UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 3, 2006
FTS GROUP, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 000-24829 84-1416864
--------------------------- --------------- ---------------
(State or other jurisdiction (Commission File (IRS Employer of
incorporation) Number) Identification No.)
7610 West Hillsborough Ave., Tampa, Florida 33615
------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(813) 868-3600
-----------------------------
(Registrant's telephone number)
Check the appropriate box below if the Form 8-K/A filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
Item 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
Item 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
On January 3, 2006 we acquired See World Satellites, Inc., a Pennsylvania
corporation. We paid $500,000 at the closing of the transaction on January 3,
2006. We agreed to pay an additional $500,000 when all material contracts held
by See World were executed, amended or modified to acknowledge our acquisition
of See World and/or to make us a party to each agreement such that we had full
benefit of the agreements. The material agreements, such as the contract with
Echo Star, have been executed and became effective as of September 1, 2006. As
of September 28, 2006, we have paid Mr. Miller the second $500,000 payment as
required by our agreements.
At closing, we issued to Mr. Miller a two year secured promissory note in the
sum of $3,500,000. The Note does not pay interest. As of September 28, 2006, we
have paid $500,000 pursuant to the terms of the Note as follows: $250,000 was
paid to Mr. Miller in April 2006 and $250,000 was paid to Mr. Miller in July
2006. We are scheduled to make 6 more quarterly payments of $250,000 to Mr.
Miller as follows: $250,000 in October 2006, $1,250,000 in January 2007,
$250,000 in April 2007, $250,000 in July 2007, $250,000 in October 2007 and
$750,000 in January 2008. The Note is secured against the assets of See World.
The net amount of certain cash and liabilities on hand as of December 31, 2005,
including cash in the amount of $635,002, accounts receivable in the amount of
$85,758 and the prior owner of See World to retain all liabilities in the amount
of $201,962. The total purchase price amounted to $6,018,798. Pursuant to the
Agreement, which became effective January 3, 2006, See World became a subsidiary
of the Registrant.
In March 2006, we issued Mr. Miller 1,000,000 shares of our Series B Convertible
preferred stock after the 2004 and 2005 audited financial statements of See
World Satellites, Inc. were completed.
The description of the transaction contained herein is qualified in its entirety
by reference to the Promissory Note dated January 3, 2006, the Stock Purchase
Agreement between the Company and Richard E. Miller dated January 3, 2006 and
the Stock Escrow Agreement among the Company, Richard E. Miller and Lambert &
Martineau dated January 3, 2006. Each of these documents is filed as an Exhibit
to the Form 8-K filed on January 9, 2006 and incorporated herein by reference.
a. Historical Financial Statements of Business Acquired (See World Satellites,
Inc.) for 2005 and 2004.
b. Proforma Financial Information
1. Proforma Consolidated Balance Sheet - December 31, 2005
2. Proforma Consolidated Statement of Operations - Year ended December 31,
2005
3. Proforma Consolidated Statement of Operations - Year ended December 31,
2004
4. Note to Unaudited Proforma Consolidated Financial Statements
SEE WORLD SATELLITES, INC.
Index
Report of Independent Registered Public Accounting Firm
Financial Statements:
Balance Sheets - December 31, 2005 and 2004
Statements of Operations -Years ended December 31, 2005 and 2004
Statements of Stockholder's Equity - Years ended December 31, 2005 and
2004
Statements of Cash Flows - Years ended December 31, 2005 and 2004
Notes to audited Financial Statements
Proforma Financial Information:
Proforma Consolidated Balance Sheet - December 31, 2005
Proforma Consolidated Statement of Operations - Year ended December 31, 2005
Proforma Consolidated Statement of Operations - Year ended December 31, 2004
Note to Unaudited Proforma Consolidated Financial Statements
R. E. Bassie & Co.
Certified Public Accountants
6671 Southwest Freeway, Suite 550
Houston, Texas 77074-2220
Tel: (713) 272-8500
E-Mail: Rebassie@aol.com
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
See World Satellites, Inc.:
We have audited the accompanying balance sheets of See World Satellites, Inc. as
of December 31, 2005 and 2004, and related statements of operations,
stockholder's equity, and cash flows for each of the years in the two-year
period ended December 31, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of See World Satellites, Inc. as
of December 31, 2005 and 2004, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 2005, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ R.E Bassie & Co.
