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EX-4.11 - EXHIBIT 4.11 - FOCUS VENTURE PARTNERS, INCv331178_ex4-11.htm
EX-4.14 - EXHIBIT 4.14 - FOCUS VENTURE PARTNERS, INCv331178_ex4-14.htm
EX-4.13 - EXHIBIT 4.13 - FOCUS VENTURE PARTNERS, INCv331178_ex4-13.htm
EX-10.2 - EXHIBIT 10.2 - FOCUS VENTURE PARTNERS, INCv331178_ex10-2.htm
EX-4.17 - EXHIBIT 4.17 - FOCUS VENTURE PARTNERS, INCv331178_ex4-17.htm
EX-21.1 - EXHIBIT 21.1 - FOCUS VENTURE PARTNERS, INCv331178_ex21-1.htm
EX-23.2 - EXHIBIT 23.2 - FOCUS VENTURE PARTNERS, INCv331178_ex23-2.htm
EX-23.1 - EXHIBIT 23.1 - FOCUS VENTURE PARTNERS, INCv331178_ex23-1.htm
EX-4.12 - EXHIBIT 4.12 - FOCUS VENTURE PARTNERS, INCv331178_ex4-12.htm
EX-10.3 - EXHIBIT 10.3 - FOCUS VENTURE PARTNERS, INCv331178_ex10-3.htm
EX-4.16 - EXHIBIT 4.16 - FOCUS VENTURE PARTNERS, INCv331178_ex4-16.htm
EX-4.15 - EXHIBIT 4.15 - FOCUS VENTURE PARTNERS, INCv331178_ex4-15.htm

 

As filed with the Securities and Exchange Commission on January 8, 2013

Registration No. 333-182814

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

AMENDMENT NO. 2 TO THE

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

 

FOCUS VENTURE PARTNERS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada   4899   45-4902303
(State or Other Jurisdiction of   (Primary Standard Industrial   (IRS Employer
Incorporation or Organization)   Classification Code Number)   Identification No.)

 

Christopher Ferguson, CEO, President and Chairman

4647 Saucon Creek Road, Suite 201

Center Valley, Pennsylvania 18034

1-877-633-2239

 (Address, including zip code, and telephone number, including area code, of registrant’s Principal Executive Offices)

 

Christopher Ferguson, CEO, President and Chairman

4647 Saucon Creek Road, Suite 201

Center Valley, Pennsylvania 18034

1-877-633-2239

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Please send a copy of all communications to:

Stephen M. Fleming, Esq.

Fleming PLLC

49 Front Street, Suite 206

Rockville Centre, New York 11570

Phone: (516) 833-5034 

Fax: (516) 977-1209

 

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Approximate date of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. ¨

 

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

 

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

 

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CALCULATION OF REGISTRATION FEE

 

Title of each class of
securities to be registered
  Amount to be
registered
   Proposed maximum
offering price per unit
(1)
   Proposed
maximum
aggregate
offering price
(1)
   Amount of
registration
fee
 
Common Stock, par value $.0001 per share   437,500   $0.08   $35,000   $4.01*

 

* Previously paid.

  

(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457 under the Securities Act. The offering price has been estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457(o). Our common stock is not traded on any national exchange and in accordance with Rule 457 the offering price was determined by the last sales price in a private offering under Rule 506 under Regulation D as promulgated under the Securities Act of 1933, as amended.  The selling security holders may sell their shares at the fixed price of $0.08 until our common stock is quoted on the OTC Bulletin Board at which time the shares may be sold at prevailing market prices or privately negotiated prices. There can be no assurance that a market maker will agree to file the necessary documents with the FINRA, which operates the OTC Bulletin Board, nor can there be any assurance that such an application for quotation will be approved. There is no assurance that an active trading market for our shares will develop, or, if developed, that it will be sustained.  In the absence of a trading market or an active trading market, investors may be unable to liquidate their investment or make any profit from the investment.

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the securities act of 1933 or until the registration statement shall become effective on such date as the commission, acting pursuant to said section 8(a), may determine.

 

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The information in this prospectus is not complete and may be changed.  The selling shareholder may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective.  This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY 8, 2013

 

437,500 Shares

FOCUS VENTURE PARTNERS INC.

Common Stock

 

This prospectus relates to the public offering of an aggregate of 437,500 shares of common stock which may be sold from time to time by the selling shareholders named in this prospectus.  We will not receive any proceeds from the sale by the selling shareholders of their shares of common stock.  We will pay the cost of the preparation of this prospectus, which is estimated at $135,000.

 

Our common stock is presently not traded on any market or securities exchange. The 437,500 shares of our common stock may be sold by selling shareholders at a fixed price of $0.08 per share until our shares are quoted on the OTC Bulletin Board and thereafter at prevailing market prices or privately negotiated prices.  There can be no assurance that a market maker will agree to file the necessary documents with The Financial Industry Regulatory Authority (“FINRA”), which operates the OTC Bulletin Board, nor can there be any assurance that such an application for quotation will be approved.  We have agreed to bear the expenses relating to the registration of the shares for the selling shareholders.  There is no assurance that an active trading market for our shares will develop, or, if developed, that it will be sustained.  In the absence of a trading market or an active trading market, investors may be unable to liquidate their investment or make any profit from the investment.

 

We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, or (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

 

Investing in shares of our common stock involves a high degree of risk. You should purchase our common stock only if you can afford to lose your entire investment. See “Risk Factors,” which begins on page 10.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The information in this prospectus is not complete and may be changed. The selling shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

The selling shareholders have not engaged any underwriter in connection with the sale of their shares of common stock. The selling shareholders may sell their shares of common stock in the public market based on the market price at the time of sale or at negotiated prices. The selling shareholders may also sell their shares in transaction that are not in the public market in the manner set forth under “Plan of Distribution.”

 

The date of this Prospectus is January 8, 2013

 

You should rely only on the information contained in this prospectus. We have not authorized any dealer, salesperson or other person to provide you with information concerning us, except for the information contained in this prospectus. The information contained in this prospectus is complete and accurate only as of the date on the front cover page of this prospectus, regardless when the time of delivery of this prospectus or the sale of any common stock. This prospectus is not an offer to sell, nor is it a solicitation of an offer to buy, our common stock in any jurisdiction in which the offer or sale is not permitted.

 

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TABLE OF CONTENTS

 

  Page
Prospectus Summary 6
Risk Factors 10
Forward-Looking Statements 18
Use of Proceeds 18
Determination of Offering Price 18
Dilution 18
Selling Stockholders 19
Plan of Distribution 20
Market for Common Stock and Shareholder Matters 21
Shares Available for Future Sale 22
Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
Business 42
Management 48
Executive Compensation 49
Certain Relationships and Related Transactions 50
Security Ownership of Certain Beneficial Owners and Management 52
Description of Securities 52
Experts 53
Legal Matters 53
How to Get More Information 54
Financial Statements F-1
Information Not Required in Prospectus II-1
Exhibit Index II-3

 

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PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this Prospectus and may not contain all of the information you should consider before investing in the shares.  You are urged to read this Prospectus in its entirety, including the information under “Risk Factors“, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Financial Statements, before making an investment decision.

 

Summary

  

We are a holding company operating in the telecommunications industry which manages and develops our wholly-owned subsidiaries focused on the development of telecommunications networks, acting as a service and support provider and providing temporary and part-time staffing solutions. Through our wholly-owned subsidiary, Optos Capital Partners, LLC , a Delaware limited liability company (“Optos”) , we operate the following wholly-owned entities:

 

  · Focus Fiber Solutions, LLC, a Delaware limited liability company (“Focus Fiber”), specializes in the design, engineering, installation, and maintenance of a telecommunications infrastructure network.

 

  · Jus-Com, Inc., an Indiana corporation (“Jus-Com”), is a telecommunication service provider providing various services including engineering consulting, design, installation and emergency response in various categories including cable rack/wiring build-outs, infrastructure build-outs, DC power installation, fiber cable splicing and security camera installation. Jus-Com also operates as a temporary and permanent staffing agency specializing in the telecommunications market.

 

 

·

 

MDT Labor, LLC d/b/a MDT Technical, a Delaware limited liability company (“MDT”), operates as a workforce management company providing temporary and permanent staffing services under the MDT Technical brand and as a telecommunication service provider providing various services including engineering consulting, design, installation and emergency response in various categories including cable rack/wiring build-outs, infrastructure build-outs, DC power installation, fiber cable splicing and security camera installation under its Beacon Solutions brand. On December 3, 2012, the Company acquired 100% membership interest in MDT through its wholly owned subsidiary, Optos.

 

Acquisition Strategy

 

With respect to its acquisition strategy, Focus intends to pursue a clearly defined telecommunications niche but may, in its discretion, pursue acquisitions outside of this niche although this will not be our focus. We selectively pursue acquisitions when we believe doing so is operationally and financially beneficial to our existing operations, although we do not rely solely on acquisitions for growth. In particular, we pursue those acquisitions that we believe will provide us with incremental revenue and geographic diversification while complementing our existing operations. We generally target companies for acquisition that have defensible leadership positions in their market niches, EBITDA positive which meets or exceeds industry averages, proven operating histories, sound management, and certain clearly identifiable cost synergies.

 

Our History

  

We are a Nevada corporation formed on March 26, 2012.  On May 9, 2012, we entered into a Contribution Agreement with Optos, whereby we acquired 100% of the outstanding membership interests of Optos in consideration of 23,980,000 shares of common stock and 100,000 shares of Series A Preferred Stock. As we were only formed in March 2012 and we acquired Optos in May 2012, we have included the financial statement for Optos for the years ended December 31, 2011 and 2010 and the nine months ended September 30, 2012 and 2011. Optos was incorporated in the State of Delaware on April 15, 2008. Optos is the sole member of Focus Fiber. In addition, Optos held a majority interest in CMK until January 1, 2012, when it acquired the remaining interest in CMK. CMK was the sole member of Townsend. We dissolved CMK and Townsend on December 31, 2012 and transferred all assets to Jus-Com. Jus-Com was acquired by the common management and ownership on September 6, 2011. Subsequently, on January 1, 2012, Jus-Com was acquired by Optos. On December 3, 2012, through Optos, we acquired a 100% interest in MDT, which is a wholly-owned subsidiary of Optos. Our organization structure is summarized below:

  

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Other Pertinent Information

 

Our executive offices are located at 4647 Saucon Creek Rd, Suite 201, Center Valley, Pennsylvania 18034 and our telephone number is telephone 1-877-633-2239. Our subsidiaries lease two additional office/warehouse facilities, as well as two additional office locations throughout the United States. Our website is www.focusventurepartners.com . Our subsidiaries each maintain separate websites including www.focusfiber.com, www.jus-com.com, www.mdttechnical.com, www.mdtpersonnel.com and www.ilabornetwork.com. Jus-Com offices are located at 9250 Corporation Drive, Indianapolis, Indiana 46256 and at 600 West Germantown Pike, Suite 400, Plymouth Meeting, Pennsylvania 19462. MDT’s offices are located at 2325 Paxton Church Road, Harrisburg, PA 17110.

 

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The Offering

 

Common Stock Offered:

 

The selling shareholders are offering a total of 437,500 shares of common stock.
Initial Offering Price: The selling shareholders will sell our shares at $0.08 per share until our shares are quoted on the OTC Bulletin Board, and thereafter at prevailing market prices or privately negotiated prices. This price was determined arbitrarily by us.
   
Terms of Offering: The selling shareholders will determine when and how they will sell the common stock offered in this prospectus.
   
Termination of the Offering: The offering will conclude when all of the 437,500 shares of common stock have been sold or we, in our sole discretion, decide to terminate the registration of the shares. We may decide to terminate the registration if it is no longer necessary due to the operation of the resale provisions of Rule 144 promulgated under the Securities Act of 1933. We also may terminate the offering for no reason whatsoever at the discretion of our management team.
   
Outstanding Shares of Common Stock: 38,337,500 shares of common stock.
   
Use of Proceeds: We will receive no proceeds from the sale of any shares by the selling shareholders.
   
Risk Factors: The purchase of our common stock involves a high degree of risk. You should carefully review and consider "Risk Factors" beginning on page 10.

 

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Summary Financial Information

 

The information for the three and nine months ended September 30, 2012 and 2011 has been derived from our unaudited consolidated financial statements. The recent acquisition of MDT is not included in this table.

 

The information at December 31, 2011 and 2010 and for the years then ended has been derived from our audited combined financial statements.   Our consolidated financial statements appear elsewhere in this prospectus.

 

Statement of Operations Information:

 

   Three Months Ended September 30, 
   2012   2011 
Revenues  $11,897,060    100.0%  $3,669,433    100.0%
Cost of revenues   8,744,685    73.5%   3,255,791    88.7%
Gross profit   3,152,375    26.5%   413,642    11.3%
Salary, wages and payroll taxes   821,856    6.9%   197,005    5.4%
Selling, general and administrative   450,439    3.8%   168,017    4.6%
Travel expense   303,538    2.6%   356,465    9.7%
Occupancy costs   196,688    1.7%   56,416    1.5%
Depreciation and amortization   104,534    0.9%   27,691    0.8%
Operating income (loss)   1,275,320    10.7%   (391,953)   -10.7%
Interest expense   398,410    3.3%   935    0.0%
Gain on sale of assets   -         -    - 
Income (loss) before income taxes   876,910    7.4%   (392,888)   -10.7%
Provision for income taxes   303,321    2.5%   -    - 
Income (loss) before non-controlling interest   573,589    4.8%   (392,888)   -10.7%
Less: net income (loss) attributable to non-controlling interests   -    -    4,715    0.1%
Net income (loss)  $573,589    7.4%  $(397,603)  -10.8%

 

   Nine Months Ended September 30, 
   2012   2011 
Revenues  $31,557,374    100.0%  $10,646,447    100.0%
Cost of revenues   24,433,477    77.4%   8,694,463    81.7%
Gross profit   7,123,897    22.6%   1,951,984    18.3%
Salary, wages and payroll taxes   1,930,768    6.1%   285,358    2.7%
Selling, general and administrative   1,511,306    4.8%   563,064    5.3%
Travel expense   1,109,583    3.5%   766,725    7.2%
Occupancy costs   534,697    1.7%   161,129    1.5%
Depreciation and amortization   260,038    0.8%   33,224    0.3%
Operating income (loss)   1,777,505    5.6%   142,484    1.3%
Interest expense   910,875    2.9%   12,223    0.1%
Gain on sale of assets   -    -    (171,797)   -1.6%
Income (loss) before income taxes   866,630    2.7%   302,058    2.8%
Provision for income taxes   303,321    1.0%   -    - 
Income (loss) before non-controlling interest   563,309    1.8%   302,058    - 
Less: net income (loss) attributable to non-controlling interests   -    -    56,001    0.5%
Net income (loss)  $563,309    1.8%  $246,057    2.3%

 

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   Year Ended December 31, 
   2011   2010 
Revenues  $15,297,926    100.0%  $6,119,571    100.0%
Cost of revenues   11,140,884    72.8%   5,522,651    90.2%
Gross profit   4,157,042    27.2%   596,920    9.8%
Salary, wages and payroll taxes   1,103,817    7.2%   147,127    2.4%
Selling, general and administrative   923,027    6.0%   557,062    9.1%
Travel expense   1,217,135    8.0%   129,801    2.1%
Occupancy costs   257,288    1.7%   99,787    1.6%
Depreciation and amortization   97,400    0.6%   -    0.0%
Operating income (loss)   558,376    3.7%   (336,857)   -5.5%
Interest expense   113,431    0.7%   18,284    0.3%
Gain on sale of assets   (171,797)   -1.1%   -    - 
Income (loss) before non-controlling interest   616,742    4.0%   (355,141)   -5.8%
Less: net income (loss) attributable to non-controlling interests   (48,270)   -0.3%   33,184    0.5%
Net income (loss)  $568,472    3.7%  $(321,957)  -5.3%

 

RISK FACTORS

 

An investment in our common stock involves a high degree of risk.  You should carefully consider the risks described below, together with all of the other information included in this prospectus, before making an investment decision, and you should only consider an investment in our common stock if you can afford to sustain the loss of your entire investment.  If any of the following risks actually occurs, our business, financial condition or results of operations could suffer.  In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

  

We depend upon key personnel and need additional personnel.

 

Our success depends on the continuing services of Christopher Ferguson, our Chief Executive Officer and our sole director.  The loss of Mr. Ferguson could have a material and adverse effect on our business operations.  Additionally, the success of the Company’s operations will largely depend upon its ability to successfully attract and maintain competent and qualified key management personnel. As with any company with limited resources, there can be no guaranty that the Company will be able to attract such individuals or that the presence of such individuals will necessarily translate into profitability for the Company.  Our inability to attract and retain key personnel may materially and adversely affect our business operations.

 

The adjustable feature and the put rights of our common stock purchase warrant issued to Atalaya Special Opportunities Fund IV (Tranche B) could require us to issue a substantially greater number of shares, which will cause dilution to our existing stockholders and may restrict our ability to raise equity capital in the future.

 

On December 3, 2012, the Company entered into a Credit Agreement with Atalaya Special Opportunities Fund IV (Tranche B), as lender and Atalaya Administrative LLC, as agent (“Atalaya”). Under the terms of the Credit Agreement, Atalaya agreed, among other things and subject to certain restrictions, to provide the Company with a revolving loan commitment of $8,500,000 and a term loan commitment of $8,000,000. The Company pursuant to the terms of the Credit Agreement issued to Atalaya a common stock purchase warrant (“Warrant’) to purchase 5,227,841 shares of common stock of the Company. The exercise price per share is $0.0001 and the holder is entitled to exercise the Warrant on a cashless basis. The Warrant expires on December 3, 2022. The Warrant is subject to anti-dilution adjustments if certain dilutive transactions occur, unless specifically exempted by the Warrant, such as issuance of common stock, options, warrants or similar securities or a decrease in the subscription, exercise, conversion or exchange price of these securities. In the event the anti-dilution feature in the Warrant is triggered, shareholders may incur significant dilution. Further, potential equity investors may not elect to not pursue such investment in our company as a result of Atalaya’s anti-dilution rights.

 

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In addition, commencing on the earliest of (a) December 3, 2016 (b) the acceleration of obligations under the Credit Agreement (c) an event of default (d) a value event such as a merger, disposition, IPO other than a qualified IPO or change in control and ending the earlier of (a) a qualified IPO or (b) the expiration of the Warrant, Atalaya may put the Warrant on 60 days’ notice and the Company is obligated to repurchase the Warrant for cash. The value of the put price is determined by the greater of (a) the Equity Value, as defined by the Warrant, per common share of the Company (b) the Put Formula Value, as defined by the Warrant, per common share of the Company. In the event that we are required to repurchase the Warrant for cash, our financial condition may be negatively impacted, which could limit our ability to pursue our business plan.

 

We possess a significant amount of accounts receivable and if we are unable to collect account receivables in a timely manner or at all our cash flow and profitability will be negative impacted, which such risk is heighted during unstable economic periods.

 

We extend credit to our customers as a result of performing work under contract prior to billing our customers for that work. These customers include telephone companies, cable television multiple system operators and others. We had accounts receivable of approximately $ 4.0 million at December 31, 2011 and $11.0 million for the nine months then ended September 30, 2012. We periodically assess the credit risk of our customers and continuously monitor the timeliness of payments. Slowdowns in the industries we serve may impair the financial condition of one or more of our customers and hinder their ability to pay us on a timely basis or at all. Further bankruptcies or financial difficulties within the telecommunications sector could hinder the ability of our customers to pay us on a timely basis or at all, reducing our cash flows and adversely impacting our liquidity and profitability. Additionally, we could incur losses in excess of current bad debt allowances.

 

We must effectively manage the growth of our operations and effectively integrate acquisitions, or our company will suffer.

 

To manage our growth and effectively integrate acquisitions, we believe we must continue to implement and improve our operations. We may not have adequately evaluated the costs and risks associated with this expansion, and our systems, procedures, and controls may not be adequate to support our operations. In addition, our management may not be able to achieve the rapid execution necessary to successfully offer our products and services and implement our business plan on a profitable basis. The success of our future operating activities will also depend upon our ability to expand our support system to meet the demands of our growing business. Any failure by our management to effectively anticipate, implement, and manage changes required to sustain our growth would have a material adverse effect on our business, financial condition, and results of operations.

 

We derive a significant portion of our revenues from a limited number of customers, and the loss of one or more of these customers could adversely impact our revenues and profitability.

 

Our customer base is highly concentrated. For the year ended December 31, 2011, one customer represented approximately 73.7% of revenues or 72.2% of outstanding receivables. For the year ended December 31, 2010, five customers represented approximately 61.5% of revenues or 74.6% of the outstanding accounts receivable. For the nine months ended September 30, 2012, two customers represented approximately 87.4% of revenues or 95.6% of the outstanding receivable balance. Our revenue may significantly decline if we were to lose one or more of our significant customers. In addition, revenues under our contracts with significant customers may vary from period-to-period depending on the timing and volume of work which those customers order or perform with their in-house service organizations. Additionally, consolidations, mergers and acquisitions in the telecommunications and staffing industries have occurred in the past and may occur in the future. The consolidation, merger or acquisition of an existing customer may result in a change in procurement strategies by the surviving entity. Reduced demand for our services or a change in procurement strategy of a significant customer could adversely affect our results of operations, cash flows and liquidity.

  

There is competition for those private companies suitable for a merger transaction of the type contemplated by management.

 

We are in a highly competitive market for a small number of telecommunications business opportunities which could reduce the likelihood of implementing our acquisition strategy. We are and will continue to be an insignificant participant in the business of seeking acquisitions in the telecommunications space. A large number of established and well-financed entities, including small public companies and venture capital firms, are active in mergers and acquisitions of companies that may be desirable target candidates for us. Nearly all these entities have significantly greater financial resources, technical expertise and managerial capabilities than we do; consequently, we will be at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. These competitive factors may reduce the likelihood of implementing our business strategy.

 

Failure to integrate future acquisitions successfully could adversely affect our business and results of operations.

 

As part of our growth strategy, we may acquire companies that expand, complement, or diversify our business. We regularly review various opportunities and periodically engage in discussions regarding possible acquisitions. Future acquisitions may expose us to operational challenges and risks, including the diversion of management’s attention from our existing business, the failure to retain key personnel or customers of an acquired business, the assumption of unknown liabilities of the acquired business for which there are inadequate reserves and the potential impairment of acquired intangible assets. Our ability to sustain our growth and maintain our competitive position may be affected by our ability to successfully integrate any businesses acquired.

 

-11-
 

 

We may not have access in the future to sufficient funding to finance desired growth.

 

Using cash for acquisitions may limit our financial flexibility and make us more likely to seek additional capital through future debt or equity financings. On December 3, 2012, the Company entered into a Credit Agreement with Atalaya Special Opportunities Fund IV (Tranche B), as lender and Atalaya Administrative LLC, as agent (“Atalaya”). Under the terms of the Credit Agreement, Atalaya agreed, among other things and subject to certain restrictions, to provide the Company with a revolving loan commitment of $8,500,000 and a term loan commitment of $8,000,000. The commitments under the Credit Agreement are restricted by the borrowing base defined as 100% of the net collectible amount of acceptable accounts due to the Company less reserves and allowances which Atalaya deems necessary in its reasonable discretion. In the addition, the Credit Agreement is subject to various financial covenants including fixed charge coverage ratio, tangible net worth, restrictions on capital expenditures, minimum EBITDA ratio and maximum leverage ratio. On December 3, 2012, the Company made an initial notice of borrowing/disbursement request. As a result, Atalaya disbursed the entire proceeds of the $8,000,000 term loan commitment (less an agreed-upon $330,000 original discount to Atalaya for making the term loan) and disbursed $3,000,000 of the revolving loan commitment. Of the $8 million disbursed approximately $3 million, was used in order to acquire 100% membership interests in MDT and an additional $3.8 million to satisfy certain encumbrances of MDT, see Management Discussion and Analysis of Financial Condition and Results of Operations on page 25 . The Credit Agreement is secured by all of the assets and personal property of the Company. Our existing debt agreement with Atalaya contains significant restrictions on our operational and financial flexibility, including our ability to incur additional debt, and if we seek more debt we may be required to agree to additional covenants that limit our operational and financial flexibility. If we seek additional debt or equity financings, we cannot be certain that additional debt or equity will be available to us on terms acceptable to us or at all.

