L.L.C., Vortech, L.L.C., Thomas P. Rosato and Gerard J.
Gallagher, Thomas P. Rosato as Members’ Representative, and SunTrust Bank
(previously filed with the Commission as Exhibit 10.4 to the Company’s
Current Report on Form 8-K filed on January 25, 2007 and incorporated
herein by reference)
|
|
10.5
|
Registration
Rights Agreement among Fortress America Acquisition Corporation and Thomas
P. Rosato and Gerard J. Gallagher (previously filed with the Commission as
Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on
January 25, 2007 and incorporated herein by
reference)
|
|
10.6
|
Fortress
America Acquisition Corporation 2006 Omnibus Incentive Compensation Plan
(previously filed with the Commission as Exhibit E to the Company’s
Definitive Proxy Statement filed on December 27, 2006 and incorporated
herein by reference)
|
Exhibit
Number
|
Description
|
|
10.7‡
|
Employment
Agreement between Harvey L. Weiss and the Company, dated January 19,
2007 (previously filed with the Commission as Exhibit 10.7 to the
Company’s Current Report on Form 8-K filed on January 25, 2007 and
incorporated herein by reference), as amended by Amendment No. 1, dated
August 26, 2008 (previously filed with the Commission as Exhibit 10.3 to
the Company’s Quarterly Report on Form 10-Q filed on November 14, 2008 and
incorporated herein by reference)
|
|
10.8‡
|
Executive
Consulting Agreement dated January 19, 2007 by Fortress America
Acquisition Corporation and Washington Capital Advisors, Inc. (previously
filed with the Commission as Exhibit 10.8 to the Company’s Current Report
on Form 8-K filed on January 25, 2007 and incorporated herein by
reference), as amended by Amendment No. 1, dated August 26, 2008
(previously filed with the Commission as Exhibit 10.5 to the Company’s
Quarterly Report on Form 10-Q filed on November 14, 2008 and incorporated
herein by reference)
|
|
10.9‡
|
Executive
Employment Agreement dated January 19, 2007 by Fortress America
Acquisition Corporation and Thomas P. Rosato (previously filed with the
Commission as Exhibit 10.9 to the Company’s Current Report on Form 8-K
filed on January 25, 2007 and incorporated herein by reference), as
amended by Amendment No. 1, dated August 26, 2008(previously filed with
the Commission as Exhibit 10.1 to the Company’s Quarterly Report on Form
10-Q filed on November 14, 2008 and incorporated herein by
reference)
|
|
10.10‡
|
Executive
Employment Agreement dated January 19, 2007 by Fortress America
Acquisition Corporation and Gerard J. Gallagher (previously filed with the
Commission as Exhibit 10.10 to the Company’s Current Report on Form 8-K
filed on January 25, 2007 and incorporated herein by reference), as
amended by Amendment No. 1, dated August 26, 2008 (previously filed with
the Commission as Exhibit 10.2 to the Company’s Quarterly Report on Form
10-Q filed on November 14, 2008 and incorporated herein by
reference)
|
|
10.11
|
Registration
Rights Agreement among the Company and the Initial Stockholders
(previously filed with the Commission as Exhibit 10.9 to the Company’s
Annual Report on Form 10-KSB for the year ended December 31, 2005 and
incorporated herein by
reference)
|
10.12‡
|
Non-Employee
Director Compensation Policy (previously filed with the Commission as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on
May 21, 2007 and incorporated herein by reference)
|
|
10.13
|
Form
of Restricted Stock Agreement (Employees Only) (previously filed with the
Commission as Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed on May 21, 2007 and incorporated herein by
reference)
|
|
10.14*
|
Form
of Restricted Stock Unit Agreement
|
|
10.15‡
|
Executive
Employment Agreement, dated as of August 6, 2007, between Fortress
International Group, Inc. and Timothy C. Dec (previously filed with the
Commission as Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on August 8, 2007 and incorporated herein by reference), as amended