Houston, Texas
January 13, 2006
SEE WORLD SATELLITES, INC.
Balance Sheets
December 31,2005 and 2004
Assets 2005 2004
---------- ----------
Current assets:
Cash and cash equivalents $ 635,002 $ 501,771
Accounts receivable 85,758 127,628
Receivable from shareholder -- 61,111
Prepaid expenses 41,306 29,163
Inventory 144,544 39,588
---------- ----------
Total current assets 906,610 759,261
---------- ----------
Property and equipment 357,721 353,024
Less accumulated depreciation and amortization 221,267 178,213
---------- ----------
Net property and equipment 136,454 174,811
---------- ----------
Total assets $1,043,064 $ 934,072
========== ==========
Liabilities and Stockholder's Equity
Liabilities:
Accounts payable and accrued expenses $ 96,662 $ 400,313
Accrued salaries and related liabilities 84,653 35,834
Current installments of long-term debt 16,561 21,068
---------- ----------
Total current liabilities 197,876 457,215
Long-term debt, less current installments 4,086 20,647
---------- ----------
Total liabilities 201,962 477,862
---------- ----------
Stockholder's equity:
Common stock, $0.0 par value. Authorized 10,000
shares: 10,000 shares issued and outstanding 1,000 1,000
Retained earnings 840,102 455,210
---------- ----------
Total stockholder's equity 841,102 456,210
Commitments and contingencies
---------- ----------
Total liabilities and stockholder's equity $1,043,064 $ 934,072
========== ==========
See accompanying notes to financial statements.
SEE WORLD SATELLITES,INC.
Statements of Operations
Years ended December 31, 2005 and 2004
2005 2004
----------- -----------
Sales revenue $ 5,038,676 $ 4,248,285
Cost and expenses:
Cost of sales 803,106 1,131,003
Selling, general and administrative 3,305,280 2,708,031
----------- -----------
Total cost and expenses 4,108,386 3,839,034
----------- -----------
Operating income 930,290 409,251
Other income (expenses):
Interest income 13,805 2,783
Interest expense (4,825) (7,354)
Other income 605 682
Loss on disposal of assets (17,794) (15,485)
----------- -----------
Total income (expenses) (8,209) (19,374)
----------- -----------
Net earnings $ 922,081 $ 389,877
=========== ===========
Net earnings per common share - basic and diluted:
Net earnings applicable to common shareholder $ 92.21 $ 38.99
=========== ===========
Weighted average common shares - basic and diluted 10,000 10,000
=========== ===========
See accompanying notes to financial statements.
SEE WORLD SATELLITES, INC.
Statements of Stockholder's Equity
Years ended December 31, 2005 and 2004
Additional Total
Common Stock paid in Retained stockholder's
shares amount capital earnings equity
--------- --------- --------- --------- ---------
Balance, December 31, 2003 10,000 $ 1,000 $ -- $ 538,013 $ 539,013
Net earnings -- -- -- 389,877 389,877
Owner's withdrawals -- -- -- (472,680) (472,680)
--------- --------- --------- --------- ---------
Balance, December 31, 2004 10,000 1,000 -- 455,210 456,210
Net earnings -- -- -- 922,081 922,081
Owner's withdrawals -- -- -- (537,189) (537,189)
--------- --------- --------- --------- ---------
Balance, December 31, 2005 10,000 $ 1,000 $ -- $ 840,102 $ 841,102
========= ========= ========= ========= =========
See accompanying notes to financial statements.
SEE WORLD SATELLITES,INC.
