TSS, Inc. - 10-Q quarterly report FY

(Mark One)

Commission file number: 000-51426

 

(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o Nox

Indicated by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o Nox

 

As of November 12, 2007, 11,931,700 shares of the Registrant's common stock, par value $0.0001 per share, were outstanding.

 

 

 

Consolidated Balance Sheets

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Consolidated Balance Sheets-Continued

 

 

Consolidated Statements of Operations

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Consolidated Statements of Operations-Continued 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Consolidated Statements of Cash Flows

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

The consolidated financial statements are for the three and nine months ended September 30, 2007 and 2006 for Fortress International Group, Inc. (the “Successor Company”, “Fortress” or the “Company”) and are for the period January 1, 2007 to January 19, 2007 (the acquisition date) and the three and nine months ended September 30, 2006 for VTC, L.L.C. t/a Total Site Solutions and Vortech, LLC ( collectively the “Predecessor Company” or “TSS/Vortech”).  The Company has included the results of operations of TSS/Vortech, Innovative Power Systems, Inc. and Quality Power Systems, Inc. from the respective acquisition dates through September 30, 2007 in its financial statements.

 

Except for the balance sheets of the Company and TSS/Vortech as of December 31, 2006, which are derived from audited financial statements, the accompanying consolidated financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair statement of such financial position and results of operations have been included. All such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for a full year.

 

The consolidated financial statements and notes are presented as required by Form 10-Q and do not contain certain information included in the Company’s annual financial statements and the notes thereto. These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto filed with the Securities and Exchange Commission (“SEC”) in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. The interim financial statements of TSS/Vortech have also been presented in accordance with the requirements of Form 10-Q.

 

 

 

 

 

 

On January 19, 2007, the Company acquired all of the outstanding membership interests of TSS/Vortech pursuant to the Second Amended and Restated Membership Interest Purchase Agreement dated July 31, 2006, as amended by the Amendment to the Second Amended and Restated Membership Interest Purchase Agreement dated January 16, 2007 (the “Purchase Agreement”). The closing consideration consisted of (i) $11,000,000 in cash, (ii) the assumption of $154,599 of debt of TSS/Vortech, (iii) 2,602,813 shares of Fortress common stock, of which 2,534,988 shares were issued to the selling members and 67,825 shares were issued to Evergreen Capital LLC as partial payment of certain outstanding consulting fees, and (iv) $10,000,000 in two convertible promissory notes of $5,000,000 each, bearing interest at 6%.

All of the shares issued to the selling members (2,534,988 shares) were placed into escrow accounts as follows: 2,461,728 into the General Indemnity escrow to secure the rights of Fortress under the acquisition and 73,260 shares into the Balance Sheet escrow subject to TSS/Vortech delivering $1,000,000 in working capital. These shares will be released subject to certain conditions under the respective agreements. Based on a determination of net working capital at the acquisition date, the Company has recorded a payable for approximately $200,000, included in accounts payable and accrued expenses in the September 30, 2007 consolidated balance sheet, expected to be paid to the sellers as a purchase price adjustment. The share price was based upon the average closing price for twenty days prior to the public announcement of the purchase.

Shareholders owning 756,100 shares of Fortress common stock voted against the acquisition and requested to receive the pro rata share of cash in the Trust Fund. The Company remitted approximately $4,342,000 in exchange for these shares.

Upon consummation of the merger approximately $28.9 million was released from the trust account to be used by the Company.

 

We paid a premium (i.e., goodwill) over the fair value of the net tangible and preliminarily identified intangible assets acquired for a number of reasons, including the following:

 

The results of operations for TSS/Vortech have been included in the Consolidated Statements of Operations from the acquisition date through September 30, 2007.

 

 

On May 7, 2007, the Company purchased all of the assets of Comm Site of South Florida, Inc. for $150,000 paid in cash. In connection with this purchase, $135,000 has been allocated to goodwill with the balance to other current assets and property and equipment, based on their historic cost which management believes approximates fair value.