 

There are limitations on director/officer liability.

 

As permitted by Nevada law, our certificate of incorporation limits the liability of its directors for monetary damages for breach of a director’s fiduciary duty except for liability in certain instances. As a result of our charter provision and Nevada law, stockholders may have limited rights to recover against directors for breach of fiduciary duty.

  

We are an "emerging growth company," and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.

 

We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including:

 

  · not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act,
  · reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and
  · exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

  

We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, or (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

 

We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

-12-
 

 

Risks Relating to the Telecommunications Industry

 

Service level agreements in our customer agreements could subject us to liability or the loss of revenue.

 

Our contracts with customers typically contain service guarantees and service delivery date targets, which if not met by us, enable customers to claim credits against their payments to us and, under certain conditions, terminate their agreements. Our inability to meet our service level guarantees could adversely affect our revenue and cash flow. While we typically have carve-outs for force majeure events, many events, such as fiber cuts, equipment failure and third-party vendors being unable to meet their underlying commitments or service level agreements with us, could impact our ability to meet our service level agreements and are potentially out of our control.

 

Our backlog is subject to reduction and/or cancellation.

 

Our backlog consists of the uncompleted portion of services to be performed under job-specific contracts and the estimated value of future services that we expect to provide under master service agreements and other long-term requirements contracts. Many of our contracts are multi-year agreements, and we include in our backlog the amount of services projected to be performed over the terms of the contracts based on our historical experience with customers and, more generally our experience in procurements of this type. In many instances, our customers are not contractually committed to procure specific volumes of services under a contract. Our estimates of a customer’s requirements during a particular future period may not prove to be accurate, particularly in light of the current economic conditions and the uncertainty that imposes on changes in our customer’s requirements for our services. If our estimated backlog is significantly inaccurate or does not result in future profits, this could adversely affect our future growth and the price of our common stock.

 

Any failure of our physical infrastructure or services could lead to significant costs and disruptions that could reduce our revenues, harm our business reputation, and have a material adverse effect on our financial results.

 

Our business depends on providing customers with highly reliable service. The services we provide are subject to failure resulting from numerous factors, including:

 

•  human error;

 

•  power loss;

 

•  physical or electronic security breaches;

 

•  fire, earthquake, hurricane, flood, and other natural disasters;

 

•  water damage;

 

•  the effect of war, terrorism, and any related conflicts or similar events worldwide; and

 

•  sabotage and vandalism.

  

Problems within our network, whether or not within our control, could result in service interruptions or equipment damage. In the past we have at times experienced instability in our equipment attributed to equipment failure and power outages. Although such disruptions have been remedied and the network has been stabilized, there can be no assurance that similar disruptions will not occur in the future. We have service level commitment obligations with substantially all of our customers. As a result, service interruptions or equipment damage could result in credits for service interruptions to these customers. We have at times in the past given credits to our customers as a result of service interruptions due to equipment failures. We cannot assume that our customers will accept these credits as compensation in the future. Also, service interruptions and equipment failures may expose us to additional legal liability.

 

The failure of certain key suppliers to provide us with components could have a severe and negative impact upon our business.

 

We rely on a small group of suppliers to provide us with components for our products and services. If these suppliers become unwilling or unable to provide components, there are a limited number of alternative suppliers who could provide them. Changes in business conditions, wars, governmental changes, and other factors beyond our control or which we do not presently anticipate could affect our ability to receive components from our suppliers. Further, it could be difficult to find replacement components if our current suppliers fail to provide the parts needed for these products and services. A failure by our major suppliers to provide these components could severely restrict our ability to provide our services and prevent us from fulfilling customer orders in a timely fashion.

 

The telecommunications industry is highly competitive, and contains competitors that have significantly greater resources and a more diversified base of existing customers than we do.

 

Many of our competitors within the telecommunications industry have greater financial, managerial, sales and marketing and research and development resources than we do and are able to promote their brands with significantly larger budgets. Many of these competitors have the added advantage of a larger, more diversified customer base. If we fail to develop and maintain brand recognition through sales and marketing efforts and a reputation for high-quality service, we may be unable to attract new customers and risk losing existing customers to competitors with better known brands.

 

-13-
 

 

In addition, significant new competition could arise as a result of:

 

•  The growth of installation departments within fiber option companies;

 

•  consolidation in the contractor industry, leading to larger competitors with more expansive networks; and

 

•  further technological advances rendering fiber optic broadband and other installation services outdated.

 

If we are unable to compete successfully, our business will be significantly affected.

 

If we do not adapt to swift changes in the telecommunications industry, we could lose customers or market share.

 

The telecommunications industry is characterized by rapidly changing technology, evolving industry standards, frequent new service introductions, shifting distribution channels, and changing customer demands. We may not be able to adequately adapt our services or acquire new services that can compete successfully. Our failure to obtain and integrate new technologies and applications could impact the breadth of our service portfolio resulting in service gaps, a less differentiated service suite and a less compelling offering to customers. We risk losing customers to our competitors if we are unable to adapt to this rapidly evolving marketplace.

 

In addition, the introduction of new services or technologies, as well as the further development of existing services and technologies, may reduce the cost or increase the supply of certain services similar to those that we provide. As a result, our most significant competitors in the future may be new entrants to the telecommunications industry. These new entrants may not be burdened by an installed base of outdated equipment or obsolete technology. Our future success depends, in part, on our ability to anticipate and adapt in a timely manner to technological changes. Failure to do so could have a material adverse effect on our business.

  

We are subject to significant regulation that could change or otherwise impact us in an adverse manner.

 

Our operations are subject to various federal, state and local laws and regulations. Further, the telecommunications component of MDT’s operations operates in Belgium, Switzerland, France, Germany, Hungary, Ireland, Italy, Lebanon, Netherlands, Poland, Serbia, Spain, Sweden, Austria, Portugal, UAE as well as the UK; and, we may be subject to certain laws and regulations in each of these countries. These laws and regulations include but are not limited to:

 

  · licensing, permitting and inspection requirements applicable to contractors, electricians and engineers;
  · regulations relating to worker safety and environmental protection;
  · permitting and inspection requirements applicable to construction projects;
  · wage and hour regulations;
  · regulations relating to transportation of equipment and materials, including licensing and permitting requirements; and
  · building and electrical codes.

 

We believe that we have all the licenses required to conduct our operations and that we are in substantial compliance with applicable regulatory requirements. Our failure to comply with applicable regulations could result in substantial fines or revocation of our operating licenses, as well as give rise to termination or cancellation rights under our contracts or disqualify us from future bidding opportunities.

 

Legislative actions and initiatives relating to telecommunications may not result in an increase in demand for our services.

 

The American Recovery and Reinvestment Act of 2009 (“ARRA”) originally allocated $7.2 billion in funding to accelerate broadband deployment in rural areas of the country that have been without high-speed infrastructure. However, we cannot predict the actual benefits to us from the implementation of ARRA programs. For example, significant additional contracts resulting from investments for rural broadband deployment under the ARRA may not be awarded to us.

 

Risks Relating to the Staffing Industry

 

Our business is significantly affected by fluctuations in general economic conditions.

 

The demand for our staffing services is highly dependent upon the state of the economy and upon staffing needs of our customers. Any variation in the economic condition or unemployment levels of the United States or in the economic condition of any region or telecommunications industry in which we have a significant presence may severely reduce the demand for our services and thereby significantly decrease our revenues and profits.

 

-14-
 

 

Our business is subject to extensive government regulation and a failure to comply with regulations could materially harm our business.

 

Our business is subject to extensive regulation. The cost to comply, and any inability to comply, with government regulation could materially harm our business. Increased government regulation of the workplace or of the employer-employee relationship, or judicial or administrative proceedings related to such regulation, could materially harm our business.

 

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Care Reform Laws”) include various health-related provisions to take effect through 2014, including requiring most individuals to have health insurance and establishing new regulations on health plans. Although the Health Care Reform Laws do not mandate that employers offer health insurance, beginning in 2014 penalties will be assessed on large employers who do not offer health insurance that meets certain affordability or benefit requirements. Unless modified by regulations or subsequent legislation, providing such additional health insurance benefits to our temporary workers, or the payment of penalties if such coverage is not provided, would increase our costs. If we are unable to raise the rates we charge our customers to cover these costs, such increases in costs could materially harm our business.

 

We may incur employment related and other claims that could materially harm our business.

 

We employ individuals on a temporary basis and place them in our customers' workplaces. We have minimal control over our customers' workplace environments. As the employer of record of our temporary workers we incur a risk of liability for various workplace events, including claims for personal injury, wage and hour requirements, discrimination or harassment, and other actions or inactions of our temporary workers. In addition, some or all of these claims may give rise to litigation including class action litigation. Although we currently believe resolving all of these matters, individually or in the aggregate, will not have a material adverse impact on our financial statements, the litigation and other claims are subject to inherent uncertainties and our view of these matters may change in the future. A material adverse impact on our financial statements also could occur for the period in which the effect of an unfavorable final outcome becomes probable and can be reasonably estimated.

 

We cannot be certain that our insurance will be sufficient in amount or scope to cover all claims that may be asserted against us. Should the ultimate judgments or settlements exceed our insurance coverage, they could have a material effect on our business. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future, that adequate replacement policies will be available on acceptable terms, if at all, or that the companies from which we have obtained insurance will be able to pay claims we make under such policies.

 

We are dependent on workers' compensation insurance coverage at commercially reasonable terms.

 

We provide workers' compensation insurance for our temporary workers. Our workers' compensation insurance policies are renewed annually. We cannot be certain we will be able to obtain appropriate types or levels of insurance in the future or that adequate replacement policies will be available on acceptable terms, if at all. The loss of our workers' compensation insurance coverage would prevent us from doing business in the majority of our markets. Further, we cannot be certain that our current and former insurance carriers will be able to pay claims we make under such policies. These additional sources of capital may not be available on commercially reasonable terms, or at all.

 

We operate in a highly competitive business and may be unable to retain customers or market share.

 

The staffing services business is highly competitive and the barriers to entry are low. There are new competitors entering the market which may increase pricing pressures. In addition, long-term contracts form only a small portion of our revenue. Therefore, there can be no assurance that we will be able to retain customers or market share in the future. Nor can there be any assurance that we will, in light of competitive pressures, be able to remain profitable or, if profitable, maintain our current profit margins.

 

Our results of operations could materially deteriorate if we fail to attract, develop and retain qualified employees.

 

Our performance is dependent on attracting and retaining qualified employees who are able to meet the needs of our customers. We believe our competitive advantage is providing unique solutions for each individual customer, which requires us to have highly trained and engaged employees. Our success depends upon our ability to attract, develop and retain a sufficient number of qualified employees, including management, sales, recruiting, service and administrative personnel. The turnover rate in the staffing industry is high, and qualified individuals of the requisite caliber and number needed to fill these positions may be in short supply. Our inability to recruit a sufficient number of qualified individuals may delay or affect the speed of our planned growth or strategy change. Delayed expansion, significant increases in employee turnover rates or significant increases in labor costs could have a material adverse effect on our business, financial condition and results of operations.

 

-15-
 

 

We may be unable to attract and retain sufficient qualified temporary workers.

 

We compete with other temporary staffing companies to meet our customer needs and we must continually attract qualified temporary workers to fill positions. We have in the past experienced worker shortages and we may experience such shortages in the future. Further, if there is a shortage of temporary workers, the cost to employ these individuals could increase. If we are unable to pass those costs through to our customers, it could materially and adversely affect our business.

 

Risks Relating to this Offering

 

One shareholder owns approximately 65.2% of our common stock providing the shareholder with the complete ability to direct the affairs of our company.

 

TBK 327 Partners LLC, which is owned by Christopher Ferguson and his wife, owns approximately 65.2 % of our common stock. Under our Articles of Incorporation and Nevada law, the vote of a majority of the shares outstanding is generally required to approve most shareholder action.  As a result, TBK 327 Partners LLC will be able to direct the outcome of shareholder votes for the foreseeable future, including votes concerning the election of directors, amendments to our Articles of Incorporation or proposed mergers or other significant corporate transactions.

 

The Offering Price of the shares is arbitrary.

 

The Offering Price of the shares has been determined arbitrarily by us and bears no relationship to the Company’s assets, book value, potential earnings or any other recognized criteria of value.

 

The offering price of the shares was determined based upon the price sold in our offering and should not be used as an indicator of the future market price of the securities. Therefore, the offering price bears no relationship to the actual value of the Company and may make our shares difficult to sell.

 

Since our shares are not listed or quoted on any exchange or quotation system, the offering price of $0.08 for the shares of common stock was determined by the price shares were sold to our shareholders in a private placement memorandum and is a fixed price at which the selling security holders may sell their shares until our common stock is quoted on the OTC Bulletin Board at which time the shares may be sold at prevailing market prices or privately negotiated prices. The facts considered in determining the offering price were our financial condition and prospects, our limited operating history and the general condition of the securities market. The offering price bears no relationship to the book value, assets or earnings of our company or any other recognized criteria of value. The offering price should not be regarded as an indicator of the future market price of the securities.

 

We may, in the future, issue additional common shares, which would reduce investors' percent of ownership and may dilute our share value.

 

Our Articles of Incorporation authorizes the issuance of 100,000,000 shares of common stock, $0.0001 par value, of which 38,337,500 shares are issued and outstanding and 10,000,000 shares of preferred stock, $0.0001 par value, of which 100,000 shares of Series A Preferred Stock are issued and outstanding. Further, the Series A Preferred Stock are convertible into 13,750,000 shares of common stock. The future issuance of common stock may result in substantial dilution in the percentage of our common stock held by our then existing shareholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock.

 

The Board of Directors, in its sole discretion, may issue preferred shares which could carry superior rights and preferences and, in turn, limiting the influence common shareholders may have on the direction of our company.

 

We have authorized 10,000,000 shares of blank check preferred stock of which 100,000 shares of Series A Preferred Stock is currently outstanding.  Upon issuance of any additional preferred stock in the future, the rights attached to the preferred shares could affect our ability to operate, which could force us to seek other financing.  The Board of Directors may issue preferred stock without obtaining shareholder approval.  Such financing may not be available on commercially reasonable terms or at all and could cause substantial dilution to existing stockholders.

 

-16-
 

 

Currently, there is no public market for our securities, and we cannot assure you that any public market will ever develop and it is likely to be subject to significant price fluctuations.

 

Currently, there is no public market for our stock and our stock may never be traded on any exchange, or, if traded, a public market may not materialize.  Even if we are successful in developing a public market, there may not be enough liquidity in such market to enable shareholders to sell their stock.

 

Our common stock is unlikely to be followed by any market analysts, and there may be few or no institutions acting as market makers for the common stock.  Either of these factors could adversely affect the liquidity and trading price of our common stock.  Until our common stock is fully distributed and an orderly market develops in our common stock, if ever, the price at which it trades is likely to fluctuate significantly.  Prices for our common stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for shares of our common stock, developments affecting our business, including the impact of the factors referred to elsewhere in these Risk Factors, investor perception of the Company, and general economic and market conditions.  No assurances can be given that an orderly or liquid market will ever develop for the shares of our common stock.

 

As our current estimated stock price is $0.08, our Common Stock will be subject to “penny stock” rules which may be detrimental to investors.

 

The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) of less than $5.00 per share or an exercise price of less than $5.00 per share.  Such securities are subject to rules that impose additional sales practice requirements on broker-dealers who sell them as our current estimated stock price is $0.08.  For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchaser of such securities and have received the purchaser’s written consent to the transaction prior to the purchase.  Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market.  The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market.  Finally, among other requirements, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.  As the Shares immediately following this Offering will likely be subject to such penny stock rules, purchasers in this Offering will in all likelihood find it more difficult to sell their Shares in the secondary market.

 

We have never paid a dividend on our common stock and we do not anticipate paying any in the foreseeable future.

 

We have not paid a cash dividend on our common stock to date, and we do not intend to pay cash dividends in the foreseeable future. Our ability to pay dividends will depend on our ability to successfully develop one or more properties and generate revenue from operations. Notwithstanding, we will likely elect to retain earnings, if any, to finance our growth. Future dividends may also be limited by bank loan agreements or other financing instruments that we may enter into in the future. The declaration and payment of dividends will be at the discretion of our Board of Directors.

 

We have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.

 

Recent U. S. legislation, including the Sarbanes-Oxley Act of 2002 and the Dodd Frank Wall Street Reform and Protection Act, have resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges and NASDAQ are those that address board of directors’ independence, audit committee oversight and the adoption of a code of ethics. We have not yet adopted any of these corporate governance measures and, since our securities are not listed on a national securities exchange or NASDAQ, we are not required to do so. There are significant corporate governance and executive compensation-related provisions in the   Dodd-Frank   Act that may increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and may also place undue strain on our personnel, systems and resources.

 

It is possible that if we were to adopt some or all of these corporate governance measures, shareholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.  If we do adopt various corporate governance measures, our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives.

 

-17-
 

 

The potential sale of 437,500 shares pursuant to this prospectus may have a depressive effect on the price and market for our common stock.

 

The potential sale of 437,500 shares of common stock pursuant to this prospectus may have a depressive effect on our stock price and make it more difficult for us to raise any significant funds in the equity market if our business requires additional funding.

 

FORWARD-LOOKING STATEMENTS

 

Statements in this prospectus may be “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this prospectus, including the risks described under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. In addition, such statements could be affected by risks and uncertainties related to the healthcare industry as a whole, changes in regulation on the state or federal level, delays in payments from third party payors, our ability to raise any financing which we may require for our operations, our ability to make acquisitions and successfully integrate those acquisitions with our business, as well as general industry and market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this prospectus.

 

USE OF PROCEEDS

 

We will not receive any proceeds from the sale by the selling shareholders of their common stock.

  

DETERMINATION OF OFFERING PRICE

 

The selling shareholders will sell the shares at $0.08 per share until our shares are quoted on the OTC Bulletin Board, and thereafter at prevailing market prices or privately negotiated prices. The offering price was determined by the conversion price of our convertible promissory notes sold in a private offering under Rule 506 under Regulation D as promulgated under the Securities Act of 1933, as amended. There is no assurance of when, if ever, our stock will be approved for trading on the OTC Bulletin Board.

 

The offering price of the shares of our common stock has been determined arbitrarily by us and does not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value. The facts considered in determining the offering price were our financial condition and prospects, our limited operating history and the general condition of the securities market. Although our common stock is not listed on a public exchange, we will be filing to obtain a listing on the OTC Bulletin Board concurrently with the filing of this prospectus. In order to be quoted on the OTC Bulletin Board, a market maker must file an application on our behalf in order to make a market for our common stock. There can be no assurance that a market maker will agree to file the necessary documents with FINRA, which operates the OTC Bulletin Board, nor can there be any assurance that such an application for quotation will be approved. In addition, there is no assurance that our common stock will trade at market prices in excess of the initial public offering price as prices for the common stock in any public market which may develop will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity.

 

DILUTION

 

The common stock to be sold by the selling shareholders in this Offering is common stock that is currently issued. Accordingly, there will be no dilution to our existing shareholders.

 

-18-
 

 

SELLING STOCKHOLDERS

 

The table below sets forth information concerning the resale of the shares of common stock by the selling stockholders. We will not receive any proceeds from the resale of the common stock by the selling stockholders.

 

The following table also sets forth the name of each person who is offering the resale of shares of common stock by this prospectus, the number of shares of common stock beneficially owned by each person, the number of shares of common stock that may be sold in this offering and the number of shares of common stock each person will own after the offering, assuming they sell all of the shares offered.

 

    Common
Shares
Owned by
the selling
stockholder
    Total
Common
Shares
Registered
Pursuant to
    Percentage
of Issued
and
Outstanding
Shares
before
    Number of Shares Owned by
Selling Stockholder After
Offering and Percent of Total
Issued and Outstanding
 
Name of Selling Stockholder   (1)     this Offering     Offering     # of Shares     % of Class  
Leonard Banner     12,500       12,500       *              
Michael Furey     12,500       12,500       *              
Joseph Furey     12,500       12,500       *              
Jenny LaSala     12,500       12,500       *              
James LaSala     12,500       12,500       *              
Allison LaSala     12,500       12,500       *              
Daniel Marcote     12,500       12,500       *              
Stephanie LaSala     12,500       12,500       *              
Front Street Capital Inc.     12,500       12,500       *              
Anthony Cairo Jr.     12,500       12,500       *              
Michael Duffy     12,500       12,500       *              
Amy Pittman     12,500       12,500       *              
Evelyn LaGala     12,500       12,500       *              
Alex Romano     12,500       12,500       *              
Michael Weaver     12,500       12,500       *              
Lillie Melone     12,500       12,500       *              
Rebecca Helman     12,500       12,500       *              
Charles Vulcano     12,500       12,500       *              
Michael Vulcano     12,500       12,500       *              
Mariann Vulcano     12,500       12,500       *              
Michael Etra     12,500       12,500       *              
Ken Etra     12,500       12,500       *              
Richard Etra     12,500       12,500       *              
LRY Consultants     12,500       12,500       *              
Carlin Glyptis     12,500       12,500       *              
Austin Berkelhammer     12,500       12,500       *              
Geoffrey Byruch     12,500       12,500       *              
Jonah Engler-Silberman     12,500       12,500       *              
Jessica Cuculick     12,500       12,500       *              
Peter Doheny     12,500       12,500       *              
Daniel & Kimberly Steinberg     12,500       12,500       *              
James Costaldo     12,500       12,500       *              
Howard A. Hoffman     12,500       12,500       *              
Nema Semnani     12,500       12,500       *              
Marc Helman     12,500       12,500       *              
              437,500                          

  

(1) The number and percentage of shares beneficially owned is based on 38,337,500 shares of common stock outstanding and is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the selling stockholders has sole or shared voting power or investment power and also any shares, which the selling stockholders has the right to acquire within 60 days.

 

(2) Assumes that all securities registered will be sold.

 

-19-
 

 

Issuance of Shares of Common Stock to Selling Stockholders

 

On May 25, 2012, we sold 437,500 shares of common stock to 35 accredited investors for aggregate consideration of $35,000 or $0.08 per share. The issuance of the foregoing securities in this transaction described above was made in reliance upon the exemption from the registration provisions of the Securities Act set forth in Section 4(2) thereof as a transaction by an issuer not involving any public offering and/or Rule 506 under Regulation D as promulgated under the Securities Act. The respective transaction documents contain representations to support our reasonable belief that each investor is an “accredited investor” as defined in Rule 501 under the Securities Act, and that such investor is acquiring such securities for investment and not with a view to the distribution thereof. At the time of their issuance, the securities described above were deemed to be restricted securities for purposes of the Securities Act and such securities bear legends to that effect 

 

PLAN OF DISTRIBUTION

 

The selling shareholders and any of their pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions or by gift. These sales may be made at fixed or negotiated prices. The selling shareholders cannot predict the extent to which a market will develop or, if a market develops, what the price of our common stock will be. If a public market develops for the common stock, the selling shareholders may sell their shares of common stock in the public market based on the market price at the time of sale or at negotiated prices. Subject to the foregoing, the selling shareholders may use any one or more of the following methods when selling or otherwise transferring shares:

  

  ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

  block trades in which a broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

  sales to a broker-dealer as principal and the resale by the broker-dealer of the shares for its account;

 

  an exchange distribution in accordance with the rules of the applicable exchange;

 

  privately negotiated transactions, including gifts;

 

  covering short sales made after the date of this prospectus;

 

  pursuant to an arrangement or agreement with a broker-dealer to sell a specified number of such shares at a stipulated price per share;

 

  a combination of any such methods of sale; and

 

  any other method of sale permitted pursuant to applicable law.

 

The selling shareholders may also sell shares pursuant to Rule 144 or Rule 144A under the Securities Act, if available, rather than pursuant to this prospectus.

 

Broker-dealers engaged by the selling shareholders may arrange for other brokers dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling shareholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling shareholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. None of the other selling shareholders are affiliates of broker-dealers.

 

A selling shareholder may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if the selling shareholder defaults in the performance of the secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling shareholders to include the pledgee, transferee or other successors in interest as selling shareholders under this prospectus.

 

In connection with the sale of our common stock or interests therein, the selling shareholders may enter into hedging transactions with broker-dealers or other financial institutions which may in turn engage in short sales of our common stock in the course of hedging the positions they assume. The selling shareholders may, after the date of this prospectus, also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge their common stock to broker-dealers that in turn may sell these securities. The selling shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

-20-
 

 

The selling shareholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus. In the event of a transfer by a selling shareholder other than a transfer pursuant to this prospectus or Rule 144 of the SEC, we may be required to amend or supplement this prospectus in order to name the transferee as a selling shareholder.