Statements of Cash Flows
Years ended December 31, 2005 and 2004
2005 2004
--------- ---------
Cash flows from operating activities:
Net earnings $ 922,081 $ 389,877
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 74,966 63,973
Loss on disposal of equipment 17,794 15,485
(Increase) decrease in operating assets:
Accounts receivable 41,870 (29,963)
Inventory (104,956) (1,608)
Prepaid expenses (12,143) (11,017)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (303,651) 238,956
Accrued salaries and related liabilities 48,819 15,139
--------- ---------
Net cash provided by operating activities 684,780 680,842
--------- ---------
Cash flows from investing activities
Capital expenditure for equipment (54,403) (69,527)
Receivable from shareholder 61,111 --
--------- ---------
Net cash provided by (used in) investing activities 6,708 (69,527)
--------- ---------
Cash flows from financing activities:
Principal payments on long-term debt (21,068) (37,363)
Shareholder's withdrawals (537,189) (472,680)
--------- ---------
Net cash used in financing activities (558,257) (510,043)
--------- ---------
Net increase in cash and cash equivalents 133,231 101,272
Cash and cash equivalents at beginning of year 501,771 400,499
--------- ---------
Cash and cash equivalents at end of year $ 635,002 $ 501,771
========= =========
See World Satellites, Inc.
Notes to audited financial statements
(1) Summary of Significant Accounting Policies
Organization, Ownership and Business
See World Satellites, Inc. (the "Company") was incorporated under the laws
of the State of Pennsylvania in 1998. The Company primary services include
the installation of television satellite disk systems as an independent
contractor for DISH Network Services Corporation and as an authorized
retailer for marketing, promotion and solicitation of orders for
programming with EchoStar Satellite L.L.C., an affiliate of DISH Network
Services Corporation.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investment instruments purchased with original maturities of
three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable consist primarily of trade receivables, net of a
valuation allowance for doubtful accounts.
Inventory
Inventory consists of various components of satellite disks, mainly
receivers, is stated at the lower of cost, or market on a first-in,
first-out basis.
Property, Equipment and Depreciation
Property and equipment are recorded at cost less accumulated depreciation.
Upon retirement or sale, the cost of the assets disposed of and the
related accumulated depreciation are removed from the accounts, with any
resultant gain or loss being recognized as a component of other income or
expense. Depreciation is computed over the estimated useful lives of the
assets (3-5 years) using the straight-line method for financial reporting
purposes and accelerated methods for income tax purposes. Maintenance and
repairs are charged to operations as incurred.
Revenue Recognition
The Company recognizes revenue when the installation of the products is
complete or completion of services provided.
Advertising Costs
The cost of advertising is expensed as incurred.
Income Taxes
The Companies have elected to be treated as S corporation for federal
income tax purposes. Accordingly, the earnings and losses of the Companies
are included in the personal income tax return of the stockholder, who is
taxed depending on his personal tax strategies.
Management's Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses.
Actual results could differ from these estimates.
Stock-based Compensation
The Company has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations and to elect the disclosure option of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, compensation cost
for stock options issued to employees is measured as the excess, if any,
of the quoted market price of the
Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock. No stock was issued during the years ended
December 31, 2005 and 2004.
Fair Value of Financial Instruments
The Company estimates the fair value of its financial instruments using
available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the Company estimates of
fair value are not necessarily indicative of the amounts that the Company
could realize in a current market exchange. The use of different market
assumption and/or estimation methodologies may have a material effect on
the estimated fair value amounts. The interest rates payable by the
Company on its notes payable approximate market rates. The Company
believes that the fair value of its financial instruments comprising
accounts receivable, notes receivable, accounts payable, and notes payable
approximate their carrying amounts.
New Pronouncements
In May 2005, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 154, Accounting
Changes and Error Corrections. SFAS No. 154 replaces Accounting Principles
Board Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting
Accounting Changes in Internal Financial Statements, and changes the
requirements for the accounting for and reporting of a change in
accounting principle. SFAS No. 154 requires retrospective application of
changes in accounting principle to prior periods' financial statements,
unless it is impracticable to determine either the period-specific effects
or the cumulative effect of the change. SFAS No. 154 is effective for
accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. We will adopt SFAS No. 154 on January
1, 2006. Any impact on the Company's consolidated results of operations
and earnings per share will be dependent on the amount of any accounting
changes or corrections of errors whenever recognized.