 

On September 24, 2007, we entered into a definitive Stock Purchase Agreement (the “Agreement”) with Innovative Power Systems, Inc. (IPSI), Quality Power Systems, Inc. (QPSI, and collectively with IPSI “Innovative”) and the stockholders of Innovative (collectively, the “Sellers”).

Pursuant to the Agreement, the Company acquired 100% of the issued and outstanding capital stock of Innovative for the aggregate consideration consisting of (i) $1,747,000 in cash, (ii) a promissory note (the “Note”) for the aggregate amount of $300,000 payable to Sellers accruing at 6% annually from the date of issuance of the Note (the Note is payable in three years, based on a five-year amortization schedule, as described in the Note), (iii) $150,000 worth of shares of common stock of the Company, calculated based on the average of the last reported sale price per share of the Company on the Nasdaq over the 20 consecutive trading days ending on the two trading days prior to the closing (25,155 shares of the Company’s common stock), and (iv) additional earn-out amounts if Innovative achieves certain targeted earnings for each of the calendar years 2007-2010, as further described in the Agreement.

 

We paid a premium (i.e., goodwill) over the fair value of the net tangible and preliminarily identified intangible assets acquired for a number of reasons, including Innovative has additional experience, contacts and service offerings in the mission-critical facility industry and is complementary to the business of TSS/Vortech.

 

 

 

The preliminary estimated value and the weighted-average amortization period of each of the components of intangible assets for TSS/Vortech are as follows:

 

Amortization expense totaling $681,183 and $1,891,419 has been included in the accompanying consolidated statement of operations related to the above intangibles, of which $114,075 and $316,748 is included in cost of revenue, for the three and nine months ended September 30, 2007, respectively.

 

 

 

 

 

This information is not necessarily indicative of the operational results that would have occurred if the acquisition had been consummated on the dates indicated nor is it necessarily indicative of future operating results of the combined enterprise.

 

 

The Company held certain investments in a trust account through January 19, 2007 consisting primarily of short term investments. All such investments have been disposed of as of September 30, 2007.

 

 

 

 

 

No weighted average common shares or income (loss) per share amounts are shown for the Predecessor since the Predecessor was a limited liability company whose capital structure consisted of membership interests. As such, no weighted average number of outstanding shares and earnings per share are presented.

 

 

On January 17, 2007, the stockholders of the Company approved the Fortress International Group, Inc. 2006 Omnibus Incentive Compensation Plan (the “Plan”). Under the Plan, the Company reserved 2.1 million shares of the Company’s common stock for issuance to employees and directors through incentive stock options, or non-qualified stock options or through restricted stock units. Pursuant to the Plan, on January 19, 2007 the Company issued of 574,000 shares of restricted stock with grant date value of $5.44 per share in connection with the acquisition of TSS.  These shares cliff vest on January 19, 2010 .

 

On May 1, 2007, the Company issued a total of 86,832 shares of restricted stock with a grant date value of $5.43 per share to the non-employee members of the Board of Directors. These shares were issued as follows:

 

Each non-employee director was granted 10,000 shares which vest over a two year period, one third on the grant date, and each one-half of the remaining balance on the first and second anniversaries of the grant date. A total of 50,000 shares were issued to the non-employee directors under this arrangement.

 

 

Each of the two new members of the Board of Directors received a one-time grant of $100,000 worth of restricted stock which vests over a three year period, with each one third of the shares vesting on the first, second and third anniversaries of the grant date. A total of 36,832 shares were issued to the two new non-employee directors under this arrangement.

 

On September 7, 2007, the Company issued 70,000 shares of restricted stock to three employees (including the Chief Financial Officer the terms of which were disclosed in an 8-K filed on August 8, 2007), with a grant date price of $5.99 which have various vesting periods between eighteen months and three years.