 

The selling shareholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The selling shareholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute the common stock.

 

Because the selling shareholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act. Federal securities laws, including Regulation M, may restrict the timing of purchases and sales of our common stock by the selling shareholders and any other persons who are involved in the distribution of the shares of common stock pursuant to this prospectus.

 

We may be required to amend or supplement this prospectus in the event that (a) a selling shareholder transfers securities under conditions which require the purchaser or transferee to be named in the prospectus as a selling shareholder, in which case we will be required to amend or supplement this prospectus to name the selling shareholder, or (b) any one or more selling shareholders sells stock to an underwriter, in which case we will be required to amend or supplement this prospectus to name the underwriter and the method of sale.

 

We are required to pay all fees and expenses incident to the registration of the shares.

  

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market for Securities

 

There is presently no public market for our common stock and there has never been a market for our common stock. We anticipate applying for quotation of our common stock on the OTC Bulletin Board upon the effectiveness of the registration statement of which this prospectus forms a part. However, we cannot assure you that our shares will be quoted on the OTC Bulletin Board or, if quoted, that a public market will materialize.

 

A market maker sponsoring a company's securities is required to obtain a quotation of the securities on any of the public trading markets, including the OTC Bulletin Board. If we are unable to obtain a market maker for our securities, we will be unable to develop a trading market for our common stock. We may be unable to locate a market maker that will agree to sponsor our securities. Even if we do locate a market maker, there is no assurance that our securities will be able to meet the requirements for a quotation or that the securities will be accepted for quotation on the OTC Bulletin Board.

 

We intend to apply for quotation of the securities on the OTC Bulletin Board, but there can be no assurance that we will be able to obtain this listing. The OTC Bulletin Board securities are not quoted and traded on the floor of an organized national or regional stock exchange. Instead, OTC Bulletin Board securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTC Bulletin Board stocks are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.

 

As of January 4, 2013, we had 38,337,500 shares of common stock issued and outstanding and approximately 38 stockholders of record of our common stock.

 

Dividend Policy

 

The payment by us of dividends, if any, in the future rests within the discretion of our Board of Directors and will depend, among other things, upon our earnings, capital requirements and financial condition, as well as other relevant factors.  We have not paid any dividends since our inception and we do not intend to pay any cash dividends in the foreseeable future, but intend to retain all earnings, if any, for use in our business.

 

-21-
 

 

Equity Compensation Plan Information

 

As of January 4, 2013, we have not adopted an equity compensation plan under which our common stock is authorized for issuance.

 

SHARES AVAILABLE FOR FUTURE SALE

 

As of January 4, 2013, we had 38,337,500 shares of common stock outstanding.  The 437,500 shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act.

 

The outstanding shares of our common stock not included in this prospectus will be available for sale in the public market as follows:

 

Public Float

  

Of our outstanding shares, 24,980,000 shares are beneficially owned by TBK327 Partners, LLC, which is owned by Christopher Ferguson, an executive officer and director, and his wife.  Further, 12,490,000 shares of common stock are owned by Michael D. Traina, the former owner of MDT.   The 437,500 shares, upon registration, will constitute our public float.

 

Rule 144

 

In general, under Rule 144, as currently in effect, a person, other than an affiliate, who has beneficially owned securities for at least six months, including the holding period of prior owners is entitled to sell his or her shares without any volume limitations; an affiliate, however, can sell such number of shares within any three-month period as does not exceed the greater of:

 

  · 1% of the number of shares of common stock then outstanding, or
  · the average weekly trading volume of common stock on the OTC Bulletin Board during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.

 

Sales under Rule 144 are also subject to manner-of-sale provisions, notice requirements and the availability of current public information about an issuer.  In order to effect a Rule 144 sale of common stock, the transfer agent requires an opinion from legal counsel.  Further, the six month holding period is applicable only to issuers who have been subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 for at least 90 days.  As of January 4, 2012, no shares of our common stock are available for sale under Rule 144.

 

-22-
 

   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward Looking Statements

 

Some of the statements contained in this prospectus that are not historical facts are "forward-looking statements" which can be identified by the use of terminology such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this prospectus, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:

 

  · Our ability to attract and retain management;

 

  · Our ability to raise capital when needed and on acceptable terms and conditions;

 

  · The intensity of competition; and

 

  · General economic conditions.

 

All written and oral forward-looking statements made in connection with this prospectus that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.

 

Overview

  

We were incorporated in the state of Nevada on March 26, 2012. On May 31, 2012, Company issued 95.9% of its total outstanding common stock and 100% of its total outstanding preferred stock in exchange for 100% of the members’ interest in Optos. Optos is a limited liability company, which was incorporated in the State of Delaware on April 15, 2008. Optos is the sole member of Focus Fiber, a limited liability company, incorporated in the State of Delaware on October 15, 2010. On January 1, 2012, Optos acquired the remaining 50% interest in CMK, a limited liability company, incorporated in the State of Delaware on December 1, 2008. CMK is the sole member of Townsend a limited liability company, incorporated in the State of Maryland on May 22, 2007. We dissolved CMK and Townsend on December 31, 2012 and transferred all assets to Jus-Com, Inc.

 

We are a holding company operating in the telecommunications industry which manages and develops our wholly-owned subsidiaries focused on the development of telecommunications networks, acting as a service and support provider and providing temporary and part-time staffing solutions. Through our wholly-owned subsidiary, Optos Capital Partners, LLC , a Delaware limited liability company (“Optos”) , we operate the following wholly-owned entities:

  

·Focus Fiber formed on October 15, 2010, specializes in the design, engineering, installation, and maintenance of a telecommunications infrastructure network.

 

· Jus-Com, Inc., an Indiana corporation (“Jus-Com”), is a telecommunication service provider providing various services including engineering consulting, design, installation and emergency response in various categories including cable rack/wiring build-outs, infrastructure build-outs, DC power installation, fiber cable splicing and security camera installation. Jus-Com also operates as a temporary and permanent staffing agency specializing in the telecommunications market.

 

· MDT Labor, LLC d/b/a MDT Technical, a Delaware limited liability company (“MDT”), operates as a workforce management company providing temporary and permanent staffing services under the MDT Technical brand and as a telecommunication service provider providing various services including engineering consulting, design, installation and emergency response in various categories including cable rack/wiring build-outs, infrastructure build-outs, DC power installation, fiber cable splicing and security camera installation under its Beacon Solutions brand.

  

On December 3, 2012, the Company entered into a Credit Agreement with Atalaya Special Opportunities Fund IV (Tranche B), as lender and Atalaya Administrative LLC, as agent (“Atalaya”). Under the terms of the Credit Agreement, Atalaya agreed, among other things and subject to certain restrictions, to provide the Company with a revolving loan commitment of $8,500,000 and a term loan commitment of $8,000,000. The commitments under the Credit Agreement are restricted by the borrowing base defined as 100% of the net collectible amount of acceptable accounts due to the Company less reserves and allowances which Atalaya deems necessary in its reasonable discretion. In the addition, the Credit Agreement is subject to various financial covenants including fixed charge coverage ratio, tangible net worth, restrictions on capital expenditures, minimum EBITDA ratio and maximum leverage ratio.

 

-23-
 

 

The Company pursuant to the terms of the Credit Agreement issued to Atalaya a common stock purchase warrant (“Warrant’) to purchase 5,227,841 shares of common stock of the Company. The exercise price per share is $0.0001. The Warrant expires on December 3, 2022. The Warrant is subject to anti-dilution adjustments if certain dilutive transactions occur, unless specifically exempted by the Warrant, such as issuance of common stock, options, warrants or similar securities or a decrease in the subscription, exercise, conversion or exchange price of these securities. In addition, commencing on the earliest of (a) December 3, 2016 (b) the acceleration of obligations under the Credit Agreement (c) an event of default (d) a value event such as a merger, disposition, IPO other than a qualified IPO or change in control and ending the earlier of (a) a qualified IPO (b) the expiration of the warrant, Atalaya may put the warrant on 60 days’ notice and the Company is obligated to repurchase the warrant for cash. The value of the put price is determined by the greater of (a) the Equity Value, as defined by the Warrant, per common share of the Company (b) the Put Formula Value, as defined by the Warrant, per common share of the Company.

 

The Company agreed to pay Red Ridge Finance Group, LLC (“Red Ridge”) in consideration for arranging and administering the credit facilities provided under the Credit Agreement a fee of $330,000 and to reimburse Red Ridge $44,375 for due diligence and background checks. In addition a quarterly collateral management fee of $20,000 is due to Red Ridge.

 

Legal fees of $152,500 were incurred by the Company to arrange the Credit Agreement.

 

On December 3, 2012, the Company made an initial notice of borrowing/disbursement request. As a result, Atalaya disbursed the entire proceeds of the $8,000,000 term loan commitment (less an agreed-upon $330,000 original discount to Atalaya for making the term loan) and disbursed $3,000,000 of the revolving loan commitment.

 

The cash proceeds for this request were disbursed by Atalaya on behalf of the Company as follows:

 

a) $3,000,000 in connection with the acquisition of all of the issued outstanding membership interests of MDT.

 

b) $3,139,943 in connection with a Buyout Letter Agreement with Sterling National Bank to pay in full an outstanding bank loan, interest and prepayment penalty which was previously an obligation of MDT.

 

c) $785,688 to pay in full the outstanding principal and interest for a note payable to a related party, Christopher Ferguson, the CEO and director of the Company.

 

d) $93,683 to pay in full the outstanding principal and interest for a note payable to a related party, TBK 327 Partners, LLC, a company controlled by Christopher Ferguson, the CEO and a director of the Company.

 

e) $697,230 in connection with a Payout Statement with Metro Bank to pay in full an outstanding bank loan, interest and prepayment penalty which was previously an obligation of MDT

 

f) $340,979 payment to settle all obligations due to Franklin Capital Holdings, LLC.

 

g) $154,377 payment to settle all obligations due to AGR Funding, Inc.

 

h) $152,500 payment for legal fees for the Credit Agreement.

 

i) $20,000 payment for quarterly administration fees to Atalaya.

 

j) $2,285,600 payment to the Company.

 

As of December 3, 2012, the revolving and term loans carry an interest rate at the greater (a) the LIBOR rate plus 12.75%. (b) 0.75% per annum plus 12.75%. The actual interest rate on the revolving and term loans at December 3, 2012 is 13.50%. The Company is required to pay a commitment fee of 0.25% per annum on the amount the revolving loan commitment exceeds the outstanding revolving loan. Interest is payable monthly in cash on term and revolving loans.

 

In addition, the Company is required to pay a quarterly administration fee of $20,000 to Atalaya.

 

Principal on the revolving loans is due on December 3, 2014, the termination date. Principal on the term loans is due in monthly installments of $135,000 commencing on January 1, 2013 and in full on December 3, 2014, the maturity date.

 

The Credit Agreement is secured by all of the assets and personal property of the Company.

 

The Company anticipates the Credit Agreement will be accounted for in accordance with ASC-20 Debt with Conversion and Other Options, ASC 815-20 Derivatives and Hedging, Contracts in Equity’s Own Equity and ASC 835 Interest.

 

-24-
 

 

Acquisition Strategy

 

With respect to its acquisition strategy, Focus intends to pursue a clearly defined telecommunications niche but may, in its discretion, pursue acquisitions outside of this niche. We selectively pursue acquisitions when we believe doing so is operationally and financially beneficial, although we do not rely solely on acquisitions for growth. In particular, we pursue those acquisitions that we believe will provide us with incremental revenue and geographic diversification while complementing our existing operations. We generally target companies for acquisition that have defensible leadership positions in their market niches, EBITDA positive which meets or exceeds industry averages, proven operating histories, sound management, and certain clearly identifiable cost synergies.

 

On December 3, 2012, the Company acquired all of the issued outstanding membership interests of MDT Labor, LLC, doing business as MDT Technical (“MDT”). MDT operates a services business that provides labor and human resource solutions, including temporary staffing services in the United States market. Pursuant to the Interest Purchase Agreement, a cash payment of $3,000,000 was made by Atalaya on behalf of the Company, delivered a Promissory Term Note (“MDT Note”) for $4,000,000 and issued 12,490,000 shares of common stock of the Company valued at $999,200 for all of the outstanding membership interests for MDT. Common stock is valued at $0.08 per share based on the last issuance of common stock by the Company for cash. The MDT Note bears interest of 6% per annum. Interest in due and payable quarterly in arrears with the first interest payment due and payable on April 5, 2013, for the prior period ended March 31, 2013. No portion of the principal is due before the maturity date of May 30, 2015 unless the Company receives not less than $10,000,000 in gross cash proceeds from the issuance of its stock. In such case, the Company may pay $1,500,000 in principal. The Company may further pay monthly scheduled principal payments of $100,000 the following month if the Company receives not less than $10,000,000 in gross cash proceeds from the issuance of its stock and meets the terms of certain financial convents including senior debt to EBITDA ratio and fixed charge coverage ratio. All accrued principal and interest is otherwise payable at the maturity date of May 30, 2015. The MDT Note is secured by all fixtures and personal property of every kind and nature. The MDT Note security interest is subordinated to the security interests held by Atalaya. The Company anticipates the Business Combination will be accounted for using the acquisition method in accordance with ASC 805, Business Combinations.

 

Results of Operations

  

Our revenues and results of operations can be subject to seasonal and other variations. These variations are influenced by weather, customer spending patterns, bidding seasons, project timing and schedules, and holidays.

 

Additionally, the telecommunication and staffing industries can be highly cyclical. As a result, our volume of business may be adversely affected by declines or delays in new projects in various geographic regions in the United States. Project schedules, particularly in connection with larger, longer-term projects, can also create fluctuations in the services provided, which may adversely affect us in a given period. The financial condition of our customers as well as their access to capital, variations in the margins of projects performed during any particular period, regional and national economic and market conditions, provided timing of acquisitions, the timing and magnitude of acquisition and integration costs associated with acquisitions and interest rate fluctuations are examples of items that may also materially affect quarterly results. Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period.

 

Gross profit is derived from subtracting costs of service from revenue. Various factors impact our margins on a quarterly or annual basis. The timing and geographical characteristics of projects, as to when they begin and when they are completed can impact margins. The mix of business conducted in different areas of the country may impact margins as certain geographical areas offer higher profit margins due to physical characteristics of where the work is performed. The mix of revenues impacts margins, as revenue derived from underground work has a lower profit margin than revenue derived from aerial construction projects.

 

Our customer base is highly concentrated. For the year ended December 31, 2011, one customer represented approximately 73.7% of revenues or 72.2% of outstanding receivables. For the year ended December 31, 2010, five customers represented approximately 61.5% of revenues or 74.6% of the outstanding accounts receivable. For the nine months ended September 30, 2012, two customers represented approximately 87.4% of revenues or 95.6% of the outstanding receivable balance. Our revenue may significantly decline if we were to lose one or more of our significant customers. In addition, revenues under our contracts with significant customers may vary from period-to-period depending on the timing and volume of work which those customers order or perform with their in-house service organizations. Additionally, consolidations, mergers and acquisitions in the telecommunications and staffing industries have occurred in the past and may occur in the future. The consolidation, merger or acquisition of an existing customer may result in a change in procurement strategies by the surviving entity. Reduced demand for our services or a change in procurement strategy of a significant customer could adversely affect our results of operations, cash flows and liquidity.

  

We and our customers continue to operate in a challenging business environment, with increasing regulatory and environmental requirements, stringent permitting processes and only gradual recovery in the economy from recessionary levels. We are closely monitoring our customers and the effect that changes in economic and market conditions have had or may have on them. Please read "Risk Factors" for additional information which may affect our financial condition, results of operations and cash flows.

 

-25-
 

  

For the Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011

 

Consolidated Results

 

The following table sets forth selected unaudited statements of operations data and such data as a percentage of revenues for the three month periods as indicated:

 

   Three Months Ended September 30, 
   2012   2011 
Revenues  $11,897,060    100.0%  $3,669,433    100.0%
Cost of revenues   8,744,685    73.5%   3,255,791    88.7%
Gross profit   3,152,375    26.5%   413,642    11.3%
Salary, wages and payroll taxes   821,856    6.9%   197,005    5.4%
Selling, general and administrative   450,439    3.8%   168,017    4.6%
Travel expense   303,538    2.6%   356,465    9.7%
Occupancy costs   196,688    1.7%   56,416    1.5%
Depreciation and amortization   104,534    0.9%   27,691    0.8%
Operating income (loss)   1,275,320    10.7%   (391,952)   -10.7%
Interest expense   398,410    3.3%   935    0.0%
Gain on sale of assets   -    0.0%   -    - 
Income (loss) before income taxes   876,910    7.4%   (392,887)   -10.7%
Provision for income taxes   303,321    2.5%   -    - 
Income (loss) before non-controlling interest   573,589    4.8%   (392,887)   -10.7%
Less: net income (loss) attributable to non-controlling interests   -    -    4,715    0.1%
Net income (loss)  $573,589    4.8%  $(397,602)   -10.8%

 

Revenues .  Due to the short term nature of the Company’s construction contracts, revenue is recognized once 100% complete. A contract may have many segments, which once completed; the revenue for the segment is recognized and no further obligation exists. The company’s construction contracts or segments of contracts typically can range from several days to two to four months. Staffing revenue is recognized as the services are performed.   For the three months ended September 30, 2012, revenues increased $8.2 million, or 224%, to $11.9 million, primarily as a result of the number and size of projects, as compared to the three months ended September 30, 2011. In September of 2011 the Company acquired Jus-Com Inc., which contributed revenues of $202,000 and $88,000 for the three months ended September 30, 2012 and September 30, 2011, respectively. Revenue derived from design and permit, underground construction and materials contributed 35.6%, 29.5% and 13.5%, respectively, of the increase, from the same period of the prior year.

 

Gross profit. Cost of services, which is subtracted from revenues to obtain gross profit, consists primarily of all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, and certain employee job related lodging expenses. Gross profit increased $2.7 million or 662% to $3.2 million for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 As a percentage of sales gross profit was 26% for the quarter ended September 30, 2012, as compared to 11% as a percentage of sales for the quarter ended September 30, 2011. The increase is due to accounting for accrued costs in the current quarter, where revenue has been recognized and costs have not been billed. For the quarters ended September 30, 2012 and 2011 the Company had accrued cost of sales of $5.6 million and $0, respectively. Previously, the third quarter of 2011 absorbed the costs which were not accrued for during the first and second quarters of the prior year, which is reflected in the gross profit margin for the nine months ended September 30, 2011.

 

Salary, Wages and Payroll Taxes is compensation for the administrative staff and management and medical insurance and payroll taxes for all personnel. During the three months ended September 30, 2012, salary, wages and payroll taxes increased $625,000 or 317%, to $822,000, from the three months ended September 30, 2011. As a percentage of sales, salary, wages and payroll taxes was 7.0% and 5.0%, for the three months ended September 30, 2012 and 2011, respectively. The increase is due to establishment of corporate infrastructure correlating with the Company’s growth.

 

Selling, General and Administrative (SG&A) expense includes auto, computer, communications, marketing, bank charges, insurance, professional fees, meals, office expense, supplies, and bad debt expense. For the three months ended September 30, 2012, SG&A increased $282,000 or 168%, to $450,000, as compared to the three months ended September 30, 2011. General expenses and professional fees increased overall, in support of the Company’s growth efforts.

 

-26-
 

 

Travel includes costs related to various methods of transportation, lodging, fuel, parking and tolls. Travel decreased $53,000 or 15.0%, to $304,000, for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011. As a percentage of sales, travel was 3.0% and 10.0%, respectively, for the three months ended September 30, 2012 and September 30, 2011. Due to the increasing volume of travel expenses relating to cost of services, the company has elected to categorize certain site related costs, as cost of services, which represented $455,000 for the quarter ended September 30, 2012.

 

Occupancy Costs are represented by property related expenses, such as rent, utilities, security and general repairs and maintenance. Occupancy costs increased $141,000 or 249%, to $197,000, for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011. The increase is due to additional warehouse and office space relating to the acquisition of Jus-Com and to support its growth. As a percentage of sales, occupancy costs was 2.0% and 2.0%, respectively, for the three months ended September 30, 2012 and September 30, 2011.

 

Depreciation and Amortization increased $77,000 for the three months ended September 30, 2012 to $105,000 as compared to $28,000 in the prior year. The increase is primarily attributable to an increase in capital expenditures to coincide with the Company’s growth and the depreciation of the previously acquired assets for the quarter ended September 30, 2012, as compared to the three months ended September 30, 2011. Additionally, the Company amortized $11,000 for expense related to the acquisition of Jus-Com.

 

Operating income (loss) increased $1,667,000 or 425%, to an operating income of 1,275,000, for the three months ended September 30, 2012 as compared to loss of $392,000 for the three months ended September 30, 2011. As a percentage of sales, operating income (loss) was 11.0 % and (11.0)%, respectively, for the three months ended September 30, 2012 and September 30, 2011. The growth of the Company’s Network segment and increases in expenses to support the establishment of infrastructure is directly attributable to the increase.

 

Interest Expense increased $397,000 to $398,000, for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011. The increase is directly related to interest and fees associated with the Company’s factoring lines of credit. As a percentage of sales, interest expense was 3.0% and 0.0%, respectively, for the three months ended September 30, 2012 and September 30, 2011.

 

Net Income increased $971,000 or 244% to $574,000, for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011. As a percentage of sales, net income was 5.0 % and (11.0) %, respectively, for the three months ended September 30, 2012 and September 30, 2011. The growth of the Company’s network segment and fees associated with the factoring lines of credit contributed to the increase in net income.

 

Segmented Results

 

The Company’s operations include two reportable operating segments. These operating segments reflect the way the company manages its operations and makes business decisions. Design, engineering, installation, and maintenance of a telecommunications infrastructure network (“Network”) and a temporary and permanent staffing agency specializing in the telecommunications market (“Staffing”).

 

-27-
 

 

The following table sets forth revenues and operating income (loss) by segment for the periods indicated:

 

   Three Months Ended September 30, 2012 
   Network   Staffing   Combined 
Net Sales  $9,882,222   $2,014,838   $11,897,060 
Cost of sales   6,812,425    1,932,260    8,744,685 
Gross profit   3,069,797    82,578    3,152,375 
Salary, wages and payroll taxes   785,988    35,868    821,856 
Selling, general and administrative   436,401    14,038    450,439 
Travel expenses   302,101    1,437    303,538 
Occupancy costs   188,541    8,147    196,688 
Depreciation and amortization   104,534    -    104,534 
Net operating income   1,252,232    23,088    1,275,320 
Interest (expense)   (387,291)   (11,119)   (398,410)
Income before income taxes   864,941    11,969    876,910 
Provision for income taxes   303,321    -    303,321 
Net income  $561,620   $11,969  $573,589 
                
Total assets  $13,122,118   $428,877   $13,550,995 

  

   Three Months Ended September 30, 2011 
   Network   Staffing   Combined 
Net Sales  $2,233,769   $1,435,664   $3,669,433 
Cost of sales   1,956,311    1,299,480    3,255,791 
Gross profit   277,458    136,184    413,642 
Salary, wages and payroll taxes   139,912    57,093    197,005 
Selling, general and administrative   147,276    20,741    168,017 
Travel expenses   354,496    1,969    356,465 
Occupancy costs   51,370    5,046    56,416 
Depreciation and amortization   27,691    -    27,691 
Net operating (loss) income   (443,287)   51,335    (391,952)
Interest (expense)   -    (935)   (935)
Gain on sale of asset   -    -    - 
(Loss) income before income taxes   (443,287)   50,400    (392,887)
Income taxes   -    -    - 
Net (loss) income  $(443,287)  $50,400  $(392,887)
                
Total assets  $3,274,264   $588,178   $3,862,442 

 

Network

 

Revenues . Due to the short term nature of the Company’s construction contracts, revenue is recognized once 100% complete. A contract may have many segments, which once completed; the revenue for the segment is recognized and no further obligation exists. The Company’s construction contracts or segments of contracts typically can range from several days to two to four months. Network revenue increased $7.6 million or 342%, to $9.9 million, for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011. The increase is attributable to the volume and size of the types of contracts as compared to the same quarter in the prior year, as well as the Company’s acquisition of Jus-Com, Inc.