In December 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 153. This statement
addresses the measurement of exchanges of nonmonetary assets. The guidance
in APB Opinion No. 29, "Accounting for Nonmonetary Transactions," is based
on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged.
The guidance in that opinion; however, included certain exceptions to that
principle. This statement amends Opinion 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly
as a result of the exchange. This statement is effective for financial
statements for fiscal years beginning after June 15, 2005. Earlier
application is permitted for nonmonetary asset exchanges incurred during
fiscal years beginning after the date of this statement is issued.
Management believes the adoption of this statement will have no impact on
the financial statements of the Company.
In December 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 152, which amends FASB
statement No. 66, "Accounting for Sales of Real Estate," to reference the
financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in AICPA Statement of Position (SOP) 04-2,
"Accounting for Real Estate Time-Sharing Transactions." This statement
also amends FASB Statement No. 67, "Accounting for Costs and Initial
Rental Operations of Real Estate Projects," to state that the guidance for
(a) incidental operations and (b) costs incurred to sell real estate
projects does not apply to real estate time-sharing transactions. The
accounting for those operations and costs is subject to the guidance in
SOP 04-2. This statement is effective for financial statements for fiscal
years beginning after June 15, 2005. Management believes the adoption of
this statement will have no impact on the financial statements of the
Company.
In November 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 151, "Inventory Costs-- an
amendment of ARB No. 43, Chapter 4." This statement amends the guidance in
ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for
abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage).
Paragraph 5 of ARB 43, Chapter 4, previously stated that "under some
circumstances, items such as idle facility expense, excessive spoilage,
double freight, and rehandling costs may be so abnormal as to require
treatment as current period charges." This statement requires that those
items be recognized as current-period charges regardless of whether they
meet the criterion of "so abnormal." In addition, this statement requires
that allocation of fixed production overheads to the costs of conversion
be based on the normal capacity of the production facilities. This
statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Management does not believe the adoption of
this statement will have any immediate material impact on the Company.
(2) Property and Equipment
A summary of property and equipment is as follows:
2005 2004
--------- ---------
Vehicles $ 287,728 $ 289,391
Equipment 61,052 54,692
Leasehold improvements 8,941 8,941
--------- ---------
357,721 353,024
Less: Accumulated depreciation and amortization (221,267) (178,213)
--------- ---------
$ 136,454 $ 174,811
========= =========
(3) Long-term Debt
Long-term debt at December 31, 2005 and 2004 consisted of the following:
2005 2004
--------- ---------
Note payable to a bank, due in monthly installments of $ 6,891 $ 10,307
$334, including interest at 6.74%, through
November 2007, secured by vehicle
Note payable to a bank, due in monthly installments of
$436, including interest at 8.75%, through
December 2006, secured by vehicle 4,990 9,566
Note payable to a finance company, due in monthly
installments of $411, including interest at 10%,
through April 2007, secured in vehicle 6,134 10,228
Note payable to a finance company, due in monthly
installments of $375, including interest at 8.75%,
through July 2006, secured by vehicle 2,197 6,313
Note payable to a finance company, due in monthly
installments of $429, including interest at 8.99%,
through February 2006, secured by vehicle 435 5,301
Total long-term debt 20,647 41,715
Less current installments 16,561 21,068
--------- ---------
Long-term debt, less current installments $ 4,086 $ 20,647
========= =========
Principal repayment provisions of long-term debt are as follows at December 31,
2005:
2006 $ 16,561
2007 4,086
Total $ 20,647
=========
(4) Advertising Costs
During the years ended December 31, 2005 and 2004, the Company incurred
advertising costs in the amount of $262,911 and $219,040, respectively.
