As Filed with the Securities and Exchange Commission on August 1, 2005
Registration No. 333-125958
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
to the
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FTS Group, Inc.
(Name of small business issuer in its charter)
Nevada 2253 84-1416864
--------- ---------- ----------
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
Organization) No.)
7610 West Hillsborough Ave., Tampa, Florida 33615
Telephone: (813) 600-3600
(Address and telephone number of principal executive offices)
7610 West Hillsborough Ave., Tampa, Florida 33615
Telephone: (813) 600-3600
(Address of principal place of business or intended principal place of business)
Scott Gallagher
Chief Executive Officer
FTS Group, Inc.
7610 West Hillsborough Ave., Tampa, Florida 33615
Telephone: (813) 600-3600
(Name, address and telephone number of agent for service)
Copy to:
Amy M. Trombly
1163 Walnut Street, Suite 7
Newton, MA 02461
(617) 243-0060
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. [ ]
Title of each class Proposed Proposed
of maximum maximum Amount of
securities to be Amount to be offering price per Aggregate registration fee
registered registered(1) security(2) offering price
- ------------------- ------------- -------------------- --------------- -----------------
Common stock,
par value $.001 47,501,563 $0.09 $4,275,141 $503.18
per share
- ------------------- ------------- -------------------- --------------- -----------------
<FN>
(1) Pursuant to Rule 416(a) of the Securities Act of 1933, as amended (the "Act"), this
registration statement shall be deemed to cover additional securities that may be offered or
issued to prevent dilution resulting from stock splits, stock dividends or similar
transactions.
(2) The price of $0.09 per share, which was the average of the high and low prices of the
Registrant's common stock, as reported on the Over-The-Counter Bulletin Board on June 15,
2005 is set forth solely for purposes of calculating the registration fee pursuant to Rule
457(c) of the Securities Act of 1933, as amended.
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.
The information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is declared 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.
PROSPECTUS
FTS GROUP, INC.
OFFERING UP TO 47,501,563 SHARES
OF COMMON STOCK
This prospectus relates to the resale of up to 47,501,563 shares of our common
stock by selling shareholders. We are not selling any securities in this
offering and therefore will not receive any proceeds from this offering. We may,
however, receive proceeds from the exercise of warrants. All costs associated
with this registration will be borne by us.
Our common stock is traded on the Over-The-Counter Bulletin Board under the
trading symbol "FLIP.OB." On June 15, 2005, the last reported sale price for our
common stock on the OTCBB was $0.09 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4
You should rely only on the information provided in this prospectus or any
supplement to this prospectus and information incorporated by reference. We have
not authorized anyone else to provide you with different information. Neither
the delivery of this prospectus nor any distribution of the shares of common
stock pursuant to this prospectus shall, under any circumstances, create any
implication that there has been no change in our affairs since the date of this
prospectus.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. It is a criminal offense to make any
representation to the contrary.
Subject to Completion, The date of this prospectus is August 1, 2005.
TABLE OF CONTENTS
PROSPECTUS SUMMARY 1
RISK FACTORS 1
USE OF PROCEEDS 4
DETERMINATION OF OFFERING PRICE 5
DILUTION 5
SELLING SECURITY HOLDERS 5
PLAN OF DISTRIBUTION 6
LEGAL PROCEEDINGS 8
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 8
DESCRIPTION OF SECURITIES 9
INTEREST OF NAMED EXPERTS AND COUNSEL 9
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES 10
ORGANIZATION WITHIN LAST FIVE YEARS 10
DESCRIPTION OF BUSINESS 10
DESCRIPTION OF PROPERTY 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 13
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 13
EXECUTIVE COMPENSATION 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 14
FINANCIAL STATEMENTS 17
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 23
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this prospectus. Because it is a summary, it does not contain all
of the information you should consider before making an investment decision. You
should read the entire prospectus carefully, including the financial statements
and the notes relating to the financial statements.
The Company
We are engaged in the acquisition and development of a chain of full service
retail wireless stores in the Florida Gulf Coast region and the Philadelphia
suburban market. Our primary business is the marketing, sale and activation of
cellular and satellite handsets, cellular accessories and other related wireless
products such as Wi-Fi service and related access equipment for residential or
business purposes. We also market and sell products worldwide through our web
sites.
The Offering
This prospectus relates to the resale of up to 47,501,563 shares of our common
stock by selling shareholders, which obtained our shares of common stock and
warrants in private placements. This prospectus covers the resale of our stock
by the selling shareholders either in the open market or to other investors
through negotiated transactions.
Common stock offered 47,501,563 shares
Use of proceeds We will not receive any proceeds
from the sale by the selling
stockholders of our common
stock. However, we may receive
proceeds from the exercise of
warrants. See "Use of Proceeds."
Symbol for our common stock Our common stock trades on
The OTCBB Market under the
symbol "FLIP.OB"
How to Contact Us
Our business address is 7610 West Hillsborough Ave., Tampa, Florida, 33615. Our
telephone number is (813) 600-3600.
OUR CAPITAL STRUCTURE AND SHARES ELIGIBLE FOR FUTURE SALE
Shares of common stock outstanding as of June 1, 2005 (1)
54,877,195
Shares of common stock potentially issuable pursuant to warrants
33,621,500
Total
88,498,695
(1) Assumes:
- - No exercise of outstanding warrants to purchase an aggregate of 1,036,000
shares of our common stock at an exercise price of $1.50 per share. - No
exercise of options outstanding to purchase 598,000 shares of our common stock
at exercises prices ranging from $0.81 per share to $2.75 per share.
- - No exercise of warrants outstanding to purchase 3,000,000 shares of our common
stock at an exercise price of $0.25 per share.
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the following risk factors, other information included in
this prospectus and information in our periodic reports filed with the SEC. If
any of the following risks actually occur, our business, financial condition or
results of operations could be materially and adversely affected and you may
lose some or all of your investment.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. We generally use words such as "believe," "may," "could," "will,"
"intend," "expect," "anticipate," "plan," and similar expressions to identify
forward-looking statements. You should not place undue reliance on these
forward-looking statements. Our actual results could differ materially from
those anticipated in the forward-looking statements for many reasons, including
the risks described below and elsewhere in this report. Although we believe the
expectations reflected in the forward-looking statements are reasonable, they
relate only to events as of the date on which the statements are made, and our
future results, levels of activity, performance or achievements may not meet
these expectations. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of the forward-looking
statements. We do not intend to update any of the forward-looking statements
after the date of this document to conform these statements to actual results or
to changes in our expectations, except as required by law.
WE HAD A LOSS FOR THE YEAR ENDED DECEMBER 31, 2004 AND EXPECT NET LOSSES TO
CONTINUE IN THE NEAR FUTURE. THERE IS A RISK WE MAY NEVER BECOME PROFITABLE.
We had a net loss of $2,328,353 for the year ended December 31, 2004 and a net
loss of $873,641 for the year ended December 31, 2003. Our future operations may
not be profitable if we are unable to develop and expand our wireless business
and our Internet operations. Revenues and profits, if any, will depend upon
various factors, including whether we will be able to receive funding to
advertise our products or find additional businesses to operate and/or acquire.
We may not achieve our business objectives and the failure to achieve such goals
would have an adverse impact on us.
THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN DUE
TO RECURRING LOSSES AND WORKING CAPITAL SHORTAGES, WHICH MEANS THAT WE MAY NOT
BE ABLE TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING.
Our audited financial statements for the fiscal year ended December 31, 2004,
reflect a net loss of $2,328,353,a working capital deficit of $472,862 and a
stockholders' deficit of $421,811 as of December 31,2004. These conditions raise
substantial doubt about our ability to continue as a going concern if sufficient
additional funding is not acquired or alternative sources of capital are not
developed to meet our working capital needs. If we can not obtain additional
funding as needed, our business may fail.
WE MAY, IN THE FUTURE, ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK WHICH WOULD
REDUCE INVESTORS PERCENT OF OWNERSHIP AND MAY DILUTE OUR SHARE VALUE.
Our articles of incorporation authorize the issuance of 150,000,000 shares of
common stock. As of March 31, 2005 we have 54,877,195 shares of our common stock
issued and outstanding. We are also authorized to issue 150,000 shares of our
Series A 10% convertible preferred stock of which no shares are issued or
outstanding and 4,850,000 undesignated preferred shares of which no shares are
issued or outstanding. The future issuance of all or part of our remaining
authorized 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 will 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.
WE ONLY RECENTLY ACQUIRED OUR OPERATING UNIT AND HAVE BEEN SELLING WIRELESS
COMMUNICATIONS AND NETWORKING PRODUCTS AND SERVICES FOR A SHORT PERIOD OF TIME
AND WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS.
We began our retail wireless operations in February 2003 with our acquisition of
selected assets of Simply Cellular, Inc. Since we recently began operations in
this industry, we may not find commercial acceptance of our products and
services. We have no way of predicting whether our marketing efforts will be
successful in attracting new customers and acquiring market share. We may not be
able to acquire products and technologies that will attract customers without
which we cannot operate profitably.
OUR OPERATING RESULTS HAVE FLUCTUATED SIGNIFCANTLY IN THE PAST AND WE BELIEVE
THEY WILL FLUCTUATE SIGNIFICANTLY FOR THE FORESEEABLE FUTURE. INVESTORS MAY
PREFER STABLE AND PREDICTIBLE OPERATING RESULTS AND MAY SELL OUR STOCK IF OUR
OPERATING RESULTS CONTINUE TO FLUCTUATE OR DO NOT MEET THEIR EXPECTATIONS FOR
GROWTH. AS A RESULT YOUR INVESTMENT IN OUR STOCK MAY LOSE VALUE.
Our quarterly results of operations have varied in the past and are likely to
continue to vary significantly from quarter to quarter. Our operating expenses
are based on expected future revenues and are relatively fixed in the short
term. If our revenues are lower than expected, our results of operations could
be lower than expected. Additionally, we are unable to forecast our future
revenues with certainty because our business plan contemplates the acquisition
of new enterprises, which may not occur. Many factors can cause our financial
results to fluctuate, some of which are outside of our control.
Quarter-to-quarter comparisons of our operating results may not be meaningful
and you should not rely upon them as an indication of our future performance. In
addition, during certain future periods our operating results likely will fall
below the expectations of public market analysts and investors. In this event,
the market price of our common stock likely would decline.
WE NEED ADDITIONAL CAPITAL TO GROW OUR BUSINESS AND IF WE DO NOT FIND SUCH
CAPITAL ON ACCEPTABLE TERMS, WE WILL NOT BE ABLE TO FULLY IMPLEMENT OUR BUSINESS
PLAN.
We believe we must grow our operations to generate enough revenue to cover our
operating and overhead costs. Therefore, our business plan contemplates the
acquisition of new enterprises. The proceeds from our existing financial
arrangement may not be sufficient to fully implement our business plan.
Additionally, we may not be able to generate sufficient revenues from our
existing operations to fund our capital requirements. Accordingly, we may
require additional funds to enable us to operate profitably. Such financing may
not be available on terms acceptable to us. We currently have no bank borrowings
or credit facilities, and we may not be able to arrange any such debt financing.
Additionally, we may not be able to successfully consummate additional offerings
of stock or other securities in order to meet our future capital requirements.
If we cannot raise additional capital through issuing stock or bank borrowings,
we may not be able to sustain or grow our business.
TO BECOME PROFITABLE AND GROW, WE MUST SUCCESSFULLY INTEGRATE NEW BUSINESSES.
Our success depends upon our ability to identify and acquire undervalued
businesses. Although we have identified certain companies available for
potential acquisition that are undervalued and might offer attractive business
opportunities, we may not be able to negotiate profitable acquisitions. If we do
make business acquisitions, we must continue to implement and improve our
operational, financial and management information systems. We must also hire,
train and retain additional qualified personnel, continue to expand and upgrade
core technologies, and effectively manage our relationships with customers,
suppliers, and other third parties. If we expand as anticipated, expansion could
place a significant strain on our current services and support operations, sales
and administrative personnel, capital resources, and other company resources. If
we fail to effectively manage our growth, our expenses may increase which could
lower our earnings or prevent us from becoming profitable. Failure to
effectively manage our growth could also result in us failing to generate
sufficient revenues to become profitable.
WE DEPEND ON MR. SCOTT GALLAGHER, OUR CHIEF EXECUTIVE OFFICER, AND IF HE LEAVES
US, WE MAY NOT BE ABLE TO IMPLEMENT OUR BUSINESS PLAN.
Our success in achieving our growth objectives depends upon the efforts of our
top management team including the efforts of Mr. Scott Gallagher. The loss of
Mr. Gallagher's services would negatively affect our ability to implement our
business plan, and, as a result, our financial condition, including our cash
position, ability to obtain funding and generate revenues would be harmed.
Although we intend to apply for key-man life insurance, we do not currently
maintain key life insurance policies for Mr. Gallagher.
OUR STOCK PRICE IS VOLATILE AND YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT A
PRICE HIGHER THAN WHAT YOU PAID.
The market for our common stock is highly volatile. Our common stock has
experienced, and is likely to experience in the future, significant price and
volume fluctuations. As a result, the market price of our common stock could
decrease without regard to our operating performance. In addition, we believe
factors such as quarterly fluctuations in our financial results, announcements
of technological innovations or new products by our competitors or us, changes
in prices of our products and services or our competitors' products and
services, changes in our product mix and changes in the overall economy or the
condition of the financial markets could cause the price of our common stock to
fluctuate substantially. If our stock price fluctuates, you may not be able to
sell your shares at a price higher than what you paid.
THE LIMITED TRADING VOLUME OF OUR STOCK MAY DEPRESS THE PRICE OF OUR STOCK OR
CAUSE IT TO FLUCTUATE SIGNIFICANTLY.
There has been a limited public market for our common stock and an active
trading market for our common stock may not develop. As a result, you may not be
able to sell your common stock in short time periods, or possibly at all.
WE MUST COMPLY WITH PENNY STOCK REGULATIONS WHICH COULD EFFECT THE LIQUIDITY AND
PRICE OF OUR STOCK.
The Securities and Exchange Commission has adopted rules that regulate
broker-dealer practices in connection with transactions in "penny stocks." Penny
stocks generally are equity securities with a price of less than $5.00, other
than securities registered on certain national securities exchanges or quoted on
NASDAQ, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system. Prior to
a transaction in a penny stock, a broker-dealer is required to: Deliver a
standardized risk disclosure document prepared by the SEC; Provide the customer
with current bid and offers quotations for the penny stock; Explain the
compensation of the broker-dealer and its salesperson in the transaction;
Provide monthly account statements showing the market value of each penny stock
held in the customer's account; Make a special written determination that the
penny stock is a suitable investment for the purchaser and receives the
purchaser's consent; and Provide a written agreement to the transaction. These
requirements may have the effect of reducing the level of trading activity in
the secondary market for our stock. Because our shares are subject to the penny
stock rules, you may find it more difficult to sell your shares.
WE DEPEND ON THIRD PARTY VENDORS AND IF WE ARE NOT ABLE TO SECURE COST-EFFECTIVE
PRODUCTS, WE MAY NOT BECOME OR REMAIN PROFITABLE.
Our performance depends on our ability to purchase products in sufficient
quantities at competitive prices and on our vendors' ability to make and deliver
high quality products in a cost effective, timely manner. Some of our smaller
vendors have limited resources, production capacities, and limited operating
histories. We have no long-term purchase contracts or other contracts that
provide continued supply, pricing or access to new products and any vendor or
distributor could discontinue selling to us at any time. We may not be able to
acquire the products that we need in sufficient quantities or on terms that are
acceptable to us in the future. As a result, we may not become profitable.
WE EARN REVENUES BASED ON AGREEMENTS WITH CELLULAR AND SATELLITE SERVICE
PROVIDERS AND, IF THE CONTRACTS ARE CANCELLED, OUR REVENUES MAY DECREASE AND WE
MAY NOT BECOME PROFITABLE.
3
We earn revenues by providing cellular and satellite activations for major
wireless carriers such as Cingular, Sprint, Nextel, and GlobalStar. These
agreements are partly based on geography and we signed contracts to earn
revenues from activations in Florida. Our agreements may be cancelled at any
time by either party. If any of our agreements are cancelled, we will not earn
activations through that carrier which will cause our revenues to decrease. If
we do not provide activations for a broad line of carriers, our stores will not
be as competitive. As a result, our revenues may decrease and we may not become
profitable.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE WITH OTHER COMPANIES WHICH WOULD
NEGATIVELY AFFECT OUR EARNINGS AND POSSIBLY CAUSE A DECLINE IN OUR STOCK.
We operate in a highly competitive environment. We principally compete with
other independent retailers, privately held chains that offer a broad range of
products and carrier owned and operated stores with more name recognition and
brand identity than us. We believe that success in the industry is based on
maintenance of product quality, competitive pricing, delivery efficiency,
customer service and satisfaction levels, maintenance of satisfactory dealer
relationships, and the ability to anticipate technological changes and changes
in customer preferences. Additionally, we believe competition may become more
intense over time due to an increasing percentage of customers that already own
the products we sell. If we can not compete in our markets, we will not sell a
sufficient number of products to generate enough revenues to become profitable.