 

-28-
 

 

Net Operating Income and Net Income. For the three months ended September 30, 2012, net operating income increased $1,696,000 or 382% to a net operating income of $1,252,000 as compared to the three months ended September 30, 2011. Net income increased $1,004,000 or 227%, to a net income of $562,000. The increase in income is primarily due to the increase in revenue offset by the costs associated with the establishment of infrastructure to support the segments’ growth and the interest costs relating to the Segment’s factoring relationship.

 

Staffing

 

Revenues . Staffing revenue is recognized as the services are performed. The Staffing segment increased $579,000 or 40% to $2,014,000, for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011. The reduction in revenue is related to a customer’s business closure.

 

Net Operating (Loss) Income and Net (Loss) Income. For the three months ended September 30, 2012, net operating income decreased $28,000 or 55% to a net operating income of $23,000 as compared net operating income of $51,000 for the three months ended September 30, 2011. For the three months ended September 30, 2012 the Staffing segment had a net income of $12,000 a decrease of $38,000 or 76% as compared to the same quarter in the prior year. The decrease is attributable to a loss in revenue from the closure of a customer’s business.

 

For the Nine Months Ended September 30, 2012 Compared to the Six Months Ended September 30, 2011

Consolidated Results

 

The following table sets forth selected unaudited statements of operations data and such data as a percentage of revenues for the nine month periods as indicated:

 

   Nine Months Ended September 30, 
   2012   2011 
Revenues  $31,557,374    100.0%  $10,646,447    100.0%
Cost of revenues   24,433,477    77.4%   8,694,463    81.7%
Gross profit   7,123,897    22.6%   1,951,984    18.3%
Salary, wages and payroll taxes   1,930,768    6.1%   285,358    2.7%
Selling, general and administrative   1,511,306    4.8%   563,064    5.3%
Travel expense   1,109,583    3.5%   766,725    7.2%
Occupancy costs   534,697    1.7%   161,129    1.5%
Depreciation and amortization   260,038    0.8%   33,224    0.3%
Operating income (loss)   1,777,505    5.6%   142,484    1.3%
Interest expense   910,875    2.9%   12,223    0.1%
Gain on sale of assets   -    -    (171,797)   -1.6%
Income (loss) before income taxes   866,630    2.7%   302,058    2.8%
Provision for income taxes   303,321    1.0%   -    - 
Income (loss) before non-controlling interest   563,309    1.8%   302,058    0 
Less: net income (loss) attributable to non-controlling interests   -    -    56,001    0.5%
Net income (loss)  $563,309   1.8%  $246,057    2.3%

 

Revenues .  Due to the short term nature of the Company’s construction contracts, revenue is recognized once 100% complete. A contract may have many segments, which once completed; the revenue for the segment is recognized and no further obligation exists. The company’s construction contracts or segments of contracts typically can range from several days to two to four months. Staffing revenue is recognized as the services are performed.   Staffing revenue is recognized as the services are performed.   For the nine months ended September 30, 2012, revenues increased $20.9 million, or 196%, to $31.6 million, primarily as a result of the number and size of projects, as compared to the nine months ended September 30, 2011. Increases of materials from segments of contracts, underground construction and design and permitting represented 32.8%, 30.1% and 21.7%, respectively, of the increase from the same period of the prior year. The acquisition in September 2011 of Jus-Com, Inc., contributed revenues of 576,000 for the nine months ended September 30, 2012.

 

-29-
 

 

Gross profit. Cost of services, which is subtracted from revenues to obtain gross profit, consists primarily of all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, equipment rentals, equipment related expense, supplies, tools and repairs. Gross profit increased $5.2 million or 265% to $7.1 million for the nine months ended September 30, 2012 as compared $1.5 million for the three months ended September 30, 2011. The increase in gross profit is attributable to the Company’s growth and the number and size of active projects. As a percentage of sales, gross profit was 23% for the nine months ended September 30, 2012, as compared to 18% as a percentage of sales for the nine month period ending September 30, 2011. The increase is due to increases in revenue segments which earn a higher gross profit margin. For the nine months ended September 30, 2012 and 2011 the Company had accrued cost of sales of $5.6 million and $0, respectively.

  

Salary, Wages and Payroll Taxes is compensation for the administrative staff and management and medical insurance and payroll taxes for all personnel. During the nine months ended September 30, 2012, salary, wages and payroll taxes increased $1.6 million or 577%, to $1.9 million, from the nine months ended September 30, 2011. As a percentage of sales, salary, wages and payroll taxes was 6% and 3%, for the nine months ended September 30, 2012 and 2011, respectively. The increase is due to establishment of corporate infrastructure correlating with the Company’s growth.

 

Selling, General and Administrative (SG&A) expense includes auto, computer, communications, marketing, bank charges, insurance, professional fees, meals, office expense, supplies, and bad debt expense. For the nine months ended September 30, 2012, SG&A increased $948,000 or 168%, to $1.5 million, as compared to the nine months ended September 30, 2011. Professional fees relating to the Company’s initial audit, transactional related expenses and an overall increase in general expenses to support the Company’s growth. As a percentage of sales, SG&A was 5% during the nine months ended September 30, 2012 as compared to 5% for the nine months ended September 30, 2011. The decrease as a percentage of sales is directly attributable to the Company’s growth.

 

Travel includes costs related to various methods of transportation, lodging, fuel, parking and tolls. As the volume of construction contracts has increased certain previously categorized travel expenses such as employee on site lodging arrangements and fuel, the Company has elected for the nine months ended September 30, 2012, to categorize such expenses as cost of services, which represented $725,000. Travel expenses as it relates to project management and administrative costs increased $343,000 or 45%, to $1,110,000, for the nine months ended September 30, 2012 as compared to $767,000 for the nine months ended September 30, 2011. As a percentage of sales, travel was 4% and 7%, respectively, for the nine months ended September 30, 2012 and September 30, 2011. The Company’s expansion geographically and its limited area of personnel to support such expansion, caused an increase in travel costs in supervising the additional projects.

 

Occupancy Costs are represented by property related expenses, such as rent, utilities, security and general repairs and maintenance. Occupancy costs increased $374,000 or 232%, to $535,000, for the nine months ended September 30, 2012 as compared to $161,000 for the nine months ended September 30, 2011. The increase is due to additional warehouse and office space from its acquisition of Jus-Com and to support its growth. As a percentage of sales, occupancy costs was 2% and 2%, respectively, for the nine months ended September 30, 2012 and September 30, 2011.

 

Depreciation and Amortization increased $227,000 for the nine months ended September 30, 2012 to $260,000 as compared to $33,000 the same period in the prior year. The increase is primarily attributable to an increase in capital expenditures to coincide with the Company’s growth and the depreciation of the previously acquired assets for the nine months ended September 30, 2012, as compared to the nine months ended September 30, 2011.. Additionally, the Company had amortization of $32,000 for expenses related to the acquisition of Jus-Com.

 

Operating income increased $1,635,000 or 1,148%, to $1,778,000, for the nine months ended September 30, 2012, as compared to $142,000 for the nine months ended September 30, 2011. As a percentage of sales, operating income was 6% and 1%, respectively, for the nine months ended September 30, 2012 and September 30, 2011. The increase can be attributed to the additional expenses relating to the growth of the Network segment.

 

Interest Expense increased $898,000 to $911,000, for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011. The increase is directly related to interest and fees associated with the Company’s factoring lines of credit. As a percentage of sales, interest expense was 3% and 0%, respectively, for the nine months ended September 30, 2012 and September 30, 2011.

 

Gain on sale of assets. For the nine months ended September 30, 2012 and 2011, the Company realized a gain from the sale of certain customer lists and contracts of $0 and $172,000, respectively. During the nine months ended September 30, 2011, the gain on the sale of assets of $172,000 was recorded in the staffing segment. The gain on the sale of assets is a result of the Company entering into an Asset Sale and Purchase Agreement to sell customer lists and contracts on January 19, 2011. The assets sold comprise of customers lists and contacts for an employee staffing business. The Company received total proceeds of $239,000 which comprise cash of $16,000, accounts receivable of $3,000 and forgiveness of account payable of $219,000. As a result, the Company recorded a gain on sale of assets of $172,000 in the consolidated statement of operations.

 

Net Income increased $317,000 or 129%, to a net income of $563,000, for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011. As a percentage of sales, net income was 2 % and 2%, respectively, for the nine months ended September 30, 2012 and September 30, 2011. The growth of the Company’s network segment and fees associated with the factoring lines of credit contributed to the decrease in net income.

 

-30-
 

 

Segmented Results

 

The Company’s operations include two reportable operating segments. These operating segments reflect the way the company manages its operations and makes business decisions. Design, engineering, installation, and maintenance of a telecommunications infrastructure network (“Network”) and a temporary and permanent staffing agency specializing in the telecommunications market (“Staffing”).

 

The following table sets forth revenues and operating income (loss) by segment for the periods indicated:

 

   Nine Months Ended September 30, 2012 
   Network   Staffing   Combined 
Net Sales  $26,177,685   $5,379,689   $31,557,374 
Cost of sales   19,287,636    5,145,841    24,433,477 
Gross profit   6,890,049    233,848    7,123,897 
Salary, wages and payroll taxes   1,806,060    124,708    1,930,768 
Selling, general and administrative   1,453,763    57,543    1,511,306 
Travel expenses   1,102,927    6,656    1,109,583 
Occupancy costs   514,181    20,516    534,697 
Depreciation and amortization   260,038    -    260,038 
Net operating income   1,753,080    24,425    1,777,505 
Interest (expense)   (870,590)   (40,285)   (910,875)
Income (loss) before income taxes   882,490    (15,860)   866,630 
Provision for income taxes   303,321    -    303,321 
Net income (loss)  $579,169   $(15,860)  $563,309 
                
Total assets  $13,122,118   $428,877   $13,550,995 

 

   Nine Months Ended September 30, 2011 
   Network   Staffing   Combined 
Net Sales  $7,032,623   $3,613,824   $10,646,447 
Cost of sales   5,420,488    3,273,975    8,694,463 
Gross profit   1,612,135    339,849    1,951,984 
Salary, wages and payroll taxes   214,896    70,462    285,358 
Selling, general and administrative   452,926    110,138    563,064 
Travel expenses   759,284    7,441    766,725 
Occupancy costs   147,108    14,021    161,129 
Depreciation and amortization   33,224    -    33,224 
Net operating income   4,697    137,787    142,484 
Interest (expense)   (9,007)   (3,216)   (12,223)
Gain on sale of asset   171,797    -    171,797 
Income before income taxes   167,487    134,571    302,058 
Income taxes   -    -    - 
Net income  $167,487   $134,571   $302,058 
                
Total assets  $3,274,263   $588,178   $3,862,441 

 

-31-
 

 

Network

 

Revenues . Due to the short term nature of the Company’s construction contracts, revenue is recognized once 100% complete. A contract may have many segments, of which, once completed; the revenue for the segment is recognized and no further obligation exists. The Network’s construction contracts or segments of contracts typically can range from several days to two to four months. Network revenue increased $19.1 million or 272.0%, to $26.2 million, for the nine months ended September 30, 2012, as compared to the nine months ended September 30, 2011. The increase is attributable to the volume and size of the types of contracts as compared to the same period in the prior year. Increases of underground construction represented 33% and revenue derived from an increase in materials for segments or contracts, represented 36% of the increase from the same period of the prior year. The acquisition in September 2011 of Jus-Com, Inc., contributed revenues of $576,000 for the nine months ended September 30, 2012.

 

Net Operating Income and Net Income. For the nine months ended September 30, 2012, net operating income increased $1,748 to $1,753,000 as compared to the nine months ended September 30, 2011. Net income increased $411,000 or 246%, to $167,000. The growth of the Company’s network segment offset from the fees associated with the factoring lines of credit contributed to the increase in net income.

 

Staffing

 

Revenues . Staffing revenue is recognized as the services are performed. The Staffing segment increased $1,766,000 or 49% to $5.4 million, for the nine months ended September 30, 2012, as compared to the nine months ended September 30, 2011. The increase is attributable to changing mixture of the Staffing segment’s customer base.

 

Net Operating (Loss) Income and Net (Loss) Income. For the nine months ended September 30, 2012, net operating income decreased $113,000 or 82% to a net operating income of $24,000 as compared net operating income of $138,000 for the nine months ended September 30, 2011. For the nine months ended September 30, 2012, the Staffing segment had a net loss of $16,000 a decrease of $150,000 or 112% as compared to the same period in the prior year. The decrease is attributable to the gain from the sale of customer lists and contracts for the nine months ended September 30, 2011. During the nine months ended September 30, 2011, the gain on the sale of assets of $172,000 was recorded in the staffing segment. The gain on the sale of assets is a result of the Staffing segment entering into an Asset Sale and Purchase Agreement to sell customer lists and contracts on January 19, 2011. The assets sold comprised of customer’s lists and contacts for an employee staffing business. The Company received total proceeds of $239,000 which comprise cash of $16,000, accounts receivable of $3,000 and forgiveness of account payable of $219,000. As a result, the Company recorded a gain on sale of assets of $172,000 in the consolidated statement of operations for the nine month’s ended September 30, 2011.

 

Fiscal Year Ended December 31, 2011 Compared to Fiscal Year Ended December 31, 2010

 

Consolidated Results

 

The following table sets forth selected statements of operations data and such data as a percentage of revenues for the years indicated:

 

   Year Ended December 31, 
   2011   2010 
Revenues  $15,297,926    100.0%  $6,119,571    100.0%
Cost of revenues   11,140,884    72.8    5,522,651    90.2 
Gross profit   4,157,043    27.2    596,920    9.8 
Salary and wages   1,103,817    7.2    147,127    2.4 
Selling, general and administrative   923,027    6.0    557,062    9.1 
Travel expense   1,217,135    8.0    129,801    2.1 
Occupancy costs   257,288    1.7    99,787    1.6 
Depreciation and amortization   97,400    0.6    -    0.0 
Operating income (loss)   558,376    3.7    (336,857)   (5.5)
Interest expense   113,431    0.7    18,284    0.3 
Gain on sale of assets   (171,797)   (1.1)       (4.8)
Net income (loss) before non-controlling interest   616,742    4.0    (355,141)   (5.8)
Less: net income attributable to non-controlling interest   (48,270)   (0.3)   33,184    0.5 
Net income  $568,472    3.7   $(321,957)   (5.3)

 

Revenues.  Due to the short term nature of the Company’s construction contracts, revenue is recognized once 100% complete. A contract may have many segments, of which, once completed; the revenue for the segment is recognized and no further obligation exists. The Network’s construction contracts or segments of contracts typically can range from several days to two to four months.  Staffing revenue is recognized as the services are performed.   For the year ended December 31, 2011, revenues increased $9.2 million, or 150.0%, to $15.3 million, primarily as a result of the additional revenue derived from the Network segment, as compared to the year ended December 31, 2010.

 

-32-
 

 

Gross profit. Cost of services, which is subtracted from revenues to obtain gross profit, consists primarily of all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, equipment rentals, equipment related expense, supplies, tools and repairs. Gross profit increased $3.6 million or 596.4% to $4.2 million for the year ended December 31, 2011 as compared to the year ended December 31, 2010. As a percentage of sales, gross profit was 27.2% for the year ended December 31, 2011, as compared to 9.8% as a percentage of sales, for the year ended December 31, 2010. The increase is due to the increase in the number of contracts awarded in the Network segment, which has a higher profit margin, as compared to the year ended December 31, 2010.

 

Salary, Wages and Payroll Taxes consists of compensation for the administrative staff and management, and medical insurance and payroll taxes for all personnel. During the year ended December 31, 2011, salary, wages and payroll taxes increased $957,000 or 650.2%, to $1.1 million, from the year ended December 31, 2010. As a percentage of sales, salary, wages and payroll taxes was 7.2% and 2.4%, for the year ended December 31, 2010. The increase is due to additional employees and related payroll taxes and benefits to support the Company’s growth of its Network segment.

 

Selling, General and Administrative (SG&A) expense includes auto, computer, communications, marketing, bank charges, insurance, professional fees, meals, office expense, supplies, and bad debt expense. For the year ended December 31, 2011, SG&A increased $366,000 or 65.7%, to $923,000, as compared to the year ended December 31, 2010. As a percentage of sales, SG&A was 6.0% during the year ended December 31, 2011 and 9.1% for the year ended December 31, 2010. The increase in SG&A is a result of the additional expenses related to the growth and expansion of the Network segment.

 

Travel includes costs related to various methods of transportation, lodging, fuel, parking and tolls. Travel increased $1.1 million or 837.7%, to $1.2 million, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. As a percentage of sales, travel was 8.0% and 2.1%, respectively, for the year ended December 31, 2011 and December 31, 2010. The increase in travel is directly related to the increase in fuel and associated costs used as a result of the increase in revenue.

 

Occupancy Costs are represented by property related expenses, such as rent, utilities, security and general repairs and maintenance. Occupancy costs increased $158,000 or 157.8%, to $257,000, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. As a percentage of sales, occupancy costs was 1.7% and 1.6%, respectively, for the year ended December 31, 2011 and December 31, 2010. The acquisition of Jus-Com and expansion of the Network segment increased occupancy costs by adding additional warehouse and office space.

 

Depreciation and Amortization increased $97,000, for the year ended December 31, 2011 as compared to$0 for the year ended December 31, 2010. The Company added $1.3 million in capital expenditures, of which $86,000 was depreciation expense and $11,000 was amortization of intangible asset related to the acquisition of Jus-Com.

 

Operating income (loss) increased $895,000 or 265.8%%, to $558,000, for the year ended December 31, 2011 as compared to a net operating loss of $337,000, for the year ended December 31, 2010. The increase in operating income is a result of the increase in the number and size of contracts awarded in the Network segment. As a percentage of sales, operating income (loss) was 3.7% and (5.5)%, respectively, for the year ended December 31, 2011 and December 31, 2010.

 

Interest Expense increased $95,000 or 520.4%, to $113,000, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. The increase is due to the addition of factoring lines of credit in 2011 and its related fees. As a percentage of sales, interest expense was 0.7% and 0.3%, respectively, for the year ended December 31, 2011 and December 31, 2010.

 

Gain on Sale of Assets. For the year ended December 31, 2011, the Company realized a gain from the sale of certain customer lists and contracts of $172,000.

 

Net Income (Loss) increased $890,000 or 276.6%, to $568,000, for the year ended December 31, 2011 as compared to a net loss of $322,000, for the year ended December 31, 2010. The increase in net income is primarily a result of the additional revenue derived from the Network segment. As a percentage of sales, net income was 3.7% and 5.3%, respectively, for the year ended December 31, 2011 and December 31, 2010.

 

Segmented Results

 

The Company’s operations include two reportable operating segments. These operating segments reflect the way the company manages its operations and makes business decisions. Design, engineering, installation, and maintenance of a telecommunications infrastructure network (“Network”) and a temporary and permanent staffing agency specializing in the telecommunications market (“Staffing”).

 

The following table sets forth revenues and operating income (loss) by segment for the periods indicated:

 

   For the Year Ended December 31, 2011 
   Network   Staffing   Consolidated 
Revenues  $12,508,683    100.0%  $2,789,243    100.0%  $15,297,926 
Cost of revenues   8,775,122    70.2    2,365,762    84.8    11,140,884 
Gross profit   3,733,561    29.8    423,482    15.2    4,157,043 
Salary, wages and payroll taxes   985,523    7.9    118,293    4.2    1,103,817 
Selling, general and administrative   727,310    5.8    195,717    7.0    923,027 
Travel expense   1,202,839    9.6    14,296    0.5    1,217,135 
Occupancy costs   239,113    1.9    18,174    0.7    257,288 
Depreciation and amortization   97,400    0.8        -    97,400 
Operating income   481,376    3.8    77,001    2.8    558,377 
Interest (expense)   (79,699)   (0.6)   (33,732)   (1.2)   (113,431)
Gain on sale of assets   -    -    171,797    6.2    171,797 
Net income  $401,677    3.2%  $215,065    7.7%  $616,742 

 

    For the Year Ended December 31, 2010  
    Network     Staffing     Consolidated  
Revenues   $ 1,714,506       100.0 %   $ 4,405,065       100.0 %   $ 6,119,571  
Cost of revenues     1,680,645       98.0       3,842,006       87.2       5,522,651  
Gross profit     33,861       2.0       563,059       12.8       596,920  
Salary, wages and payroll taxes     9,966       0.6       137,162       3.1       147,127  
Selling, general and administrative     113,878       6.6       443,184       10.1       557,062  
Travel expense     73,848       4.3       55,953       1.3       129,801  
Occupancy costs     17,566       1.0       82,221       1.9       99,787  
Operating loss     (181,397 )     (10.6 )     (155,461 )     (3.5 )     (336,857 )
Interest (expense)     -               (18,284 )     (0.4 )     (18,284 )
Net loss   $ (181,397 )     (10.6 )%   $ (173,744 )     (3.9 )%   $ (355,141 )

 

Network

 

Revenues. Due to the short term nature of the Company’s construction contracts, revenue is recognized once 100% complete. A contract may have many segments, of which, once completed; the revenue for the segment is recognized and no further obligation exists. The Network’s construction contracts or segments of contracts typically can range from several days to two to four months. Staffing revenue is recognized as the services are performed.   Network revenue increased $10.8 million or 629.6%, to $12.5 million, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. The increase is attributable to annualized revenue in 2011, as compared to the initial three months of operations from October thru December 2010 for the Network segment.

 

Net Operating Income and Net Income. For the year ended December 31, 2011, net operating income increased $663,000 to $481,000 as compared to a net operating loss of $181,000 for the year ended December 31, 2010. Net income increased $583,000 or 321.4%, to $402,000, as compared to a net loss of $181,000 for the year ended December 31, 2010. The increase in net operating and net income is due to results of a full year as compared to results of three months for the year ended December 31, 2010.

 

Staffing

 

Revenues . Staffing revenue is recognized as the services are performed. The Staffing segment decreased $1.6 million or 36.5% to $2.8 million, for the year ended December 31, 2011, as compared to the year ended December 31, 2010. The reduction in revenue is related to the sale of certain contracts and customer lists.

 

Net Operating (Loss) Income and Net (Loss) Income. For the year ended December 31, 2011, net operating income increased $232,000 to $77,000 as compared net operating loss of $155,000 for the year ended December 31, 2010. For the year ended December 31, 2011 the Staffing segment had net income of $215,000 an increase of $389,000 or 223.8% as compared to the year ended December 31, 2010. The increase is attributable to the gain from the sales of customer lists and contracts for an employee staffing business for the year ended December 31, 2011. The Company received total proceeds of $239,000 which comprise cash of $16,000, accounts receivable of $3,000 and forgiveness of account payable of $219,000. As a result, the Company recorded a gain on sale of assets of $172,000 in the consolidated statement of operations.

 

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Liquidity And Capital Resources

 

Operating Activities

 

Cash flow from operations is primarily influenced by demand for our services, operating margins and the type of services we provide, but can also be influenced by working capital needs, in particular on larger projects, due to the timing of collection of receivables.

 

Net cash provided by operating activities was $2.7 million, during the nine months ended September 30, 2012 as compared to $8,000 net cash provided, during the nine months ended September 30, 2011. The difference was attributable to an increase in accounts receivable of $7.0 million, offset by an increase in accrued costs of 5.6 million, increase in deferred revenue of $1.3 million and by an increase in accounts payable of $1.4 million, for the nine months of 2012 as compared to the first nine months of 2011. Since we possess a significant amount of accounts receivable and if we are unable to collect account receivables in a timely manner or at all our cash flow and profitability will be negatively impacted. The increase in revenue as a result of the Company’s growth efforts, contributed to the increase in net cash provided by operating activities.

 

We used net cash in operating activities of $1.6 million for the year ended December 31, 2011, as compared to net cash provided of $194,000, for the year ended December 31, 2010. The increase is comprised of $2.6 million in accounts receivable and $245,000 for security deposits, offset by an increase net income of $568,000.

 

Investing Activities

 

During the nine months ended September 30, 2012, we used net cash in investing activities of $633,000 as compared to $327,000 in the nine months ended September 30, 2011. The increase in net cash used in investing activities is due to the purchase of machinery, equipment and vehicles used in its telecommunication network. 