 

 

In February 2007, the Company entered into an agreement with an advisor in which it was obligated to pay the advisor a warrant for the purchase of 125,000 shares of its common stock. The fair value of these warrants has been determined using the Black Sholes model and is recognized over the term of the agreement. For the three and nine months ended September 30, 2007, the Company recognized $213,000 ($.02 per basic and diluted share) of stock-based compensation expense which has been recorded as selling, general and administrative expense.

 

 

Prior to the consummation of the acquisition of TSS/Vortech, the Company announced and implemented a common stock repurchase program under which it may purchase up to 3,000,000 shares of common stock. Currently the Board of Directors has authorized the repurchase of up to 500,000 shares under this program.  For the three months ended September 30, 2007, the Company paid approximately $127,000 in cash to redeem 24,300 shares of common stock at an average price of $5.25 per share. For the nine months ended September 30, 2007, the Company has paid approximately $2,036,000 in cash to purchase 379,075 shares at an average price of $5.37 per share. On June 13, 2007, the Company purchased 221,000 shares and currently has 158,075 shares of treasury stock.

 

On January 19, 2007, the Company announced that it would repurchase shares of those shareholders that voted against the acquisition of TSS and requested that their 756,100 shares be redeemed at the then per share trust value of $5.74 per share (including deferred interest of $0.38 per share). This program was completed in January 2007.

 

 

The Company’s effective tax rates are based upon the effective tax to be applicable to the full fiscal year.  Through September 30, 2007, the Company has incurred certain tax losses which may be carried back for federal tax purposes resulting in an income tax recoverable of approximately $840,000.

 

The Company recorded no income tax benefit or expense for the three months ended September 30, 2007, primarily due to the establishment of a valuation allowance on deferred tax assets. The Company has recorded an income tax benefit of $349,325 for the nine months ended September 30, 2007, which is the result of the income tax recoverable of $840,000 and the establishment of a valuation allowance equal to the balance of the remaining deferred tax assets as of September 30, 2007. The Company evaluated its remaining deferred tax assets (consisting primarily of net operating loss carryforwards) remaining after carryback and has determined that it is more likely-than-not at this time that these assets will not be realized and has established a full valuation allowance for these amounts.

 

 

TSS/Vortech is a limited liability company and incurred no material income taxes prior to the acquisition.

 

 

 

 

 

 

In connection with the Innovative acquisition, the Company entered into a promissory note with the sellers in the amount of $300,000. The note bears interest at six percent per year and is payable in quarterly installments of $15,000 starting December 31, 2007 with a final balloon payment of $120,000 due on December 31, 2010.

 

The Company is obligated under multiple notes payable arrangements through October 2010 totaling $106,885 that bear interest at rates up to six percent, and are secured by vehicles.

 

Principal payments are due on the above notes as follows:

 

The Company participates in transactions with the following entities affiliated through common ownership and management. The Company’s Board of Directors reviews and approves these transactions.

The following table sets forth transactions the Company has entered into with the above related parties for the three and nine months ended September 30, 2007 and 2006. It should be noted that revenue represents amounts earned on contracts with related parties under which we provide services; and cost of revenue represents costs incurred in connection with related parties which provide services to us on contracts for our customers. As such, a direct relationship to the revenue and cost of revenue information below by company should not be expected.

 

 

 

 

The Company reviewed its services by units to determine if any unit of the business is subject to risks and returns that are different than those of other units in the Company.  Based on this review, the Company has determined that all units of the Company are providing comparable services to its clients, and the Company has only one reportable segment.

 

On January 19, 2007, the Company entered into employment agreements with its Chairman, Chief Executive Officer and President and a consulting agreement (the agreements) with an entity controlled by the Vice-Chairman, each of whom have been serving in that capacity since then, and during August 2007, the Company entered into an employment agreement with its Chief Financial Officer . The employment agreements were filed as part of a current report on Form 8-K on January 25, 2007 and on August 8, 2007, respectively. The agreements specify annual salary, benefits and incentive compensation for the terms of the agreement.  The agreements also provide for twelve months salary if the employee or consultant is terminated other than for cause.