by Amendment No. 1, dated August 26, 2008 (previously filed with the
Commission as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q
filed on November 14, 2008 and incorporated herein by
reference)
|
|
10.16‡
|
Prepayment
Agreement, dated as of August 29, 2007, between Fortress International
Group, Inc. and Thomas P. Rosato (previously filed with the Commission as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August
30, 2007 and incorporated herein by reference)
|
|
10.17
|
Stock
Purchase Agreement, dated September 24, 2007, between Innovative Power
Systems Inc., the Stockholders of Innovative Power Systems Inc., Quality
Power Systems, Inc., the Stockholders of Quality Power Systems, Inc., and
the Company (previously filed with the Commission as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on September 27, 2007 and
incorporated herein by reference)
|
|
10.18†
|
Membership
Interest Purchase Agreement, dated November 30, 2007, between Rubicon
Integration, LLC, each of the members of Rubicon and the Company
(previously filed with the Commission as Exhibit 10.29 to the Company’s
Annual Report on Form 10-K filed on March 31, 2008 and incorporated herein
by reference)
|
|
10.19
|
Stock
Purchase Agreement by and among SMLB, Ltd, the Stockholders of SMLB, Ltd,
and the Company dated January 2, 2008 (previously filed with the
Commission as Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on January 1, 2008 and incorporated herein by
reference)
|
|
21*
|
Significant
Subsidiaries of the Registrant
|
|
23.1*
|
Consent
of Grant Thornton LLP regarding Fortress International Group, Inc.
financial statements for the year ended December 31,
2008.
|
|
23.2*
|
Consent
of Grant Thornton LLP regarding Vortech L.L.C. and VTC L.L.C. financial
statements for the period from December 31, 2007 and January 1, 2007
through January 19, 2007.
|
|
31.1*
|
Certificate
of Fortress International Group, Inc. Principal Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2*
|
Certificate
of Fortress International Group, Inc. Principal Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1**
|
Certificates
of Fortress International Group, Inc. Principal Executive Officer and
Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of
2002
|
‡
|
Management
contract or compensatory plan or arrangement.
|
†
|
Confidential
treatment has been requested as to certain portions, which have been filed
separately with the Securities and Exchange Commission.
|
*
|
Filed
herewith.
|
**
|
Furnished
herewith.
|
|
Fortress
International Group, Inc.
|
|
|
||
Date: March
31, 2009
|
By:
|
/s/ Thomas P.
Rosato
|
|
Thomas
P. Rosato
|
|
|
Chief
Executive Officer
|
|
|
(Authorized
Officer and Principal Executive Officer)
|
|
|
||
Date: March
31, 2009
|
By:
|
/s/ Timothy C. Dec
|
|
Timothy
C. Dec
|
|
|
Chief
Financial Officer
|
|
|
(Authorized
Officer and Principal Financial and Accounting
Officer)
|
Signatures
|
Title
|
Date
|
||
Name
|
Position
|
Date
|
||
|
|
|||
/s/ Thomas P. Rosato
|
Chief
Executive Officer and Director
|
March
31, 2009
|
||
Thomas
P. Rosato
|
(Principal
Executive Officer)
|
|||
/s/ Timothy C. Dec
|
Chief
Financial Officer
|
March
31, 2009
|
||
Timothy
C. Dec
|
(Principal
Financial Officer and Accounting Officer)
|
|||
/s/ Gerard J. Gallagher
|
President
and Director
|
March
31, 2009
|
||
Gerard
J. Gallagher
|
||||
/s/ Asa Hutchinson
|
Director
|
March
31, 2009
|
||
Asa
Hutchinson
|
||||
/s/ William L. Jews | Director |
March
31, 2009
|
||
William L. Jews | ||||
/s/ C. Thomas McMillen
|
Vice-Chairman
and Director
|
March
31, 2009
|
||
C.
Thomas McMillen
|
||||
/s/ David J. Mitchell
|
Director
|
March
31, 2009
|
||
David
J. Mitchell
|
||||
/s/ John Morton, III
|
Chairman
and Director
|
March
31, 2009
|
||
John
Morton, III
|
||||
/s/ Donald L. Nickles
|
Director
|
March
31, 2009
|
||
Donald
L. Nickles
|
||||
/s/ Harvey L. Weiss
|
Vice
- Chairman and Director
|
March
31, 2009
|
||
Harvey
L. Weiss
|