 

For the year ended December 31, 2011, we used $472,000 in net cash for investing activities, as compared to $0, for the year ended December 31, 2010. Investing activities in the year ended 2011, included $380,000 used for capital expenditures, partially offset by $22,000 of proceeds from the sale of customer lists and the acquisition of Jus-Com Inc. Additionally, investing activities included $114,000 used in a distribution to a former shareholder connected with the Jus-Com acquisition.

 

Financing Activities

 

During the nine months ended September 30, 2012, cash used in financing activities was $1.7 million as compared to net cash provided by financing activities of $93,000 for the nine months ended September 30, 2011. Financing activities in the first nine months of 2012 included net advances on the factoring credit facilities of $484,000 and $36,000 for issuance of stock for cash, offset by payments for capital leases for machinery and equipment of $247,000, payments of notes payable of $60,000 and payments on notes payable related party of $947,000.

 

Net Cash provided by financing activities for the year ended December 31, 2011 was $1.9 million, compared to $56,000 for the year ended December 31, 2010. The increase in net cash provided for financing activities is attributable to net advances on the factoring credit facilities of $2.3 million, advances from notes payable related party of $136,000 offset by payments on capital lease obligations of $148,000, payments of notes payable of $22,000 and draws by members of $292,000.

 

Debt Instruments

 

Factoring Lines of Credit

 

On July 7, 2011, the Company entered into an agreement with a factoring corporation, AGR Funding, Inc. (“AGR”). Under the terms of the agreement, the Company receives up to 85% of the purchase price up front, at the discretion of AGR, to a maximum aggregate amount of $1,000,000. The term of the agreement is two years from the initial purchase date of July 26, 2011.

 

An initial fee is payable to AGR based on the dollar volume of weekly purchases as follows: (i) 1.40% - Up to $49,999 (ii) 1.20% - $50,000 to $99,999 (iii) 1.10% - $100,000 and above.

 

In addition, in the event that any receivable purchased by AGR is not paid within 30 days after the payment of the initial advance amount, the Company is required to pay AGR a daily percentage finance charge equal to the percentage, set forth below opposite the initial fee which applied to the receivable, subject to adjustment from time to time by AGR (i) Daily percentage - 0.0467%, Initial fee -1.40% (ii) Daily percentage - 0.0400%, Initial fee -1.20% (iii) Daily percentage - 0.0367%, Initial fee -1.10%.

 

Advances to the Company are with recourse and are secured by all assets of the Company and a priority interest in all purchased receivables.

 

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The factoring line of credit has been treated as a secured financing arrangement. As of December 31, 2011 under the agreement with AGR, the Company had factored receivables in the amount of $350,000 and recorded a liability of $296,000 and a receivable for collected receivables due the Company of $15,000. Discounts and interest provided during factoring of the accounts receivable have been expensed on the accompanying consolidated statements of operations as interest expense. For the nine months ended September 30, 2012, the Company recorded a liability of $223,000, factored receivables of $178,000 and interest expense of $14,000, relating to the factoring arrangement. For the years ended December 31, 2011 and 2010, interest expense related to the factoring arrangement was $23,000 and $0, respectively.

 

On October 18, 2011, the Company entered into an agreement with a factoring corporation, Franklin Capital Holdings, LLC (“FCH”). Under the terms of the agreement, the Company receives up to 80% of the purchase price up front, at the discretion of FCH, to a maximum aggregate amount of $2,000,000. The term of the agreement is two years and is renewable for 2 years, unless terminated by the Company. The Company must give FCH not less than 90 days written notice prior to the expiration of the initial period or renewal period. The notice becomes effective on the expiration of the initial period or renewal period which means the 90 day period shall not commence to run until the expiration date.

 

A discount fee of 1.5% is payable for the gross amount of accounts purchased in a 30 day period, plus 0.05% for each additional day, provided that the minimum invoice fee is $25. For the 3 months of the initial period or subsequent 3 month periods, as applicable, the minimum discount fee paid by the Company is the greater of (i) $30,000 (ii) 1.5% of the Company gross sales of invoices to FCH for the preceding 3 months or (iii) 1.5% of the Company average gross quarterly sales of invoices to FCH for the preceding 12 months.

 

In addition, an advance payment fee is charged to the Company for the number of days that advances are made prior to the payment date and for the number of days invoices are outstanding, calculated at a floating nominal rate equal to prime rate plus 1.5%, compounded monthly.

 

Advances to the Company are with recourse and shareholders have provided a personal guarantee.

 

The factoring line of credit has been treated as a secured financing arrangement. For the nine months ended September 30, 2012, the Company recorded a liability of $2,877,000, factored receivables of $5.1 million and interest expense of $198,000, relating to the factoring arrangement As of December 31, 2011 under the agreement with FCH, the Company had factored receivables in the amount of $2,850,000 and recorded a liability of $1,900,000. Discounts and interest provided during factoring of the accounts receivable have been expensed on the accompanying consolidated statements of operations as interest expense. For the years ended December 31, 2011 and 2010, interest expense related to the factoring arrangement was $36,000 and $0, respectively.

 

On December 3, 2012, the Company under the terms of its credit agreement with Atalaya Administrative, LLC (see Credit Agreement below) arranged to pay off all the outstanding obligations; including all principal, accrued and unpaid interest, fees, costs and prepayment penalties of $340,977 and $154,377 with FCH and AGR, respectively.

 

Credit Agreement

 

On December 3, 2012, the Company entered into a Credit Agreement with Atalaya Special Opportunities Fund IV (Tranche B), as lender and Atalaya Administrative LLC, as agent (“Atalaya”). Under the terms of the Credit Agreement, Atalaya agreed, among other things and subject to certain restrictions, to provide the Company with a revolving loan commitment of $8,500,000 and a term loan commitment of $8,000,000. The commitments under the Credit Agreement are restricted by the borrowing base defined as 100% of the net collectible amount of acceptable accounts due to the Company less reserves and allowances which Atalaya deems necessary in its reasonable discretion. In the addition, the Credit Agreement is subject to various financial covenants including fixed charge coverage ratio, tangible net worth, restrictions on capital expenditures, minimum EBITDA ratio and maximum leverage ratio.

 

The Company pursuant to the terms of the Credit Agreement issued to Atalaya a common stock purchase warrant (“Warrant’) to purchase 5,227,841 shares of common stock of the Company. The exercise price per share is $0.0001. The Warrant expires on December 3, 2022. The Warrant is subject to anti-dilution adjustments if certain dilutive transactions occur, unless specifically exempted by the Warrant, such as issuance of common stock, options, warrants or similar securities or a decrease in the subscription, exercise, conversion or exchange price of these securities. In addition, commencing on the earliest of (a) December 3, 2016 (b) the acceleration of obligations under the Credit Agreement (c) an event of default (d) a value event such as a merger, disposition, IPO other than a qualified IPO or change in control and ending the earlier of (a) a qualified IPO (b) the expiration of the warrant, Atalaya may put the warrant on 60 days’ notice and the Company is obligated to repurchase the warrant for cash. The value of the put price is determined by the greater of (a) the Equity Value, as defined by the Warrant, per common share of the Company (b) the Put Formula Value, as defined by the Warrant, per common share of the Company.

 

On December 3, 2012, the Company made an initial notice of borrowing/disbursement request. As a result, Atalaya disbursed the entire proceeds of the $8,000,000 term loan commitment (less an agreed-upon $330,000 original discount to Atalaya for making the term loan) and disbursed $3,000,000 of the revolving loan commitment.

 

The cash proceeds for this request were disbursed by Atalaya on behalf of the Company as follows:

a) $3,000,000 in connection with the acquisition of all of the issued outstanding membership interests of MDT.

 

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b) $3,139,943 Buyout Letter Agreement with Sterling National Bank to pay in full an outstanding bank loan, interest and prepayment penalty which was previously an obligation of MDT.
c) $785,688 to pay in full the outstanding principal and interest for a note payable to a related party, Christopher Ferguson, the CEO and director of the Company.
d) $93,683 to pay in full the outstanding principal and interest for a note payable to a related party, TBK 327 Partners, LLC, a company controlled by Christopher Ferguson, the CEO and a director of the Company.
e) $697,230 Payout Statement with Metro Bank to pay in full an outstanding bank loan, interest and prepayment penalty which was previously an obligation of MDT.
f) $340,979 payment to settle all obligations due to Franklin Capital Holdings, LLC.
g) $154,377 payment to settle all obligations due to AGR Funding, Inc.
h) $152,500 payment for legal fees for the Credit Agreement.
i) $20,000 payment for quarterly administration fees to Atalaya.
j) $2,285,600 payment to the Company.

 

As of December 3, 2012, the revolving and term loans carry an interest rate at the greater (a) the LIBOR rate plus 12.75%. (b) 0.75% per annum plus 12.75%. The actual interest rate on the revolving and term loans at December 3, 2012 is 13.50%. The Company is required to pay a commitment fee of 0.25% per annum on the amount the revolving loan commitment exceeds the outstanding revolving loan. Interest is payable monthly in cash on term and revolving loans.

 

Principal on the revolving loans is due on December 3, 2014, the termination date. Principal on the term loans is due in monthly installments of $135,000 commencing on January 1, 2013 and in full on December 3, 2014, the maturity date.

 

The Credit Agreement is secured by all of the assets and personal property of the Company.

 

Future Liquidity

 

We anticipate that our cash on hand, existing availability under our new Credit Agreement entered into by the Company on December 3, 2012 and our future cash flows from operations will provide sufficient funds to enable us to meet our future operating needs and facilitate our ability to grow in the foreseeable future.

 

Our cash flow is significantly impacted by our overall profitability and our ability to collect our customers’ accounts receivable on a timely basis. To the extent that our business with a small group of customers represents a significant portion of our revenue, a delay in receiving payment could materially adversely affect the availability of cash to fund operations, thereby increasing our reliance on borrowings.

 

Our new Credit Agreement provides the Company with an $8,500,000 revolving loan which terminates in December 2014 and a $8,000,000 term loan which matures in December 2014. Our ability to borrow under the revolving loan depends on the amount of eligible accounts receivable from our customers and there are limitations on the concentration of these accounts with a single customer. In addition, Atalaya retain certain reserves against otherwise available borrowing capacity. Our Credit Agreement require us to comply with certain financial and other covenants, including limitations on our ability to make capital expenditures, incur additional indebtedness, repurchase outstanding common shares, create liens, acquire, sell or dispose of certain assets, engage in certain mergers and acquisitions, pay dividends and make certain restricted payments. These limitations may affect our liquidity and limit our ability to make capital expenditures. In addition, our failure to adhere to the financial and other covenants could give rise to a default under our Credit Agreement. There can be no assurances that we will be able to meet the financial and other covenants in our Credit Agreement or, in the event of non-compliance, that we will be able to obtain waivers or amendments from Atalaya.

 

To the extent that our existing capital resources are insufficient to meet our capital requirements, we would have to raise additional funds.  There can be no assurance that additional funding, if necessary, would be available on favorable terms, if at all.  

 

Off-Balance Sheet Transactions

 

The Company does not have any off-balance sheet transactions.

  

Contractual Obligations

 

Capital Lease Obligations. The Company leases certain heavy equipment and vehicles that are classified as capital leases. The cost of heavy equipment and vehicles under capital lease is included in the consolidated and combined balance sheets as property and equipment and is recorded at $165,000 and $0 at September 30, 2012 and 2011, respectively and $706,000 and $0 at December 31, 2011 and 2010, respectively. Accumulated depreciation of the leased equipment is recorded at $32,000 and $0 at September 30, 2012 and 2011, respectively and $46,000 and $0 at December 31, 2011 and 2010, respectively.

 

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As of September 30, 2012, our future capital lease obligations are as follows:

 

Year Ending   September 30,     December 31,  
2012   $ 67,420     $ 624,864  
2013           36,252  
2014            
2015            
Total minimum lease payments     67,420       661,116  
Less: amount representing future interest           (103,160 )
Present value of minimum lease payments     67,420       557,956  
Less: current portion     (67,420 )     (524,965 )
Long-term capital lease obligations   $     $ 32,991  

 

For the nine months ended September 30, 2012, capital lease obligations were $67,420 and for the year ended December 31, 2011, $560,000. The current portion of capital leases for the nine months ended September 30, 2012 was $67,420 and for the year ended December 31, 2011, $525,000. The Company recorded interest expense of $48,600 and $38,000, for the nine months ended September 30, 2012 and for the year ended December 31, 2011, respectively, related to capital lease obligations.

 

Property Lease Obligations. On January 25, 2011, the Company entered into a twelve month lease for its 16,800 square foot office space located in Allentown, Pennsylvania. The lease required a $4,200 security deposit and provides for monthly payments of $7,000, which is comprised of base rent of $4,200, operating expense of $1,600 and tax expense of $1,400. The lease provides for a twelve month renewal period at the expiration to the lease period. On March 1, 2012, the Company amended the lease agreement for twelve months for monthly payments of $7,900, which is comprised of base rent of $4,900, operating expense of $1,600 and tax expense of $1,400.

  

For the nine months ended September 30, 2012, the Company leases several warehouses and office spaces at various locations:

 

Location:     Square Footage     Lease End Date   Monthly Obligation  
Nazareth, PA       1,200     3/31/2013   $ 1,750  
Tempe, AZ       9,745     2/21/2014     5,125  
Indianapolis, IN       29,000     8/31/2013     4,500  
San Diego, CA     * 3,729     12/31/2012     3,355  
Denver, CO       400     5/31/2013     2,390  
Palmetto, GA     * 12,500     10/31/2012     3,000  
Richmond, VA       13,600     5/1/2014     5,600  
Anoka, MN       9,900     2/28/2013     5,000  
Grand Prairie, TX       1,200     7/31/2013     650  
Houston, TX       150     1/31/2013     742  
Las Vegas, NV       5,371     9/30/2013     3,800  
Naples, FL       2,800     10/31/2013     4,653  
Dallas, TX       3,385     6/30/2013     2,500  
Phoenix, AZ       43,560     3/31/2013     2,360  
Rio Verde, AZ       1,723     1/31/2013     1,200  
Springtown, PA       1,200     8/31/2013   $ 1,550  

 

* Lease is on a month to month basis.

 

The remaining aggregate lease payments under the operating lease for the facilities as of September 30, 2012 are as follows:

 

2012   $ 171,881  
2013     363,520  
2014     74,069  
2015     40,040  
2016     10,010  
    $ 659,520  

 

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Rental expense, resulting from property lease agreements, for the nine months ended September 30, 2012 was $408,556. For the years ended December 31, 2011 and 2010 was $197,000 and $86,000, respectively.

 

Concentration of Credit Risk

 

Financial instruments that potentially expose the Company to significant concentrations of credit risk consist principally of cash. The Company places its cash with financial institutions with high-credit ratings. The Company is subject to risk of non-payment of its trade accounts receivable. For the nine months ended September 30, 2012, two customers represented 87.4% of the revenues or 95.6% of the outstanding receivable. For the year ended December 31, 2011, one customer represented approximately 73.7% of revenues or 74.2% of outstanding receivables. For the year ended December 31, 2010, five customers represent approximately 61.5% of revenues or 74.6% of the outstanding accounts receivable. Management continually monitors its credit terms with customers to reduce credit risk exposure.

 

Should we be unable to collect our account receivables in a timely manner or at all our cash flow and profitability will be negatively impacted, which such risk is heightened during unstable economic periods. We extend credit to our customers as a result of performing work under contract prior to billing our customers for that work. These customers include telephone companies, cable television multiple system operators and others. We had accounts receivable of approximately $ 4.0 million at December 31, 2011 and $8.8 million at September 30, 2012, of which 93.6% was representative of three customers. We periodically assess the credit risk of our customers and continuously monitor the timeliness of payments. Slowdowns in the industries we serve may impair the financial condition of one or more of our customers and hinder their ability to pay us on a timely basis or at all. Further bankruptcies or financial difficulties within the telecommunications sector could hinder the ability of our customers to pay us on a timely basis or at all, reducing our cash flows and adversely impacting our liquidity and profitability. Additionally, we could incur losses in excess of current bad debt allowances.

 

Litigation and Claims

 

The Company is involved in litigation claims arising in the ordinary course of business. Legal fees and other costs associated with such actions are expensed as incurred. In addition, the Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and contingencies. The Company reserves for costs relating to these matters when a loss is probable and the amount can be reasonably estimated. The Company believes that the ultimate disposition of these matters will not have a material effect on its financial position, results of operations or cash flows. However, the amount of future reserves required associated with these claims, if any, cannot be determined with certainty.

 

Related Party Transactions

 

In the normal course of business we enter into transactions from time to time with related parties. Some of the transactions take the form of equipment rental agreements and property lease agreements.

 

Certain payments have been made on behalf of related parties which are classified on the Company's balance sheet as current assets, Due from-related party.  Mr. Ferguson, the Company's CEO, President and sole member of the Board, is a managing member of TBK327 Partners LLC, ("TBK"), which had outstanding receivables for the nine months, ended September 30, 2012 of $225 and $34,000 for the year ended December 31, 2011. Subsequently, the Company has received payment in full for its receivables on behalf of TBK.

 

Prior owner of a certain acquired company had a receivable of $0 outstanding for the nine months ended September 30, 2012 and $1,900 outstanding as of the year ended December 31, 2011.  Total due from-related party for the nine months ended September 30, 2012 was $0 and $35,000 for the year ended December 31, 2011. Subsequently, the obligation has been applied as a reduction to the respective related party notes payable of $100,000.

 

On January 1, 2012, the Company entered into a stock purchase agreement to acquire 100% of the outstanding stock of Jus-Com Inc. from TBK, of which Mr. Ferguson is a managing member, for approximately $126,000.  At the time of purchase, Jus-Com had an outstanding note payable to TBK, which was assumed as part of the agreement. On July 5, 2012, Optos paid the balance of the note payable of $136,000 and accrued interest of $11,000 for a total of $147,000. For the nine months ended September 30, 2012 and the year ended December 31, 2011, the balance was $0 and 136,000, respectively.

 

On January 1, 2012, the Company issued to the former Optos Members, a Promissory Note, in the principal amount of $1,600,000, for contributions in excess of $1 million and personal guarantees to secure approximately $3 million in financing. Mr. Ferguson and his spouse, Lelainya Ferguson are the former Optos members. The note required an initial principal payment of $700,000, due on or before June 1, 2012, which was subsequently paid on May 17, 2012. Monthly principal payments of $30,000 for 30 months are due following the initial payment in the 37th month; accrued interest calculated on the outstanding principal at 6% per annum is due in a balloon payment of $101,750.

 

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On December 3, 2012, the Company paid $785,688 to pay in full the outstanding principal and interest for a note payable to a related party, Christopher Ferguson, the CEO and director of the Company.

 

On December 3, 2012, Atalaya disbursed on behalf of the Company $93,683 to pay in full the outstanding principal and interest for a note payable to a related party, TBK 327 Partners, LLC, a company controlled by Christopher Ferguson, the CEO and a director of the Company.

 

On December 3, 2012, the Company disbursed in cash $93,069 to pay in full the outstanding principal and interest for a note payable to a related party, Oilmatic Services, previously a 50% owner of CMK Resources Group, LLC.

 

On December 3, 2012, the Company disbursed in cash $72,660 to pay in full the outstanding principal and interest for a note payable to a related party, Brian Jennings, a brother of the principal of Oilmatic Services.

 

Emerging Growth Company

 

The JOBS Act provides that, so long as a company qualifies as an “emerging growth company,” it will, among other things:

 

1. Be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that its independent registered public accounting firm provide an attestation report on the effectiveness of its internal control over financial reporting;

 

2. Be exempt from the “say on pay” and “say on golden parachute” advisory vote requirements of the Dodd-Frank Wall Street Reform and Customer Protection Act (the “Dodd-Frank Act”), and certain disclosure requirements of the Dodd-Frank Act relating to compensation of its chief executive officer and be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Securities Exchange Act of 1934; and

 

3. Instead provide a reduced level of disclosure concerning executive compensation and be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on the financial statements.

 

It should be noted that notwithstanding our status as an emerging growth company, we would be eligible for these exemptions as a result of our status as a “smaller reporting company” as defined by the Securities Exchange Act of 1934.

 

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.  An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.  We have elected to take advantage of the extended transition period for complying with new or revised accounting standards.  As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.

 

Critical Accounting Policies

  

The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to customer incentives, bad debts, inventories, investments, estimated useful lives for depreciable and amortizable assets, valuation reserves and estimated cash flows in assessing the recoverability of long-lived assets, income taxes, contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Management believes the following critical accounting policies, among others, affects its more significant judgments and estimates used in the preparation of its consolidated financial statements:

 

Revenue and Cost of Goods Sold Recognition – Revenue is only recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the price to the buyer is fixed or determinable, and (4) collectability is reasonably assured.

 

a) Network - Due to the short term nature of the Company’s construction contracts, revenue is recognized once 100% complete. A contract may have many segments, of which, once completed; the revenue for the segment is recognized and no further obligation exists. The Network’s construction contracts or segments of contracts typically can range from several days to two to four months. The company’s construction contracts or segments of contracts typically can range from several days to two to four months. Contract costs may be billed as incurred. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools and repairs. Selling, general and administrative costs are charged to expense as incurred. The Company begins recognizing revenue on a project when persuasive evidence of an arrangement exists, recoverability is reasonably assured, and project costs are incurred. Costs may be incurred before the Company has persuasive evidence of an arrangement. In those cases, if recoverability from that arrangement is probable, the project costs are deferred and revenue recognition is delayed.

 

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Provisions for losses on uncompleted contracts are made in the period such losses are known. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions, changes in raw materials costs, and final contract settlements may result in revisions to revenue, costs and income and are recognized in the period in which the revisions are determined.

 

b) Staffing - Staffing revenue is recognized as the services are performed.

 

Business Acquisitions - The Company's consolidated financial statements include the operations of an acquired business after the completion of the acquisition. The Company accounts for acquired businesses using the acquisition method of accounting. The acquisition method of accounting for acquired businesses requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date, and that the fair value of acquired in-process research and development ("IPR&D") be recorded on the balance sheet. Also, transaction costs are expensed as incurred. Any excess of the purchase price over the assigned values of the net assets acquired is recorded as goodwill. Contingent consideration, if any, is included within the acquisition cost and is recognized at its fair value on the acquisition date. A liability resulting from contingent consideration is re-measured to fair value at each reporting date until the contingency is resolved. Changes in fair value are recognized in earnings. 

 

Income Taxes – The Company records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carryforwards. Accounting standards regarding income taxes requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence; it is more likely than not those assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed at each reporting period based on a more-likely-than-not realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, the Company’s experience with operating loss and tax credit carryforwards not expiring unused, and tax planning alternatives.

 

The net income (loss) generated from Optos Capital Partners, LLC, Focus Fiber Solutions, LLC, CMK Resource Group, LLC, Townsend Careers, LLC and Jus-Com, Inc. is treated as partnership income for federal and state income tax purposes, accordingly, no provision for income tax is included in the consolidated financial statements for these entities. Management will reassess the realization of deferred tax assets based on the accounting standards for income taxes each reporting period.

 

Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. Accounting standards regarding uncertainty in income taxes provides a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely, based solely on the technical merits, of being sustained on examinations. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.

  

Pro-forma Financial Data . The net income (loss) generated from Optos Capital Partners, LLC, Focus Fiber Solutions, LLC, CMK Resource Group, LLC, Townsend Careers, LLC and Jus-Com, Inc. is treated as partnership income for federal and state income tax purposes and does not incur income tax expense. Instead, income and losses are allocated to and reported on the individual returns of the member’s tax returns. Accordingly, no provision for income tax is included in the consolidated financial statements for these entities for the years ended December 31, 2011 and 2010.

 

On January 1, 2012, Optos Capital Partners, LLC purchased 100% of the issued and outstanding shares of Jus-Com, Inc. In addition, on January 1, 2012, the Company purchased 50% of the members’ equity and non-controlling interest in CMK Resource Group, LLC. CMK and Townsend were dissolved on December 31, 2012 and all assets were transferred to Jus-Com. On May 15, 2012, Optos Capital Partners, LLC (“Optos”), the members of Optos (“Optos Members”) and Focus Venture Partners, Inc. (“FVP”), entered into a Contribution Agreement. FVP was incorporated in the State of Nevada on March 26, 2012. In consideration of the Optos Members contribution of all of the issued and outstanding membership interests in Optos to FVP, FVP agreed to issue 23,980,000 shares of common stock and 100,000 shares of Series A Preferred Stock to the Optos Members. As a result of the Optos Members will own 100% of the issued and outstanding shares of common stock and Series A Preferred Stock of FVP. As a result of these transactions the Company, after May 14, 2012, may not pass taxable income through to their individual members as partnership income for federal and state purposes.