Additionally, our suppliers, whose products we distribute, or major cellular
phone manufacturers, may acquire, startup, and or expand their own distribution
systems to sell directly to commercial and retail customers which would cause us
to lose revenue which could ultimately cause a decline in the value of our
stock.
THE TELECOMMUNICATIONS INDUSRY IS CONSTANTLY EVOLVING AND IF THE INDUSTRY DOES
NOT REMAIN AN ATTRACTIVE INVESTMENT OPPORTUNITY FOR US WE MAY HAVE TO SHIFT OUR
BUSINESS PLAN WHICH COULD RESULT IN LOWER OR NO EARNINGS AND OUR STOCK PRICE
COULD DECLINE.
The technology that our products rely on is constantly changing. The rapid
change in technology may lead to the development of wireless telecommunications
services or alternative services that consumers prefer over traditional
cellular. As a result, we must continue to stay current with new technologies
and offer products and services that meet customer demands. It is difficult to
predict how our product line will evolve over time and what our profitability
margins will be on future products. It is also difficult to predict whether
consumers will purchase new products to take advantage of advancements in
technology. There is uncertainty as to the extent to which airtime charges and
monthly recurring charges may continue to decline. If the technology that our
products rely on changes in a way that reduces customer demand for our products
or reduces the profitability of our products, we may have to adjust our business
plan. If we adjust our business plan, our revenues and earnings may decrease and
our stock price may move lower.
WE SELL PRODUCTS THAT RELY ON THIRD PARTY NETWORKS TO OPERATE. IF ANY NETWORK
DISRUPTION OCCURS, OUR REVENUES AND EARNINGS MAY DECREASE.
The products we sell rely on the efficient and uninterrupted operation of
cellular and satellite networks, which are built and maintained by third parties
such as Cingular and Sprint. Any failure of these cellular or satellite systems
could cause our products to work poorly or not at all. A failure by these third
parties to maintain their cellular and satellite systems could result in lower
sales of our products which could reduce our revenues and lower our earnings.
Additionally, our customers may not understand that the failure of a cellular or
satellite system is due to a third party rather than our products and our
reputation could be harmed. If our reputation is harmed, we may have difficulty
selling our products. We may have to increase our advertising costs to repair
our reputation or educate consumers. As a result, a third party failure may
result in us failing to become profitable or, if we become profitable, we may
not be able to sustain profitability.
USE OF PROCEEDS
The 47,501,563 shares of common stock covered by this prospectus are to be sold
by selling shareholders who will receive all of the proceeds from such sales. We
will not receive any proceeds from the sale of our common shares. However, we
may receive proceeds from the exercise of warrants. We can not predict when, or
if, we will receive proceeds from the exercise of the warrants. It is possible
the warrants will expire and will never be exercised. The proceeds from our
exercise of warrants, if any, will be used for working capital and general
corporate expenses, expansion of our internal operations and potential
acquisition costs, although we do not currently have any agreements or
arrangements for pending acquisitions.
Proceeds of the offering which are not immediately required for the purposes
described above will be invested in United States government securities,
short-term certificates of deposit, money market funds and other high-grade,
short-term interest-bearing investments.
DETERMINATION OF OFFERING PRICE
The selling stockholders may sell shares from time to time in negotiated
transactions, brokers transactions or a combination of such methods at market
prices prevailing at the time of the sale or at negotiated prices.
SELLING SECURITY HOLDERS
Based upon information available to us as of June 1, 2005, the following table
sets forth the name of the selling stockholders, the number of shares owned, the
number of shares registered by this prospectus and the number of outstanding
shares that the selling stockholders will own after the sale of the registered
shares, assuming all of the shares are sold. The information provided in the
table and discussions below has been obtained from the selling stockholders. The
selling stockholders may have sold, transferred or otherwise disposed of, or may
sell, transfer or otherwise dispose of, at any time or from time to time since
the date on which it provided the information regarding the shares beneficially
owned, all or a portion of the shares of common stock beneficially owned in
transactions exempt from the registration requirements of the Securities Act of
1933. As used in this prospectus, "selling stockholder" includes donees,
pledgees, transferees or other successors-in-interest selling shares received
from the named selling stockholder as a gift, pledge, distribution or other
non-sale related transfer.
Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated
by the Commission under the Securities Exchange Act of 1934. Unless otherwise
noted, each person or group identified possesses sole voting and investment
power with respect to the shares, subject to community property laws where
applicable.
Selling Stockholder Number of shares Number of Shares that may be Number of Shares
beneficially owned offered pursuant to Beneficially Owned
before offering (1) this prospectus (2) After Offering (3)
Alexander Wescott & Co., Inc. (4) 37,500 56,250 0
258 Genesee St., Suite 601
Utica, NY 13502
Alpha Capital, AG (5) 5,000,000 7,500,000 0
160 Central Park South, Suite 2701
New York, NY 10019
Diversified Management & Leasing Co., LTD (6) 250,000 375,000 0
7195 State Highway 7
Maryland, NY 12116-2318
Ellis International LTD., Inc. (7) 2,500,000 3,750,000 0
c/o SDC Capital
20 E. Sunrise Highway
Valley Stream, NY 11581
GSSF Master Fund, LP (8) 5,000,000 7,500,000 0
100 Crescent Ct., Suite 490
Dallas, TX 75201
Holly C. Hansel (9) 250,000 375,000 0
7195 State Highway 7
Maryland, NY 12116-2318
Howard S. Berl Trust (10) 625,000 937,500 0
53 Westshore Rd.
Belvedere, CA 94920
Kent Hansel Roth IRA (11) 62,500 93,750 0
7195 State Highway 7
Maryland, NY 12116-2318
Longview Fund, LP (12) 5,000,000 7,500,000 0
600 Montgomery St., 44th Floor
San Francisco, CA 94111
Majed Alrasheed (13) 600,000 900,000 0
301165 Olya
Riyadh, Saudi Arabia 11372
Mohawk Funding LLC (14) 250,000 375,000 0
258 Genesee St., Suite 601
Utica, NY 13502
Nite Capital, LP (15) 2,500,000 3,750,000 0
100 E. Cook Ave., Suite 201
Libertyville, IL 60048
The Nutmeg Group, LLC (16) 3,125,000 4,687,500 0
3346 Commercial Ave.
Northbrook, IL 60062
Platinum Partners Value Arbitrage Fund, L.P. (17) 2,500,000 3,750,000 0
152 West 57th St., 54th Floor
New York, NY 10019
Richard Bach IRA (18) 37,500 56,250 0
1039 Robinson Rd.
Mohawk, NY 13502
Richard Molinsky (19) 625,000 937,500 0
51 Lords Highway East
Weston, CT 06883
Sage Capital Investments Limited (20) 625,000 937,500 0
PO BOX N4826
Nassau, Bahamas BF
Westor Captial Group, Inc. (21) 966,250 966,250 0
258 Genesee St., Suite 601
Utica, NY 13502
Mark Belletierre (22) 241,563 241,563 0
258 Genesee St., Suite 601
Utica, NY 13502
Iroquois Master Fund, Ltd (23) 1,250,000 1,875,000 0
641 Lexington Ave.
New York, NY 10022
Omicron Master Trust (24) 625,000 937,500 0
650 Fifth Ave. 24th Fl.
New York, NY 10019
Dutchess Private Equities Fund, II, LP (25) 750,000 750,000 0
312 Stuart St., Third Floor
Boston, MA 02116
<FN>
(1) Includes 15,431,250 shares that can be obtained on exercise of Class A
Warrants and 1,207,813 shares that can be obtained pursuant to other warrants.
(2) Includes 15,431,250 shares that can be obtained on exercise of Class B
Warrants and 1,207,813 shares that can be obtained pursuant to other warrants.
(3) Assumes all shares are sold pursuant to this Prospectus.
(4) Richard Bach has voting and dispositive powers over the shares owned by
Alexander Wescott & Co., Inc. The number of shares that may be offered pursuant
to this prospectus includes 18,750 shares of common stock and 37,500 shares
issuable upon exercise of Warrants.
(5) Konrad Ackerman has voting and dispositive powers over the shares owned by
Alpha Capital, AG. The number of shares that may be offered pursuant to this
prospectus includes 2,500,000 shares of common stock and 5,000,000 shares
issuable upon exercise of Warrants.
(6) Kent Hansel has voting and dispositive powers over the shares owned by
Diversified Management & Leasing Co., LTD. The number of shares that may be
offered pursuant to this prospectus includes 125,000 shares of common stock and
250,000 shares issuable upon exercise of Warrants.
(7) Wilhelm Ungar has voting and dispositive powers over the shares owned by
Ellis International LTD., Inc. The number of shares that may be offered
pursuant to this prospectus includes 1,250,000 shares of common stock and
2,500,000 shares issuable upon exercise of Warrants.
(8) E.B. Lyon IV has voting and dispositive powers over the shares owned by
GSSF Master Fund, LP. The number of shares that may be offered pursuant to this
prospectus includes 2,500,000 shares of common stock and 5,000,000 shares
issuable upon exercise of Warrants.
(9) Holly C. Hansel has voting and dispositive powers over the shares owned by
Holly C. Hansel. The number of shares that may be offered pursuant to this
prospectus includes 125,000 shares of common stock and 250,000 shares issuable
upon exercise of Warrants.
(10) Howard S. Berl has voting and dispositive powers over the shares owned by
Howard S. Berl Trust. The number of shares that may be offered pursuant to this
prospectus includes 312,500 shares of common stock and 625,000 shares issuable
upon exercise of Warrants.
(11) Kent Hansel has voting and dispositive powers over the shares owned by
Kent Hansel Roth IRA. The number of shares that may be offered pursuant to this
prospectus includes 31,250 shares of common stock and 62,500 shares issuable
upon exercise of Warrants.
(12) Peter T. Benz has voting and dispositive powers over the shares owned by
Longview Fund, LP. The number of shares that may be offered pursuant to this
prospectus includes 2,500,000 shares of common stock and 5,000,000 shares
issuable upon exercise of Warrants.
(13) The number of shares that may be offered pursuant to this prospectus
includes 300,000 shares of common stock and 600,000 shares issuable upon
exercise of Warrants.
(14) Richard Bach has voting and dispositive powers over the shares owned by
Mohawk Funding LLC. The number of shares that may be offered pursuant to this
prospectus includes 125,000 shares of common stock and 250,000 shares issuable
upon exercise of Warrants.
(15) Keith Goodman has voting and dispositive powers over the shares owned by
Nite Capital, LP. The number of shares that may be offered pursuant to this
prospectus includes 1,250,000 shares of common stock and 2,500,000 shares
issuable upon exercise of Warrants.
(16) Randall S. Goulding has voting and dispositive powers over the shares
owned by The Nutmeg Group, LLC. The number of shares that may be offered
pursuant to this prospectus includes 1,562,500 shares of common stock and
3,125,000 shares issuable upon exercise of Warrants.
(17) Mark Norducht has voting and dispositive powers over the shares owned by
Platinum Partners Value Arbitrage Fund, L.P. The number of shares that may be
offered pursuant to this prospectus includes 1,250,000 shares of common stock
and 2,500,000 shares issuable upon exercise of Warrants.
(18) Richard Bach has voting and dispositive powers over the shares owned by
Richard Bach IRA. The number of shares that may be offered pursuant to this
prospectus includes 18,750 shares of common stock and 37,500 shares issuable
upon exercise of Warrants.
(19) The number of shares that may be offered pursuant to this prospectus
includes 312,500 shares of common stock and 625,000 shares issuable upon
exercise of Warrants.
(20) Mark Nielsen has voting and dispositive powers over the shares owned by
Sage Capital Investments Limited. Mr. Nielsen disclaims beneficial ownership of
the securities held by Sage Capital Investments Limited. The number of shares
that may be offered pursuant to this prospectus includes 312,500 shares of
common stock and 625,000 shares issuable upon exercise of Warrants.
(21) The number of shares that may be offered pursuant to this prospectus
consists of 966,250 shares issuable upon exercise of Warrants.
(22) The number of shares that may be offered pursuant to this prospectus
consists of 241,563 shares issuable upon exercise of Warrants.
(23) Josh Silverman has voting and dispositive powers over the shares owned by
Iroquois Master Fund. The number of shares that may be offered pursuant to this
prospectus includes 625,000 shares of common stock and 1,250,000 shares issuable
upon exercise of Warrants.
(24) Bruce Berstein has voting and dispositive powers over the shares owned by
Omicron Master Trust. The number of shares that may be offered pursuant to this
prospectus includes 312,500 shares of common stock and 625,000 shares issuable
upon exercise of Warrants.
(25) Douglas Leighton has voting and dispositive powers over the shares owned
by Dutchess Private Equities Fund, II, LP.
PLAN OF DISTRIBUTION
The selling stockholders will act independently of us in making decisions with
respect to the timing, manner and size of each sale. The selling stockholders
may sell the shares from time to time:
- - in transactions on the Over-the-Counter Bulletin Board or on any national
securities exchange or U.S. inter-dealer system of a registered national
securities association on which our common stock may be listed or quoted at the
time of sale; or
- - in private transactions and transactions otherwise than on these exchanges or
systems or in the over-the-counter market; or
- - at prices related to such prevailing market prices, or
- - in negotiated transactions, or
- - in a combination of such methods of sale; or
- - any other method permitted by law.
The selling stockholders may effect such transactions by offering and selling
the shares directly to or through securities broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling stockholders and/or the purchasers of the shares
for whom such broker-dealers may act as agent or to whom the selling
stockholders may sell as principal, or both, which compensation as to a
particular broker-dealer might be in excess of customary commissions.
Dutchess and any broker-dealers who act in connection with the sale of its
shares may be deemed to be "underwriters" within the meaning of the Securities
Act, and any discounts, concessions or commissions received by them and profit
on any resale of the shares as principal may be deemed to be underwriting
discounts, concessions and commissions under the Securities Act.
On or prior to the effectiveness of the registration statement to which this
prospectus is a part, we will advise the selling stockholders that they and any
securities broker-dealers or others who may be deemed to be statutory
underwriters will be governed by the prospectus delivery requirements under the
Securities Act. Under applicable rules and regulations under the Securities
Exchange Act, any person engaged in a distribution of any of the shares may not
simultaneously engage in market activities with respect to the common stock for
the applicable period under Regulation M prior to the commencement of such
distribution. In addition and without limiting the foregoing, the selling
security owners will be governed by the applicable provisions of the Securities
and Exchange Act, and the rules and regulations thereunder, including without
limitation Rules 10b-5 and Regulation M, which provisions may limit the timing
of purchases and sales of any of the shares by the selling stockholders. All of
the foregoing may affect the marketability of our securities.
On or prior to the effectiveness of the registration statement to which this
prospectus is a part, we will advise the selling stockholders that the
anti-manipulation rules under the Securities Exchange Act may apply to sales of
shares in the market and to the activities of the selling security owners and
any of their affiliates. We have informed the selling stockholders that they may
not:
- - engage in any stabilization activity in connection with any of the shares;
- - bid for or purchase any of the shares or any rights to acquire the shares,
- - attempt to induce any person to purchase any of the shares or rights to
acquire the shares other than as permitted under the Securities Exchange Act; or
- - effect any sale or distribution of the shares until after the prospectus shall
have been appropriately amended or supplemented, if required, to describe the
terms of the sale or distribution.
We have informed the selling stockholders that they must effect all sales of
shares in broker's transactions, through broker-dealers acting as agents, in
transactions directly with market makers, or in privately negotiated
transactions where no broker or other third party, other than the purchaser, is
involved.
The selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act. Any commissions paid or
any discounts or concessions allowed to any broker-dealers, and any profits
received on the resale of shares, may be deemed to be underwriting discounts and
commissions under the Securities Act if the broker-dealers purchase shares as
principal.
In the absence of the registration statement to which this prospectus is a part,
certain of the selling stockholders would be able to sell their shares only
pursuant to the limitations of Rule 144 promulgated under the Securities Act.
LEGAL PROCEEDINGS
We are not aware of any legal matters that could have a material impact on our
business.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following individuals presently serve as officers and directors of the
Company.
Name Age Position
- --------------------- ----- -----------
Scott Gallagher 38 Chairman of the Board of Directors,
Chief Executive Officer and
President
Linda Ehlen 55 Director, Chief Financial Officer
David R. Rasmussen 38 Director
All directors hold office until the next annual meeting of stockholders and
until their successors are elected. Officers are elected to serve, subject to
the discretion of the Board of Directors, until their successors are appointed.
SCOTT GALLAGHER. Mr. Gallagher has served on our board of directors since
January 11, 2002. Mr. Gallagher serves as the Chief Executive Officer and a
director of our wholly owned subsidiary FTS Wireless, Inc. Since 1998, Mr.
