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Trombly Business Law
1320 Centre Street, Suite 202
[LOGO] Newton, MA 02459
Telephone (617) 243-0060
Facsimile (309) 406-1426
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Amy M. Trombly, Esq. amy@tromblybusinesslaw.com
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November 7, 2006
Delivered by electronic submission via EDGAR
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E., Mail Stop 7010
Washington, DC 20549
Attn: Mr. H. Christopher Owings
Re: FTS Group, Inc.
Registration Statement on Form SB-2
File No. 333-133749
Dear Mr. Owings:
I am securities counsel for FTS Group, Inc. (the "Company"). I enclose for
filing under the Securities Act of 1933, as amended, Amendment No. 3 to the
Registration Statement on Form SB-2, File No. 333-133749.
Amendment No. 3 to the Registration Statement on Form SB-2 contains revisions
that have been made in response to comments received from the staff of the
Securities and Exchange Commission (the "Staff") in their letter dated October
26, 2006.
Set forth below are the Company's responses to the Staff's comments. The
numbering of the responses corresponds to the numbering of comments in the
letter from the Staff.
GENERAL
Comment 1. Please note that staff comments are required to be resolved
before a registration statement is declared effective. Staff
comments may be resolved by providing an explanation, analysis
and/or supplemental information telling as to why an accounting
comment is not applicable and that the current presentation and
disclosure is factually supportable in U.S. GAAP or by revising
the financial statements and/or accounting disclosure to reflect
the applicable U.S. GAAP.
Response 1. The Company acknowledges the Staff's comment.
Comment 2. You state in your response to comment 2 in our letter dated July
27, 2006 that the Board does not consider Mr. Rasmussen to be
the Principal Operating Officer of the company. This does not
appear to be consistent with the employment agreement dated
February 1, 2006 which you filed on May 15, 2006 as Exhibit
10.28 to your Form 10-QSB for the fiscal quarter ended March 31,
2006. We therefore are still of the view that the filing of a
Form 8-K was appropriate. Accordingly, we restate comments 2 and
3 in our letter dated July 27, 2006.
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Trombly Business Law
1320 Centre Street, Suite 202
[LOGO] Newton, MA 02459
Telephone (617) 243-0060
Facsimile (309) 406-1426
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Response 2. The Company believes that, although Mr. Rasmussen is the Chief
Operating Officer of the Company by title, the Chief Executive
Officer is the only employee of the Company considered to be an
executive officer. The Board of Directors of the Company
understands Mr. Rasmussen's daily role in managing the Company
and does not consider his position to be at the level of
executive officer. Because of the Board of Director's belief
that Mr. Rasmussen is not the Principal Operating Officer of the
Company, the Company respectfully disagrees with the Staff's
view that the filing of a Form 8-K was appropriate when Mr.
Rasmussen signed his employment contract. The Company also
respectfully notes that its management works with Mr. Rasmussen
on a day to day basis and therefore it is in the best position
to evaluate Mr. Rasmussen's responsibilities. While the Staff
may have reviewed documentation, the Company respectfully notes
that the Staff does not have the same familiarity with Mr.
Rasmussen's role as does the Company's management. If this
continues to be an issue the Company requests a conference call
with the Staff to resolve the matter. The Company does not
believe it failed to file an Item 5.02 Form 8-K, therefore the
Company's principal executive and interim principal financial
officer does not believe there has been any impact on the
effectiveness of disclosure controls and procedures as required
by Item 307 of Regulation S-B.
Comment 3. We note your response to comment 5 in our letter dated July 27,
2006. The fee table on page 1 indicates that the amount of
common stock to be registered is 212,848,98 - not 212,848,288,
as stated on page 2. Footnote 3 on page 1 indicates that
84,96,684 shares are being registered underlying outstanding
warrants. Page 3 indicates that 84,396,864 shares are being
registered underlying outstanding warrants. Please review your
document for accuracy and consistency and revise accordingly.
Response 3. The Company has corrected the amount to be registered on page 1
from 212,848,98 to 212,848,288 as requested by the Staff. The
Company has also corrected the number of shares that are being
registered underlying outstanding warrants in Footnote 3 on page
1 from 84,96,684 to 84,396,864 as requested by the Staff.
SELLING SECURITY HOLDERS, PAGE 8
Comment 4. We note your response to comment 8 in our letter dated July 27,
2006. However, please revise footnote 11 on page 10 to identify
Olympus Securities as an underwriter.