(5) Lease Agreement
The Company leases office space under a noncancellable-operating lease
which expires in December 2008. Future minimum lease payments under the
operating lease are as follows:
Year
December 31, Amount
- ------------------------------------------- --------
2006 $ 30,000
2007 30,000
2008 30,000
--------
$ 90,000
========
For the years ended December 31, 2005 and 2004, the Company incurred rent
expenses in the amount of $30,153 and $31,958, respectively.
(6) Concentration of Credit Risk
Financial instruments that potentially subject the Companies to credit
risk are primarily accounts receivable - trade. The Companies grant credit
primarily to two customers throughout the United States. Generally, the
Companies do not require collateral or other security to support customer
receivables. For the year ended December 31, 2005, two customers made up
94% of total sales revenue.
The Company maintains its cash with a major domestic bank in amounts,
which exceed the insured limit of $100,000 from time to time. The terms of
these deposits are on demand to minimize risk. The Company has not
incurred losses related to these deposits.
(7) Subsequent Event
Stock Purchase and Exchange Agreement
Effective January 3, 2006, FTS Group, Inc. (a publicly traded company)
acquired 100% of the outstanding capital stock of See World Satellites,
Inc.
(8) Contingencies
The contract agreement with the Company and DISH Network Service
Corporation expired effective December 31, 2005. This contract provided
the Company with 42.2% of its revenues for the year ended December 31,
2005. The Company is currently negotiating a renewal of the contract.
SEE WORLD SATELLETES, INC.
UNAUDITED PROFORMA COMBINED FINANCIAL STATEMENTS
Effective January 3, 2006, FTS Group, Inc. ("the Company") acquired 100% of the
capital stock of See World Satellites, Inc. ("See World"), for consideration,
providing for (i) $1,000,000 in cash to the shareholder of See World, (ii) a
promissory note in the amount of $3,500,000, and (iii) $1,000,000 in convertible
preferred stock of the Company. Pursuant to the Agreement, which became
effective January 3, 2006, See World will become a subsidiary of the Registrant.
The acquisition was accounted for using the purchase method of accounting.
The following unaudited proforma consolidated statements of operations for the
year ended December 31, 2005 and for the year ended December 31, 2004, assumes
the acquisition of See World had occurred on January 1, 2004 and includes the
historical unaudited consolidated statements of operations for the Registrant
for the year ended December 31, 2005 and year ended December 31, 2004, adjusted
for the proforma effects of the acquisition.
The unaudited proforma consolidated statements are not necessarily indicative of
the results of operations that would actually have occurred if the transactions
had been consummated as of January 1, 2004. These statements should be read in
conjunction with the historical financial statements and related notes thereto
of the Registrant, in its annual report on Form 10-KSB and See World's financial
statements included herein.
FTS GROUP, INC.