Gallagher has served as the president of About-Face Communications, LLC, a
privately held business consulting firm located in Yardley, Pennsylvania. Prior
to founding About-Face Communications, LLC, Mr. Gallagher was the chief
investment officer and a general partner with the Avalon Investment Fund, a
private hedge fund based in New York City and Philadelphia. Prior to co-founding
Avalon Investment Fund, Mr. Gallagher was a manager and founder of the
Langhorne, Pennsylvania office for Scottsdale Securities, Inc., a national
brokerage firm based in St. Louis, Missouri. Mr. Gallagher previously held
S.E.C. licenses series 7, 63 and 24 all of which were retired in good standing.
LINDA EHLEN. Ms. CFO Ehlen has served on our board of directors since February
7, 2004. Since 1995, Ms. Ehlen has served as the Chief Financial Officer of Casa
Comieda, Inc., a company in the restaurant business. From 1981 to 1995, Ms.
Ehlen was a principal and controller for Livingston Oil Corp. Ms. Ehlen earned
her Bachelor's Degree in Accounting from Monmouth University, Rutgers School of
Government and Accounting.
DAVID R. RASMUSSEN. Mr. Rasmussen has served on our board of directors since
February 10, 2002. Mr. Rasmussen received a Bachelor's degree in Computer
Technology from Rockhurst University in Kansas City Missouri. He has been in the
Information Technology, or IT, field since 1992. From 1997 through 2000, Mr.
Rasumussen worked as a program analyst for National Association of Insurance
Commissions. Since 2000, Mr. Rasmussen has served as a Project leader for ERC,
Inc., a subsidiary of General Electric. In his current position he is charged
with providing IT solutions that enable business to drive core processes and
grow profitable relationships.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, to our knowledge, certain information concerning
the beneficial ownership of our common stock as of June 1, 2005 by each
stockholder known by us to be (i) the beneficial owner of more than 5% of the
outstanding shares of common stock, (ii) each current director, (iii) each of
the executive officers named in the Summary Compensation Table who were serving
as executive officers at the end of the 2004 fiscal year and (iv) all of our
directors and current executive officers as a group:
The shareholders listed below have sole voting and investment power. The address
of each of the beneficial owners is 7610 West Hillsborough Ave. Tampa, Fl.
33615, unless otherwise indicated.
Name Shares Voting Securities
(1)
- --------------------------------- ---------- -----------------
Scott Gallagher 6,631,451 12.1%
Linda Ehlen 729,916 1.3%
David R. Rasmussen 125,000 *
All Officers and Directors
as a Group (3 persons) 7,486,367 13.6%
LeRoy Landhuis(2) 6,793,471 12.4%
212 N. Wahsatch Avenue,
Suite 301
Colorado Springs, CO 80903
- -----------------------------
<FN>
* Represents less than one percent of the Company's shares
outstanding.
(1) Based on 54,877,195 shares of our common stock outstanding as of March 31,
2005.
(2) Includes warrants for 1,036,000 shares of common stock with an exercise
price of $1.50 per share and expiring on April 19, 2010.
DESCRIPTION OF SECURITIES
Authorized Capital
Our total number of our authorized shares of common stock is 150,000,000 with a
par value of $.001 per share. Additionally, we are authorized to issue 5,000,000
shares of Preferred Stock. Of this 5,000,000, we have authorized up to 150,000
shares of our 10% Convertible preferred stock, Series A, $0.01 par value. As of
May 23, 2005, we had no Series A shares issued and outstanding and 4,850,000
undesignated shares of preferred stock, par value $.01 per share, of which no
shares are issued or outstanding.
Common Stock
Holders of shares of common stock are entitled to one vote for each share on all
matters to be voted on by the stockholders. Holders of common stock do not have
cumulative voting rights. Holders of common stock are entitled to share ratably
in dividends, if any, as may be declared from time to time by our Board of
Directors in its discretion from funds legally available therefore, subject to
the rights of Preferred stockholders. Please refer to our discussion below under
"Preferred Stock." In the event of our liquidation, dissolution or winding up,
the holders of common stock are entitled to share pro rata all assets remaining
after payment in full of all liabilities, subject to the rights of Preferred
Stockholders. Please refer to our discussion below under "Preferred Stock."
Holders of common stock have no preemptive rights to purchase our common stock.
There are no conversion or redemption rights or sinking fund provisions with
respect to the common stock.
Noncumulative Voting
Each holder of common stock is entitled to one vote per share on all matters on
which such stockholders are entitled to vote. Shares of common stock do not have
cumulative voting rights.
Preferred Stock
Our Articles of Incorporation, as amended, vest our Board of Directors with
authority to divide our preferred stock into series and to fix and determine the
relative rights and preferences of the shares of any such series so established
to the full extent permitted by the laws of the State of Nevada and the Articles
of Incorporation in respect to, among other things, (i) the number of shares to
constitute such series and the distinctive designations thereof; (ii) the rate
and preference of dividends, if any, the time of payment of dividends, whether
dividends are cumulative and the date from which any dividend shall accrue;
(iii) whether preferred stock may be redeemed and, if so, the redemption price
and the terms and conditions of redemption; (iv) the liquidation preferences
payable on Preferred stock in the event of involuntary or voluntary liquidation;
(v) sinking fund or other provisions, if any, for redemption or purchase of
preferred Stock; (vi) the terms and conditions by which preferred stock may be
converted, if the preferred stock of any series are issued with the privilege of
conversion; and (vii) voting rights, if any.
As of January 19, 2004, a total of 150,000 shares were designated Series A
Preferred Stock, however, none are outstanding. All Series A shares have an
issue price and preference on liquidation equal to $1.00 per share. The Series A
Preferred Shares accrue dividends at the rate of 10% per annum during the first
two years following issuance, which dividend is payable in cash and is
cumulative. During the third through fifth year in which the Series A Preferred
Shares are outstanding, the holders are entitled to 3.75% of our net profits,
Also payable in cash. We may redeem this preferred stock at any time following
notice to the holder for an amount equal to the issue price, plus any accrued
but unpaid dividends.
The Series A Preferred Shares are convertible into shares of our common stock at
the option of the holder on a one for one basis at any time up to the fifth
anniversary of the issuance. On the fifth anniversary, the Series A Preferred
Shares automatically convert into shares of our common stock. The conversion
rate is subject to adjustment in certain events, including stock splits and
dividends. Holders of our preferred stock are entitled to one vote for each
share held of record. Holders of the preferred stock vote with holders of the
common stock as one class.
INTEREST OF NAMED EXPERTS AND COUNSEL
No expert or counsel will receive a direct or indirect interest in the small
business issuer or was a promoter, underwriter, voting trustee, director,
officer, or employee of FTS Group. Nor does any such expert or counsel have any
contingent based agreement with us or any other interest in or connection to us.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our Articles of Incorporation, as amended, provide that the Board of Directors
has the power to:
- - indemnify our directors, officers, employees and agents to the fullest extent
permitted by the General Corporation Law of Nevada;
- - authorize payment of expenses incurred in defending a civil or criminal
action; and
- - purchase and maintain insurance on behalf of any director, officer, employee
or agent.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, a amended ("Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable.
DESCRIPTION OF BUSINESS
HISTORY
We organized as Full Tilt Sports, Inc. in 1997 as a Colorado corporation to
develop and market a line of young men's casual apparel. We own several U.S.
trademarks relating to that business. Effective August 23, 2000, we changed our
name to FTS Apparel, Inc. Our attempts to build a profitable apparel business
were unsuccessful and the prior management team was unable to raise the required
funds to continue in the apparel business. As a result, we exited the apparel
business. In January 2002, we experienced a change in management. Effective
January 11, 2002, Scott Gallagher became our new Chairman and Chief Executive
Officer and we appointed three new directors. The new Chairman agreed to
purchase 1,861,618 shares of our common stock owned by two of the former
officers and directors and other shareholders. The new management team initially
developed a strategic plan to acquire and develop cash flow positive businesses.
After an analysis of the market, management determined to primarily focus on
building a chain of retail wireless locations that sell cellular and satellite
handsets and activations. FTS Wireless Inc., a wholly owned subsidiary, was
organized as a Florida corporation in February 2003 to become a full service
wireless company operating a chain of retail wireless locations. On January 26,
2004, we changed our name to FTS Group, Inc. to reflect the change in our
operations. Additionally, on that date, we changed our state of incorporation
from Colorado to Nevada.
BUSINESS
We develop, invest in and acquire cash-flow positive businesses and viable
business projects, primarily in the wireless industry. Through our wholly-owned
subsidiary FTS Wireless, Inc., we are engaged in a targeted, strategic
development strategy to consolidate the highly fragmented cellular phone and
services industry. We currently operate seven retail wireless locations in the
Florida market. Over the past twenty-four months we have grown our business by
acquiring existing retail locations as well as developing new retail locations.
We operate our business as a "Bricks and Clicks" model. On the "Bricks" side of
our business we operate a chain of seven retail wireless locations in the Gulf
Coast market of Florida. We distribute wireless products and services from three
of the nation's largest wireless carriers, Cingular Wireless, Sprint PCS and
Nextel, in the Gulf Coast market of Florida and selected markets around the
country.
On the "Clicks" side of our business model we own and operate three Internet
based e-commerce wireless businesses; www.SatPhoneCenter.com,
www.CellularDeals.com and www.CellChannel.com. We drive traffic to these
businesses by offering in store specials and discounts in our retail stores as
well as traditional online advertising. SatPhoneCenter.com is focused on renting
and selling Global Star satellite wireless products and services to retail and
business customers. CellularDeals.com primarily markets and distributes wireless
accessories and products globally over the Internet. CellChannel.com markets and
sells wireless content such as custom MP3 ring tones, wallpaper and games
primarily to retail and Internet customers.
We constantly re-evaluate our product portfolio to stay current with industry
trends and meet the needs of our customers. We also continuously evaluate how
new technologies such as Wi-Fi and Voice over Internet, or VoIP, will affect our
business. We believe these new communication technologies will provide us and
distributors like us with new opportunities as the technologies become more
widely adopted and next generation products and services are developed and
increase in demand.
THE MARKET FOR OUR PRODUCTS AND SERVICES
According to a semi-annual industry survey released in March 2005 by the
Cellular Telecommunications & Internet Association, wireless subscribership grew
by 21.7 percent during 2004. Wireless subscribers now exceed 180 million in the
United States, representing a penetration rate of more than 60 percent. The
survey also found wireless users in the United States for the first time used
more than one trillion wireless minutes during 2004, while the average local
monthly bill grew by only 1.5 percent to $50.64. Capital investment in network
expansion and upgrades reached nearly $28 billion, according to the survey. The
total number of cell sites at the end of the year was 175,725.
We believe the increase in wireless subscribers validates our business model and
represents a significant opportunity for us to gain market share and increase
our retail and Internet distribution channels within the markets in which we
operate. We have made a concerted effort to target our marketing and product mix
towards certain niche sectors of the Industry. One niche sector of the wireless
Industry we have targeted and experienced success with is the Hispanic market.
Our primary operating market, Tampa, Florida, was recently ranked as having the
second highest Hispanic buying power in the nation, more than $5 billion a year.
We feel that as new products and services are developed targeting this and other
niche markets, penetration rates will continue to increase, resulting in new
opportunities for us to grow. We believe that as Third Generation, or 3G,
wireless networks contribute to an increase in coverage, subscribership rates
will increase by enabling wireless carriers to expand wireless data and
entertainment product offerings such as streaming video and enhanced data
services.
STRATEGIC PARTNERS AND CONTRACTS
POST-PAID
We activate wireless services through agreements with companies known as "Master
Agents." A Master Agent has the ability to pay us a higher per activation
commission than we could receive if we dealt directly with the major wireless
carriers. Their commission tier is based on the consolidated monthly activations
of all of their dealers. These companies pay us a commission for each new
cellular customer who signs a one or two year cellular contract with the
carrier. However, if that customer deactivates their cellular service within the
180-day period after signing the contract, the commission paid to us is charged
back to our account and not paid. We have set up a reserve for possible
activation charge-backs.
For Cingular Wireless we have an agreement in place with Philadelphia-based
Master Agent Digital Communications Warehouse to market and sell Cingular
products and services in approximately 19 markets around the country. For Sprint
PCS we have an agreement in place with New York-based Master Agent Malsha
Products, Inc. to market and sell Sprint PCS products and services anywhere in
the United States. For Nextel, we have an agreement in place with Florida-based
American Connections of Florida, Inc. to market and sell Nextel products in the
Gulf Coast market of Florida.
We activate and rent satellite phones through an agreement with GlobalStar.
GlobalStar is one of the largest satellite communications providers in the
world. We also offer retail customers Wi-Fi Internet access through an agreement
with Air Rover Wi-Fi whereby Air Rover supplies us with the hardware, billing
and support services in exchange for a revenue sharing arrangement.
PRE-PAID
We have marketing and distribution rights from a number of national pre-paid
wireless carriers known as Mobile Virtual Network Operators, or MVNOs. MVNOs
resell airtime from the national carriers. We function as a Master Agent for an
MVNO called Air Voice Wireless which resells prepaid airtime over the AT&T
wireless network. We also resell products and services from a number of other
MVNOs such as Virgin Mobile, STI-Mobile and Boost Mobile through agreements with
our master agents. We are generally able to market and sell products and
services from the MVNO in any market the MVNO operates. We derive revenue from
the sale of wireless handsets and the sale of prepaid wireless airtime.
COMPETITION
We operate in a highly competitive environment. We principally compete with
other independent retailers, privately held chains that offer a broad range of
products, and carrier owned and operated stores with more name recognition and
brand identity than us. We believe that success in the industry is based on
maintenance of product quality, competitive pricing, delivery efficiency,
customer service and satisfaction levels, maintenance of satisfactory dealer
relationships, and the ability to anticipate technological changes and changes
in customer preferences.
CARRIERS CORPORATE OWNED STORES
We compete against stores owned by service carriers including:
- - Sprint PCS;
- - Cingular;
- - T-Mobile;
- - Nextel; and
- - Verizon Wireless.
The carrier-owned corporate stores generally sell only their own wireless
products and services. We believe our product offerings are superior to
corporate stores because we offer customers service from multiple carriers and
provide the best solution for each customer's individual needs. In addition, we
offer wireless content, accessories, Wi-Fi access, Satellite phones and service.
LARGE NATIONAL RETAILERS
We compete against large national retailers including:
- - Radio Shack;
- - Best Buy;
- - Staples; and
- - Office Depot.
These retailers promote wireless-boxed products with limited customer support.
We believe we offer a higher level of customer service and product knowledge to
our customers as compared to large national retailers. We also believe our
customer service is superior because we focus only on wireless products and
services, which are only a part of the business of the above-mentioned
retailers. However, due to scale of purchasing power, number of locations and
advertising budgets, large national retailers can sometimes offer discounts
superior to ours.
LOCAL WIRELESS RETAILERS
We compete with a variety of smaller independent retailers. Our main competitors
are:
- - Beepers N Phones, which operates approximately 50 stores in the state of
Florida and promotes several brands of wireless products.
- - Choice Cellular, which operates approximately 15 stores in the state of
Florida and promotes several brands of wireless products and services.
- - GCS Wireless which operates approximately 10 stores in Florida and primarily
promotes products and services from only one wireless carrier.
We also compete with a variety of smaller, independent retailers operating less
than three stores. We compete against these retailers by offering a broad
product range and superior customer service.
MARKETING
We depend on advertising and marketing to attract new customers. We currently
advertise in local print publications, including daily newspapers and weekly
publications, advertise on the Internet and in flyers. Additionally, we run in
store product related promotions including a referral program geared at
generating new business through our existing customer base. We currently spend
between $3,000 and $5,000 per month on advertising depending on the placement of
our ads. During times of increased advertising, we spend approximately $5,000 to
$7,500 or more per month on new product roll-outs and marketing campaigns
including print, Internet and television media advertising. We believe our
advertising campaigns have increased foot traffic in our stores and increased
our overall name recognition.
INVESTMENTS
In March 2003, we acquired 30,000 shares of preferred stock in Vidyah, Inc., a
private technology company, for $15,000 in cash. Holders of the Vidyah preferred
stock have the same voting rights as holders of the common stock. The preferred
stock has liquidation rights and is convertible, at the holder's option, into an
equivalent number of shares of common stock, subject to certain adjustments.
Vidyah provides comprehensive technology learning solutions, certification
programs, and customized learning for a variety of Fortune 1000 companies,
including, Disney, Sony, Microsoft, IBM, Cisco Systems, Harvard University, etc.
We purchased an interest in Vidya.com because we believe Vidyah represents an
attractive investment that will increase in value over time.
SEASONALITY
The wireless industry typically generates a higher number of subscriber
additions and handset sales in the fourth quarter of each year, as compared to
the remaining quarters. This is due to the use of retail distribution, which is
dependent on the holiday shopping season; timing of new products and service
introductions; and aggressive marketing and sales promotions. To date, we have
not experienced any seasonality in our sales, although we may in the future as
we expand our retail operations.
