Trombly Business Law
1320 Centre Street, Suite 202
Newton, MA 02459
Telephone (617) 243-0060
Facsimile (617) 663-6164
Amy M. Trombly, Esq.
amy@tromblybusinesslaw.com
December 12, 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. 4 to
Registration Statement on Form SB-2.
Amendment No. 4 to 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 November 28, 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
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Comment 1. We reviewed your letter dated November 7, 2006 and notice many
responses stating you intend to either expand a disclosure or revise the annual
and interim financial statements included in the registration statement and
periodic filings, as applicable. Please understand that before we can declare
this registration statement effective you are required to incorporate any
decided revisions in the applicable filings to resolve staff comments. Where
specifically indicated below we are deferring a final evaluation of your
compliance with staff comments until these revisions are filed or the present
accounting treatment is adequately supported.
Response 1. The Company has incorporated all revisions. The Company's amendment
to Form 10-KSB was filed on December 11, 2006 and the amendments to Forms 10-QSB
will be filed within 24 to 48 hours.
Comment 2. Please update your registration and include the next unaudited
interim period financial statements, September 30, 2006. Also please update
other related disclosures and management's discussion and analysis to correspond
with this additional period. See Rule 3-12(b) of Regulation S-X.
Response 2. The Company has complied with the Staff's request. The Registration
statement and all related disclosures have been updated to include the interim
period ended September 30, 2006.
Comment 3. We note your response to comment 2 in our letter dated October
26, 2006. You state that although Mr. Rasmussen is the Chief Operating Officer
of the company by title, the Board of Directors does not believe that Mr.
Rasmussen is the Principal Operating Officer of the company. We 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.
Response 3. As stated in the Company's prior response, the Company
respectfully requests a conference call on this matter. We have attempted to
schedule one and have been unsuccessful.
Consolidated Balance Sheets, December 31, 2005 and 2004, page F-3
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Comment 4. We note your response to comment 8 in our letter dated October
26, 2006. Please confirm that management has determined that liability
classification is the appropriate accounting treatment for outstanding shares
exceeding the number of authorized shares. Your response suggests you are
changing your accounting treatment to satisfy a staff inquiry rather than
adopting an accounting treatment in accordance with GAAP. In your revised filing
please include the disclosure requirements for reporting the correction of an
error in paragraphs 36 and 37 of APB No. 20, or SFAS No. 154 if early adopted,
as applicable.
Response 4. The Company has reviewed the various literature and rulings on this
topic, including but not limited to EITF-0019, at greater length. The Company
confirms that it is changing the classification of warrants related to the
December 29, 2005 financing arrangement from equity classification to liability
classification in accordance with GAAP. As stated in paragraph 19 of EITF-0019,
liability classification is required when the Company has an insufficient number
of authorized but unissued shares to settle the contract after considering all
other commitments that may require the issuance of stock during the maximum
period the contract could remain outstanding. Therefore, initial liability
classification is required. Per paragraph 10 of EITF-0019, if the classification
required under this Issue changes as a result of events during the period, the
contract should be reclassified as of the date of the event that caused the
reclassification. Additional shares sufficient to cover the shortage were
approved on October 20, 2006. Therefore, from December 2005 through the end of
the third quarter 2006, liability classification is required for the warrants.
During the fourth quarter 2006, a reclassification back to equity will be
appropriate.
Since the financing arrangement that caused the misstatement of the financial
statements regarding this area occurred December 29, 2005 a restatement of the
fourth quarter and year-end financial statements, along with amending the
related Form 10-KSB is required and was filed on December 11, 2006. Amendments
are also necessary to the first and second quarters of 2006 financial statements
and related 10-QSBs.
Disclosure requirements for correction of an error as required by SFAS No.
154 are included in Footnote #2 of each of the amended reports. These amended
filings will be filed in the near term 24 to 48 hours.
Notes to Consolidated Financial Statements, December 31, 2005, page F-7
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(3) Convertible Debt, page F-3
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Comment 5. Please revise your present disclosures, including note (12)(B),
and include a note that discusses reclassifying as liabilities all outstanding
common shares and common share equivalents in excess of authorized common
shares. Include your basis of estimating the fair value for common shares and
common shares potentially issuable pursuant to warrants and convertible notes.
Specifically discuss the effect of reducing the exercise prices for Series A and
B warrants on September 28, 2005 and July 7, 2006. Please update your interim
disclosures, as applicable.
Response 5. The Company added additional and expanded disclosures to cover the
areas requested by Staff. Specifically, the Company added footnote #2 to
disclose the circumstances that caused the need for restatement and to show the
line item effects of the warrant reclassification from equity to liability as
required by SFAS No. 154. Footnote #4 disclosing the terms of Convertible Debt
was expanded to include the basis of estimating fair value for common shares and
associated warrants relating to the convertible notes. Allocation between
components of the notes was then assigned based on their relative fair values.
Finally, footnote #12(B) was expanded to include further information regarding
warrants, covering the fact that fair value for the financing warrants was
calculated independently from that of any other warrants, including those for
which the exercise price was adjusted downward.