 

The agreements with the Chief Executive Officer and President also provide a share performance bonus, as described below:

 

Up to $5.0 million in additional shares of common stock will be issuable if during the period from the closing of the acquisition through July 13, 2008, certain share performance thresholds (alternative and not cumulative) set forth below are satisfied:

 

 

 

 

 

 

The Company earned approximately 5% and 21% of its revenue for the three and nine months ended September 30, 2007, respectively, and approximately 64% and 66% of the Predecessor’s revenue for the three and nine months ended September 30, 2006, respectively, under several contracts with one major customer. Accounts receivable from this customer were $557,356 at September 30, 2007 and $4,807,323 (for the Predecessor) at December 31, 2006.

 

 

The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report.

 

 

 

We were formed in Delaware on December 20, 2004 as a special purpose acquisition company formed under the name “Fortress America Acquisition Corporation” for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition or other business combination, operating businesses in the homeland security industry.

On January 19, 2007, we acquired all of the outstanding membership interests of each of VTC, L.L.C., doing business as Total Site Solutions (“TSS”), and Vortech, L.L.C. (“Vortech” and, together with TSS, “TSS/Vortech”) and simultaneously changed our name to Fortress International Group, Inc. (the “Company”). The closing consideration consisted of (i) $11,000,000 in cash, (ii) the assumption of $154,599 of debt of TSS/Vortech, (iii) 3,176,813 shares of our stock, of which 2,534,988 shares were issued to the selling members, 67,825 shares were issued to Evergreen Capital LLC as partial payment of certain outstanding consulting fees, and (iii) $10,000,000 in two convertible, interest-bearing promissory notes of $5,000,000 each.

On May 7, 2007, the Company purchased all of the assets of Comm Site of South Florida, Inc. for $150,000 paid in cash.

On September 24, 2007, we acquired 100% of the issued and outstanding capital stock of Innovative Power Systems, Inc. and Quality Power Systems, Inc. (collectively “Innovative”) pursuant to the Stock Purchase Agreement as of the same date for the aggregate consideration consisting of (i) $1,747,000 in cash, subject to certain adjustment as provided in the Agreement, (ii) a promissory note (the “Note”) for the aggregate amount of $300,000 payable to Sellers, plus interest accruing at 6% annually from the date of the issuance of the Note (the Note is payable in three years, based on a five-year amortization schedule, as described in Note), (iii) $150,000 worth of shares of common stock of the Company, calculated based on the average of the last reported sale price per share of the Company on the Nasdaq over the 20 consecutive trading days ending on the two trading days prior to the closing (25,155 shares of the Company’s common stock), and (iv) additional earn-out amounts if the Power Systems Entities achieve certain targeted earnings for each of the calendar years 2007-2010, as further described in the Agreement.

 

We provide comprehensive services for the planning, design, and development of mission-critical facilities and information infrastructure. We also provide a single source solution for highly technical mission-critical facilities such as data centers, operation centers, network facilities, server rooms, security operations centers, communications facilities and the infrastructure systems that are critical to their function. Our services include technology consulting, engineering and design management, construction management, system installations, operations management, and facilities management and maintenance.

During the past three years, our revenue growth has been driven mainly by government spending on homeland security initiatives spurred by the events of September 11, 2001. These events have also affected businesses, which are increasing spending on data security and privacy. These homeland security initiatives include projects that require the hardening, relocation, renovation and upgrade of mission-critical facilities to protect critical government information networks and data processing centers against attacks. In addition to these factors there are other drivers that cause our market to remain robust. Legislation such as Sarbanes Oxley compliance for publicly traded companies, HIPPA laws regarding protection and availability of data for healthcare organizations and the government’s critical infrastructure protection program for industries that are vital to our economy have resulted in such companies having the need to invest to protect their networks, the reliability of those networks, and maintain their ability to perform transactions that are financial or informational in nature. With respect to these critical infrastructure systems, the companies focus on physical security, network security, redundancies for uninterruptible power supply systems, electrical switch gear, stand-by power generators, heat rejection and cooling systems, fire protection systems, monitoring and control systems, and security systems, as well as the physical environment that houses critical operations. We help our customers plan for, prevent or mitigate against the consequences of attacks, power outages and natural disasters. We provide our services, directly and indirectly, to both government customers and private sector customers.