EMPLOYEES
As of December 31, 2004, we had twelve full time employees. Two of our employees
are at the corporate level, our Chairman and Chief Executive Officer, Scott
Gallagher and Linda Ehlen, our Chief Financial Officer. In connection with our
cellular phones and accessories business, we employ nine full time individuals
and one part time individual to run our Florida stores.
We expect to hire additional employees over the next twelve months as our
business grows. From time-to-time, we engage the services of outside consultants
to assist in our business, including attorneys, accountants, and marketing and
advertising personnel. We may engage the services of additional individuals in
the future as our business needs dictate and our financial resources permit.
12
DESCRIPTION OF PROPERTY
We currently have seven leases for our retail stores and our corporate
facilities in Tampa, Florida. Our retail stores are located in the counties of
Hillsborough and Pinellas, generally within 30 miles of Tampa, Florida. The
retail stores vary in size from 500 to 2,000 square feet. Our principal office
is located in approximately 1,500 square feet of the leased facilities in Tampa,
Florida. The minimum aggregate monthly rental commitment for the retail stores
is $9,429. The terms of the leases vary from month to month to three years with
a three-year option.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During June 2004, we entered into a note agreement with our Chief Financial
Officer, Linda Ehlen. Ms. Ehlen extended a loan to us in the amount of $61,200
bearing an interest amount of 8% per annum and a face amount premium of 20%. Ms.
Ehlen was issued 307,000 shares of restricted stock relating to the loan
agreement. In September 2004, our Chief Executive Officer, Scott Gallagher,
entered into a note agreement. Mr. Gallagher extended us loans in the amount of
$133,800. One note bears an interest rate of 8% per annum and a face amount
premium of 20%. Mr. Gallagher was issued 625,000 restricted shares relating to
the $125,000 loan agreement.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has traded over the counter and has been quoted in the OTC
Bulletin Board since March 18, 1999. Our stock currently trades under the symbol
"FLIP."
The following table sets forth the range of high and low bid quotations as
reported by the National Association of Securities Dealers for the common stock
of the Company for the last two fiscal years. Quotations represent prices
between dealers, do not include retail markups, markdowns or commissions and do
not necessarily represent prices at which actual transactions were effected.
Year Ended High Low
- ------------------ ------ -----
2003
- ----
March 31 $.26 $.09
June 30 $.28 $.16
September 30 $.68 $.23
December 31 $.25 $.15
2004
- ----
March 31 $.40 $.15
June 30 $.27 $.15
September 30 $.17 $.09
December 31 $.18 $.09
2005
- ----
March 31 $.23 $.10
June 30* $.11 $.08
<FN>
* Through June 15, 2005.
Number of Stockholders
We had approximately 167 record holders of our common stock as of June 1, 2005.
Dividends
Holders of our common stock are entitled to receive such dividends as may be
declared by the Board of Directors. In July 2004, the Board of Directors
approved a 10% warrant dividend to stockholders of record on August 28,2004. The
warrant allows stockholders of record to purchase one new share of common stock
at $0.25 for each ten common shares owned. The warrant expires in three years.
No cash dividends on the common stock have been paid or declared by the Board to
date. We do not anticipate any cash dividends being paid out in the near future.
EXECUTIVE COMPENSATION
The following table presents a summary of the compensation paid to our Chief
Executive Officer during the last three fiscal years. No other executive officer
received compensation in excess of $100,000 during 2004. Except as listed below,
there are no bonuses, other annual compensation, restricted stock awards or
stock options/SARs or any other compensation paid to the executive officers.
Summary Compensation Table
Long-term
Annual Compensation Compensation
--------------------------- ------------------
Other Annual Securities
Name and Position Year Salary Compensation Underlying Options
- ------------------------------- ---- ------ ------------ ------------------
Scott Gallagher 2004 $100,000(3) $25,000
Chairman of the Board and 2003 $100,000(2) $25,000
Chief Executive Officer 2002 $201,000(1) $25,000
(1)In 2002, we did not pay Mr. Gallagher in cash. Instead, we paid him 1,200,000
shares of stock valued at $120,000 pursuant to his employment contract. In
addition we paid him 1,145,833 shares that were converted into $75,000 and
applied to his salary and 75,000 shares as board compensation valued at $6,000.
At the end of the year, Mr. Gallagher had $45,000 in unpaid accrued salary and
bonuses. In 2003, the accrued amounts were converted into common shares at the
prevailing market rate. Mr. Gallaghers contract includes an annual bonus of at
least $25,000
(2)In 2003, Mr. Gallagher was issued 1,000,000 common shares in lieu of cash.
Mr. Gallaghers' contract includes an annual bonus of at least $25,000
(3)In 2004, Mr. Gallagher was issued 625,000 restricted common shares in lieu of
cash. Mr. Gallaghers' annual bonus for 2004 was $25,000
Compensation Agreements
We do not currently have employment agreements with any of our executive
officers.
Directors Compensation
We compensate our directors at a quarterly rate of $2,000 payable in stock or
cash at our discretion. Additionally, each director is entitled to be reimbursed
for reasonable and necessary expenses incurred on our behalf.
Stock Option Plan
We have adopted a Non-Qualified Stock Option and Stock Grant Plan for the
benefit of key personnel and others providing significant services to us. An
aggregate of 2,500,000 shares of our common stock have been reserved for
issuance under the Plan, as amended.
The Plan is administered by our Board of Directors, which selects recipients of
any stock options or grants, the number of shares and the terms and conditions
of any options or grants to key persons defined in the Plan. In determining the
value of services rendered to us for purposes of awards under the Plan, the
Board considers, among other things, such person's employment position and
relationship with us, his duties and responsibilities, ability, productivity,
length of service or association, morale, interest in our company,
recommendation by supervisors and the value of comparable services rendered by
others in the community. All options granted pursuant to the Plan are
exercisable at a price not less than the fair market value of the shares of
common stock on the date of grant.
We have not granted any options from 2001 to the present. We have options
outstanding to purchase a total of 598,000 shares of our common stock at
exercise prices ranging from $.81 per share to $2.75 per share.
Compensation Committee Interlocks and Insider Participation
None of our directors or executive officer serves as a member of the Board of
Directors or Compensation Committee of any entity that has one or more executive
officers serving as a member of our Board of Directors.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Introduction
The following discussion is intended to provide an analysis of our financial
condition and should be read in conjunction with our audited financial
statements and the notes thereto.
OVERVIEW
Historically and through the year ended December 31, 2001, we operated
exclusively in the apparel industry. In January 2002, we experienced a
management change after the prior management team was unable to raise the
required funds to continue in the apparel business. Our business now focuses on
developing and acquiring cash-flow positive businesses and viable business
projects, primarily those in the wireless and technology industries. As of March
15, 2005, we operated a total of seven retail locations. Due to continuing
losses from operations, the independent registered public accountant that
audited our financial statements for the year ended December 31, 2004 assessed
that there was substantial doubt about our ability to continue as a going
concern.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
Sales revenues for the year ended December 31, 2004 increased $603,627, or 556%,
to $712,282, as compared to $108,655 for the year ended December 31, 2003. The
increase in sales revenues was primarily related to acquisition of new stores
and opening of new retail outlets.
Cost of Goods Sold for the year ended December 31, 2004, increased $431,602 to
$521,660, as compared to $90,058 for the year ended December 31,2003. The
increase in Cost of Goods Sold is primarily related to the overall growth of our
business and increased buying levels of wireless handsets, airtime, devices, and
accessories. Though revenue for 2004 rose 556%, Cost of Goods Sold rose only
479%. We were able to control Cost of Goods Sold increases due to economies of
scale related to enhanced purchasing power.
Selling, General and Administrative expense for the year ended December 31, 2004
increased $1,347,720 to $2,191,837 as compared to $844,117 for the year December
31, 2003. The increase in Selling, General and Administrative expense was due to
a number of factors including, higher store operating costs associated with the
increase in the number of stores, increase in consulting fees to support the
expansion of our operations through the end of 2004, and increased costs
associated with acquisitions of new locations and costs incurred in obtaining
additional financing and market support.
Interest expense increased to $212,638 for the year ended December 31, 2004 from
$48,121 for the year ended December 31, 2003. The increase was due mainly to the
accrual of interest on the convertible debt and promissory notes as part of the
capital raised during the year ended December 31, 2004.
During the year ended December 31, 2004 we took a charge of $107,000 related to
write down of certain long-lived assets relating to the acquisition of new
retail locations.
We had a net loss of $2,328,353 for the fiscal year ended December 31, 2004, as
compared to net loss of $873,641 for the fiscal year ended December 31, 2003.
The increase in net loss was primarily due to an increase in consulting fees,
financing-related expenses, new store openings and increased operating expenses.
As of December 31, 2004, we had an accumulated deficit of $8,308,526.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2005
Sales revenue for the three months ended March 31, 2005 increased $122,635, or
68%, to $303,970, as compared to $181,335 for the period ended March 31, 2004.
The increase in sales revenue was primarily related to the acquisition and
development of new retail outlets and an increased focus on post pay wireless
activations.
Even with a 68% increase in revenue, Cost of Goods Sold for the period ended
March 31, 2005, decreased by $7,616 to $135,518, as compared to $143,134 for the
period ended March 31, 2004. The decrease in Cost of Goods Sold is primarily due
to economies of scale related to wireless handset purchasing.
Gross profits increased by $130,251 from $38,201 in 2004 to $168,452 in 2005 and
as a percentage of sales increased from 21% to 55%. The increase in gross profit
margins are directly attributed to the successful launch of our new wireless
superstore in February. The location restructuring completed by management over
the past six months resulting in the closure of three under performing locations
and improved operational execution resulting in three consecutive months of
increases in the sale and activation of new wireless handsets.
Selling, General and Administrative expenses for the period ended March 31,
2005, decreased $152,579 to $755,327, as compared to $907,906 for the period
ended March 31, 2004. The decrease in Selling, General and Administrative
expense was due to a number of factors including, a decrease in consulting
fee's, professional fees and investor relations fees. We anticipate further
reductions in the areas mentioned above throughout 2005.
Our net loss decreased by $98,718 to $770,987 on revenue of $303,970 for the
period ended March 31, 2005, as compared to a net loss of $869,705 on revenue of
$181,335 for the period ended March 31, 2004. The decrease was primarily related
to reduced professional fees and stock compensation expenses incurred during the
period. The decrease in net loss is also attributable to the increase in revenue
and related gross profit.
INTEREST EXPENSE
Interest expense increased to $184,111 for the period ended March 31, 2005, as
compared to $0 for the period ended March 31, 2004. The increase was due mainly
to financing costs incurred on promissory notes.
LIQUIDITY AND CAPITAL RESOURCES
Our requirements for capital are to fund (i) sales growth, (ii) financing for
possible acquisitions and, (iii) capital expenditures mainly related to store
build-outs and IT system upgrades. Our primary source of financing during the
three months ended March 31, 2005 included cash received from the issuance of
common stock and cash flows from operations.
As of March 31, 2005, total current assets were $293,961, which consisted of
$211,819 of accounts receivable, $54,134 of inventory, $27,272 of prepaid
expenses and cash of $736.
As of March 31, 2005, total current liabilities were $269,064, which consisted
of $228,040 of accounts payable and accrued expenses, promissory notes of
$35,907 and notes payable of $5,117.
We believe that our continued existence depends on our ability to make our
wireless operations profitable and our ability to raise additional capital.
Accordingly, the notes to our unaudited, interim financial statements express
substantial doubt about our ability to continue as a going concern.
FINANCING ACTIVITIES
We will require additional capital to support strategic acquisitions and our
current expansion plans. We currently have an equity line of credit with
Dutchess Private Equities Fund. This facility provides us with access to a
maximum of $6 million in financing subject to certain terms and conditions.
Additionally, we raise funds through private placements of our equity that may
involve dilution to our existing shareholders.
In 2004, we borrowed approximately $98,250 from several private investors at an
annual interest rate of 8%. One note in the aggregate amount of $84,000 carried
a 20% premium to the face value, which has been charge to interest expense in
2004, and is due in June and September of 2005. As of March 31,2005 all notes
have been paid in full.
We signed a short-term note payable to Dutchess Equities Fund, II L.P. in the
amount of $240,000 which was due December 27, 2004. The loan bears interest at a
rate of 12% per annum, it includes a 20% premium and it includes a 10% penalty
for failure to pay by the due date. The premium in the amount of $40,000 has
been charged to the interest expense for 2004 The loan was not paid back timely;
hence, the penalty was assessed. The entire balance including principal plus
penalty was repaid in 2005.
The note contained a stipulation that we would deliver 250,000 shares of common
stock to Dutchess as inducement for entering into the financing. The shares
related to this loan were issued in 2005. The fair value of these shares was
$25,000 and the amount has been charged to interest expense during 2004.
During the year ended December 31, 2004, we borrowed, under several short term
loan agreements, $434,700 from Dutchess Private Equities Fund bearing an
interest rate of 12%.
During February 2003, we completed an additional debenture offering. Pursuant to
a subscription agreement with Dutchess, we received $212,500 from the sale of 6%
secured convertible debentures. The terms of the debentures provide for payment
by February 14, 2007 with the debentures being convertible into our common stock
at any time at the lesser of (i) 80% of the average of the five lowest closing
bid prices during the 15 days prior to conversion or (ii) 100% of the average of
the closing bid prices for the 20 trading days immediately preceding the closing
date. We agreed to register the shares underlying the debentures on a Form SB-2
Registration Statement. As of December 31, 2004 and 2003 the amount of debenture
outstanding was $100,493 and $450,586, respectively. During 2004, Dutchess
converted $350,093 worth of debentures into approximately 3,570,030 shares of
stock.
Our currently anticipated levels of revenues and cash flow are subject to many
uncertainties. Until we generate cash flow from operations that will be
sufficient to satisfy our cash requirements, we will continue to seek
alternative means for financing our operations and capital expenditures and/or
postpone or eliminate certain investments or expenditures. Potential alternative
means for financing may include accessing our Equity Line of Credit with
Dutchess Private Equities Fund or obtaining additional debt or equity financing.
When needed, additional financing may not be available, or available on
acceptable terms. The inability to obtain additional financing or generate
sufficient cash from operations could require us to reduce or eliminate
expenditures for acquiring or developing new retail locations or marketing our
products, or otherwise curtail or discontinue our operations, which could have a
material adverse effect on our business, financial condition and results of
operations. Furthermore, if we raise funds through the sale of additional equity
securities, the common stock currently outstanding will be diluted.
On March 4, 2005, we finalized a private placement in which we issued 15,431,250
shares of common stock and associated warrants for gross proceeds of $1,234,500.
We agreed to file a Registration Statement with the SEC to register the resale
of the shares of our common stock and the shares that may be issued if the
investors exercise the warrants. The A warrants allow investors to purchase
15,431,250 shares of our common stock at an exercise price of $0.12, subject to
adjustment, the A warrants expire in March 2008. The B warrants allow investors
to purchase 15,431,250 shares of our common stock at an exercise price of $0.08,
subject to adjustment, the B warrants expire 180 days after a Registration
Statement is declared effective by the Securities and Exchange Commission. These
funds were primarily used for working capital, costs related to new store
openings and to reduce outstanding liabilities.
During the three months ended March 31, 2005, 522,086 shares were issued
relating to our convertible debenture with Dutchess Private Equities Fund. The
convertible debenture was fully extinguished during the period.
During the three months ended March 31, 2005, 2,085,426 shares were issued
relating to our equity line of credit for proceeds of approximately $269,909.
Funds were used to repay outstanding notes.
FINANCIAL STATEMENTS
FTS Group, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders, FTS Group, Inc.
We have audited the accompanying consolidated balance sheet of FTS Group, Inc.
and subsidiary as of December 31, 2004, and the related consolidated statements
of operations, stockholders' deficiency and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of FTS
Group, Inc. and subsidiary as of December 31, 2004, and the consolidated results
of their operations and their cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully described in
Note 3 to the consolidated financial statements, the Company has a working
capital deficit of $472,862 and a stockholders' deficit of $421,811 as of
December 31,2004. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 3. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ WithumSmith+Brown, P.C.
Princeton, New Jersey
March 7, 2005, except for note 15 which is dated March 31, 2005
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders FTS Group, Inc.:
We have audited the consolidated balance sheet of FTS Group, Inc. and subsidiary
as of December 31, 2003, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FTS Group, Inc. and
subsidiary as of December 31, 2003, and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations,
and has working capital and stockholders' deficits. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to this matter are also discussed in Note 3. The
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ R. E. Bassie & Co.