Consolidated Statements of Operations for Three and Six Months Ended June 30,
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2006, page F-21
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Comment 6. We note your response to comment 9 in our letter dated October
26, 2006. After January 3, 2006, in the interim periods, you generated revenue
and cost of sales from both products and services. We refer you to the response
to comment 35 in your letter dated July 5, 2006. Presently, the interim
financial statements characterize revenues as either (a) satellite television
service revenue or (b) retail wireless service revenue. It does not appear to
separate product and service revenue and cost of sales. Rule 5-03(b)(1) of
Regulation S-X requires you to state separately net sales, and related cost of
sales, for products, services and other sources to the extent they exceed 10% of
the consolidated net sales. Segment reporting guidance is not applicable. Please
advise or revise your presentation for the interim periods following the year
end December 31, 2005.
Response 6. The Company has complied with the Staff's request.
Consolidated Statements of Cash Flows, Six Months Ended June 30, 2006 and 2005,
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page F-22
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Comment 7. We note your responses to comments 10 and 11 in our letter dated
October 26, 2006. Please revise your registration statement and interim fillings
accordingly. Please include the disclosure requirements for reporting the
correction of an error in paragraphs 36 and 37 of APB No. 20, or SFAS No. 154 if
early adopted. We are deferring a final evaluation of your compliance until
these revisions are filed. We may have further comments.
Response 7. The Company has made the changes requested by the Staff and will be
filing Forms 10-QSB/A for the effected quarters within the next 24 to 48 hours.
The Company added footnote disclosure stating the nature of the changes and need
for restatement to footnote #2 as well as line item changes resulting from the
restatements as required by SFAS No. 154.
Notes to Consolidated Financial Statements, June 20, 2006, page F-23
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(1) Summary of Significant Accounting Policies, page F-23
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Comment 8. We note your response to comment 12 in our letter dated October
26, 2006. SFAS No. 131 is applicable to all calendar year end public business
enterprises beginning in 1998. This entity filed its first annual report under
Section 13 or 15(d) of the Securities Exchange Act of 1934 on March 31, 1999.
Based on your disclosures and response we would expect to see comparative
information for one and two reportable segments in fiscal periods 2005 and 2006,
respectively. Please advise or revise your registration statement accordingly.
Response 8. The Company has made the changes requested by the Staff by way of
incorporating segment reporting information into the MD&A section of the
registration statement and all amended filings in 2006. The Company maintains
that it had only one reportable segment in 2005.
Stock Based Compensation page F-26
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Comment 9. We note your response to comment 13 in our letter dated October
26, 2006. Please disclose the effect of adopting SFAS No. 123(R) on income from
continuing operations, net income, operating and financing cash flows and basic
and diluted earnings per share, as applicable. Please disclose whether you
utilized a modified prospective or retrospective application and how you
accounted for compensation cost related to earlier awards for service periods
rendered both prior to and after adoption of the Statement. Options with a
weighted average contractual life of 6.7 years and granted in 2001 have a
remaining service period or life of approximately 1.7 years as of December 31,
2005. Also please add the included interim periods to the table in footnote 13.
Response 9. The Company has made the changes requested by the staff.
Specifically the changes were made in note #11 OPTIONS AND WARRANTS for the
period ended September 30, 2006 and in other required areas. The changes will
also be made in all of the Company's 2006 amended form 10-QSB filings.
(11) See World Satellites, Inc. Acquisition, page F-34
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Comment 10. We note your response to comment 17 in our letter dated October
26, 2006. We are deferring a final evaluation of your compliance until these pro
forma disclosures are included in the revised filings. We may have further
comments.
Response 10. The Company has expanded the September 30, 2006 footnote #12 to
explain that since the See World Satellites, Inc. acquisition closed on January
3, 2006, and transactions from January 1 through January 2, 2006 were
immaterial, pro forma information is not required per paragraph 54 of SFAS 141.
Comment 11. We note your response to comment 18 in our letter dated October
26, 2006. We are deferring a final evaluation of your compliance until the
financial statements and/or purchase accounting disclosures are revised in your
registration statement and interim filings. We may have further comments.
Response 11. The Company's revisions to the financial statements and/or purchase
accounting disclosures have all been updated and incorporated throughout this
amended registration statement.
Exhibit 23.1 Consent of R.E. Bassie & Co.
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Comment 12. We note your response to comment 19 in our letter dated October
26, 2006. We are deferring a final evaluation until the Office of Chief
Accountant within the Division of Corporation Finance has concluded on the
matter.
Response 12. The Company acknowledges the Staff's comment.
Form 8-K/A Filed on March 3, 2006
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Comment 13. We note your response to comment 21 in our letter dated October
26 2006. We are deferring a final evaluation of your compliance until this
reclassification is included in the revised filings. We may have further
comments.
Response 13. The Company filed Form 8-K/A on December 5, 2006 to reclassify
amounts to income from operations.
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
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Amy M. Trombly
Counsel for FTS Group, Inc.
cc: FTS Group, Inc.