   

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Pro-forma as adjusted information gives effect to the Company not passing taxable income through to their individual members at an estimated effective tax rate of 35% as of January 1, 2011:

 

    As at September 30, 2012 and for the
period end September 30, 2012
 
    Actual     Pro forma,
as adjusted
 
Working capital (deficiency)   $ (736,859 )   $ (932,823 )
Total assets   $ 13,550,995     $ 13,550,995  
Total liabilities   $ 13,519,628     $ 13,718,593  
Total equity   $ 31,367     $ (167,608 )
Net income (loss) before income tax   $ 866,631     $ 876,910  
Income taxes (recovery)   $ 303,321     $ 303,321  
Net income (loss)   $ 563,610     $ 573,589  
Basic and diluted income (loss) per common share   $ 0.02     $ 0.02  
Basic and diluted weighted average common shares outstanding     25,052,390       25,052,390  

 

    As at December 31, 2011 and for
the year end December 31, 2011
 
    Actual     Pro forma,
as adjusted
 
Working capital (deficiency)   $ 309,763     $ 191,798  
Total assets   $ 5,900,227     $ 5,900,227  
Total liabilities   $ 4,596,571     $ 4,779,536  
Total equity   $ 1,303,656     $ 1,104,691  
Net income (loss) before income tax   $ 568,472     $ 568,472  
Income taxes (recovery)   $ -     $ 198,965  
Net income (loss)   $ 568,472     $ 369,507  
Basic and diluted income (loss) per common share   $ 0.02     $ 0.02  
Basic and diluted weighted average common shares outstanding     23,980,000       23,980,000  

 

Recent Accounting Pronouncements – There have been no recent accounting pronouncements or changes in accounting pronouncements that impacted fiscal 2011 or which are expected to impact future periods, which were not adopted and disclosed in prior periods.

 

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BUSINESS

 

Our Business

 

 

We are a holding company operating in the telecommunications industry which manages and develops our wholly-owned subsidiaries focused on the development of telecommunications networks, acting as a service and support provider and providing temporary and part-time staffing solutions. Through our wholly-owned subsidiary, Optos Capital Partners, LLC , a Delaware limited liability company (“Optos”) , we operate the following wholly-owned entities:

 

  · Focus Fiber Solutions, LLC, a Delaware limited liability company (“Focus Fiber”), specializes in the design, engineering, installation, and maintenance of a telecommunications infrastructure network.

 

  · Jus-Com, Inc., an Indiana corporation (“Jus-Com”), is a telecommunication service provider providing various services including engineering consulting, design, installation and emergency response in various categories including cable rack/wiring build-outs, infrastructure build-outs, DC power installation, fiber cable splicing and security camera installation. Jus-Com also operates as a temporary and permanent staffing agency specializing in the telecommunications market.

 

  · MDT Labor, LLC d/b/a MDT Technical, a Delaware limited liability company (“MDT”), operates as a workforce management company providing temporary and permanent staffing services under the MDT Technical brand and as a telecommunication service provider providing various services including engineering consulting, design, installation and emergency response in various categories including cable rack/wiring build-outs, infrastructure build-outs, DC power installation, fiber cable splicing and security camera installation under its Beacon Solutions brand.

 

Acquisition Strategy

 

With respect to its acquisition strategy, Focus intends to pursue a clearly defined telecommunications niche but may, in its discretion, pursue acquisitions outside of this niche. We selectively pursue acquisitions when we believe doing so is operationally and financially beneficial, although we do not rely solely on acquisitions for growth. In particular, we pursue those acquisitions that we believe will provide us with incremental revenue and geographic diversification while complementing our existing operations. We generally target companies for acquisition that have defensible leadership positions in their market niches, EBITDA positive which meets or exceeds industry averages, proven operating histories, sound management, and certain clearly identifiable cost synergies. Our expansion geographically and its limited area of personnel to support such expansion, caused an increase in travel costs in supervising the additional projects for the year ended December 31, 2011 although our travel expense has been reduced slightly when comparing the three and nine months ended September 30, 2012 to the three and nine months ended September 30, 2011.

 

On December 3, 2012, the Company acquired all of the issued outstanding membership interests of MDT Labor, LLC, doing business as MDT Technical (“MDT”). MDT operates a services business that provides labor and human resource solutions, including temporary staffing services in the United States market. Pursuant to the Interest Purchase Agreement, a cash payment of $3,000,000 was made by Atalaya on behalf of the Company, delivered a Promissory Term Note (“MDT Note”) for $4,000,000 and issued 12,490,000 shares of common stock of the Company for all of the outstanding membership interests for MDT. The MDT Note bears interest of 6% per annum. Interest in due and payable quarterly in arrears with the first interest payment due and payable on April 5, 2013, for the prior period ended March 31, 2013. No portion of the principal is due before the maturity date of May 30, 2015 unless the Company receives not less than $10,000,000 in gross cash proceeds from the issuance of its stock. In such case, the Company may pay $1,500,000 in principal. The Company may further pay monthly scheduled principal payments of $100,000 the following month if the Company receives not less than $10,000,000 in gross cash proceeds from the issuance of its stock and meets the terms of certain financial convents including senior debt to EBITDA ratio and fixed charge coverage ratio. All accrued principal and interest is otherwise payable at the maturity date of May 30, 2015. The MDT Note is secured by all fixtures and personal property of every kind and nature. The MDT Note security interest is subordinated to the security interests held by Atalaya. The Company anticipates the Business Combination will be accounted for using the acquisition method in accordance with ASC 805, Business Combinations.

 

Our History

 

Focus is incorporated in the state of Nevada on March 26, 2012. On May 9, 2012, Focus entered into a Contribution Agreement with Optos Capital Partners LLC, a Delaware limited liability company (“Optos”), whereby we acquired 100% of the outstanding membership interests of Optos in consideration of 23,980,000 shares of common stock and 100,000 shares of Series A Preferred Stock. On December 3, 2012, through Optos, we acquired a 100% interest in MDT, which is a wholly-owned subsidiary of Optos.

 

Our executive offices are located at 969 Postal Road, Suite 100, Allentown, Pennsylvania 18109 and our telephone number is telephone 1-877-633-2239. Our subsidiaries lease three additional office/warehouse facilities, as well as three additional office locations throughout the United States and one in Prague, Czech Republic. Our website is www.focusventurepartners.com . Our subsidiaries each maintain separate websites including www.focusfiber.com, www.jus-com.com, www.mdttechnical.com, www.mdtpersonnel.com and ww.ilabornetwork.com. Jus-Com offices are located at 9250 Corporation Drive, Indianapolis, Indiana 46256 and at 600 West Germantown Pike, Suite 400, Plymouth Meeting, Pennsylvania 19462. MDT’s officers are located at 2325 Paxton Church Road, Harrisburg, PA 17110.

 

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Telecommunications Infrastructure Services Segment

 

The Telecommunications Infrastructure Services segment provides comprehensive network solutions to customers in the wireline and wireless telecommunications industry, as well as the cable television industry. Services performed by the Telecommunications Infrastructure Services segment generally include the design, installation, repair and maintenance of fiber optic, copper and coaxial cable networks used for video, data and voice transmission, as well as the design, installation and upgrade of wireless communications networks, including towers, switching systems and backhaul links from wireless systems to voice, data and video networks. This segment also provides emergency restoration services, including the repair of telecommunications infrastructure damaged by inclement weather. We also provide premise wiring where we install, repair, and maintain the telecom structure within improved structures.

 

We believe that certain provisions of the ARRA will continue to create additional demand for our services in this segment into 2013. Specifically, the ARRA includes federal stimulus funding for the deployment of broadband services to underserved areas that lack sufficient bandwidth to adequately support economic development. We also expect many customers who received stimulus funds to continue to expand their networks even though stimulus funding may no longer be available.

 

The combination of a growing North American wireless subscriber base, greater use of wireless data for consumer and enterprise applications and services, and the development of innovative consumer wireless data products has led to a significant increase in the amount of wireless data traffic on wireless networks. As a result, the traditional backhaul infrastructure that has historically linked wireless cell sites to broader voice, data and video networks is reaching capacity. To handle current and future wireless data traffic demands and to improve wireless network quality and reliability, wireless carriers are implementing plans to replace their legacy backhaul networks based on T-1 lines and circuit switching applications with fiber optic networks, typically referred to as “fiber to the cell site” initiatives. We believe these initiatives will continue several more years before the backhaul system upgrade is completed, resulting in additional opportunities to assist our wireless customers in their fiber to the cell site initiatives.

 

We anticipate increased long-term opportunities arising from plans by a number of wireless companies to deploy and implement 4G and LTE (Long Term Evolution) technology and networks throughout North America. These technologies are being deployed in the United States using a new spectrum, which effectively requires an entirely new network to be built. As a result, we expect significant capital expenditures will be made over a relatively long period of time as wireless carriers build out their 4G and LTE networks and then augment and optimize their networks for reliability and network quality. We believe wireless carriers are in the very early stages of their 4G and LTE network deployment plans.

 

Although fiber to the premises (FTTP) and fiber to the node (FTTN) deployment has slowed significantly since 2008, we expect fiber optic network build-outs will continue over the long-term as more Americans look to next-generation networks for faster internet and more robust video services. We believe more active network investment in FTTP and FTTN initiatives are more economically driven. Therefore, we believe greater confidence in a recovering domestic economy may be required before companies resume investment in FTTP and FTTN network deployment. We believe that we are well-positioned to furnish infrastructure solutions for these initiatives throughout the United States.

 

All contract OSP operations are fulfilled with a combination of the Company’s fleet of aerial trucks, underground plows, directional drills, fiber placement crews, and fiber splicers. All equipment used on OSP projects is mobile, with dedicated logistics to service these projects as demands change. Focus Fiber Solutions can meet any scheduling requirement and accommodate changing demands by calling on its extensive network of strategic partners. Finally, Focus Fiber itself has a broad base of experienced operators and installers dedicated to each project, and the company is committed to providing the necessary personnel and equipment to meet the demands of every engagement.

 

Through Jus-Com, we can deliver top-tier premise wiring solutions for its clients in all of the following product and service categories:

 

● Cable rack/wiring build-outs ● UPS installation ● All low-voltage cable installation
     
● Infrastructure build-outs ● PDU installation ● Provisioning, test, turn-off of FTT
     
● DC power installation ● Fiber cable splicing ● Security camera installation
     
● Battery installation/maintenance ● Structured cable installation ● AC circuits & conduit builds

 

Project Estimating and Feasibility Studies

 

Our subsidiaries share an Estimating Department that provides all cost needs, both internal and external, as a value-added service to telecom clients. For extremely difficult builds, we uses a “boots on the ground” approach, ready with someone to look at the project up close, typically within 24 hours. For the bid process, the following steps are followed:

 

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  · The RFP or RFI is received from a prospective customer; typically a data file is provided with a general route, cell tower locations, laterals, rings, etc.
  · Using Google Earth, the Company provides a solution based on aerial and underground construction options, utilizing the U.S. geological studies for ground conditions and “street view” programs to analyze the conditions. Additional services are often used, including: MS Streets & Trips, MapInfo, Bing Maps, Delorme, and a national database of GIS maps. At the same time, the Company reaches out to vendors and suppliers to start assessing rough costs for materials and labor.
  · The Company specializes in complex projects with a large geographical footprint and multiple customer drop points. This goal is met by importing the customer drop points (i.e., latitude and longitude) into whichever software program the customer has specified as the deliverable. Then, using the aforementioned methods, the Company identifies the best installation path and verifies whether the most cost-effective method of installation will be aerial, underground, or existing conduit paths.

  

  This conclusion is portrayed on the deliverable software, and the different methods of construction are clearly defined by specific colors on the reports.
  The project is broken into segments with independent budgets for each segment, allowing the customer to identify the fiber size based upon end-use requirements. This all flows into a master project budget, giving the customer a snapshot that will allow them to make changes to the individual segments at their discretion based upon the budgetary information provided.
  Additionally, the nationwide network of project managers is utilized to analyze the geography of each part of the project and provide feedback on critical portions of the proposed build.
  This all culminates into finished proposals – ones that the Company believes accurately represent the ideal and most cost-effective approach to the build process.
  Due to the process that the Company has solidified in the estimating department, bringing in and training additional support staff typically takes less than 2 weeks.

 

Competition

 

The markets in which we operate are highly competitive. We compete with other contractors in most of the geographic markets in which we operate, and several of our competitors are large companies that have significant financial, technical and marketing resources. In addition, there are relatively few barriers to entry into some of the industries in which we operate and, as a result, any organization that has adequate financial resources and access to technical expertise may become a competitor. A significant portion of our revenues is currently derived from unit price or fixed price agreements, and price is often an important factor in the award of such agreements. Accordingly, we could be underbid by our competitors in an effort by them to procure such business. Economic conditions have increased the impacts of competitive pricing in certain of the markets that we serve. We believe that customers consider other factors in choosing a service provider, including technical expertise and experience, financial and operational resources, nationwide presence, industry reputation and dependability, which we expect to benefit larger contractors such as us. In addition, competition may lessen as industry resources, such as labor supplies, approach capacity. There can be no assurance, however, that our competitors will not develop the expertise, experience and resources to provide services that are superior in both price and quality to our services, or that we will be able to maintain or enhance our competitive position. We also face competition from the in-house service organizations of our existing or prospective customers, including telecommunications and engineering companies, which employ personnel who perform some of the same types of services as those provided by us. Although a significant portion of these services is currently outsourced by many of our customers, there can be no assurance that our existing or prospective customers will continue to outsource services in the future.

 

Customer Relationships

 

Our current customers include leading telephone companies such as Zayo Group, Sidera Networks, and CBeyond. We also provide telecommunications engineering, construction, installation and maintenance services to a number of cable television multiple system operators, including AT&T and Windstream. Premise wiring services are provided to various corporations and state and local governments. 

 

Our customer base is highly concentrated. For the year ended December 31, 2011, we had one customer representing approximately 73.7% of revenues or 72.2% of outstanding receivables. For the year ended December 31, 2010, five customers represented approximately 61.5% of revenues or 74.6% of the outstanding accounts receivable. For the nine months ended September 30, 2012, two customers represented 87.4% of the revenues or 95.6% of the outstanding receivable. We believe that a substantial portion of our total revenues and operating income will continue to be derived from a concentrated group of customers. 

 

Regulation

 

Our operations are subject to various federal, state, local and international laws and regulations including:

 

• licensing, permitting and inspection requirements applicable to contractors, electricians and engineers;

 

• regulations relating to worker safety and environmental protection;

 

• permitting and inspection requirements applicable to construction projects;

 

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• wage and hour regulations;

 

• regulations relating to transportation of equipment and materials, including licensing and permitting requirements; and

 

• building and electrical codes.

 

We believe that we have all the licenses required to conduct our operations and that we are in substantial compliance with applicable regulatory requirements. Our failure to comply with applicable regulations could result in substantial fines or revocation of our operating licenses, as well as give rise to termination or cancellation rights under our contracts or disqualify us from future bidding opportunities.  

 

Safety and Risk Management

 

We are committed to ensuring that our employees perform their work safely and we regularly communicate with our employees to reinforce that commitment and instill safe work habits. We review accidents and claims for our operations, examine trends and implement changes in procedures to address safety issues. Claims arising in our business generally include workers’ compensation claims, various general liability and damage claims, and claims related to vehicle accidents, including personal injury and property damage. We insure against the risk of loss arising from our operations up to certain deductible limits in substantially all of the states in which we operate. In addition, we retain risk of loss, up to certain limits, under our employee group health plan.

 

We carefully monitor claims and actively participate with our insurers in determining claims estimates and adjustments. The estimated costs of claims are accrued as liabilities, including estimates for claims incurred but not reported. Due to fluctuations in our loss experience from year to year, insurance accruals have varied and can affect the consistency of operating margins. If we experience insurance claims in excess of our umbrella coverage limit, our business could be materially and adversely affected.

 

Seasonality

 

Our revenues are affected by seasonality as a significant portion of the work we perform is outdoors. Consequently, our operations are impacted by extended periods of inclement weather. Generally, inclement weather is more likely to occur during the winter season which falls during our first and fourth fiscal quarters. Also, a disproportionate percentage of total paid holidays fall within our second quarter, which decreases the number of available workdays. Additionally, our customer premise equipment installation activities for cable providers historically decrease around calendar year end holidays as their customers generally require less activity during this period. As a result, we may experience reduced revenue in the second or third quarters of our fiscal years.

 

Environmental Matters

 

A significant portion of our work is performed underground. As a result, we are potentially subject to material liabilities related to encountering underground objects which may cause the release of hazardous materials or substances. Additionally, the environmental laws and regulations which relate to our business include those regarding the removal and remediation of hazardous substances and waste. These laws and regulations can impose significant fines and criminal sanctions for violations. Costs associated with the discharge of hazardous materials or substances may include clean-up costs and related damages or liabilities. These costs could be significant and could adversely affect our results of operations and cash flows.

 

Staffing Segment

 

We operate a temporary and permanent staffing agency and IT consulting business through Jus-Com and MDT.  Through key service offerings in IT consulting and staff augmentation, we deliver measureable results that drive positive financial outcomes. The company focuses on strong ROI and technology solutions, which are vital in today’s hyper competitive environment. Our core IT consultation solutions include:

 

  Mobile applications
  Systems development and implementation
  Technology risk management
  IT planning and development

 

We offer complete staff augmentation services including temporary, temporary-to-hire, and full-time permanent placement. We can handle all of the following:

 

  Payroll
  Insurance
  Benefits plans
  Candidate recruiting and selection
  Developing expertise with leading-edge technologies

  

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  Supplying per-diem staff on an as-needed basis
  Training staff on client-specific processes

 

We assist clients in lower their staffing costs, improve retention, save time on hiring, and reap the benefits of higher productivity. Every IT professional that represents our firm has been through a strict screening process that identifies only the most qualified candidates.  

 

Staffing Industry

 

The temporary staffing industry evolved out of the need for a flexible workforce to minimize the cost and effort of hiring and administering permanent employees in order to rapidly respond to changes in business conditions and to temporarily replace absent employees. Competitive pressures have forced businesses to focus on reducing costs, including converting fixed or permanent labor costs to variable or flexible costs. The temporary staffing industry includes a number of markets focusing on business needs that vary widely in duration of assignment and level of technical specialization. We operate within the telecom staffing market of the temporary staffing industry.

 

Temporary staffing companies act as intermediaries in matching available temporary workers to employer assignments. Staffing companies compete both to recruit and retain a supply of temporary workers and to attract and retain customers to employ these workers. An important aspect in the selection of temporary workers for an assignment is the ability to identify the skills, knowledge, abilities of a temporary worker and match their competencies or capabilities to an employer’s requirements. Methods used to sell temporary staffing services to customers vary depending on the customer’s need for temporary staffing services, the local labor supply, the length of assignment, the number of workers and skills required. We are a business-to-business sales provider. Our sales process takes place at the customer’s location. Success is often based on the experience and skill of the sales person and the strength of relationship with the customer. Retention of customers, exclusive of economic conditions, is dependent on the strength of our relationship with the customer, the skill, quality and tenure of temporary workers, and customer service skills.

 

The temporary staffing industry is large and highly fragmented with many competing companies. No single company has a dominant share of the temporary staffing industry. Customer demand for temporary staffing services is dependent on the overall strength of the labor market and trends toward greater workforce flexibility.

 

The staffing industry is cyclical based on overall economic conditions. Historically, in periods of economic growth, the number of companies providing temporary staffing services has increased due to low barriers to entry and during recessionary periods the number of companies has decreased through consolidation, bankruptcies, or other events. The temporary staffing industry experienced increased volatility during the most recent recession in comparison with past economic cycles. This is largely due to the severity of the recession which resulted in a dramatic drop in the use of temporary staffing as companies aggressively reduced the size of their workforce. However, in the post-recessionary environment, the temporary staffing industry is experiencing increased demand in relation to total job growth as customers have placed a greater priority on maintaining a more flexible workforce.

 

Customers

 

Our customer mix consists primarily of small and medium-sized businesses. We also serve larger national customers. Our full range of temporary staffing services enables us to meet all of the staffing needs of our customers.

 

Competition

 

We compete in the temporary staffing industry by offering a full range of staffing services. The temporary staffing industry is large and fragmented, comprised of thousands of companies employing millions of people and generating billions of dollars in annual revenues.

 

We experience competition in attracting customers as well as qualified employment candidates. The staffing business is highly competitive with limited barriers to entry, with a number of firms offering services similar to those provided by us on a national, regional, or local basis. We compete with several multi-national full-service and specialized temporary staffing companies, as well as a multitude of local companies. In most geographic areas, no single company has a dominant share of the market. The majority of temporary staffing companies serving the staffing market are locally-owned businesses. In many areas the local companies are the strongest competitors, largely due to their longevity in the market and the strength of their customer relationships.

 

Competitive forces have historically limited our ability to raise our prices to immediately and fully offset increased costs of doing business; some of which include increased temporary worker wages, costs for workers’ compensation, and unemployment insurance.

 

The most significant competitive factors in the staffing business are price, ability to promptly fill customer orders, success in meeting customers’ quality expectations of temporary workers, and appropriately addressing customer service issues. We believe we derive a competitive advantage from our service history and commitment to the temporary employment market and our specialized approach in serving the industries of our customers. Also, our national presence and proprietary systems and programs including worker safety, risk management, and legal and regulatory compliance are key differentiators from many of our competitors.

 

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Employees

 

As of September 30, 2012, the Company, together with its subsidiaries, employs 176 persons, consisting of 16 administrative employees and two part-time employees.  None of our employees are represented by local collective bargaining units. The number of our employees varies according to the level of our work in progress. We maintain a nucleus of technical and managerial personnel to supervise all projects and add employees as needed to complete specific projects.

 

Legal Proceedings

 

We are currently not a party to any legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings against us in all material aspects. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.

 

Property

 

Our executive offices are located at 4647 Saucon Creek Road, Suite 201, Center Valley, Pennsylvania 18034. We pay $7,882 per month and our lease is for a term of one year. Jus-Com offices are located at 9250 Corporation Drive, Indianapolis, Indiana 46256. The Jus-Com lease is for a term of two years and we pay $4,500 per month. Jus-Com also acquired the lease from Townsend which is located at 600 West Germantown Pike, Suite 400, Plymouth Meeting, PA 19462. The acquired Townsend lease is for a term of two years and we pay $800 per month. MDT’s officers are located at 2325 Paxton Church Road, Harrisburg, PA 17110. The MDT lease is for a term of one year with a two year extension option, in which the Company intends to exercise.  The current monthly rent is $2,813 which increases annually upon exercise of each extension option. 

 

In addition, we currently have entered into the following office/warehouse leases:

 

Location:   Square Footage   Lease End Date   Monthly Obligation
Nazareth, PA   1,200   3/31/2013  $  1,750
Tempe, AZ   9,745   2/21/2014   5,125
San Diego, CA   3,729   12/31/2012   3,355
Denver, CO   400   5/31/2013   2,390
Palmetto, GA   12,500   12/31/2012   3,000
Richmond, VA   13,600   5/1/2014   5,600
Grand Prairie, TX   1,225   7/31/2013   650
Houston, TX   150   1/31/2013   742
Las Vegas, NV   5,371   9/30/2013   3,800
Naples, FL   2,800   10/31/2013   4,653
Dallas, TX   3,385   6/30/2013   2,500
Dallas, TX   1,000   12/31/2012   700
Dallas, TX   726   12/31/2012   575
Dallas, TX   2,000   12/31/2012   1,400
Phoenix, AZ   43,560   3/31/2013   2,360
Rio Verde, AZ   1,723   1/31/2013   1,200
Springtown, PA   1,200   8/31/2013   1,550
Center Valley, PA   2,288   3/31/2016   3,337
Aurora, CO   2,500   12/1/2013   2,500
Omaha, NE   9,900   2/28/2013   5,000
Conshohocken, PA   3,240   9/20/2018   6,947
Harrisburg, PA   2,300   10/21/2013   2,731
Cincinnati, OH   2,225   9/30/2013   2,900
Louisville, KY   2,969   12/31/2012   4,330
Prague, Czech Republic   2,110   6/30/2015 $ 2,650

  

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MANAGEMENT

 

Directors and Executive Officers

 

Our executive officers and directors are as follows:

 

Name   Age   Position
         
Christopher Ferguson   43   Chief Executive Officer, President and Chairman of the Board of Directors of Focus Venture
         
Theresa Carlise   54   Chief Financial Officer of Focus Venture
         
Michael Paleschi   37   Chief Operating Officer of Focus Venture and President of Focus Fiber
         
Jeffrey A. Smock   43   President of Jus-Com, Inc.