Houston, Texas
April 2,2004
FTS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
2004 2003
------------ ------------
ASSETS
CURRENT ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,949 $ 6,887
Accounts receivable 87,485 3,905
Inventory . . . . . . . . . . . . . . . . . . . . . . . . 44,998 7,759
Prepaid Expenses. . . . . . . . . . . . . . . . . . . . . 35,430 1,512
------------ ------------
Total current assets. . . . . . . . . . . . . . . . . 175,862 20,063
------------ ------------
PROPERTY AND EQUIPMENT, NET . . . . . . . . . . . . . . . . 124,555 50,577
------------ ------------
OTHER ASSETS
Investment in private entity. . . . . . . . . . . . . . . 7,500 15,000
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . 19,489 17,650
------------ ------------
Total other assets. . . . . . . . . . . . . . . . . . 26,989 32,650
------------ ------------
$ 327,406 $ 103,290
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses . . . . . . . . . . $ 259,723 $ 229,862
Notes payable - individuals . . . . . . . . . . . . . . . 37,250 -
Notes payable related parties, net of debt discount
$49,931 and $0 at December 31,2004 and 2003, respectively 111,751 29,416
Note payable-Dutchess Advisors . . . . . . . . . . . . . 240,000 -
------------ ------------
Total current liabilities . . . . . . . . . . . . . . 648,724 259,278
------------ ------------
CONVERTIBLE DEBENTURES. . . . . . . . . . . . . . . . . . 100,493 450,586
------------ ------------
STOCKHOLDERS' DEFICIT
10% Convertible preferred stock, Series A, $0.01 par
value, 150,000 shares authorized, 0 shares issued
and outstanding . . . . . . . . . . . . . . . . . . . . - -
Preferred stock, $0.01 par value, 4,850,000 undesignated
shares authorized, none issued. . . . . . . . . . . . . . - -
Common stock, $0.001 par value, 150,000,000 shares
authorized, 37,882,183 and 18,141,564
shares issued and outstanding at December 31, 2004
and 2003 37,882 18,142
Additional paid in capital. . . . . . . . . . . . . . . . 7,848,833 5,465,030
Accumulated deficit . . . . . . . . . . . . . . . . . . (8,308,526) (5,943,196)
Deferred compensation - (146,550)
------------ ------------
Total stockholders' deficit . . . . . . . . . . . . (421,811) (606,574)
------------ ------------
$ 327,406 $ 103,290
============ ============
<FN>
See accompanying notes to consolidated financial statements
FTS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
------------ ------------
REVENUES
Sales, Net . . . . . . . . . . . . . . . . . . $ 712,282 $ 108,655
COST OF GOODS SOLD . . . . . . . . . . . . . . . 521,660 90,058
------------ ------------
GROSS PROFIT . . . . . . . . . . . . . . . . . . 190,622 18,597
------------ ------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses. 2,191,837 844,117
------------ ------------
2,191,837 844,117
------------ ------------
LOSS FROM OPERATIONS . . . . . . . . . . . . . . (2,001,215) (825,520)
------------ ------------
OTHER INCOME (EXPENSE)
Impairment of long-lived assets (107,000) -
Interest Expense . . . . . . . . . . . . . . . . (212,638) (48,121)
------------ ------------
(319,638) (48,121)
------------ ------------
NET LOSS FROM OPERATIONS. . . . . . . . . . . . . (2,320,853) (873,641)
UNREALIZED LOSS ON INVESTMENT . . . . . . . . . . (7,500) -
------------ ------------
NET LOSS. . . . . . . . . . . . . . . . . . . . . $(2,328,353) $ (873,641)
============ ============
PER SHARE INFORMATION:
WEIGHTED AVERAGE SHARES OUTSTANDING
(BASIC AND DILUTED) . . . . . . . . . . . . . . 27,459,250 17,388,519
============ ============
NET LOSS PER COMMON SHARE (BASIC AND DILUTED) . . $ (0.08) $ (0.05)
============ ============
<FN>
See accompanying notes to consolidated financial statements
FTS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Preferred Total Additional
Preferred Stock Common common Paid-In Deferred Accumulated Stockholders'
Shares Amount Shares Amount Capital Compensation Deficit Deficit
----------- ----------- ---------- -------- ---------- -------------- ------------- ---------------
BALANCE. . . . . 50,000 $50,000 15,530,240 $ 15,530 $4,956,942 $ (60,000) $ (5,069,555) $ (107,083)
DECEMBER 31,2002
Issuance
of common
shares for cash - - 540,000 540 43,460 - - 44,000
Issuance
of common
shares
for services. . - - 1,630,000 1,630 342,070 (86,550) - 257,150
Conversion
of debentures
into shares of
common stock . . - - 91,324 92 9,908 - - 10,000
Issuance of
common shares
for acquisition
of assets . . . - - 300,000 300 62,700 - - 63,000
Conversion
of preferred
stock into
common shares . (50,000) (50,000) 50,000 50 49,950 - - -
Net loss . . . . - - - - - - (873,641) (873,641)
----------- ----------- ---------- ------ --------- -------- ---------- ----------
BALANCE. . . . . - - 18,141,564 18,142 5,465,030 (146,550) (5,943,196) (606,574)
DECEMBER 31,2003
Issuance
of common
shares for cash - - 6,000,000 6,000 411,341 - - 417,341
Issuance
of common
shares
for services . . - - 7,994,720 7,994 1,212,207 - - 1,220,201
Conversion
of debentures
into shares of
common stock . . - - 3,570,030 3,570 346,521 - - 350,091
Issuance of
common shares
for acquisition
of assets. . . . - - 30,000 30 2,070 - - 2,100
Issuance of
common shares
through
equity line. . . - - 2,145,869 2,146 374,687 - - 376,833
Issuance of
Stock warrants as
Dividends on common
shares . - - - - 36,977 - (36,977) -
Amortization of
Deferred Compensation - - - - - 146,550 - 146,550
Net loss . . . . - - - - - - (2,328,353) (2,328,353)
----------- ----------- ---------- --------- ---------- -------------- ------------- -----------------
BALANCE
DECEMBER 31,2004 - $ - 37,882,183 $ 37,882 $7,848,833 $ - $(8,308,526) $ (421,811)
=========== =========== =========== ======== ========== ============== ============== =================
<FN>
See accompanying notes to consolidated financial statements
FTS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss . . . . . . . . . . . . . . . . . . . . . . $ (2,328,353) $(873,641)
Adjustments to reconcile net loss to net cash
Used in operating activities
Depreciation and amortization. . . . . . . . . . 15,851 7,270
Impairment of long-lived assets. . . . . . . . . 107,000 -
Issuance of common shares for services . . . . . 1,220,201 342,070
Unrealized loss on investment in private entity. 7,500 -
Decrease in deferred compensation . . . . . . . 146,550 -
Amortization of debt discount . . . . . . . . . 98,107 -
Changes in operating asset and liabilities
Increase in accounts receivable . . . . . . . (83,580) (3,905)
Increase in inventories . . . . . . . . . . . (37,239) (7,759)
Increase in prepaid expenses . . . . (33,918) (1,512)
Increase in other assets . . . . . . . . . . . (1,839) (5,750)
(Decrease)Increase in accounts payable
and accrued expenses . . . . . . . . . . . . (24,904) 2,248
------------ ----------
Net cash used in operating activities. . . . . . . . (914,674) (540,979)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment . . . . . . . . . (194,729) -
Investment in stock of private entity. . . . . . . . - (15,000)
Investment in leasehold rights . . . . . . . . . . . - (11,000)
------------ ----------
Net cash used in investing activities. (194,729) (26,000)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in amounts due to related parties . . . . 140,235 117,147
Proceeds for stock to be issued 54,765 -
Repayment of loans from related parties. . . . . . . (99,974) -
Proceeds from issuance of stock. . . . . . . . . . . 417,341 44,000
Proceeds from sale of debentures . . . . . . . . . . - 412,500
Proceeds from stock issued under equity line. . . . 376,833 -
Proceeds from note payable Dutchess Advisors . . . . 450,500 -
Repayments of note payable Dutchess Advisors . . . . (266,485) -
Proceeds from notes payable from individuals . . . . 98,250 -
Repayment of notes payable from individuals. . . . . (61,000) -
------------ ----------
Net cash provided by financing activities. . . . . . 1,110,465 573,647
------------ ----------
Net increase in cash. . . . . . . . . . . . . . . . . 1,062 6,668
Cash, beginning of year. . . . . . . . . . . . . . . . 6,887 219
------------ ----------
Cash, end of year. . . . . . . . . . . . . . . . . . . $ 7,949 $ 6,887
============ ==========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest expense . . . . . . . . . . . . . . . . . . . . .$188,344 $48,121
========= ========
SUPPLEMENTARY DISCLOSURE OF NON CASH INVESTING AND
FINANCING ACTIVITIES:
Stock issued in exchange for convertible debentures . . . . $350,091 $10,000
========= ========
Stock issued in exchange for acquisition of assets . . . . . .$2,100 $63,000
========= ========
<FN>
See accompanying notes to consolidated financial statements
FTS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
- ----------------------
FTS Group, Inc. (the "Company"), formerly FTS Apparel, Inc., was incorporated
under the laws of the State of Nevada. The Company is engaged in the acquisition
and development of a chain of full service retail wireless stores. The Company's
primary business is the marketing, sale and activation of cellular and satellite
handsets, cellular accessories and other related wireless products such as Wi-Fi
service and related access equipment for residential or business purposes.
PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary: FTS Wireless, Inc. All significant inter-company
transactions and balances have been eliminated in consolidation.
BASIS OF PRESENTATION
---------------------
The accompanying financial statements have been prepared in accordance with
Accounting Principles Generally Accepted ("GAAP") in the United States of
America and with the instructions to Form 10-KSB.
USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ significantly from those
estimates. The Company considers its calculation for the reserve for
charge-backs to be a significant estimate and it is reasonably possible that
this estimate could change in the near term.
INVENTORIES
-----------
Inventories, which consist of cellular phones and related accessories, are
stated at the lower of cost (determined on a first in first out method) or
market value.
PROPERTY AND EQUIPMENT
----------------------
Property and equipment are recorded at cost. Maintenance and repairs are charged
to expense when incurred; major renewals and betterment are capitalized. When
property or equipment is sold or retired, the related cost and accumulated
depreciation is removed from the accounts and any gain or loss is included in
the results of operations. Depreciation is calculated using the straight line
method over the estimated useful lives of the respective assets ranging from
three to five years.
DEBT DISCOUNT
-------------
Costs incurred with parties who are providing actual financing, which include
the value of loan premiums and stock are reflected as debt discount. These
discounts are generally amortized over the life of the related debt.
Amortization expense related to these discounts approximated $98,000 and $0 for
the years ended December 31, 2004 and 2003, respectively.
FINANCIAL INSTRUMENTS
---------------------
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31, 2004 and
2003. The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments include
cash, accounts payable, accrued expenses and notes payable. Fair values are
assumed to approximate carrying values for these financial instruments because
they are short term in nature, or are receivable or payable on demand, and their
carrying amounts approximate fair value.
23
IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
The Company reviews its long-lived assets including property and equipment and
its identifiable intangible assets subject to amortization whenever current
events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable. To determine recoverability of its
long-lived assets, the Company evaluates the estimated future undiscounted cash
flows that are directly associated with and that are expected to arise as a
direct result of the use and eventual disposition of that long-lived asset. If
the estimated future undiscounted cash flows demonstrate that recoverability is
not probable, an impairment loss would be recognized. An impairment loss would
be calculated based on the excess carrying amount of the long-lived asset over
the long-lived assets fair value.
NET LOSS PER COMMON SHARE
-------------------------
Basic net loss per common share was computed by dividing the net loss by the
weighted average number of common shares outstanding for the years ended
December 31,2004 and 2003, the effect of including common stock equivalents in
the calculation of net loss per share would be anti-dilutive. Therefore,
outstanding common stock equivalents have not been included in the calculation
of the net loss per share. As a result, basic net loss per share is the same as
diluted net loss per share for the years ended December 31,2004 and 2003.
STOCK-BASED COMPENSATION
------------------------
The Company accounts for equity instruments issued to employees for services
based on the fair value of the equity instruments issued and accounts for equity
instruments issued to other than employees based on the fair value of the
consideration received or the fair value of the equity instruments, whichever is
more reliably measurable. The Company accounts for stock based compensation in
accordance with SFAS 123, "Accounting for Stock-Based Compensation." The
provisions of SFAS 123 allow companies to either expense the estimated fair
value of stock options or to continue to follow the intrinsic value method set
forth in Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" ("APB 25") but disclose the pro forma effects on net income (loss)
had the fair value of the options been expensed. The Company has elected to
continue to apply APB 25 in accounting for its stock option incentive plans.
REVENUE RECOGNITION
-------------------
Net revenues from product sales are recognized upon the transfer of title and
risk of ownership to customers. Allowances for estimated returns, discounts and
doubtful accounts are provided when sales are recorded. Shipping and handling
costs are included in the cost of sales. The Company also recognizes revenue
from the sale and activation of wireless handsets at the time of activation or
sale.
ACCOUNTS RECEIVABLE
-------------------
Accounts receivable are uncollateralized customer obligations due under the
normal trade terms requiring payment within 45 days, depending on contractual
terms. Customer account balances with invoices dated over 90 days old are
considered delinquent. Unpaid accounts do not bear interest. Accounts receivable
are stated at the amount billed to the customer. Payments of accounts receivable
are allocated to the specific invoices identified on the customers remittance
advice or if unspecified, are applied to the earliest unpaid balance.
The carrying amount of accounts receivable is reduced by a valuation allowance
that reflects management's best estimates of the amounts that will not be
collected. Management individually reviews all accounts receivable balances that
exceed 90 days from the invoice date and based on an assessment of current
credit worthiness estimates the portion, if any, of the balance that will not be
collected.
INCOME TAXES
------------
Deferred income tax assets and liabilities are determined based on differences
between the financial statement reporting and the tax basis of assets and
liabilities and are measured using the enacted tax rate and laws that will be in
effect when the differences are expected to reverse. The measurement of the
deferred income tax assets is reduced, if necessary, by a valuation allowance
for any tax benefits that are not expected to be realized. The effect on
deferred income tax assets and liabilities of a change in the tax rates is
recognized in the period that such rate changes are enacted.
RECLASSIFICATIONS
-----------------
Certain amounts contained in the 2003 consolidated financial statements have
been reclassified in order to conform with the 2004 presentation.
ADVERTISTING COSTS
------------------
The cost of advertising is expensed as incurred. Advertising expense charged to
operations was $17,792 and $11,385 for the years ended December 31, 2004 and
2003, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In December 2004, the FASB issued Statement of Financial Accounting Standards,
or SFAS, No. 123R "Share-Based Payment." SFAS No. 123R establishes standards for
the accounting for transactions in which an entity exchanges its equity
instruments for goods or services. This Statement focuses primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS No. 123R requires that the fair value of
such equity instruments be recognized as an expense in the historical financial
statements as services are performed. SFAS 123R, replaces SFAS 123, Accounting
for Stock Based Compensation and Supercedes APB opinion No.25, Accounting for
Stock Issued to Employees. This guidance is effective as of the first interim or
annual reporting period after December 15, 2005 for Small Business Filers. The
adoption of SFAS 123 (R) is not expected to have a material effect on our
financial position or operations.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an Amendment of APB Opinion No. 29." The guidance in Accounting
Principles Board ("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 APB Opinion No. 29, however, included certain exceptions to that principle.
SFAS No. 153 amends APB Opinion No. 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. The provisions of SFAS No. 153 will be applied prospectively to
nonmonetary asset exchange transactions in fiscal year 2006. The adoption of
SFAS No. 153 is not expected to have a material effect on the Company's
financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities", and interpretation of Accounting Research Bulletin
No. 51 "Consolidated Financial Statements." FIN No. 46 prescribes how to
identify variable interest entities and how an enterprise assesses its interests
in a variable interest entity to decide whether to consolidate that entity. This
interpretation requires existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not effectively
disperse risks among parties involved. FIN 46 was scheduled to be effective for
variable interest entities created after January 31, 2003. On December 24, 2003,
the FASB published a revision to FIN No. 46 ("FIN No.
46(R)"). FIN No. 46(R) clarifies certain provisions of FIN No. 46 and exempts
certain entities from its requirements. For interests in variable interest
entities acquired prior to January 31, 2003, the provisions of FIN No. 46(R)
have been applied on March 31, 2004. The Company determined the adoption of FIN
46(R) did not have a material effect on its financial position or results of
operations.
NOTE 2 PROPERTY AND EQUIPMENT
Property and equipment are as follows at December 31, 2004 and 2003:
2004 2003
------- -------
Office furniture, fixtures and equipment $71,333 $58,504
Construction in progress $77,000 -
------- -------
$148,333 $58,504
Less: accumulated depreciation (23,778) (7,927)
-------- -------
Net property and equipment $124,555 $50,577
======== =======
<FN>
Depreciation expense was $15,851 and $7,270 for the years ended December 31,
2004 and 2003, respectively
NOTE 3 GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business.
At December 31, 2004 the Company had a working capital deficit of $472,862 and a
Stockholders' deficit of $421,811. Also the Company incurred a net loss of
$2,328,353 in 2004. These financial conditions of the Company raise substantial
doubt about its ability to continue as a going concern. As part of management's
plans, management is seeking to raise additional capital to execute its business
plans.
The Company will have to raise additional funds, either through debt or equity
offerings, in order to implement its business expansion and acquisition
strategies. The Company has engaged professional advisors for this purpose.
There can be no assurance that the Company will be successful in its attempts to
raise additional capital and become profitable or maintain itself as a going
concern.
The financial statements do not include any adjustments to reflect the possible
future effects of the recoverability and classifications of assets or the
amounts and classifications of liabilities that may result from the possible
inability of the Company to continue as a going concern.
NOTE 4 NOTES PAYABLE RELATED PARTIES
During the year ended December 31, 2004 the Company borrowed $195,000 from two
of its officers and directors with an interest rate of 8% per annum and due in
June and September of 2005. Two of the notes carried a 20% premium in the
aggregate amount of $37,240. The funds were primarily used to fund acquisitions
and to repay loans from Dutchess Private Equities Fund II,LP.
The two notes also included a stipulation that the related parties would receive
932,000 of common stock as an inducement to provide the financing.
Proceeds in the amount of $186,200 borrowed from two of its officers have been
allocated $131,435 to notes payable and $54,765 to the value of the common stock
to be issued to the individuals based on their relative fair values. The
difference between the amount to be repaid aggregating $223,440 and the $131,435
represents a debt discount in the amount of $92,005 which was recorded by the
Company. This amount is being amortized over the life of the loans. For the year
ended December 31, 2004, the Company has amortized $42,073 leaving an
unamortized debt discount of $49,931 at December 31, 2004.
NOTE 5 FINANCING ACTIVITIES
During the year ended December 31, 2004 the Company issued approximately
3,570,030 shares to Dutchess Private Equities Fund, LP to reduce its balance by
$350,091. At December 31, 2004 the outstanding unconverted debenture totaled
$100,493, which has since been converted into approximately 1,004,930 shares of
stock of Dutchess.
During the year ended December 31, 2004 the Company raised $376,833 through the
issuance of 2,145,869 shares to Dutchess Private Equities Fund, LP under its
Equity Line of Credit. Funds raised from the Equity Line are priced at
approximately 93% of the three-day average of the lowest three out of five days
subsequent to a put for funds. 15,000,000 shares were registered under SEC Form
SB-2 during the first quarter of 2004. 12,850,131 shares were still available to
the Company as of December 31,2004.
During the year ended December 31, 2004, the Company sold 6,000,000 shares of
restricted common stock to accredited investors at an average price of $.08 per
share. A group of accredited investors mentioned above owning 4,750,000 shares
also acquired the right to purchase 4,750,000 additional shares at $.08 referred
to as "Green Shoe" or "B" Warrants. In addition these investors were granted "A"
warrants expiring in 2008 to purchase 4,750,000 additional shares at $.12. As of
December 31,2004 no Green Shoes warrants or three year warrants have been
exercised. The 4,750,000 shares have "piggy-back" registration rights as set
forth in the subscription agreement. A placement agent fee of 10% plus 3%
expenses was paid to Westor Online who served as the placement agent in
connection with this financing.
NOTE 6 Impairment of long-lived assets
When the Company completed its impairment testing, it determined that the value
of assets acquired related to certain store locations were impaired in the
amount of $107,000.
26
NOTE 7 NOTES PAYABLE - INDIVIDUALS
In 2004 the Company borrowed approximately $98,250 from several private
investors at an annual interest rate of 8%. One note in the aggregate amount of
$84,000 carried a 20% premium to the face value, which has been charged to
interest expense in 2004, and is due in June and September of 2005.
NOTE 8 NOTE PAYABLE - DUTCHESS PRIVATE EQUITIES FUND
The Company signed a short-term note payable to Dutchess Equities Fund, II L.P.
in the amount of $240,000 which was due December 27, 2004. The loan bears
interest at a rate of 12% per annum, it includes a 20% premium and it includes a
10% penalty for failure to pay by the due date. The premium in the amount of
$40,000 has been charged to the interest expense for 2004 The loan was not paid
back timely; hence, the penalty was assessed.
The note contained a stipulation that the Company would deliver 250,000 shares
of common stock to Dutchess as inducement for entering into the financing.
The Company has recorded a debt discount in the amount of $56,000 relating to
this loan. For the year ended December 31,2004, the Company amortized the entire
$56,000 debt discount.
During the year ended December 31, 2004, the Company also borrowed, under
several short term loan agreements, $210,500 from Dutchess Private Equities Fund
bearing an interest rate of 12%. The entire balance was repaid during 2004.
NOTE 9 EQUITY LINE OF CREDIT
The Company entered into an investment agreement in 2004 for an equity line of
credit with Dutchess Private Equities Fund. The agreement provides for a maximum
of $6,000,000 with 15,000,000 shares of common stock registered and available to
repay credit line advances. Shares are convertible based on 93% of the three-day
average of the lowest three out of five days subsequent to a put for funds. At
December 31,2004 12,854,131 shares were available under the terms of the equity
line agreement. During 2004 the Company raised $376,833 from the equity line of
credit.
NOTE 10 COMMITMENTS AND CONTINGENCIES
The Company leases real property for its seven retail locations. Five of the
locations have lease terms ranging from six months to three years while two
locations are on a month-to-month basis.
Future minimum payments due on the non-cancelable leases are as follows:
Fiscal Year Annual
Ending Payments
- ----------- ---------
2005 $ 113,145
2006 95,439
2007 53,807
2008 633
---------
Total $263,024
=========
Rent expense was $135,447 and $110,447 for the years ended December 31, 2004 and
2003, respectively.
The Company did not have liability and workers compensation insurance for the
year ended December 31,2004. The Company is currently negotiating renewals of
its liability insurance commitments and worker's compensation policies and
anticipates securing the necessary policies.
NOTE 11 CONCENTRATIONS OF CREDIT RISK
The Company's concentrations of credit risk consist principally of Accounts
Receivable and Accounts Payable. The Company purchases approximately 90% of
their telephone supplies from two vendors. Additionally, these same two vendors
are also major customers of the Company who provide over 60% of revenue.
NOTE 12 CONVERTIBLE DEBENTURES
During February 2003 the Company completed an additional debenture offering.
Pursuant to a subscription agreement with Dutchess Private Equities Fund, LP
("Dutchess") the Company received $212,500 from the sale of 6% secured
convertible debentures. The terms of the debentures provide for payment by
February 14, 2007 with the debentures being convertible into the Company's
common stock at any time at the lesser of (i) 80% of the average of the five
lowest closing bid prices during the 15 days prior to conversion or (ii) 100% of
the average of the closing bid prices for the 20 trading days immediately
preceding the closing date. The Company has registered the underlying shares on
Form SB-2. As of December 31, 2004 and 2003 the amount of debentures outstanding
was $100,493 and $450,586, respectively. During 2004 Dutchess converted $350,093
worth of debentures into 3,570,030 shares of stock.
NOTE 13 CAPITAL STOCK AND STOCK OPTIONS
The Company has authorized 155,000,000 shares of stock, of which 150,000,000
shares are $.001 par value common stock and 5,000,000 shares are $.01 par value
preferred stock. The Board of Directors is authorized to divide the class of
preferred shares into series and to fix and determine the relative rights and
preferences of those shares.
In April 1998 the Company authorized the issuance of 150,000 shares of Series A
Voting Convertible Cumulative Preferred Stock for $1 per share. At December 31,
2004 no Series A Preferred shares are currently issued or outstanding.
During July 2003, the Company filed Form SB-2 Registration Statement with the
Securities and Exchange Commission to register 5,600,000 shares of common stock.
In conjunction with this registration statement the Company incurred legal and
accounting costs of approximately $35,000. The SB-2 Registration statement was
declared effective by the Securities and Exchange Commission in October of 2003.
During July of 2004, the Board of Directors declared a 10% warrant dividend for
stockholders of record August 27, 2004. The warrant was a three year warrant
giving each record holder the right to purchase one additional restricted share
of common stock for every ten shares owned at a fixed price of $.25. The Company
has not registered any shares in relation to this dividend.
During January of 2004, the Company filed Form SB-2 Registration Statement with
the Securities and Exchange Commission to register 15,000,000 shares of common
stock. In conjunction with this registration statement the Company incurred
legal and accounting costs of approximately $25,000. The SB-2 Registration
statement was declared effective by the Securities and Exchange Commission in
February of 2004.
During the quarter ended March 31, 2004 the Company issued 3,785,000 shares of
common stock for services pursuant to a Form S-8 registration statement. The
shares were valued at their fair market value on the date it was agreed that the
shares would be issued. The non-cash stock compensation expense of $643,450 has
been charged to operations during the period and reported under SG&A.
During the quarter ended June 30, 2004, the Company issued 2,122,247 shares of
restricted common stock for compensation and consulting services valued at
$297,900.
During the quarter ended September 30, 2004, the Company issued 1,153,500 shares
of restricted common stock for consulting services valued at $173,000.
During the quarter ended December 31,2004 the Company issued 933,973 shares of
restricted common stock for consulting services valued at $105,851.
For the period ended December 31, 2003, the Company issued 1,630,000 shares of
stock for consulting services valued at $257,150
The Company has a Non-Qualified Stock Option and Stock Grant Plan (the "Plan"),
adopted in July 1997.For the years ended December 31,2004 and 2003 the Company
has not granted any options and currently plans to cancel the plan at a time to
be determined in the near future pending attorney review. Under the Company's
Plan, the Company's Board of Directors has reserved 2,500,000 shares that may be
granted at the Board of Directors' discretion. No option may be granted after
July 27, 2007 and the maximum term of the options granted under the Plan is ten
years.
The effect of applying SFAS 123 on a pro forma basis was $0 in 2004 and 2003
because all of the options were granted and fully vested prior to 2003.
Changes in options outstanding under the plan are summarized as follows:
Number of shares Weighted Average Exercise Price
----------------- -------------------------------
Outstanding at December 31, 2002. . . . . 598,000 $ 1.50
---------------- ----------------------------
Granted . . . . . . . . . . . . . . . . . - -
Exercised . . . . . . . . . . . . . . . . - -
Forfeited . . . . . . . . . . . . . . . . - $ -
Outstanding at December 31, 2003 and 2004 598,000 $ 1.50
---------------- -----------------------------
<FN>
The exercise price for all options is at or above the market value of the common
stock as of the date of grant.
The following table summarizes information about fixed price stock options:
OUTSTANDING AND EXERCISABLE
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Number Contractual Exercise
Price Outstanding Life Price
=========== ----------- -------------- --------
0.81-1.38 4,000 6.1 years $ 1.14
1.50-2.75 594,000 6.7 years $ 1.50
- ----------- ----------- -------------- --------
The following details the warrants outstanding as of December 31, 2004 and 2003:
2004 2004 2003 2003
Underlying Exercise Underlying Exercise
Shares Price Shares Price
========== ========= ========== =========
Warrants issued during 2000 1,036,000 $ 1.50 1,036,000 $ 1.50
Warrants issued during 2004 (10% Warrant Div) 3,000,000 $ .25 - -
Warrants issued during 2004 (A and B Warrants) 9,500,000 $.08/$.12 - -
---------- --------- ---------- --------
During the year ended December 31, 2004 the Company declared a dividend and
agreed to issue 3,000,000 three year warrants with an exercise price of $.25 to
stockholders of record on August 27, 2004. If fully exercised the Company would
receive gross proceeds of approximately $750,000 before fees and expenses. As of
December 31,2004 no warrants have been exercised. The Company also issued two
classes of warrants in conjunction with private placements closed during 2004,
the Company issued 4,750,000 "Green Shoe" or "B" warrants priced at $.08
expiring 180 days from the effective date of an SB-2 registration statement. The
Company issued 4,750,000 "A" warrants priced at $.12 expiring in 2008. If fully
exercised the Company would receive gross proceeds of approximately $950,000
before fees and expenses. As of December 31,2004 no warrants have been
exercised.
NOTE 14 INCOME TAXES
The Company accounts for income taxes under SFAS 109, "Accounting for Income
Taxes", which requires use of the liability method. SFAS 109 provides that
deferred tax assets and liabilities are recorded based on the differences
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes, referred to as temporary differences. Deferred tax
assets and liabilities at the end of each period are determined using the
enacted tax rates that will be in effect when the differences are expected to
reverse.
Reconciliation of the federal statutory income tax rate of 34% to the effective
rate is as follows:
December 31
=============
2004 2003
------ ------
Tax provision at the federal statutory income tax rate ($792,000)
(297,000)
Valuation allowance $792,000 297,000
-------- --------
Actual Tax provision $ - $ -
The tax effects of temporary differences and net operating losses that give rise
to significant portions of deferred tax assets and liabilities consisted of the
following:
December 31
=============
2004 2003
------- ------
Net operating loss carryforward: $2,585,000 $1,793,000
Less valuation allowance (2,585,000) (1,793,000)
----------- -----------
Net deferred tax asset $ - $ -
---------- ----------
The net operating loss carryforwards of approximately $6,700,000 will expire
through 2023.
NOTE 15 SUBSEQUENT EVENTS
Subsequent to December 31, 2004 the Company fully extinguished its convertible
debenture with Dutchess Private Equities Fund, LP by issuing approximately
772,086 shares of its stock under terms of its convertible debenture.
In March the Company closed an additional financing of approximately $777,000 by
issuing 9,375,000 shares valued at $.08 to a group of accredited investors. In
accordance with the subscription agreement the investors will receive two
classes, A and B warrants for each share purchased. The warrants are priced at
$.08 and $.12. The Company filed the terms and conditions of the financing,
including registration rights in March of 2005 on Form 8K. Funds have been and
will continue to be used to reduce debt, fund future acquisitions and for
general working capital purposes. During the period the Company closed a private
placement of shares valued at $.08 to an accredited investor by issuing
1,300,000 restricted shares.
During the period ended March 31, 2005 2,085,426 shares were issued under our
Equity line of credit for proceeds of $292,000.
During 2005 all related party Notes have been paid in full.
During 2005 all notes payable to individuals were paid in full.
During the period ended March 31, 2005 the Company delivered 500,000 shares to
Dutchess Private Equities Fund, per a note agreement entered into during the
period ended December 31, 2004.
During the period ended March 31, 2005 the Company issued 2,030,000 for
consulting services. These agreements were filed in an S-8 during January of
2005.
During the period ended March 31, 2005 the Company issued 932,500 shares to two
officers of the Company relating to note agreements entered into during 2004.
FTS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 2005
(UNAUDITED)
2005
ASSETS
CURRENT ASSETS
Cash $ 736
Accounts receivable 211,819
Inventory 54,134
Prepaid Expenses 27,272
-----------------
Total current assets 293,961
-----------------
PROPERTY AND EQUIPMENT, NET 201,542
-----------------
OTHER ASSETS
Investment in private entity 7,500
Deposits 20,489
-----------------
Total other assets 27,989
-----------------
$ 523,492
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 228,040
Notes payable - individuals 3,250
Notes payable - related parties 1,867
Note payable-Dutchess Private Equities Fund
Net of debt discount, $7,516 at March 31,2005 35,907
-----------------
Total current liabilities 269,064
-----------------
STOCKHOLDERS' EQUITY
10% Convertible preferred stock, Series A, $0.01 par
value, 150,000 shares authorized, 0 shares issued and
outstanding -
Preferred stock, $0.01 par value, 4,850,000
undesignated shares authorized, none issued -
Common stock, $0.001 par value, 150,000,000 shares
authorized, 54,877,195 issued and outstanding
at March 31, 2005 54,877
Additional paid in capital 9,335,064
Accumulated deficit (9,079,513)
-----------------
310,428
Less: Stock subscription receivable (56,000)
-----------------
Total stockholders' equity 254,428
-----------------
$ 523,492
=================
<FN>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FTS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
-----------
2005 2004
------------ ------------
REVENUES
Sales , Net $ 303,970 $ 181,335
------------ ------------
COST OF GOODS SOLD 135,518 143,134
------------ ------------
GROSS PROFIT 168,452 38,201
------------ ------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses 755,327 907,906
------------ ------------
LOSS FROM OPERATIONS (586,875) (869,705)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (184,112) -
------------ ------------
NET LOSS (770,987) (869,705)
------------ ------------
PER SHARE INFORMATION:
WEIGHTED AVERAGE SHARES OUTSTANDING
(BASIC AND DILUTED) 47,575,884 19,169,673
------------ ------------
NET LOSS PER COMMON SHARE (BASIC AND DILUTED) $ (0.02) $ (0.05)
------------ ------------
<FN>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FTS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
-----------
2005 2004
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(770,987) $(869,705)
---------- ----------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 8,077 2,775
---------- ----------
Issuance of common shares for services 294,350 643,450
---------- ----------
Decrease in deferred compensation - 42,300
---------- ----------
Amortization of debt discount 180,877 -
---------- ----------
Changes in operating assets and liabilities
Increase in accounts receivable (124,334) (34,144)
---------- ----------
Increase in inventory (9,136) (2,763)
---------- ----------
Decrease in prepaid expenses 8,158 -
---------- ----------
(Increase) Decrease in other assets (1,000) 4,005
---------- ----------
Increase in accounts payable
and accrued expenses 45,682 40,813
---------- ----------
Net cash used in operating activities (368,313) (173,269)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (85,064) (3,561)
---------- ----------
Net cash used in investing activities (85,064) (3,561)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of loans from related parties - 15,403
---------- ----------
Repayment of loans from related parties (159,815) -
---------- ----------
Proceeds from issuance of stock 713,460 297,142
---------- ----------
Repayment of convertible debenture (26,876) (104,139)
---------- ----------
Proceeds from stock issued under equity line 270,994 -
---------- ----------
Proceeds from Note Payable-Dutchess Private
Equities Fund, II, LP 500,000 -
---------- ----------
Repayments of Note Payable-Dutchess Private
Equities Fund, II, LP (817,599) -
---------- ----------
Repayments of loans from individuals (34,000) -
---------- ----------
Net cash provided by financing activities 446,164 208,406
---------- ----------
Net (decrease) increase in cash (7,213) 31,576
Cash, beginning of period 7,949 6,887
---------- ----------
Cash, end of period $ 736 $ 38,463
---------- ----------
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
- --------------------------------------------------------
2005 2004
Cash paid during three months for:
Interest expense $33,715 -
------- --------
SUPPLEMENTARY DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued in exchange for long-term debt $73,617 -
------- --------
Stock issued as loan inducements $38,462 -
------- --------
Stock issued in payment of accounts payable and
accrued expenses $77,365 -
------- --------
Stock subscription receivable $56,000 -
------- --------
<FN>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FTS Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
--------------------
FTS Group, Inc. (the "Company"), was incorporated under the laws of the State of
Nevada. The Company is engaged in the acquisition and development of a chain of
full service retail wireless stores. The Company's primary business is the
marketing, sale and activation of cellular and satellite handsets, cellular
accessories and other related wireless products such as Wi-Fi service and
related access equipment for residential or business purposes.
PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary: FTS Wireless, Inc. All significant inter-company
transactions and balances have been eliminated in consolidation.
BASIS OF PRESENTATION
---------------------
The accompanying unaudited interim financial statements have been prepared in
accordance with Accounting Principles Generally Accepted ("GAAP")in the United
States of America for interim financial information and with the instructions to
Form 10-QSB. Accordingly the accompanying financial statements and related
footnotes have been condensed and do not contain certain information that will
be included in the Company's annual financial statements and footnotes thereto.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Results for the three months ended March 31, 2005 are not indicative of the
results that may be expected for the year ending December 31, 2005.
As contemplated by the Securities and Exchange Commission, these statements
should be read in conjunction with consolidated financial statements and related
footnotes thereto included in the Company's annual report on Form 10-KSB for the
year ended December 31, 2004.
USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ significantly from those
estimates. The Company considers its calculation for the reserve for
charge-backs to be a significant estimate and it is reasonably possible that
this estimate could change in the near term.
INVENTORIES
Inventories, which consist of cellular phones and related accessories, are
stated at the lower of cost (determined on a first in first out method) or
market value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Maintenance and repairs are charged
to expense when incurred; major renewals and betterment are capitalized. When
property or equipment is sold or retired, the related cost and accumulated
depreciation is removed from the accounts and any gain or loss is included in
the results of operations. Depreciation is calculated using the straight line
method over the estimated useful lives of the respective assets ranging from
three to five years.
DEBT DISCOUNT
Costs incurred with parties who are providing actual financing, which include
the value of loan premiums and stock are reflected as debt discount. These
discounts are generally amortized over the life of the related debt.
Amortization expense related to these discounts approximated $181,000 and $0 for
the three months ended March 31, 2005 and 2004, respectively.
FINANCIAL INSTRUMENTS
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of March 31, 2005 and 2004.
The respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts payable, accrued expenses and notes payable. Fair values are assumed to
approximate carrying values for these financial instruments because they are
short term in nature, or are receivable or payable on demand, and their carrying
amounts approximate fair value.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets including property and equipment and
its identifiable intangible assets subject to amortization whenever current
events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable. To determine recoverability of its
long-lived assets, the Company evaluates the estimated future undiscounted cash
flows that are directly associated with and that are expected to arise as a
direct result of the use and eventual disposition of that long-lived asset. If
the estimated future undiscounted cash flows demonstrate that recoverability is
not probable, an impairment loss would be recognized. An impairment loss would
be calculated based on the excess carrying amount of the long-lived asset over
the long-lived assets fair value.
NET LOSS PER COMMON SHARE
Basic net loss per common share was computed by dividing the net loss by the
weighted average number of common shares outstanding for the three months ended
March 31, 2005 and 2004, the effect of including common stock equivalents in the
calculation of net loss per share would be anti-dilutive. Therefore, outstanding
common stock equivalents have not been included in the calculation of the net
loss per share. As a result, basic net loss per share is the same as diluted net
loss per share for the three months ended March 31, 2005 and 2004.
STOCK-BASED COMPENSATION
The Company accounts for equity instruments issued to employees for services
based on the fair value of the equity instruments issued and accounts for equity
instruments issued to other than employees based on the fair value of the
consideration received or the fair value of the equity instruments, whichever is
more reliably measurable. The Company accounts for stock based compensation in
accordance with SFAS 123, "Accounting for Stock-Based Compensation." The
provisions of SFAS 123 allow companies to either expense the estimated fair
value of stock options or to continue to follow the intrinsic value method set
forth in Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" ("APB 25") but disclose the pro forma effects on net income (loss)
had the fair value of the options been expensed. The Company has elected to
continue to apply APB 25 in accounting for its stock option incentive plans.
REVENUE RECOGNITION
Net revenues from product sales are recognized upon the transfer of title and
risk of ownership to customers. Allowances for estimated returns, discounts and
doubtful accounts are provided when sales are recorded. Shipping and handling
costs are included in the cost of sales. The Company also recognizes revenue
from the sale and activation of wireless handsets at the time of activation or
sale.
ACCOUNTS RECEIVABLE
Accounts receivable are uncollateralized customer obligations due under the
normal trade terms requiring payment within 45 days, depending on contractual
terms. Customer account balances with invoices dated over 90 days old are
considered delinquent. Unpaid accounts do not bear interest. Accounts receivable
are stated at the amount billed to the customer. Payments of accounts receivable
are allocated to the specific invoices identified on the customers remittance
advice or if unspecified, are applied to the earliest unpaid balance.
The carrying amount of accounts receivable is reduced by a valuation allowance
that reflects management's best estimates of the amounts that will not be
collected. Management individually reviews all accounts receivable balances that
exceed 90 days from the invoice date and based on an assessment of current
credit worthiness estimates the portion, if any, of the balance that will not be
collected.
INCOME TAXES
Deferred income tax assets and liabilities are determined based on differences
between the financial statement reporting and the tax basis of assets and
liabilities and are measured using the enacted tax rate and laws that will be in
effect when the differences are expected to reverse. The measurement of the
deferred income tax assets is reduced, if necessary, by a valuation allowance
for any tax benefits that are not expected to be realized. The effect on
deferred income tax assets and liabilities of a change in the tax rates is
recognized in the period that such rate changes are enacted.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued Statement of Financial Accounting Standards,
or SFAS, No. 123R "Share-Based Payment." SFAS No. 123R establishes standards for
the accounting for transactions in which an entity exchanges its equity
instruments for goods or services. This Statement focuses primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS No. 123R requires that the fair value of
such equity instruments be recognized as an expense in the historical financial
statements as services are performed. SFAS 123R, replaces SFAS 123, Accounting
for Stock Based Compensation and Supercedes APB opinion No.25, Accounting for
Stock Issued to Employees. This guidance is effective as of the first interim or
annual reporting period after December 15, 2005 for Small Business Filers. The
adoption of SFAS 123 (R) is not expected to have a material effect on our
financial position or operations.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an Amendment of APB Opinion No. 29." The guidance in Accounting
Principles Board ("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 APB Opinion No. 29, however, included certain exceptions to that principle.
SFAS No. 153 amends APB Opinion No. 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. The provisions of SFAS No. 153 will be applied prospectively to
nonmonetary asset exchange transactions in fiscal year 2006. The adoption of
SFAS No. 153 is not expected to have a material effect on the Company's
financial position or results of operations.
35
In November 2004, the FASB issued SFAS No. 151 (SFAS 151), "Inventory Costs".
SFAS 151 amends ARB No. 43, Chapter 4. This statement clarifies the accounting
for abnormal amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). SFAS 151 is the result of a broader effort by the
FASB and the IASB to improve financial reporting by eliminating certain narrow
differences between their existing accounting standards. This statement is
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The adoption of SFAS 151 will not have a material impact on the
results of operations or financial position of the Company.
NOTE 2 GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business.
At March 31, 2005 the Company continues to incur losses. For the three months
ended March 31, 2005, the Company incurred a net loss of $770,987. This
financial condition of the Company raise substantial doubt about its ability to
continue as a going concern. As part of management's plans, management is
seeking to raise additional capital to execute its business plans.
The Company will have to raise additional funds, either through debt or equity
offerings, in order to implement its business expansion and acquisition
strategies. The Company has engaged professional advisors for this purpose.
There can be no assurance that the Company will be successful in its attempts to
raise additional capital and become profitable or maintain itself as a going
concern.
The financial statements do not include any adjustments to reflect the possible
future effects of the recoverability and classifications of assets or the
amounts and classifications of liabilities that may result from the possible
inability of the Company to continue as a going concern.
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment are as follows at March 31, 2005:
Office furniture, fixtures and equipment $233,397
Less: accumulated depreciation (31,855)
--------
Net property and equipment $201,542
========
Depreciation expense for the three months ended March 31, 2005 and 2004 was
$8,077 and $2,775 respectively.
NOTE 4 STOCK FOR SERVICES
During January 2005, the Company issued 2,030,000 shares of common stock for
services pursuant to a Form S-8 registration. The shares were valued at fair
market on the date it was agreed that the shares would be issued. The non-stock
compensation expense of $294,350 has been charged to operations during the
period and reported under Selling, General and Administrative Expenses.
NOTE 5 FINANCING ACTIVITIES
During the three months ended March 31, 2005, the Company issued 10,675,000
shares of common stock to a group of accredited investors in private placements
at an average price of $.08 per share for gross proceeds of $769,460 after 10%
commission and 3% expense fee. In accordance with the subscription agreement,
the investors will receive two classes of warrants, called Series A and Series B
warrants, for each share of common stock purchased. The A warrants have an
exercise price of $0.08 and B warrants have an exercise price of $0.12. The
Company filed the terms and conditions of the financing and registration rights
in March of 2005 on Form 8-K. The funds raised in the private placement were
primarily used for working capital, costs related to the opening of new
locations and to reduce outstanding liabilities.
During the three months ended March 31, 2005, $51,017 worth of debentures was
converted into 522,086 shares of stock relating to the Company's convertible
debenture with Dutchess Private Equities Fund. The convertible debenture was
fully extinguished during the period.
During the three months ended March 31, 2005, 2,085,426 shares of stock were
issued relating to the Company's equity line of credit for proceeds of $270,994.
Funds were used to repay outstanding notes.
As of March 31, 2005 there was a $56,000 receivable due from an investor
relating to stock issued for the private placement. The receivable was collected
in April of 2005.
NOTE 6 NOTE PAYABLE - DUTCHESS PRIVATE EQUITIES FUND
The Company signed a short-term note payable to Dutchess Equities Fund, II L.P.
in the amount of $500,000 plus a $100,000 premium. The note, dated January 10th,
2005 matures on August 10,2005. The note bears interest at 12% per annum. The
note carries certain restrictions relating to additional financing and
registration rights to certain shares issued to Dutchess. As of May 5th, 2005,
the note and interest have been paid in full.
The note contained a stipulation that the Company would deliver 500,000 shares
of common stock with "Piggy-Back" registration rights. In addition, the Company
issued 250,000 shares of restricted common stock in March 2005 relating to loan
inducements for a loan in 2004.
NOTE 7 EQUITY LINE OF CREDIT
The Company maintains an equity line of credit with Dutchess Private Equities
Fund. The Company may cancel this line of credit at any time. The agreement
provides for a maximum of $6,000,000 with 15,000,000 shares of common stock
registered and available to repay credit line advances. As of March 31, 2005,
10,759,705 shares remain available under the terms of the equity line agreement.
Shares are convertible based on 93% of the three day average of the lowest three
out of five days subsequent to a put for funds.
NOTE 8 NOTES PAYABLE RELATED PARTY AND INDIVIDUALS
During the year ended December 31, 2004 the Company received loans from two of
its officers and directors totaling $195,000 with an interest rate of 12% per
annum. The funds were primarily used to finance acquisitions and to pay loans
with Dutchess Private Equities Fund.
The notes contained a stipulation that each officer would receive shares of
stock as an inducement to provide the financing. Combined restricted shares of
932,500 were issued to the officers and directors in March 2005.
Outstanding Notes Payable at March 31, 2005 consisted of:
Unsecured outstanding demand note with interest at 8% per annum payable to an
individual investor in the amount of $3,250.
Unsecured outstanding demand note with interest at 8% per annum payable to an
officer in the amount of $1,867.
NOTE 9 CONTINGENCIES
The Company did not have liability and workers compensation insurance for the
three month period ended March 31, 2005. The Company is currently negotiating
renewals of its liability and workers compensation policies and anticipates
securing the necessary policies.
NOTE 10 WARRANTS AND OPTIONS
The Company has a Non-Qualified Stock Option and Stock Grant Plan (the "Plan"),
adopted in July 1997. For the three months ended March 31, 2005, the Company had
not granted any options and currently intends to cancel the plan. Under the
Company's Plan, the Company's Board of Directors has reserved 2,500,000 shares
that may be granted at the Board of Directors' discretion. No option may be
granted after July 27, 2007 and the maximum term of the options granted under
the Plan is ten years. The effect of applying SFAS 123 on a pro forma basis was
$0 in 2005 and 2004 because all of the options were granted and fully vested
prior to 2003. Changes in options outstanding under the plan are summarized as
follows:
Number of shares Weighted Average
Exercise Price
----------------- ---------------
Outstanding at December
31, 2004 598,000 $ 1.50
---------------- --------------
Granted - -
Exercised - -
Forfeited - -
Outstanding at March 31,
2005 598,000 $ 1.50
----------------- --------------
The exercise price for all options is at or above the market value of the common
stock as of the date of grant.
The following table summarizes information about fixed price stock options:
OUTSTANDING AND EXERCISABLE
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Number Contractual Exercise
Price Outstanding Life Price
=========== ----------- ---------- --------
0.81-1.38 4,000 6.1 years $ 1.14
1.50-2.75 594,000 6.7 years $ 1.50
- -----------------------------------------
The following details warrants outstanding as of March 31, 2005:
During the three months ended March 31, 2005 the Company had 3,000,000 warrants
outstanding relating to a dividend declared to stockholders of record on August
27, 2004. In accordance with the subscription agreement relating to the recent
private placement the Company issued the following warrants. Investors will
receive two classes of warrants, called Series A and Series B warrants, for each
share of common stock purchased. The A warrants have an exercise price of $0.08
and B warrants have an exercise price of $0.12. The Company filed the terms and
conditions of the financing and registration rights in March of 2005 on Form
8-K. The funds raised in the private placement were primarily used for working
capital, costs related to the opening of new locations and to reduce outstanding
liabilities
2005 2005
Underlying Exercise
Price Shares
========== =========
Warrants issued during 2000 1,036,000 $ 1.50
Warrants issued during 2004
(10% Warrant Div) 3,000,000 $ 0.25
Warrants issued during 2004
and 2005(A and B Warrants) 28,987,500 $.08/$.12
---------- ---------
NOTE 11 CONCENTRATIONS OF CREDIT RISK
The Company's concentrations of credit risk consist principally of Accounts
Receivable and Accounts Payable. The Company purchases approximately 90% of
their wireless handsets and other supplies from two vendors who represent
approximately 71% of accounts payable at March 31, 2005. Additionally, these
same two vendors are also major customers of the Company who provide over 94% of
revenue, and represent 100% of accounts receivable at March 31, 2005.
WHERE TO FIND MORE INFORMATION ABOUT US
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the 1933 Act with respect to the shares offered by
this prospectus. This prospectus, filed as a part of the registration statement,
does not contain certain information contained in Part II of the registration
statement or filed as exhibits to the registration statement. We refer you to
the registration statement and exhibits which may be inspected and copied at the
Public Reference Department of the Commission, 450 5th Street, NW, Washington,
D.C. 20549, at prescribed rates. You can contact the Commission's Public
Reference Department at (800) SEC-0330. The registration statement and exhibits
also are available for viewing at and downloading from the EDGAR location within
the SEC's internet website (http://www.sec.gov).