Response 4. The Company has changed footnote 11 as requested by the Staff.
Comment 5. We note your response to comment 9 in our letter of July 27,
2006 that the other selling security holders are not
broker/dealers or underwriters. For each selling stockholder
that is an affiliate of a broker-dealer, disclose if true that:
o the selling stockholder purchased the shares in
the ordinary course of business;
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Trombly Business Law
1320 Centre Street, Suite 202
[LOGO] Newton, MA 02459
Telephone (617) 243-0060
Facsimile (309) 406-1426
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o at the time of the purchase of the securities to
be resold, the seller had no agreements or
understandings, directly or indirectly, with any
person to distribute them.
Response 5. Except for Olympus Securities, none of the selling shareholders
are affiliates of broker-dealers. Olympus Securities is a
broker-dealer.
DESCRIPTION OF BUSINESS, PAGE 16
Comment 6. Please refer to comment 11 in our letter of July 27, 2006.
Please state that the company's goal is to develop, invest-in or
acquire cash-flow positive businesses and viable business
projects.
Response 6. The Company has made the changes requested by the Staff on Page
16 of the Form SB-2 in the first paragraph of the "Business"
section.
Comment 7. We note your response to comment 12 in our letter of July 27,
2006. It does not appear that you have revised this section to
address concerns we raised in previous comment letters. For
example:
o Where do you specify whether significant amounts of your
revenue are derived from the sale of specific products
or services on either the "bricks" or "clicks" side of
your business?
o Where do you explain how significant the sale of Metro
PCS wireless handsets and service plans is to your
business?
o Where do you describe what products and services you
resell from other NVNOs?
As previously requested, please revise your business section to
more clearly describe the products or services from which you
derive your major sources of revenue.
Response 7. The Company has made the changes requested by the Staff on Page
16 of the SB-2 in the first, second and third paragraphs of the
"Business" section.
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 2005 AND 2004, PAGE F-3
Comment 8. We note your response to comment 19 in our letter dated July 27,
2006. In the specific instance where you issue common shares and
warrants in a private placement for $1,159,000, the warrant
contract specifies the circumstances when net-cash settlement is
permitted. See clause 2(a) of Exhibit 4.1 of Form 8-K filed on
March 4, 2005. Furthermore, the maximum number of common shares
that could be required to be delivered under either net share or
physical settlement exceeds the number of authorized shares
available as of your balance sheet date. This is supported by
the disclosure you possess an insufficient number of shares to
satisfy your obligations. See page 12 of Schedule 14(A) filed on
September 27, 2006. Based on this evidence it appears that share
settlement is not within control of the company and liability
classification is required. See paragraphs 17 and 19 of EITF
00-19. Please advise or reassess the classification of common
shares potentially issuable on the conversion of warrants and
notes and revise your registration statement, as applicable. If
management determines that reclassification from permanent
equity is not required, please provide us your analysis citing
both the relevant applicable share agreements and the citations
in U.S. GAAP that support your accounting treatment.
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Trombly Business Law
1320 Centre Street, Suite 202
[LOGO] Newton, MA 02459
Telephone (617) 243-0060
Facsimile (309) 406-1426
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Response 8. Although the Company believes the share settlement was within
its control as communicated in its prior responses to the
comment. The Company agrees to make the changes requested by the
staff to its 2005 form 10KSB, as well as its first two form
10QSB filings for 2006 and its coming form 10QSB for the period
ending September 30, 2006 and SB-2 prior to being declared
effective.
FINANCIAL STATEMENTS, JUNE 30, 2006, PAGE F-19
CONSOLIDATED STATEMENTS OF OPERATIONS, JUNE 30, 2006 AND DECEMBER 31, 2005, PAGE
F-21
Comment 9. We note your response to comment 30 in our letter dated July 27,
2006. Please advise why you are not presently required or it is
impracticable to separately present service and product revenues
and related cost of sales that exceed 10% of revenues as of
January 1, 2006. Alternatively, please revise your presentation
for the interim periods. See Rule 5-03(b) of Regulation S-X.
Response 9. Prior to January 1, 2006 the Company did not have multiple
revenue segments. When referring to services the Company is
referring to service offerings by the wireless carriers i.e.
rate plans. FTS Wireless is a retail business with only one
reportable segment. The Company has started to implement segment
reporting relating to its newly acquired subsidiary. See the
response to comment 12.
CONSOLIDATED STATEMENTS OF CASH FLOWS, SIX MONTHS ENDED JUNE 30, 2006 AND 2005,
PAGE F-22
Comment 10. We note your response to comment 31 in our letter dated July 27,
2006. Please tell us how you have recorded the effects of the
SWS acquisition in your interim cash flow statements.
Specifically, please tell us if you present the net assets of
SWS, net of cash acquired as an investing activity, or
separately from the changes in operating assets and liabilities.
The operating activities appear to include cash flows for the
combined entity. Please advise or revise your registration
statement and interim filings accordingly.
Response 10. The Company notes your comments and will file amended interim
financial statements with a revised cash flow statement
presenting the net assets of SWS, net of cash acquired, as an
investing activity.
Comment 11. We refer you to the proceeds from notes payable of $518.798.
Please tell us why you did not record cash proceeds of $635,002
as a financing activity and the acquisition of $201,962 in
liabilities and $85,758 in trade receivables within the acquired
net assets of SWS. We refer you to page F-32. Please advise or
revise your interim cash flow statements in the registration
statement and interim filings, as applicable.
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Trombly Business Law
1320 Centre Street, Suite 202
[LOGO] Newton, MA 02459
Telephone (617) 243-0060
Facsimile (309) 406-1426
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Response 11. The Company notes your comments and will file amended interim
financial statements with a revised cash flow statement
presenting the net assets of SWS, net of cash acquired, as an
investing activity.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, JUNE 30, 2006, PAGE F-22
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, PAGE F-22
Comment 12. We note your response to comment 32 in our letter dated July 27,
2006. We see no segment disclosures in the interim disclosure as
of June 30, 2006 and one mention in footnote 11 of amendment No.
2 of the Form SB-2. See page F-32. If, based on your disclosure,
management has determined there is multiple reporting segments
please provide the disclosures required by SFAS No. 131 in your
registration statement, as applicable. Alternatively, please
tell us why you do not have multiple reportable segments and
include the SFAS No. 131 criteria in your explanation.
Response 12. This comment references comment 32 in the Staff's letter dated
July 27, 2006 which inquires why FTS Wireless, Inc. and See
World Satellites, Inc. qualify as one reportable segment based
on the criteria of paragraph 17 of SFAS No. 131. Alternatively,
the comment requests a revision to the Company's filing to
include the disclosures required by paragraphs 27, 28, 37 and
38. The Company agrees that FTS Wireless, Inc. and See World
Satellites, Inc. constitute separate reportable segments based
on SFAS No. 131. However, paragraph 40 of SFAS No. 131 regarding
effective date states that "this Statement need not be applied
to interim financial statements in the initial year of its
application, but comparative information for interim periods in
the initial year of application shall be reported in financial
statements for interim periods in the second year of
application." Paragraph 120 of SFAS No. 131 explains that some
of the information that is required for interim periods is based
on information from the most recent annual financial statements.
"Without a full set of segment information to use as a
comparison and to provide an understanding of the basis on which
it is provided, interim information would not be meaningful.
Therefore, the Company concludes that 2006 is the first year of
applicability for SFAS No. 131 due to the January 2006
acquisition of See World Satellites, Inc. Hence, the Company
will be required to report on the individual segments in the
2006 annual filing and all subsequent quarterly filings
commencing in 2007, including segment information as a
comparison between 2006 and 2007 results.
STOCK BASED COMPENSATION, PAGE F-25
Comment 13. We note your response to comment 33 in our letter dated July 27,
2006. Please advise or revise your registration statement to
include the disclosures required by paragraph 84 of SFAS No.
123(R).
Response 13. Footnote #13 has been added to the June 30, 2006 financial
statements to address the disclosure requirements of SFAS No.
123(R) paragraph 84.
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Trombly Business Law
1320 Centre Street, Suite 202
[LOGO] Newton, MA 02459
Telephone (617) 243-0060
Facsimile (309) 406-1426
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(9) STOCK, PAGE F-29
Comment 14. We note your response to comment 36 in our letter dated July 27,
2006. We do not see the revised disclosure of rights and
privileges for outstanding shares in your registration
statement. Please advise or revise.
Response 14. The Company has made the changes requested by the Staff on page
F-29 of the SB-2, in "note (9) Stock."