 

Set forth below is a biographical description of each of our directors and senior executive officers based on information supplied by each of them.

 

Christopher Ferguson serves as the CEO, President and Chairman of the Board of Directors of Focus Venture. Mr. Ferguson founded Focus’ wholly-owned subsidiary, Optos Capital Partners LLC in March 2008.  Prior to founding Focus Venture Partners, Mr. Ferguson owned and managed Mercer Staffing, an innovative workforce management solutions provider to a variety of industries including transportation and engineering.  Mercer Staffing was sold to TerraNova Partners in February 2007. Prior to founding Mercer, Mr. Ferguson and James J. Florio, former Governor of New Jersey, founded The Florio Group, a boutique private investment company.  As Managing Director of The Florio Group, Mr. Ferguson was responsible for evaluating the companies that were seeking financing; performing due diligence; and maintaining relationships with The Florio Group’s network of investment partners. Mr. Ferguson also served as Chief Financial Officer for Cabot Marsh Corporation in 1995 and remained as a director for the company until 1999.  In addition to his duties at Focus, Mr. Ferguson serves as a member of the non-profit organization, First Tee of the Lehigh Valley, which teaches life skills to at-risk children through golf and tennis programs.  Mr. Ferguson also served for three years as a Director of Team Capital Bank, a community bank with fifteen branches in New Jersey and Pennsylvania. Mr. Ferguson has been a member of the New Jersey and Pennsylvania Bars since 1994.  He graduated from Widener University School of Law in 1994 and received a Bachelor of Arts Degree from Villanova University in 1990. As the founder and manger of our predecessor, Mr. Ferguson has unparalleled knowledge of our history, strategies, technology and operations.

 

Theresa Carlise has served as the CFO for Focus Venture since formation in March 2012 and has been engaged by Optos Capital since September 2011.  Prior to joining Optos, Ms. Carlise has served as CFO and Director for multiple publically traded companies in the retail, mortgage banking and transportation industries.  Her background enabled her to form her own virtual CFO consulting business, CSI Consultants, Inc. from July 2010 through September 2011 of which she was CEO, CFO and Director, providing outsourced CFO services.   From December 2009 to July 2010, Ms. Carlise served as the CFO and a Director of Las Vegas Railway Express, Inc., a transportation service company. Ms. Carlise operated as a self-employed contract-CFO from November 2007 through November 2009, contracting work from the mortgage banking company, which later engaged her as CFO. From November 2006 through November 2007, Mr. Carlise served as the Chief Financial Officer for Shearson Financial Network, Inc. (“Shearson”), a mortgage banking company.  Following Ms. Carlise’s resignation in November 2007, in April 2008, as a result of the economic decline of the mortgage banking industry, Shearson filed for reorganization and sought relief under Chapter 11 protection.  In August of 1993, Ms. Carlise as CFO and Director for National Record Mart, Inc., a retail music distribution company, with revenues in excess of $200 million, raised capital through an initial public offering, managed an annual purchasing budget of $130 million and executed multiple acquisitions.  Ms. Carlise served in this capacity for 10 years and was with the company for a total of 17 years. Ms. Carlise received her Bachelor of Science degree in Finance from Indiana University of Pennsylvania in 1982.

 

Michael Paleschi  has served as the Chief Operating Officer of Focus Venture and President of Focus Fiber from inception in 2010 through the date hereof. Mr. Palleschi has been managing telecommunications networks specifically in the areas of technology, engineering and operations since 1995.  Prior to joining Focus, Mr. Palleschi served as the Director of Operations and Engineering for Digital Systems Engineering/Cobalt Telecom, a Turn-key engineering and construction firm, from 2009 to 2010. From 2007 to 2009, Mr. Palleschi served as a director for Truwave Networks, LLC, where he managed the installation, operation and maintenance of a regional fiber optic network in Florida. Prior to joining Truwave Networks, LLC, Mr. Palleschi held senior management positions with Level 3 Communications, Qwest Communications and MCIMr. Palleschi is also the Managing Director of TLP Investments, LLC – an investment firm focused on the real estate and hospitality sectors. Mr. Palleschi holds multiple degrees in both Engineering and Management. Mr. Palleschi also holds several professional and technical certifications.

 

-48-
 

 

Jeffrey A. Smock serves as the President of Jus-Com, Inc., a wholly owned subsidiary of Focus. Mr. Smock has been employed by Jus-Com, Inc. since 1999 initially as a Level 3 Installer. Mr. Smock was then promoted to Lead Installer in December 2001 and then Purchaser/Operations Manager in December 2006. In November 2008, Mr. Smock was promoted to President of Jus-Com, Inc. Mr. Smock received a Associate of Arts degree from Vincennes University in 1990 and a Bachelor of Arts degree from Indiana University in 1995.

 

Our directors are elected for a term of one year and until their successors are elected and qualified.

 

There is no family relationship among any of our officers or directors.  

 

Committees

 

Our business, property and affairs are managed by or under the direction of the Board of Directors. Members of the board are kept informed of our business through discussion with the chief executive and financial officers and other officers, by reviewing materials provided to them and by participating at meetings of the board and its committees.  As of the date hereof, we intend to form an audit, compensation and nomination/corporate governance committee.  Upon appointing independent directors and adopting the appropriate charters, we will appoint form such committees.

 

Code of Ethics

 

We have adopted a code of ethics to apply to our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions.

 

Director Independent

 

We currently do not have any independent directors.

 

Executive Compensation

Summary Compensation Table

 

                                  Non-equity     Non-              
                      (5)     (6)     Incentive     Qualified              
                      Stock     Stock     Plan     Deferred     All Other        
Name and Principal               Bonu s     Award s     Option s     Compensation     Compensation     Compensation        
Position   Year     Salary ($)     ($)     ($)     ($)     ($)     Earnings ($)     ($)     Total ($)  
Christopher Ferguson, CEO, Chairman & President     2011       120,000                                           120,000  
      2010       94,500                                           94,500  
                                                                         
Theresa Carlise, CFO     2011       19,000             -                               19,000  
      2010                                                  
                                                                         
Michael Palleschi, Chief Operating Officer, President Focus Fiber Solutions     2011       63,580                                           63,580  
      2010                                                  
                                                                         
Jeffrey Smock, President of Jus-Com Inc.     2011       51,160                                           51,160  
      2010                                                  

 

-49-
 

 

Outstanding Equity Awards at Fiscal Year-End

 

As of December 31, 2011, the Company did not have any equity awards outstanding.

 

Employment Agreements

 

As of the date hereof, except as set forth below, the Company and its subsidiaries have not entered into employment agreements. The Company intends in the near future to enter employment agreements with key executives and employees.

 

On November 1, 2011, MDT Labor LLC (“MDT”) entered into an employment agreement with Mike Boyle whereby Mr. Boyle agreed to serve as the Senior Vice President of MDT in consideration of a salary of $180,000 per year, standard benefits, reimbursement of expenses and a bonus equal to a percentage of operating income of MDT; the option was terminated upon the acquisition of MDT by Optos.. Mr. Boyle also received an option to acquire 5% of the membership interest of MDT. The term of the employment agreement commenced on November 1, 2011 through October 31, 2012, of which is renewable for one year periods.

 

2011 Grants of Plan-Based Awards

 

The Company made no plan-based equity and non-equity awards grants to named executives in 2011.

 

Option Exercises

 

During our Fiscal year ended December 31, 2011, there were no options exercised by our named officers.

 

Compensation of Directors

 

Our directors have not received compensation for rendering services as directors since inception.

 

Pension, Retirement or Similar Benefit Plans

 

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.  We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the board of directors or a committee thereof.

 

Indebtedness of Directors, Senior Officers, Executive Officers and Other Management

 

None of our directors or executive officers or any associate or affiliate of our Company during the last two fiscal years is or has been indebted to our Company by way of guarantee, support agreement, letter of credit or other similar agreement or understanding currently outstanding.

 

Indemnification of Directors and Officers

 

Our directors and executive officers are indemnified as provided by the Nevada law and our Bylaws. These provisions state that the our directors may cause us to indemnify a director or former director against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred by him as a result of him acting as a director. The indemnification of costs can include an amount paid to settle an action or satisfy a judgment.  Such indemnification is at the discretion of our board of directors and is subject to the Securities and Exchange Commission’s policy regarding indemnification.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise. We have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

On April 29, 2011, the Company entered into a month to month equipment rental agreement with TBK327 Partners LLC, ("TBK"), for monthly payments of $7,000.  The managing member of TBK is Christopher Ferguson, the Company's Chief Executive Officer, President and sole member of the Board of Directors.   For the year ended December 31, 2011, the total payments expensed to costs of sales were $56,000.

 

Certain payments were made on behalf of related parties which are classified on the Company's balance sheet as current assets, Due from-related party.  Mr. Ferguson, the Company's CEO, President and sole member of the Board, is a managing member of TBK, which has outstanding receivables for the nine months ended September 30, 2012 of $225 and $33,527 for the year ended December 31, 2011. Subsequently, the Company has received payment in full for its receivables on behalf of TBK.

 

-50-
 

 

On January 1, 2012, the Company entered into a stock purchase agreement to acquire 100% of the outstanding stock of Jus-Com Inc from TBK, of which Mr. Ferguson is a managing member, for approximately $126,000.  At the time of purchase, Jus-Com had an outstanding note payable of $136,000 to TBK, which was assumed as part of the agreement. On July 5, 2012, Optos paid the balance of the note payable of $136,000 and accrued interest of $11,000 for a total of $147,000. For the nine months ended September 30, 2012 and the year ended December 31, 2011, the balance was $0 and 136,000, respectively. For the nine months ended September 30, 2012 and the year ended December 31, 2011, the balance was $0 and $136,000, respectively.

 

On January 1, 2012, Optos purchased from TBK 100% of the issued and outstanding shares of Jus-Com for a purchases price of $126,000 and is payable in a promissory note. The entire outstanding principal amount of this note, together with all interest accrued and thereto not paid and any other payments due and payable under the agreement shall be due in full in three years and bears interest of 12% per annum. The note is secured by a Stock Pledge and Security Agreement granting the seller a security interest in the stock.

 

The Company purchased 50% of the members’ equity and the non-controlling interest in CMK Resource Group, LLC (“CMK’) on January 1, 2012,. The transaction gives the Company 100% ownership in CMK. The purchase price is $100,000 and is payable in a Promissory Note. The Promissory Note is due in three years in monthly installments in advance of $3,013 and bears interest of 6% per annum. The note is secured by a Unit Pledge and Security Agreement granting the seller a security interest in the units. We dissolved CMK on December 31, 2012 and transferred all assets to Jus-Com.

 

On January 1, 2012, the Company issued to the Optos Members, a Promissory Note, in the principal amount of $1,600,000, for contributions in excess of $1 million and personal guarantees to secure approximately $3 million in financing. Mr. Ferguson and his spouse, Lelainya Ferguson are the sole Optos members. The note required an initial principal payment of $700,000, due on or before September 1, 2012, which was subsequently paid on May 17, 2012. Monthly principal payments of $30,000 for 30 months are due following the initial payment in the 37 th month; accrued interest calculated on the outstanding principal at 6% per annum is due in a balloon payment of $101,750.

 

On December 3, 2012, Atalaya disbursed on behalf of the Company a payment in the amount of $785,688 to pay in full the outstanding principal and interest for a note payable to a related party, Christopher Ferguson, the CEO and director of the Company.

 

On December 3, 2012, Atalaya disbursed on behalf of the Company a payment in the amount $93,683 to pay in full the outstanding principal and interest for a note payable to a related party, TBK 327 Partners, LLC, a company controlled by Christopher Ferguson, the CEO and a director of the Company.

 

On December 3, 2012, the Company acquired all of the issued outstanding membership interests of MDT Labor, LLC, doing business as MDT Technical (“MDT”) from Michael D. Traina, who is now an affiliate of the Company. MDT operates a services business that provides labor and human resource solutions, including temporary staffing services in the United States market. Pursuant to the Interest Purchase Agreement, a cash payment of $3,000,000 was made by Atalaya of behalf of the Company, delivered a Promissory Term Note (“MDT Note”) for $4,000,000 and issued 12,490,000 shares of common stock of the Company for all of the outstanding membership interests for MDT. The MDT Note bears interest of 6% per annum. Interest in due and payable quarterly in arrears with the first interest payment due and payable on April 5, 2013, for the prior period ended March 31, 2013. No portion of the principal is due before the maturity date of May 30, 2015 unless the Company receives not less than $10,000,000 in gross cash proceeds from the issuance of its stock. It such case, the Company may pay $1,500,000 in principal. The Company may further pay monthly scheduled principal payments of $100,000 the following month if the Company receives not less than $10,000,000 in gross cash proceeds from the issuance of its stock and meets the terms of certain financial convents including senior debt to EBITDA ratio and fixed charge coverage ratio. All accrued principal and interest is otherwise payable at the maturity date of May 30, 2015. The MDT Note is secured by all fixtures and personal property of every kind and nature. The MDT Note security interest is subordinated to the security interests held by Atalaya.

 

On December 3, 2012, the Company disbursed in cash $93,069 to pay in full the outstanding principal and interest for a note payable to a related party, Oilmatic Services, previously a 50% owner of CMK Resources Group, LLC.

 

On December 3, 2012, the Company disbursed in cash $72,660 to pay in full the outstanding principal and interest for a note payable to a related party, Brian Jennings, a brother of a principal of Oilmatic Services.

 

-51-
 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth, as of January 4, 2013, certain information concerning beneficial ownership of shares of our common stock with respect to (i) each person known to us to own 5% or more of the outstanding shares of our common stock, (ii) each director of our company, (iii) the executive officers of our company, and (iv) all directors and officers of our company as a group:

   

    Number of
Shares
       
    Beneficially     Percentage of  
Name and Address (1)     Owned (2)     Common Stock  
TBK327 Partners, LLC (3)     38,730,000 (5)     76.2 %
Christopher Ferguson (3)(4)     38,730,000 (5)     76.2 %
Theresa Carlise (4)     -0-        
Michael Paleschi (4)     -0-        
Jeffrey A. Smock (4)     -0-        
Michael D. Traina     12,490,000       32.6 %
Atalaya Special Opportunities Fund IV (Tranche B)     5,227,841 (6)     11.9 %
                 
All Officers and Directors as a group (4 persons)     38,730,000       76.2 %

 

(1)            The address for the above identified persons is c/o Focus Venture Partners, Inc., 969 Postal Road, Suite 100, Allentown, Pennsylvania 18109.

 

(2)           Applicable percentage ownership is based on 38,337,500 shares of common stock outstanding as of January 4, 2013, together with securities exercisable or convertible into shares of common stock within 60 days of January 4, 2013 for each stockholder.  Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities.  Shares of common stock that are currently exercisable or exercisable within 60 days of January 4, 2013, are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

(3)          Christopher Ferguson, together with his wife, are the sole owners and the managing members of TBK327 Partners LLC and they collectively have voting and dispositive control over the securities held by TBK327 Partners LLC.

 

(4)           Executive Officer and/or Director of our company.

 

(5)         Represents 24,980,000 shares of common stock and 13,750,000 shares of common stock issuable upon conversion of Series A Preferred Stock.

 

(6)          Represents 5,227,841 shares of common stock issuable upon exercise of a common stock purchase warrant dated December 3, 2012 which is exercisable on a cash or cashless basis at an exercise price of $0.0001. Their address is c/o Atalaya Administrative LLC, 780 Third Avenue, 27th Floor, New York, New York 10017.

 

DESCRIPTION OF SECURITIES

 

Common Stock

 

The Company is presently authorized to issue up to 100,000,000 shares of common stock, $.0001 par value per share, of which 38,337,500 shares of common stock are presently issued and outstanding. The holders of the Company’s common stock are entitled to receive dividends equally when, as and if declared by the Board of Directors, out of funds legally available therefor.

 

The holders of the Company’s common stock have sole voting rights, one vote for each share held of record, and are entitled upon liquidation of the Company to share ratably in the net assets of the Company available for distribution after payment of all obligations of the Company and after provision has been made with respect to each class of stock, if any, having preference over the common stock, currently including the Company’s preferred stock. Shares of the Company's common stock do not have cumulative voting rights and vote as a class on all matters requiring stockholder approval. Therefore, the holders of a majority of the shares of the Company’s common stock may elect all of the directors of the Company, control its affairs and day-to-day operations. The shares of common stock are not redeemable and have no preemptive or similar rights. All outstanding shares of the Company's common stock are validly issued, fully paid for and non-assessable.

 

-52-
 

 

Preferred Stock

 

The Company’s Articles of Incorporation authorize our Board of Directors to provide for the issuance of up to 10,000,000 shares of preferred stock in one or more series, subject to any limitations prescribed by the laws of the State of Nevada, but without further shareholder action. Our Board of Directors may establish the number of shares to be included in each such series, fix the designations, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof, and increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding) without any further vote or action by the stockholders. Our Board of Directors may authorize and issue preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the Company’s common stock. The issuance of preferred stock, for example in connection with a shareholder right's plan, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of our outstanding stock.

 

Our Board of Directors have authorized and issued 100,000 shares of the Company’s Series A Preferred Stock. The Series A Preferred Stock has a stated value of $11 per share and is convertible into our common stock at a conversion price of $0.08 per share representing 13,750,000 shares of common stock.  Furthermore, the Series A Preferred Stock votes on an as-converted basis.  The Series A Preferred Stock does not carry preferential liquidation rights.  The Company, in its sole discretion my redeem the Series A Preferred Stock by paying the holder 110% of the Stated Value.

 

Warrants

 

On July 23, 2012, the Company entered into an amendment of that certain Corporate Advisory Agreement dated January 1, 2012 with HFP Capital Markets LLC (“HFP”) whereby the Company issued HFP a common stock purchase warrant to acquire 2,870,000 shares of common stock at a price per share of $0.08 for a period of five years. The warrants can be cancelled by the Company if financing as a result of this Agreement, net of fees, is not in excess of $1,150,000.

 

On December 3, 2012, the Company entered into a Credit Agreement with Atalaya Special Opportunities Fund IV (Tranche B), as lender and Atalaya Administrative LLC, as agent (“Atalaya”). Under the terms of the Credit Agreement, Atalaya agreed, among other things and subject to certain restrictions, to provide the Company with a revolving loan commitment of $8,500,000 and a term loan commitment of $8,000,000. The Company pursuant to the terms of the Credit Agreement issued to Atalaya a common stock purchase warrant (“Warrant’) to purchase 5,277,841 shares of common stock of the Company. The exercise price per share is $0.0001 and the holder is entitled to exercise the Warrant on a cashless basis. The Warrant expires on December 3, 2022. The Warrant is subject to anti-dilution adjustments if certain dilutive transactions occur, unless specifically exempted by the Warrant, such as issuance of common stock, options, warrants or similar securities or a decrease in the subscription, exercise, conversion or exchange price of these securities. In addition, commencing on the earliest of (a) December 3, 2016 (b) the acceleration of obligations under the Credit Agreement (c) an event of default (d) a value event such as a merger, disposition, IPO other than a qualified IPO or change in control and ending the earlier of (a) a qualified IPO or (b) the expiration of the warrant, Atalaya may put the warrant on 60 days’ notice and the Company is obligated to repurchase the warrant for cash. The value of the put price is determined by the greater of (a) the Equity Value, as defined by the Warrant, per common share of the Company (b) the Put Formula Value, as defined by the Warrant, per common share of the Company.

 

EXPERTS

 

Our consolidated financial statements at December 31, 2011 and 2010 and for the years then ended have been audited by De Joya Griffith & Company LLC and are included herein in reliance upon the authority of such firm as an expert in accounting and auditing in giving such report. Further, the financial statements at December 31, 2011 and for the years then ended for MDT Labor, LLC (d/b/a MDT Technical) have been audited by G3 of PA LLC and are included herein in reliance upon the authority of such firm as an expert in accounting and auditing in giving such report.

 

LEGAL MATTERS

 

The validity of the shares of common stock offered through this prospectus will be passed on by Fleming PLLC, 49 Front Street, Suite #206, Rockville Centre, New York 11570.  Stephen M. Fleming, the managing member, is a shareholder of our company and received 430,000 shares of common stock as compensation from Focus.

 

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HOW TO GET MORE INFORMATION

 

We have filed with the SEC a Registration Statement on Form S-1 (including exhibits) under the Securities Act with respect to the shares to be sold in this Offering.  This Prospectus, which forms part of the Registration Statement, does not contain all the information set forth in the Registration Statement as some portions have been omitted in accordance with the rules and regulations of the SEC.  For further information with respect to our Company and the Shares offered in this Prospectus, reference is made to the Registration Statement, including the exhibits filed thereto, and the financial statements and notes filed as a part thereof.  With respect to each such document filed with the SEC as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved.   We are not currently subject to the informational requirements of the Securities Exchange Act of 1934 (the “Exchange Act”).  As a result of the offering of the Shares of our common stock, we will become subject to the informational requirements of the Exchange Act, and, in accordance therewith, we will file quarterly and annual reports and other information with the SEC and send a copy of our annual report together with audited consolidated financial statements to each of our shareholders.  The Registration Statement, such reports and other information may be inspected and copied at the Public Reference Room of the SEC located at 100 F Street, N. E., Washington, D. C.  20549.  Copies of such materials, including copies of all or any portion of the Registration Statement, may be obtained from the Public Reference Room of the SEC at prescribed rates.  You may call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room.  Such materials may also be accessed electronically by means of the SEC’s home page on the internet (http://www.sec.gov).

 

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FINANCIAL STATEMENTS

 

Pro-Forma    
     
Unaudited Pro-Formas Condensed Combined Financial Statements   F-2
     
Pro-Forma Condensed Combined Balance Sheets as of September 30, 2012   F-3
     
Pro-Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2012   F-4
     
Pro-Forma Condensed Combined Statement of Operations for the nine months ended December 31, 2011   F-5
     
Notes to Pro Forma Condensed Combined Financial Statements   F-6
     
Focus Venture Partners Inc.    
     
Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011   F-9
     
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011   F-10
     
Consolidated Statement of  Stockholders’ Equity for the Nine Months Ended September 30, 2012   F-11
     
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011   F-12
     
Notes to Consolidated Financial Statements   F-13
     
Optos Capital Partners LLC    
     
Report of Independent Registered Public Accounting Firm   F-26
     
Combined Balance Sheets as of December 31, 2011 and December 31, 2010   F-27
     
Combined Statements of Operations for the years ended December 31, 2011 and December 31, 2010   F-28
     
Combined Statement of Stockholders’ Equity for the years ended December 31, 2011 and December 31, 2010   F-29
     
Combined Statements of Cash Flows for the years ended December 31, 2011 and December 31, 2010   F-30
     
Notes to Combined Financial Statements   F-31
     
MDT Labor LLC    
     
Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011   F-45
     
Consolidated Statements of Operations for the Nine Months  Ended September 30, 2012 and 2011   F-46
     
Consolidated Statements of Cash Flows for the Nine Months  Ended September 30, 2012 and 2011   F-47
     
Notes to Consolidated Financial Statements   F-48
     
Independent Auditors’ Report   F-49
     
Balance Sheet as of December 31, 2011   F-50
     
Statement of Income and Member’s Equity for the year ended December 31, 2011   F-51
     
Statement of Cash Flows for the year ended December 31, 2011   F-52
     
Notes to Financial Statements   F-53

 

F-1
 

 

UNAUDITED PRO-FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

The following Focus Venture Partners, Inc. (the “Company”) unaudited pro forma condensed combined balance sheet as of September 30, 2012, and unaudited pro forma condensed combined statements of operations for the year ended December 31, 2011 and for the nine months ended September 30, 2012, give effect to the acquisition of the MDT Labor, LLC, (“MDT Labor”) located in Lansdale, Pennsylvania and the related Credit Agreement with Atalaya Special Opportunities Fund IV (Tranche B), as lender and Atalaya Administrative LLC, as agent (“Atalaya”), which closed December 3, 2012. The pro forma condensed combined balance sheet is presented as if the transactions had occurred on September 30, 2012, and the pro forma condensed combined statements of operations are presented as if the transactions had occurred on January 1, 2010.