 

 

TSS has obtained a facility clearance from the United States Department of Defense. This clearance enables the companies to access and service restricted government projects. In addition to the facility clearance, TSS has successfully cleared over one-third of its employees, allowing them individual access to restricted projects and facilities. Several additional employees are currently in the process for clearance.

 

During the year we have expanded our sales reach by opening offices in New York, Chicago and Miami. We plan to continue to expand geographically through internal growth initiatives, as well as through potential acquisitions of specialized mission-critical engineering, IT services firms (primarily in the United States) and mission-critical facility management companies.

 

Our customers include United States government and homeland defense agencies and private sector businesses that in some cases are the end user of the facility or in other cases, such as our major real estate investment trust, or REIT, customer, Corporate Office Properties Trust, are providing a facility to a government end user. We categorize contracts where a government agency is the ultimate end user of the facility as government-related contracts.

 

Our revenues are derived from fees for our professional services as well as revenues earned under construction management contracts and facility management contracts with varying terms.

 

We believe there are high barriers to entry in our sector for new competitors due to our specialized technology service offerings we deliver for our customers, our top secret clearances, and our turnkey suite of deliverables offered. We compete for business based upon our reputation, past experience, and our technical engineering knowledge of mission-critical facilities and their infrastructure. We are developing and creating long term relationships with our customers because of our excellent reputation in the industry and will continue to create facility management relationships with our customers that we expect will provide us with steadier revenue streams to improve the value of our business.

 

We believe a strong indicator of our future performance is our backlog of uncompleted projects in process or recently awarded. Our backlog represents contracts that have been awarded that we believe will result in revenue in the future. We have broken our backlog into the following three categories: (i) technology consulting, which represents the value of future revenue under existing contacts for professional services related to consulting and/or engineering design contracts; (ii) construction management, which represents the value of future revenues for construction projects; and (iii) facility management, which represents the value of future revenues for providing recurring maintenance services on our customers’ mission-critical facilities, networks and communication systems.

At September 30, 2007, our funded backlog was approximately $61.3 million, compared to approximately $20.6 million at December 31, 2006. We believe that most of the backlog at September 30, 2007 will be recognized during over the next twelve months The following table reflects the value of our backlog in the above three categories as of September 30, 2007 and as of December 31, 2006, respectively.

 

 

 

 

 

Revenues from contracts other than time and material contracts are recognized on the percentage of completion method, measured by the percentage of total costs incurred to date to estimated total costs for each contract. This method is used because management considers cost incurred and costs to complete to be the best available measure of progress in the contracts. Revenues from time and materials contracts are recognized as work is performed.

 

Contract costs include all direct materials, subcontract and labor costs and those indirect costs related to contract performance, such as indirect labor, payroll taxes and supplies. General and administrative expenses are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which losses are determined.

 

The asset, “Costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenue recognized in excess of amounts billed. The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represented billings in excess of revenue recognized. As these long-term contracts extend over one or more years, revisions in cost and profit estimates during the course of the contract are reflected in the accounting period in which the facts which require the revisions are determined.

 

 

Management has preliminarily estimated that the acquisitions of TSS/Vortech, Comm Site and Innovative will result in $16.5 million of goodwill of which $14.9 million is expected to be deductible for income tax purposes. Additionally, management has estimated that approximately $21.2 million of the purchase price is allocable to customer-related intangible assets, which include non-contractual customer relationships, order backlog, and trade name. 