Our common stock is registered with the SEC under section 12(g) of the
Securities Exchange Act of 1934. We file with the SEC periodic reports on Forms
10-KSB, 10-QSB and 8-K, and proxy statements, and our officers and directors
file reports of stock ownership on Forms 3, 4 and 5. These filings may be viewed
and downloaded from the SEC's internet website (http://www.sec.gov) at the EDGAR
location. Also, we will provide copies of these documents and any exhibits to
them, without charge to prospective investors upon request addressed to FTS
Group, Inc., 7610 West Hillsborough Ave., Tampa, Florida 33615. We intend to
send annual reports containing audited financial to the shareholders.
CHANGES IN AND DISAGREMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None of our principal independent accountants have resigned or declined to stand
for re-election. We have dismissed our auditors in the last two years as
described in our filings on Form 8-K.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VII in our Articles of Incorporation provides that we shall indemnify to
the fullest extent not prohibited by law any person who was or is a party or is
threatened to be made a party to any legal proceeding against all expenses
(including attorney's fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by the person in connection with such
proceeding. Any repeal or modification of this Article by the stockholders of
the corporation shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director or officer of the corporation
for acts of omissions prior to such repeal or modification.
Article 7.1 of our By-Laws provides that we shall indemnify to the fullest
extent not prohibited by law any person who was or is a party or is threatened
to be made a party to any proceeding (as hereinafter defined) against all
expenses (including attorney's fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such proceeding.
Under the foregoing provisions of our Articles of Incorporation and By-Laws,
each person who is or was a director or officer shall be indemnified by us to
the full extent permitted or authorized by the General Corporation Law of
Nevada. Under such law, to the extent that such person is successful on the
merits of defense of a suit or proceeding brought against such person by reason
of the fact that such person is a director or officer of FTS Group, such person
shall be indemnified against expenses, including attorneys' fees, reasonably
incurred in connection with such action. If unsuccessful in defense of a
third-party civil suit or a criminal suit or if such a suit is settled, such a
person shall be indemnified under such law against both (1) expenses (including
attorneys' fees) and (2) judgments, fines and amounts paid in settlement if such
person acted in good faith and in a manner such person reasonably believed to be
in, or not opposed to, our best interests, and with respect to any criminal
action, had no reasonable cause to believe such person's conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has 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.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth our expenses in connection with this registration
statement. All of these expenses are estimates, other than the fees and expenses
of legal counsel and filing fees payable to the Securities and Exchange
Commission.
Filing Fee--Securities and Exchange Commission $ 150
Legal Expenses $ 14,850
Accounting Expenses $ 7,000
Blue Sky Fees and Expenses $ 1,000
Printing Expenses $ 1,000
Miscellaneous expenses $ 1,000
---------
Total: $ 25,000
RECENT SALES OF UNREGISTERED SECURITIES
From the year ended December 31, 2002, we issued the following number of
restricted shares of our common stock to the following individuals listed below.
STOCK ISSUANCES TO MR. SCOTT GALLAGHER, OUR CHAIRMAN AND CEO On November 12,
2002 we issued 833,333 shares of common stock for services rendered (accrued
salary) to the Company valued at $.06 per share; - On November 26, 2002, we
issued 387,500 shares of common stock for services rendered (Board Compensation)
to the Company valued at $.08 per share. During August of 2004 we issued 625,000
restricted shares valued at $.20 per share to Mr. Gallagher in lieu of salary
and bonus' for the entire year. During March of 2005 we issued 625,000
restricted shares to Mr. Gallagher as part of a $125,000 loan agreement entered
into.
We believe such issuances were exempt from registration pursuant to Section 4(2)
Of the Securities Act and any regulations promulgated thereunder, relating to
Sales by an issuer not involving any public offering.
STOCK ISSUANCES TO MR. DAVID RASMUSSEN, DIRECTOR
- - 75,000 shares of common stock for services rendered to the Company valued at
$.08 per share (Board Compensation).
- - 50,000 shares of common stock for services rendered to the Company valued at
$.08 per share (Board Compensation).
We believe such issuance was exempt from registration pursuant to Section 4(2)
of the Securities Act and any regulations promulgated thereunder, relating to
sales by an issuer not involving any public offering.
STOCK ISSUANCES TO MS. LINDA EHLEN, DIRECTOR/CFO
- - 166,666 shares of common stock for services rendered to the Company valued at
$.06 per share; and
- - 56,250 shares of common stock for services rendered to the Company valued at
$.08 per share.
- - 307,000 shares of common stock relating to a $61,800 loan agreement entered
into.
- - 200,000 shares of common stock for services rendered to the Company valued at
$.10 per share.
We believe such issuances were exempt from registration pursuant to Section 4(2)
of the Securities Act and any regulations promulgated thereunder, relating to
sales by an issuer not involving any public offering.
..STOCK ISSUANCES TO FORMER DIRECTORS
Scott McBride
- - 125,000 shares of common stock for services rendered to the Company valued at
$.06 per share;
- - 300,000 shares of common stock which were purchase at $.05 per share for
proceeds to the Company of $15,000; and
- - 75,000 shares of common stock for services rendered to the Company valued at
$0.08 per share (Board Compensation).
We believe such issuances were exempt from registration pursuant to Section 4(2)
of the Securities Act and any regulations promulgated thereunder, relating to
sales by an issuer not involving any public offering.
James Gilligan
- - 125,000 shares of common stock for services rendered to the Company valued at
$.06 per share.
- - 75,000 shares of common stock for services rendered to the Company valued at
$.08 per share (Board Compensation).
We believe such issuances were exempt from registration pursuant to Section 4(2)
of the Securities Act and any regulations promulgated thereunder, relating to
sales by an issuer not involving any public offering.
Joseph DeBerry/Roger Burnett
In November of 2002, we issued 30,000 shares of common stock to two former
directors for services rendered to the Company during 2001 valued at $.06 per
share.
- - 20,000 shares to Mr. Joseph DeBerry
- - 10,000 shares to Mr. Roger Burnett
We believe such issuances were exempt from registration pursuant to Section 4(2)
Of the Securities Act and any regulations promulgated thereunder, relating to
Sales by an issuer not involving any public offering.
PRIVATE PLACEMENT SHARES
We issued an aggregate of 350,000 shares of common stock to three individuals
who purchased shares in September 2002 at $.05 per share.
We issued 1,200,000 shares of restricted common stock to an accredited investor
at $.08 per share during 2004 and 2005 for proceeds of $96,000.
We closed a private placement by issuing a total of 15,431,250 restricted common
shares valued $.08 per share to a group of accredited investors. In accordance
with the subscription agreement the investors will receive two classes, A and B
warrants for each share purchased. The warrants are priced at $.12 and $.08. We
filed the terms and conditions of the financing, including registration rights
in March 2005 on Form 8K. Funds have been and will continue to be used to reduce
debt, fund future acquisitions, and for general working capital purposes.
We believe such issuances were exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933, and any regulations promulgated thereunder,
relating to sales by an issuer not involving any public offering.
DUTCHESS PRIVATE EQUITIES FUND, LP
- - 250,000 shares were purchased at $.05 per share in August of 2002
- - 600,000 shares were issued valued at $.18 per share in August of 2002,
relating to the proposed Equity Line.
- - 250,000 shares were issued valued at $.10 per share relating to a $200,000
note agreement entered into during 2004.
- - 500,000 shares were issued valued at $.10 per share relating to a $500,000
note agreement entered into during 2005.
Dutchess Private Equities Fund, LP had access to information that would be
Included in a registration statement. Dutchess Private Equities Fund, LP is a
sophisticated investor and is able to bear the economic risks of its investment.
We believe such issuances were exempt from registration pursuant to Section 4(2)
of the Securities Act and any regulations promulgated thereunder, relating to
sales by an issuer not involving any public offering.
SETH FARBMAN, LEGAL
- - 100,000 shares were issued to Mr. Seth Farbman in August of 2002 valued at
$.18 for legal services relating to our SB-2 filing.
We believe such issuances were exempt from registration pursuant to Section 4(2)
of the Securities Act and any regulations promulgated thereunder, relating to
sales by an issuer not involving any public offering.
THE FOLLOWING SHARE ISSUANCES WERE MADE TO OUR FORMER CHAIRMAN AND CEO MR. LEROY
LANDHUIS DURING 2002.
LEASE SETTLEMENT AGREEMENT
- - January 11, 2002 433,333 valued at $.10 per share
- - September 23, 2002 1,010,047 valued at $.14 per share
- - November 26, 2002 322,160 valued at $.08 per share
We believe such issuances were exempt from registration pursuant to Section 4(2)
of the Securities Act and any regulations promulgated thereunder, relating to
sales by an issuer not involving any public offering.
CONVERTIBLE DEBENTURES
During February 2003 the Company completed an additional debenture offering.
Pursuant to a subscription agreement with Dutchess Private Equities Fund, LP
("Dutchess") the Company received $212,500 from the sale of 6% secured
convertible debentures. The terms of the debentures provide for payment by
February 14, 2007 with the debentures being convertible into the Company's
common stock at any time at the lesser of (i) 80% of the average of the five
lowest closing bid prices during the 15 days prior to conversion or (ii) 100% of
the average of the closing bid prices for the 20 trading days immediately
preceding the closing date. The Company has registered the underlying shares on
Form SB-2. As of December 31, 2004 and 2003 the amount of debentures outstanding
was $100,493 and $450,586, respectively. During 2004 Dutchess converted $350,093
worth of debentures into 3,570,030 shares of stock.
EXHIBITS
NUMBER DESCRIPTION
- -------------------
2.1 Agreement and Plan of Merger between the Company and FTS Apparel, Inc.,
dated December 23, 2003 (included as Attachment A to the Definitive Proxy on
Form DEF 14A filed January 9, 2004, and incorporated herein by reference).
3.1 Articles of Incorporation dated December 23, 2003 (included as Attachment B
to the Definitive Proxy on Form DEF 14A filed January 9, 2004, and incorporated
herein by reference).
3.2 Bylaws (included as Attachment C to the Definitive Proxy on Form DEF 14A
filed January 9, 2004, and incorporated herein by reference).
4.1 Subscription Agreement Form (included as exhibit 10.1 to the Form 8-K
filed February 24, 2003, and incorporated herein by reference).
4.2 Debenture Agreement between the Company and Dutchess Private Equities Fund,
L.P., dated February 14, 2003 (included as exhibit 10.2 to the Form 8-K filed
February 24, 2003, and incorporated herein by reference).
4.3 Registration Rights Agreement between the Company and Dutchess Private
Equities Fund, L.P., dated February 14, 2003 (included as exhibit 10.3 to the
Form 8-K filed February 24, 2003, and incorporated herein by reference).
4.4 Debenture Exchange Agreement between the Company and Dutchess Private
Equities Fund, L.P., dated February 14, 2003 (included as exhibit 10.5 to the
Form 8-K filed February 24, 2003, and incorporated herein by reference).
4.5 Addendum to the Subscription Agreement, dated July 21, 2003 (included as
Exhibit 10.1 to the Form 8-K filed July 22, 2003, and incorporated herein by
reference).
4.6 Amended Debenture between the Company and Dutchess Private Equities Fund,
L.P., dated February 14, 2003 (included as Exhibit 10.2 to the Form 8-K filed
July 22, 2003, and incorporated herein by reference).
4.7 Registration Rights Agreement between the Company and Dutchess Private
Equities Fund, L.P., dated January 9, 2004 (filed as Exhibit 10.16 to the Form
SB-2 filed January 28, 2004, and incorporated herein by reference).
4.8 Subscription Agreement Form (included as exhibit 10.1 to the Form 8-K filed
March 24, 2005, and incorporated herein by reference).
4.9 A Warrant Form (included as exhibit 4.1 to the Form 8-K filed March 24,
2005, and incorporated herein by reference).
4.10 B Warrant Form (included as exhibit 4.2 to the Form 8-K filed March 24,
2005, and incorporated herein by reference).
4.11 Promissory Note between the Company and Dutchess Private Equities Fund, II,
L.P., dated October 27, 2004 (included as exhibit 4.11 to the Form SB-2 filed
June 17, 2005, and incorporated herein by reference).
4.12 Promissory Note between the Company and Dutchess Private Equities Fund, II,
L.P., dated January 10, 2005 (included as exhibit 4.12 to the Form SB-2 filed
June 17, 2005, and incorporated herein by reference).
5.1 Legal Opinion
10.1 Escrow Agreement between the Company and Dutchess Private Equities Fund,
LP, dated February 14, 2003 (included as exhibit 10.4 to the Form 8-K filed
February 24, 2003, and incorporated herein by reference).
10.2 Memorandum of Understanding between the Company and Malsha Imports, Inc.,
dated February 28, 2003 (included as Exhibit 10.11 to the Form SB-2/A filed
September 15, 2003, and incorporated herein by reference).
10.3 Confidentiality and No Conflict Agreement between the Company and American
Connections, LLC, dated February 28, 2003 (included as Exhibit 10.12 to the Form
SB-2/A filed September 15, 2003, and incorporated herein by reference).
10.4 Authorized Subcontractor Agreement between the Company and American
Connections, LLC, dated February 28, 2003 (included as Exhibit 10.13 to the Form
SB-2/A filed September 15, 2003, and incorporated herein by reference).
10.5 Lease Agreement between the Company and American Connections Florida, LLC,
dated May 22, 2003 (included as Exhibit 10.14 to the Form SB-2/A filed September
15, 2003, and incorporated herein by reference).
10.6 Investment Agreement between the Company and Dutchess Private Equities
Fund, LP, dated January 9, 2004 (included as exhibit 10.15 to the Form SB-2
filed January 28, 2004, and incorporated herein by reference).
10.7 Placement Agent Agreement between the Company, Dutchess Private Equities
Fund, LP, and Charleston Capital Securities, dated January 9, 2004 (filed as
Exhibit 10.17 to the Form SB-2 filed January 28, 2004, and incorporated herein
by reference).
10.8 Consulting Agreement between the Company and W. Scott McBride, dated
January 15, 2004 (filed as exhibit 99.1 to the Form S-8 filed February 3, 2004,
and incorporated herein by reference).
10.9 Corporate Consulting Agreement between the Company and Theodore J. Smith,
Jr., dated January 28, 2004 (filed as exhibit 99.2 to the Form S-8 filed
February 3, 2004, and incorporated herein by reference).
10.10 Consulting Agreement between the Company and Mike DeGirolamo, dated
January 5, 2004 (filed as exhibit 99.3 to the Form S-8 filed February 3, 2004,
and incorporated herein by reference).
10.11 Consulting Agreement between the Company and Jeff Teischer, dated January
5, 2004 (filed as exhibit 99.4 to the Form S-8 filed February 3, 2004, and
incorporated herein by reference).
10.12 Consulting Agreement between the Company and David Taylor, dated December
12, 2003 (filed as exhibit 99.5 to the Form S-8 filed February 3, 2004, and
incorporated herein by reference).
10.13 Consulting Agreement between the Company and Pablo Oliva, dated November
12, 2003 (filed as exhibit 99.6 to the Form S-8 filed February 3, 2004, and
incorporated herein by reference).
10.14 Consulting Agreement between the Company and Tommy Hollman, dated January
27, 2004 (filed as exhibit 99.7 to the Form S-8 filed February 3, 2004, and
incorporated herein by reference).
10.15 Compensation Agreement between the Company, W. Scott McBride, David
Rasmussen, James H. Gilligan, and Scott Gallagher, dated January 29, 2004 (filed
as exhibit 99.8 to the Form S-8 filed February 3, 2004, and incorporated herein
by reference).
10.16 Lease Agreement between the Company and Investments Limited, dated August
25, 2004 (filed as exhibit 10.1 to the Form 8-K filed September 9, 2004, and
incorporated herein by reference).
10.17 Consulting Agreement between the Company and Pablo Oliva, dated October
26, 2004 (filed as exhibit 99.1 to the Form S-8 filed January 11, 2005, and
incorporated herein by reference).
10.18 Corporate Consulting Agreement between the Company and Theodore J. Smith,
Jr., October 26, 2004 (filed as exhibit 99.2 to the Form S-8 filed January 11,
2005, and incorporated herein by reference).
14.1 Corporate Code of Conduct and Ethics (filed as exhibit 14.1 to the Form
10-KSB filed April 14, 2004, and incorporated herein by reference).
23.1 Consent of WithumSmith+Brown, P.C.
23.2 Consent of Counsel (contained in Exhibit 5.1)
UNDERTAKINGS
The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts of events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has 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.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the State of
Florida, on August 1, 2005.
FTS Group, Inc.
By:/s/ Scott Gallagher
-------------------------------------
Scott Gallagher
Chief Executive Officer and Director
Signature Date
/s/ Scott Gallagher August 1, 2005
- ------------------------- ------------------
Scott Gallagher, Chief Executive Officer
and Director
/s/ Linda Ehlen August 1, 2005
- ------------------------- ------------------
Linda Ehlen, Chief Financial Officer
and Principal Accounting Officer
/s/ David R. Rasmussen August 1, 2005
- -------------------------- ------------------
David R. Rasmussen, Director