 

The pro forma condensed combined balance sheet and the pro forma condensed combined statements of operations were derived by adjusting the historical financial statements of the Company.  The adjustments are based on currently available information and, therefore, the actual adjustments may differ from the pro forma adjustments.  The Company is accounting for the acquisition of the MDT Labor in accordance with ASC 805, Business Combinations.  The Company is currently in the process of determining the fair value of the assets and liabilities acquired in the transaction.  The pro forma balance sheet and the pro forma statements of operations were derived using the preliminary fair value of the assets and liabilities acquired in the transaction.  These fair values are subject to change as the Company completes the fair value determination process.

 

On September 5, 2012, MDT entered into an Asset Purchase Agreement (“Agreement”) with Beacon Enterprise Solutions Group, Inc. (“Beacon”), a Nevada Company. The Company acquired all the assigned contracts, accounts receivable, all work-in-process and assumed certain liabilities of Beacon as associated with the assigned contracts. The purchase price of the purchased assets and assumed liabilities comprises earn-out payments not to exceed in total $3,500,000. Earn-out payments are due over a three year period ended August 31, 2015 calculated as 15% of adjusted EBITDA. Adjusted EBITDA is determined as net income before interest, income taxes, depreciation and amortization determined in accordance with GAAP adjusted to include all direct costs and an overhead allocation of 8% of revenue.

 

The unaudited pro forma financial information has been prepared by our management and is based on our historical financial statements and the assumptions and adjustments described herein and in the notes to the unaudited pro forma financial information below.  The presentation of the unaudited pro forma financial information is prepared in conformity with Article 11 of Regulation S-X.

 

The pro forma condensed combined financial statements should be read in conjunction with the historical financial statements and the related notes thereto for the year ended December 31, 2011 included in Form S-1/A for Focus Venture Partners, Inc. The pro forma information is presented for illustrative purposes only and may not be indicative of the results that would have been obtained had the acquisition of assets actually occurred on the dates assumed nor is it necessarily indicative of Focus Venture Partners, Inc.’s future consolidated results of operations or financial position.

 

F-2
 

 

FOCUS VENTURE PARTNERS, INC.

PRO FORMA CONDENSED COMBINED BALANCE SHEETS

AS OF SEPTEMBER 30, 2012

(Unaudited)

 

   Focus
Venture
Partners, Inc.
   MDT Labor LLC      Pro Forma
Adjustments
   Pro Forma
Amount
 
                        
ASSETS                       
Current assets:                       
Cash  $557,088   $807,979   A, B  $789,733   $2,154,800 
Accounts receivable, net   10,974,137    4,615,186            15,589,323 
Security deposits   75,281    0            75,281 
Due from factor   0    100,000   B   (100,000)   0 
Due from related party   225    0            225 
Other current assets   16,617    395,894            412,511 
Total current assets   11,623,348    5,919,059       689,733    18,232,140 
                        
Deferred finance costs, net   0    0   B   482,500    482,500 
Property and equipment, net   1,913,235    163,484            2,076,719 
Customer relationships, net   0    2,909,375   A   7,979,761    10,889,136 
Goodwill   0    2,334,561   A   (2,334,561)   0 
Other intangibles, net   14,413    92,167   A   (89,167)   17,413 
    1,927,648    5,499,587       6,038,533    13,465,768 
                        
Total assets  $13,550,996   $11,418,646      $6,728,266   $31,697,908 
                        
LIABILITIES AND EQUITY                       
                        
Current liabilities:                       
Accounts payable and accrued liabilities  $2,820,886   $4,668,138           $7,489,024 
Factoring lines of credit   1,716,173    3,697,560   B   (5,413,733)   0 
Revolving loan   0    0   B   3,000,000    3,000,000 
Accrued contract costs not billed   5,566,118    0            5,566,118 
Deferred revenue   1,306,000    0            1,306,000 
Income taxes payable   303,321    0            303,321 
Warrant liability   0    0   C   417,707    417,707 
Current portion of capital lease obligations   67,420    0            67,420 
Current portion of long-term debt, related party   429,265    147,093   B   (358,264)   218,094 
Current portion of long-term debt   151,023    180,924   B   (180,924)   151,023 
Total current liabilities   12,360,206    8,693,715       (2,535,214)   18,518,707 
                        
Long term liabilities:                       
Term loan   0    0   B, C   7,582,293    7,582,293 
Note payable - related party   665,863    0   B   (573,082)   92,781 
Note payable - due to seller   0    0   A   4,000,000    4,000,000 
Notes payable   493,560    204,840   B   (204,840)   493,560 
Total long term liabilities   1,159,423    204,840       10,804,371    12,168,634 
                        
Total Liabilities   13,519,629    8,898,555       8,269,157    30,687,341 
                        
Stockholders' Equity                       
Preferred stock   10    0            10 
Common stock   2,585    0   A   1,249    3,834 
Additional paid-in capital   70,213    940,564   A   57,387    1,068,164 
                        
Retained earnings   (41,441)   1,579,527   A, B   (1,599,527)   (61,441)
Total equity   31,367    2,520,091       (1,540,891)   1,010,567 
                        
Total liabilities and equity  $13,550,996   $11,418,646      $6,728,266   $31,697,908 

 

See accompanying notes to pro forma condensed combined financial statements

 

F-3
 

 

FOCUS VENTURE PARTNERS, INC

PRO FORMA CONDENSED COMBINED OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

(Unaudited)

 

   Focus
Venture
Partners, Inc.
   MDT Labor LLC      Pro Forma
Adjustments
   Pro Forma
Amount
 
                    
Revenues  $31,557,374   $13,987,182           $45,544,556 
                        
Cost of revenues   24,433,477    10,416,696            34,850,173 
                        
Gross profit   7,123,897    3,570,486            10,694,383 
                        
Operating expenses:                       
Salary, wages and payroll taxes   1,930,768    1,500,663            3,431,431 
Selling, general and administrative   1,511,305    458,283            1,969,588 
Travel expenses   1,109,583    114,263            1,223,846 
Occupancy costs   534,697    49,062            583,759 
Depreciation and amortization   260,038    271,314   D   2,041,713    2,573,065 
Total operating expenses   5,346,391    2,393,585            9,781,689 
                        
Income (loss) before other expenses and income taxes   1,777,506    1,176,901            912,694 
                        
Other (income) expense                       
(Gain) loss on sale of assets        2,126            2,126 
Other (income)        (20,860)           (20,860)
Interest / factoring expense   910,875    265,796   E, F, G, H, I, J, K, L, M, N   953,498    2,130,169 
Total other (income) expense   910,875    247,062            2,111,435 
                        
Income (loss) before income taxes   866,631    929,839            (1,198,741)
                        
Provision for income taxes   303,321    3,986            307,307 
                        
Net income (loss)  $563,310   $925,853           $(1,506,048)
                        
Basic and diluted net income (loss) per common share                    $(0.04)
                        
Basic and diluted weighted average number of common shares outstanding                     37,542,390 

  

See accompanying notes to pro forma condensed combined financial statements

 

F-4
 

 

FOCUS VENTURE PARTNERS, INC

PRO FORMA CONDENSED COMBINED OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2011

(Unaudited)

 

   Focus Venture
Partners, Inc.
   MDT Labor LLC      Pro Forma
Adjustments
   Pro Forma
Amount
 
                    
Revenues   15,297,926    9,470,360            24,768,286 
                        
Cost of revenues   11,140,884    7,085,814            18,226,698 
                        
Gross profit   4,157,043    2,384,546            6,541,589 
                        
Operating expenses:                       
Salary, wages and payroll taxes   1,103,817    701,315            1,805,132 
Selling, general and administrative   923,027    667,895            1,590,922 
Travel expenses   1,217,135    28,786            1,245,921 
Occupancy costs   257,288    12,969            270,257 
Depreciation and amortization   97,400    166,250   D   2,722,284    2,985,934 
Total operating expenses   3,598,666    1,577,215            7,898,165 
                        
Income (loss) before other expenses and income taxes   558,376    807,331            (1,356,577)
                        
Other (income) expense                       
Gain on sale of assets   (171,797)   0            (171,797)
Interest expense   113,431    153,716   E, F, G, H, I, J, K, M, N   1,945,836    2,212,983 
Total other (income) expense   (58,366)   153,716            2,041,186 
                        
Income (loss) before income taxes   616,742    653,615            (3,397,763)
                        
Provision for income taxes   0    0            0 
                        
Net income (loss)   616,742    653,615            (3,397,763)
                        
Net (income) loss attributable to non-controlling interest   (48,270)   0            (48,270)
                        
Net income (loss)attributed to Focus Venture Partners, Inc.   568,472    653,615            (3,446,033)
                        
Basic and diluted net income (loss) per common share                    $(0.09)
                        
Basic and diluted weighted average number of common shares outstanding                     36,470,000 

 

See accompanying notes to pro forma condensed combined financial statements

 

F-5
 

 

FOCUS VENTURE PARTNERS, INC.

Notes to Pro Forma Condensed Combined Financial Statements

(Unaudited)

 

A. On December 3, 2012, the Company acquired all of the issued outstanding membership interests of MDT Labor, LLC, doing business as MDT Technical (“MDT”). MDT operates a services business that provides labor and human resource solutions, including temporary staffing services in the United States market.

 

Pursuant to the Interest Purchase Agreement, total consideration of $7,999,200 was transferred for all of the outstanding membership interests for MDT. A cash payment of $3,000,000 was made by Atalaya on behalf of the Company and the Company delivered a Promissory Term Note (“MDT Note”) for $4,000,000 and issued 12,490,000 shares of common stock of the Company valued at $999,200 for all of the outstanding membership interests for MDT. Common stock is valued at $0.08 per shares based on the last issuance of common stock by the Company for cash.

 

The MDT Note bears interest of 6% per annum. Interest is due and payable quarterly in arrears with the first interest payment due and payable on April 5, 2013, for the prior period ended March 31, 2013. No portion of the principal is due before the maturity date of May 30, 2015 unless the Company receives not less than $10,000,000 in gross cash proceeds from the issuance of its stock. In such case, the Company may pay $1,500,000 in principal. The Company may further pay monthly scheduled principal payments of $100,000 the following month if the Company receives not less than $10,000,000 in gross cash proceeds from the issuance of its stock and meets the terms of certain financial covenants including senior debt to EBITDA ratio and fixed charge coverage ratio. All accrued principal and interest is otherwise payable at the maturity date of May 30, 2015. The MDT Note is secured by all fixtures and personal property of every kind and nature. The MDT Note security interest is subordinated to the security interests held by Atalaya.

 

The assets and liabilities of MDT Labor, LLC are recorded at fair value on the acquisition date. The book value of the current assets, property and equipment and the liabilities of MDT are a reasonable approximation of fair value. The intangible asset, customer relationships, is amortized on a straight-line basis over their estimated life of four years.

The Company has not yet finalized the valuation of the purchase price allocation. The pro forma balance sheet and the pro forma statements of operations were derived using the preliminary fair value of the assets and liabilities acquired in the transaction.  These fair values are subject to change as the Company completes the fair value determination process.

 

The Company accounts for business combinations using the acquisition method in accordance with ASC 805, Business Combinations.

 

B. On December 3, 2012, the Company entered into a Credit Agreement with Atalaya Special Opportunities Fund IV (Tranche B), as lender and Atalaya Administrative LLC, as agent (“Atalaya”). Under the terms of the Credit Agreement, Atalaya agreed, among other things and subject to certain restrictions, to provide the Company with a revolving loan commitment of $8,500,000 and a term loan commitment of $8,000,000. The commitments under the Credit Agreement are restricted by the borrowing base defined as 100% of the net collectible amount of acceptable accounts due to the Company less reserves and allowances which Atalaya deems necessary in its reasonable discretion. In the addition, the Credit Agreement is subject to various financial covenants including fixed charge coverage ratio, tangible net worth, restrictions on capital expenditures, minimum EBITDA ratio and maximum leverage ratio.

 

The Company pursuant to the terms of the Credit Agreement issued to Atalaya a common stock purchase warrant (“Warrant’) to purchase 5,227,841 shares of common stock of the Company. The exercise price per share is $0.0001. The Warrant expires on December 3, 2022. The Warrant is subject to anti-dilution adjustments if certain dilutive transactions occur, unless specifically exempted by the Warrant, such as issuance of common stock, options, warrants or similar securities or a decrease in the subscription, exercise, conversion or exchange price of these securities. In addition, commencing on the earliest of (a) December 3, 2016 (b) the acceleration of obligations under the Credit Agreement (c) an event of default (d) a value event such as a merger, disposition, IPO other than a qualified IPO or change in control and ending the earlier of (a) a qualified IPO (b) the expiration of the warrant, Atalaya may put the warrant on 60 days’ notice and the Company is obligated to repurchase the warrant for cash. The value of the put price is determined by the greater of (a) the Equity Value, as defined by the Warrant, per common share of the Company (b) the Put Formula Value, as defined by the Warrant, per common share of the Company.

 

The Company agreed to pay Red Ridge Finance Group, LLC (“Red Ridge”) in consideration for arranging and administering the credit facilities provided under the Credit Agreement a fee of $330,000 and to reimburse Red Ridge $44,375 for due diligence and background checks. In addition a quarterly collateral management fee of $20,000 is due to Red Ridge.

 

Legal fees of $152,500 were incurred by the Company to arrange the Credit Agreement.

 

F-6
 

 

On December 3, 2012, the Company made an initial notice of borrowing/disbursement request. As a result, Atalaya disbursed the entire proceeds of the $8,000,000 term loan commitment (less an agreed-upon $330,000 original discount to Atalaya for making the term loan) and disbursed $3,000,000 of the revolving loan commitment.

 

The cash proceeds for this request were disbursed by Atalaya on behalf of the Company as follows:

 

a) $3,000,000 in connection with the acquisition of all of the issued outstanding membership interests of MDT.
b) $3,139,943 Buyout Letter Agreement with Sterling National Bank to pay in full an outstanding bank loan, interest and prepayment penalty which was previously an obligation of MDT.
c) $785,688 to pay in full the outstanding principal and interest for a note payable to a related party, Christopher Ferguson, the CEO and director of the Company
d) $93,683 to pay in full the outstanding principal and interest for a note payable to a related party, TBK 327 Partners, LLC, a company controlled by Christopher Ferguson, the CEO and a director of the Company
e) $697,230 Payout Statement with Metro Bank to pay in full an outstanding bank loan, interest and prepayment penalty which was previously an obligation of MDT
f) $340,979 payment to settle all obligations due to Franklin Capital Holdings, LLC
g) $154,377 payment to settle all obligations due to AGR Funding, Inc.
h) $152,500 payment for legal fees for the Credit Agreement
i) $20,000 payment for quarterly administration fees to Atalaya
j) $2,285,600 payment to the Company

 

As of December 3, 2012, the revolving and term loans carry an interest rate at the greater (a) the LIBOR rate plus 12.75%. (b) 0.75% per annum plus 12.75%. The actual interest rate on the revolving and term loans at December 3, 2012 is 13.50%. The Company is required to pay a commitment fee of 0.25% per annum on the amount the revolving loan commitment exceeds the outstanding revolving loan. Interest is payable monthly in cash on term and revolving loans.

In addition, the Company is required to pay a quarterly administration fee of $20,000 to Atalaya.

 

Principal on the revolving loans is due on December 3, 2014, the termination date. Principal on the term loans is due in monthly installments of $135,000 commencing on January 1, 2013 and in full on December 3, 2014, the maturity date.

 

The Credit Agreement is secured by all of the assets and personal property of the Company.

 

The Company accounts for the Credit Agreement in accordance with ASC-20 Debt with Conversion and Other Options, ASC 815-20 Derivatives and Hedging, Contracts in Equity’s Own Equity and ASC 835 Interest.

 

C. Record the warranty liability issued in connection with the Credit Agreement at fair value of $417,707.

 

D. Record amortization of customer relationships on a straight-line basis over four years.

 

E. Record amortization of deferred finance costs related to the Credit Agreement on a straight-line basis over two years.

 

F. Record interest on the revolving and term loans.

 

G. Record interest on the note payable – due to seller.

 

H. Record interest accretion expense on the discount recorded on the term loan for the warrant liability. Amortized over two years on a straight-line basis.

 

I. Reverse interest expense for note payable with Sterling National Bank paid in full. See pro forma adjustment B. b).

 

J. Reverse interest expense and administration fees for factor line of credit with Franklin Capital Holdings, LLC paid in full. See pro forma adjustment B. f).

 

K. Reverse interest expense and administration fees for factor line of credit with AGR Funding, Inc. paid in full. See pro forma adjustment B. g).

 

L. Reverse interest expense for Note payable, related party, Christopher Ferguson, the CEO and a director of the Company, paid in full. See pro forma adjustment B. c).

 

M. Reverse interest expense for note payable with Metro Bank paid in full. See pro forma adjustment B. e).

 

N. Reverse interest expense for Note payable, related party, TBK 327 Partners, LLC, a company controlled by Christopher Ferguson, the CEO and a director of the Company, paid in full. See pro forma adjustment B. d).

 

F-7
 

 

FOCUS VENTURE PARTNERS, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended

September 30, 2012

(Unaudited)

 

F-8
 

 

  FOCUS VENTURE PARTNERS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   September 30,   December 31, 
   2012   2011 
   (unaudited)   (unaudited) 
ASSETS          
Current assets:          
Cash  $557,088   $201,768 
Accounts receivable, net   10,974,137    4,008,376 
Security deposits   75,281    244,586 
Due from related party   225    35,400 
Other current assets   16,616    34,783 
Total current assets   11,623,347    4,524,913 
           
Property and equipment, net   1,913,235    1,328,473 
           
Intangible assets, net   14,413    46,841 
           
Total assets  $13,550,995   $5,900,227 
           
LIABILITIES EQUITY          
           
Current liabilities:          
Accounts payable and accrued liabilities  $2,820,886   $1,421,300 
Factoring lines of credit   1,716,173    2,199,795 
Accrued contract costs   5,566,118     
Deferred revenue   1,306,000     
Provision for income taxes   303,321     
Current portion of capital lease obligations   67,420    524,965 
Current portion of long-term debt related party   429,265     
Current portion of long-term debt   151,023    69,090 
Total current liabilities   12,360,206    4,215,150 
           
Long term liabilities:          
Capital lease obligations       32,991 
Note payable - related party   665,863    136,234 
Notes payable   493,560    212,196 
Total long term liabilities   1,159,422    381,421 
           
Total liabilities   13,519,628    4,596,572 
           
Equity:          
Common stock; $0.0001 par value, 100,000,000 shares authorized and 25,847,500 shares issued and outstanding at September 30, 2012; and 23,980,000 shares issued and outstanding at December 31, 2011   2,585    2,398 
Preferred stock; $0.0001 par value, 10,000,000 shares authorized and 100,000 issued and outstanding at September 30, 2012; and December 31, 2011   10    10 
Additional paid-in capital   70,213    444,879 
Retained earnings   (41,441)   746,504 
    31,367    1,193,790 
Non-controlling interest       109,866 
Total equity   31,367    1,303,657 
           
Total liabilities and equity  $13,550,995   $5,900,227 

 

See accompanying notes to consolidated financial statements

 

F-9
 

 

FOCUS VENTURE PARTNERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2012 and 2011

(Unaudited)

 

 

   For the Three Months Ended   For the Nine Months Ended 
   September 30,   September 30,   September 30,   September 30, 
   2012   2011   2012   2011 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
                 
Revenues  $11,897,060   $3,669,433   $31,557,374   $10,646,447 
                     
Cost of revenues   8,744,685    3,255,791    24,433,477    8,694,463 
                     
Gross profit   3,152,375    413,642    7,123,897    1,951,984 
                     
Operating expenses:                    
Salary, wages and payroll taxes   821,856    197,005    1,930,768    285,358 
Selling, general and administrative   450,439    168,017    1,511,306    563,064 
Travel expense   303,538    356,465    1,109,583    766,725 
Occupancy costs   196,688    56,416    534,697    161,129 
Depreciation and amortization   104,534    27,691    260,038    33,224 
Total operating expenses   1,877,055    805,594    5,346,392    1,809,500 
                     
Income (loss) before other expenses   1,275,320    (391,952)   1,777,505    142,484 
                     
Other expense (income)                    
Interest expense   398,410    935    910,875    12,223 
Gain on sale of assets   -    -    -    (171,797)
Total other expense   398,410    935    910,875    (159,574)
                     
Net income (loss) before income taxes   876,910    (392,887)   866,630    302,058 
                     
Provision for income taxes   303,321    -    303,321    - 
                     
Net income (loss) before non-controlling interest   573,589    (392,887)   563,309    302,058 
                     
Net income attributable to non-controlling interest   -    4,715    -    56,001 
                     
Net income (loss)  $573,589   $(397,602)  $563,309   $246,057 
                     
Basic and diluted net income (loss) per common share  $0.02   $(0.02)  $0.02   $0.01 
                     
Basic and diluted weighted average number of common shares outstanding   25,847,500    25,052,390    23,980,000    23,980,000 

 

See accompanying notes to consolidated financial statements 

 

F-10
 

 

FOCUS VENTURE PARTNERS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

For the Nine Months Ended September 30, 2012

(Unaudited)

 

   Preferred Stock   Common Stock   Additional Paid-   Retained   Non-controlling   Stockholders' 
   Shares   Amount   Shares   Amount   in-Capital   Earnings   Interest   Equity 
                                 
Balance, December 31, 2011   100,000   $10    23,980,000   $2,398   $444,879   $746,504   $109,866   $1,303,657 
                                         
Issuance of Promissory Note to the shareholders of Jus-Com. Inc. on January 1, 2012                       (126,000)   -    -    (126,000)
                                         
Purchase of non-controlling interest of CMK Resource Group, LLC on January 1, 2012                       (70,134)   -    (109,866)   (180,000)
                                         
Issuance of Promissory Note to the members of Optos Capital Partners, LLC on January 1, 2012                       (248,745)   (1,351,255)   -    (1,600,000)
                                         
Issuance of common stock for cash, related party             1,000,000    100    900    -    -    1,000 
                                         
Issuance of common stock for cash             437,500    44    34,956    -    -    35,000 
                                         
Issuance of common stock for services             430,000    43    34,357    -    -    34,400 
                                         
Net income   -    -    -    -    -    563,310    -    563,310 
                                         
Balance, September 30, 2012   100,000   $10    25,847,500   $2,585   $70,213   $(41,441)  $-   $31,367 

 

See accompanying notes to consolidated financial statements

 

F-11
 

 

FOCUS VENTURE PARTNERS, INC

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2012

(Unaudited)

 

   September 30,   September 30, 
   2012   2011 
   (unaudited)   (unaudited) 
Cash flows from operating activities:          
Net income (loss)  $563,310   $246,057 
Adjustments to reconcile net income (loss) to net  cash (used) provided by operating activities:          
Provision for income taxes   303,321     
Depreciation and amortization   260,038    33,224 
Stock issued for services   34,400     
Gain on sale of assets       (171,797)
Changes in operating assets and liabilities:          
Increase in accounts receivable   (6,965,761)   (933,180)
Decrease (increase) in security deposits   169,305    (11,997)
Decrease (increase) in deu from related party   35,175    (6,305)
Decrease (increasein in other current assets   18,167    (64,028)
Increase in accrued contract costs   5,566,118    - 
Increase in deferred revenue   1,306,000    - 
Increase in accounts payable in accrued liabilities   1,399,585    916,331 
Net cash provided by operating activities   2,689,658    8,305 
           
Cash flows from investing activities:          
Acquisition of Jus-Com Inc.   -    5,870 
Purchase of property and equipment   (633,087)   (235,384)
Sale of customer list   -    16,000 
Distirubution to former shareholders of Jus-Com Inc.   -    (113,885)
Net cash used in investing activities   (633,087)   (327,399)
           
Cash flows from financing activities:          
Advances on factor line of credit   21,456,103    618,424 
Payments on factor line of credit   (21,939,725)   (303,074)
Payments on capital lease obligations   (246,616)   (103,979)
Payments on notes payable