Unaudited Proforma Consolidated Balance Sheet
December 31, 2005
See World
FTS Group Satellites, Proforma Proforma
Assets Inc. Inc. Adjustments Consolidated
------------ ------------ ------------ ------------
Current assets:
Cash $ 243,079 $ 635,002 $ $ 878,081
Restricted cash 560,000 -- B (500,000) 500,000
F 440,000
Accounts receivable, net 12,201 85,758 97,959
Inventories 33,180 144,544 177,724
Prepaid expenses and other current asset 474,683 41,306 F (440,000) 75,989
------------ ------------ ------------
Total current assets 1,323,143 906,610 1,729,753
------------ ------------ ------------
Property and equipment, net 208,210 136,454 344,664
Investment in consolidated subsidiary -- -- A 6,018,798 --
E (6,018,798)
Excess of cost over the net assets of businesses acquired -- -- C 5,177,696 5,177,696
Unamortized discount on convertible debt 380,690 -- 380,690
Unamortized debt issuance costs 46,313 -- 46,313
Other assets 16,139 -- 16,139
------------ ------------ ------------ ------------
Total assets $ 1,974,495 $ 1,043,064 $ 4,677,696 $ 7,695,255
============ ============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses 468,185 96,662 564,847
Accrued salaries and related liabilities -- 84,653 84,653
Short-term notes payable to related parties 80,850 -- 80,850
Net amount due to prior owner of See World -- -- B 1,018,798 1,018,798
Current installments of long-term note payable to related party -- -- B 750,000 750,000
Current installments of long-term debt -- 16,561 16,561
------------ ------------ ------------
Total current liabilities 549,035 197,876 2,515,709
Convertible notes 1,213,049 -- 1,213,049
Long-term note payable to related party, less current installments -- -- 2,750,000 2,750,000
Long-term debt -- 4,086 4,086
------------ ------------ ------------
Total liabilities 1,762,084 201,962 6,482,844
------------ ------------ ------------
Stockholders' equity:
Preferred stock -- -- B 10,000 10,000
Common stock 102,099 1,000 E (1,000) 102,099
Additional paid-in capital 10,416,074 -- D 840,102 11,406,074
C 5,177,696
E (6,017,798)
B 990,000
Accumulated deficit (10,305,762) 840,102 D (840,102) (10,305,762)
------------ ------------ ------------ ------------
Total stockholders' equity 212,411 841,102 1,212,411
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $ 1,974,495 $ 1,043,064 $ 4,677,696 $ 7,695,255
============ ============ ============ ============
See accompanying notes to unaudited proforma consolidated financial statements.
FTS GROUP, INC.
Unaudited Proforma Consolidated Statement of Operations
Year ended December 31, 2005
See World
FTS Group Satellites, Proforma Proforma
Inc. Inc. Adjustments Consolidated
------------ ------------ ------------ ------------
Revenues $ 1,310,731 $ 5,038,676 $ $ 6,349,407
Costs and expenses:
Cost of sales 1,110,645 803,106 1,913,751
Selling, general and administrative 1,767,563 3,305,280 5,072,843
------------ ------------ ------------ ------------
Total costs and expenses 2,878,208 4,108,386 - 6,986,594
------------ ------------ ------------ ------------
Operating income (loss) (1,567,477) 930,290 - (637,187)
Other income (expenses):
Interest income - 13,805 13,805
Unrealized loss on investments (7,500) - (7,500)
Interest expense (422,259) (4,825) (427,084)
Loss on disposition of assets - (17,794) (17,794)
Other income - 605 605
------------ ------------ ------------ ------------
Total other income (expenses) (429,759) (8,209) - (437,968)
------------ ------------ ------------ ------------
Net earnings (loss) before income taxes (1,997,236) 922,081 - (1,075,155)
Provision for income taxes - - - -
------------ ------------ ------------ ------------
Net earnings (loss) from operations $ (1,997,236) $ 922,081 $ - $ (1,075,155)
============ ============ ============ ============
Net loss applicable to common shareholders:
Basic $ (0.02)
============
Diluted $ (0.01)
============
Weighted average common shares:
Basic G 55,986,790
============
Diluted H 80,986,790
============
See accompanying notes to unaudited proforma consolidated financial statements.
FTS GROUP, INC.
Unaudited Proforma Consolidated Statement of Operations
Year ended December 31, 2004
See World
FTS Group Satellites, Proforma Proforma
Inc. Inc. Adjustments Consolidated
------------ ------------ ------------ ------------
Revenues $ 712,282 $ 4,248,285 $ $ 4,960,567
Costs and expenses:
Cost of sales 521,660 1,131,003 1,652,663
Selling, general and administrative 2,191,837 2,708,031 4,899,868
Impairment of long-lived assets 107,000 - 107,000
------------ ------------ ------------ ------------
Total costs and expenses 2,820,497 3,839,034 - 6,659,531
------------ ------------ ------------ ------------
Operating income (loss) (2,108,215) 409,251 - (1,698,964)
Other income (expenses):
Interest income - 2,783 2,783
Unrealized loss on investments (7,500) - (7,500)
Interest expense (212,638) (7,354) (219,992)
Loss on disposition of assets - (15,485) (15,485)
Other income - 682 682
------------ ------------ ------------ ------------
Total other income (220,138) (19,374) - (239,512)
------------ ------------ ------------ ------------
Net earnings (loss) before income taxes (2,328,353) 389,877 - (1,938,476)
Provision for income taxes - - - -
------------ ------------ ------------ ------------
Net earnings (loss) from operations $ (2,328,353) $ 389,877 $ - $ (1,938,476)
============ ============ ============ ============
Net loss applicable to common shareholders:
Basic $ (0.07)
============
Diluted $ (0.04)
============
Weighted average common shares:
Basic G 27,459,250
============
Diluted H 52,459,250
============
See accompanying notes to unaudited proforma consolidated financial statements.
Notes to Unaudited Proforma Consolidated Financial Statements
(1) Basis of Presentation
The unaudited Proforma Consolidated Statement of Operations for the year
ended December 31, 2005, includes the audited historical results of
operations for FTS Group, Inc. and See World Satellites, Inc. ("See
World") for the year ended December 31, 2005, adjusted for the proforma
effects of the acquisition assuming the acquisition occurred on January 1,
2004.
The unaudited Proforma Consolidated Statement of Operations for the year
ended December 31, 2004, includes the audited historical results of
operations of the Company and See World, and adjusted for the proforma
effects of the acquisition assuming the acquisition occurred on January 1,
2004.
The unaudited Proforma Balance Sheet at December 31, 2005, includes the
audited balance sheets of the Company and See World as of December 31,
2005, assuming the acquisition occurred on December 31, 2005, adjusted for
the proforma effects of the acquisition.
The capital accounts of the Company have been adjusted as of December 31,
2005 to report the effects of the acquisition, assuming the acquisition
occurred on December 31, 2005. The following proforma adjustments are
necessary to record the acquisition:
A. To record on the books of the parent company (FTS Group, Inc.) the
investment in See World.
B. To record on the books of the parent company the disbursement of
cash ($500,000), the establishment on long-term note payable to
related party (prior owner of See World) ($3,500,000), issuance of
$1,000,000 of convertible preferred stock, and recording of a
current liability for the remaining cash payment of $500,000 and net
cash, accounts receivable and liabilities retained by prior owner of
See World in the amount of $518,798.
C. To record goodwill on the books of See World for the excess of the
purchase price over the net assets of the business acquired (See
World).
D. To record on the books of See World the transfer of ending retained
earnings at December 31, 2005 to additional paid-in capital.
E. To record, for consolidation purposes, the elimination of the
investment on consolidated subsidiary and related capital accounts
of See World.
F. To record the receipt of the remaining cash from the borrower in the
first week in January 2006.
G. Basic number of shares outstanding represents the weighted average
number of common shares outstanding for the years ended December 31,
2005 and 2004.
H. Diluted number of shares outstanding represents the weighted average
number of common shares outstanding for the years ended December 31,
2005 and 2004, plus 25,000,000 shares each year to account for the
conversion of the Series B Convertible Preferred Stock issued to the
prior owner of See World.
(b) Exhibits
Exhibit Number Description
10.1 Promissory Note between the Company and Richard E. Miller dated January 3,
2006 (included as Exhibit 10.1 to the Form 8-K filed on January 9, 2006 and
incorporated herein by reference).
10.2 Stock Purchase Agreement between the Company and Richard E. Miller dated
January 3, 2006 (included as Exhibit 10.2 to the Form 8-K filed on January 9,
2006 and incorporated herein by reference).
10.3 Stock Escrow Agreement among the Company, Richard E. Miller and Lambert &
Martineau dated January 3, 2006 (included as Exhibit 10.3 to the Form 8-K filed
on January 9, 2006 and incorporated herein by reference).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FTS GROUP, INC.
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Registrant
Date: September 28, 2006 By: /s/ Scott Gallagher
-----------------------
Scott Gallagher
Chief Executive Officer