(10) OPTIONS AND WARRANTS, PAGE F-29
Comment 15. We note your response to comment 27 in our letter dated July 27,
2006 and we reissue out comment. Please advise or revise the
interim disclosures to include information required by
paragraphs 84, A.240.c.(2), 240.d., 240.e.(2), 240.g. and
240.i., 240.j. and 240.k. of SFAS No. 123(R), as applicable.
Response 15. Footnote #10, page F-29 has been edited to address the
disclosure requirements of the noted paragraphs for SFAS No. 123
(R).
WARRANTS, PAGE F-31
Comment 16. Please tell us if you adopted variable accounting and the amount
of compensation expense recognized in the third and fourth
quarters of fiscal 2005, if applicable. We note that you reduced
the exercise prices for both A and B warrants.
Response 16. The Company has not adopted a variable accounting for warrants,
and no compensation expense was recognized in the third and
fourth quarters of 2005 fiscal year. The Company however reduced
the exercise prices of the A and B warrants encouraging
subscribers to exercise them. As a result, during the three
months ended March 31, 2006, $4,670,313 "B" warrants priced at
$0.03 were exercised for gross proceeds of $140,109, and
exercise expenses of $14,048. This information is contained in
Footnote 10 on page F-31.
(11) SEE WORLD SATELLITES, INC. ACQUISITION, PAGE F-32
Comment 17. We note your response to comment 38 in our letter dated July 27,
2006. Please advise or revise your disclosure to include the pro
forma results of operations for the fiscal quarter and six
months ended. See paragraph 58 of SFAS No. 141.
Response 17. The Company will file amended financial statements with pro
forma information for the fiscal quarter and six months ended
before being declared effective.
Comment 18. We note you increased the purchase price allocation from $5.5
million to approximately $6 million without increasing the $5.5
million in consideration exchanged for SWS. Please tell us why
you recorded additional assets of $518,798 yet did not record
the payable due to Mr. Richard Miller in the purchase price
allocation. It would seem appropriate to reduce the disclosed
purchase price allocation by $518,798 because your net assets
were reduced by this liability to Mr. Miller. Please advise or
revise the financial statements and/or purchase accounting
disclosures in your registration statement and interim filings
to reflect the related party liability of $518,798 and net
assets of $5.5 million.
Response 18. The Company notes the Staff's comments and will file amended
interim financial statements and related disclosures to reflect
the related party liability of $518,798 and the purchase of net
assets of $5.5 million.
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Trombly Business Law
1320 Centre Street, Suite 202
[LOGO] Newton, MA 02459
Telephone (617) 243-0060
Facsimile (309) 406-1426
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EXHIBIT 23.1 CONSENT OF R.E. BASSIE & CO., PAGE 30
Comment 19. We note your response to comment 28 in our letter dated July 27,
2006. You may appeal for an exemption to this requirement by
submitting a letter to the Office of Chief Accountant within the
Division of Corporation Finance. For further information on the
content of the letter please see, Guidance for Consulting with
the Office of the Chief Accountant, at WWW.SEC.GOV.
Response 19. The Company has submitted a letter as directed by the Staff.
Comment 20. Amendment No. 2 to Form SB-2 does not include the exhibit
numbers. 4.16 and 23.1 that were filed with the original
registration statement. Please file these exhibits in your next
amended filing.
Response 20. Exhibit number 4.16 was filed with Amendment No. 1 to Form SB-2
filed on July 5, 2006. The Company has updated the exhibit list
to Amendment No. 3 to the Form SB-2 with the correct filing date
for exhibit 4.16. The Company will file exhibit 23.1 with
Amendment No. 3 to the Form SB-2.
FORM 8-K/A FILED ON MARCH 3, 2006
Comment 21. We note your response to comment 42 in our letter dated July 27,
2006 and are not persuaded the loss is classified in accordance
with U.S. GAAP. Losses, either due to impairment or disposals,
are required to be included in income or loss from continuing
operations before income taxes. The held for use classification
would have no impact on the characterization. See paragraphs 25,
45 and B.116 of SFAS No. 144. Please advise or revise your
financial statements.
Response 21. The impairment loss of $7,500 will be reclassified as part of
loss from continuing operations before income taxes, and will be
reflected in the restated financial statements.
If you have further questions or comments, please feel free to contact
us. We are happy to cooperate in any way we can.
Regards,
/s/ Amy M. Trombly
Amy M. Trombly
Counsel for FTS Group, Inc.
cc: FTS Group, Inc.