 

Goodwill arising from the above acquisitions is not amortized but instead will be tested for impairment at the reporting unit level at least annually in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets. Application of the goodwill impairment test requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth, the period over which cash flows will occur, and determination of the weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

 

We amortize other intangible assets over their estimated useful lives and review the long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable and at least annually. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available

 

 

We make ongoing estimates relating to the collectibility of our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. Estimates used in determining accounts receivable allowances are based on specific customer account reviews and historical experience of credit losses. We also apply judgment including assessments about changes in economic conditions, concentration of receivables among customers and industries, recent write-off trends, rates of bankruptcy, and credit quality of specific customers. Unanticipated changes in the financial condition of customers, the resolution of various disputes, or significant changes in the economy could impact the reserves required. The balance of the allowance for doubtful accounts was $65,000 and $60,000 at September 30, 2007 and December 31, 2006, respectively.

 

 

We make judgments and interpretations based on enacted tax laws, published tax guidance, as well as estimates of future earnings. These judgments and interpretations affect the provision for income taxes, deferred tax assets and liabilities and the valuation allowance. The deferred tax assets were evaluated under the guidelines of SFAS No. 109, Accounting for Income Taxes, and a determination of the basis of objective factors was made that the net assets will be realized through future years’ table income. In the event that actual results differ from these estimates and assessments, additional valuation allowances may be required.

 

The Company recognizes the financial statements benefit of a tax position only after determining that relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a grater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

 

The following analysis of the Company provides comprehensive information as to the results of our operations since our acquisition of TSS/Vortech compared to our operations prior to this acquisition when we operated as a special purpose acquisition company. Following this analysis, we also present a comparison of our current results to pro forma results as though the acquisition had occurred on January 1, 2006.

The majority of our revenue and cost of revenue for the three months ended September 30, 2007 was due to our acquisition of TSS/Vortech during the first quarter of 2007.

We granted employees 574,000 shares of common stock which had a grant date value of $5.44 per share on January 19, 2007. These shares cliff-vest on January 19, 2010. In addition, during 2007 we granted 156,832 shares of common stock to our non-employee directors and three employees with a grant date value range of $5.43 to $5.99 which vest over the next eighteen months to three years. We recorded $320,300 of compensation expense related to these shares in the three months ended September 30, 2007, respectively.

In February 2007, the Company entered into an agreement with an advisor in which it was obligated to pay the advisor a warrant to purchase 125,000 shares of its common stock. The fair value of these warrants has been determined using the Black Scholes model and is recognized over the term of the agreement and included $213,000 of stock-based compensation expense as selling, general and administrative expense.

Prior to our acquisition of TSS/Vortech, we did not incur any depreciation or amortization expense.

 

 

The increase in revenue and cost of revenue for the nine months ended September 30, 2007 were due primarily to our acquisition of TSS/Vortech during the first quarter of 2007.

The acquisition of TSS/Vortech was our first business acquisition and accordingly, we do not believe a comparison of the results of operations for the three and nine months ended September 30, 2007 and September 30, 2006 is very beneficial to our investors without considering the effect of this acquisition. In order to assist investors in better understanding the changes in our business between the three and nine months ended September 30, 2007 and September 30, 2006, we are presenting in the discussion below pro forma results of operations for the Company and TSS/Vortech for the three and nine months ended September 30, 2007 and September 30, 2006 as if the acquisition of TSS/Vortech occurred on January 1, 2007 and January 1, 2006, respectively. We derived the pro forma results of operations from (i) the unaudited consolidated financial statements of TSS/Vortech for the period from December 31, 2006 to January 19, 2007 (the date of the acquisition) and the nine months ended September 30, 2006, and (ii) our unaudited consolidated financial statements for the nine months ended September 30, 2007 and September 30, 2006. The Company has presented proforma financial information to reflect only the acquisition of TSS/Vortech. The acquisitions of Innovative and Comm Site are not included in the proforma amounts except from the date of acquisition forward.

 

 

The pro forma results of operations are not necessarily indicative of the results of operations that may have actually occurred had the acquisition taken place on the dates noted, or the future financial position or operating results of us or TSS/Vortech. The pro forma adjustments are based upon available information and assumptions that we believe are reasonable.

The tables below include pro-forma information to assist in the analysis of the results of operations: