Pursuant
to Rule 424(b)(3)
Registration
No.
333-154174
PROSPECTUS
FORTRESS
INTERNATIONAL GROUP, INC.
2,327,432
SHARES
COMMON
STOCK
________________
This
prospectus relates to the resale from time to time of a total of up to 2,327,432
shares of our common stock by the selling stockholders described in the section
entitled “Selling Stockholders” beginning on page 14 of this
prospectus.
The
selling stockholders may offer and sell any of the shares of common stock
from
time to time at fixed prices, at market prices or at negotiated prices, and
may
engage a broker, dealer or underwriter to sell the shares. For additional
information on the possible methods of sale that may be used by the selling
stockholders, you should refer to the section entitled “Plan of Distribution”
beginning on page 16 of this prospectus. We will not receive any proceeds
from
the sale of the shares of common stock by the selling stockholders. We will
pay
all expenses incurred in effecting the registration statement of which this
prospectus constitutes a part.
________________
Our
common stock is listed on The NASDAQ Capital Market under the symbol “FIGI.” On
October 8, 2008, the last reported sale price of our common stock was $1.74
per
share. Prospective purchasers of common stock are urged to obtain current
information as to the market prices of our common stock. As of October 8,
2008,
we had 12,557,669 shares of common stock outstanding, of which 6,989,285
shares were held by non-affiliates. Consequently, the aggregate market value
of
our outstanding common stock held by non-affiliates as of October 8, 2008
was
$12,161,356. We have not sold any of our securities pursuant to General
Instruction I.B.6 of Form S-3 during the twelve calendar month period ending
on
the date of this prospectus.
________________
Investing
in our common stock involves a high degree of risk. Before deciding whether
to
invest in our common stock, you should consider carefully the risks that
we have
described beginning on page 3 of this prospectus under the caption “Risk
Factors.”
________________
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
________________
The
date
of this prospectus is October 27, 2008.
TABLE
OF CONTENTS
Page
|
ABOUT
THIS PROSPECTUS
|
1 |
|
PROSPECTUS
SUMMARY
|
1 |
|
RISK
FACTORS
|
3 |
|
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
|
13 |
|
USE
OF PROCEEDS
|
14 |
|
DIVIDEND
POLICY
|
14 |
|
DESCRIPTION
OF SECURITIES
|
14 |
|
SELLING
STOCKHOLDERS
|
14 |
|
PLAN
OF DISTRIBUTION
|
16 |
|
INDEMNIFICATION
|
17 |
|
EXPERTS
AND LEGAL MATTERS
|
17 |
|
WHERE
YOU CAN FIND MORE INFORMATION
|
17 |
|
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
|
18 |
ABOUT
THIS PROSPECTUS
You
should read this prospectus and the information and documents incorporated
by
reference into this prospectus and any applicable prospectus supplement
carefully. Such documents contain important information you should consider
when
making your investment decision. See “Incorporation of Documents by Reference”
beginning on page 18. You should rely only on the information provided in
this
prospectus or documents incorporated by reference into this prospectus. We
have
not authorized anyone to provide you with different information. The selling
stockholders are offering to sell and seeking offers to buy shares of our
common
stock only in jurisdictions in which offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date
of this
prospectus, regardless of the time of delivery of this prospectus or of any
sale
of our common stock. In addition, information from other documents incorporated
by reference into this prospectus or any applicable prospectus supplement
is
accurate only as of the date of the document incorporated by reference,
regardless of the time of delivery of this prospectus or any prospectus
supplement or any sale of our common stock.
Unless
the context otherwise requires, “Fortress,” “the Company,” “we,” “us,” “our” and
similar names refer to Fortress International Group, Inc. and our
subsidiaries.
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere or incorporated by reference
into this prospectus. This summary does not contain all of the information
that
you should consider before deciding to invest in our common stock. You should
read this entire prospectus carefully, including the “Risk Factors” section
contained in this prospectus and our consolidated financial statements and
the
related notes and the other documents incorporated by reference into this
prospectus.
We
plan,
design, build and maintain mission-critical facilities such as data centers,
trading floors, call centers, network operation centers, communication
facilities, laboratories and secure bunkers and we offer expertise for
electrical, mechanical, telecommunications, security, fire protection and
building automation systems that are critical to the mission-critical facilities
lifeblood.
We
provide a single source solution for highly technical mission-critical
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.
With
respect to the infrastructure systems, we 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 to 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 and private sector customers.
We
have obtained a facility clearance from the United States Department of Defense.
This clearance enables us to access and service restricted government projects.
In addition to the facility clearance, we have successfully cleared
approximately one-third of our employees, allowing them individual access
to restricted projects and facilities.
Service
Offerings
We are
focused on becoming involved in facilities integration projects that are
in
their planning stages. When involved in the initial planning stages of a
facilities integration project, we develop a comprehensive project Solutions
Path that meets rigorous design and scheduling requirements for the timely
delivery of high technology facilities that are critical to the customer’s
continuous operations. When involved in later project stages, services are
provided on an integrated or individual basis.
1
Project
Solutions Path
We
have
developed a five-step project named “Solutions Path” for mission-critical
environments. The integrated Solutions Path provides a simple, yet
comprehensive, process for program roll-out and also serves to align project
requirements with our capabilities. This Solutions Path incorporates each
major
phase of a design and construction project, from initial planning and
programming, through maintenance and service of equipment.
Growth
Through Acquisitions
Beginning
in 2007 and continuing into 2008, we implemented a plan to grow our business,
diversify our customer base and gain additional operational scale. To mitigate
business volume fluctuations and customer concentration, we added selling,
general and administrative personnel, enabling us to bid and quote up to
approximately several hundred million in revenues across our service
offerings. During 2007 and 2008, we acquired five businesses that have
provided complementary services, extended our geographical footprint and
added key customers and personnel. In the future, we expect to continue our
growth initiatives both internally and through potential acquisitions of
specialized mission-critical engineering or IT services firms (primarily
in the
United States). We believe that growth-oriented strategy enables us to compete
effectively in the markets in which we operate.
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, and Vortech,
L.L.C., or TSS/Vortech. TSS/Vortech provides comprehensive services for the
planning, design, and development of mission-critical facilities and information
infrastructure.
The
closing consideration consisted of (i) $11,519,151 in cash, including
acquisition costs of $1,841,468 and net of cash acquired of $1,322,317, (ii)
the
assumption of $152,332 of debt of TSS/Vortech, (iii) $14,211,359 of our common
stock consisting of 2,602,813 shares of our common stock, of which 2,534,988
shares were issued to the selling members and 67,825 shares were issued to
Evergreen Capital L.L.C. as partial payment of certain outstanding consulting
fees, and 574,000 shares were designated for issuance to employees of
TSS/Vortech under our 2006 Omnibus Incentive Compensation Plan, and (iv)
$10,000,000 in two convertible promissory notes of $5,000,000 each, bearing
interest at 6%. Simultaneously with the acquisition of TSS/Vortech, we changed
our name from “Fortress America Acquisition Corporation” to our current name,
“Fortress International Group, Inc.”
On
September 24, 2007, we entered into a stock purchase agreement with Innovative
Power Systems Inc., Quality Power Systems, Inc., or, collectively, Innovative,
and the stockholders of Innovative. Based in Virginia, Innovative installs,
tests and services specialized uninterruptible power supply systems and backup
power supply systems for data centers and mission-critical facilities throughout
the Washington DC metropolitan area. Pursuant to the stock purchase agreement,
we acquired 100% of the issued and outstanding capital stock of Innovative
for
the aggregate consideration consisting of (i) $1,614,452 in cash, including
acquisition cost of $112,420 and net of cash acquired of $244,968, subject
to
certain adjustment as provided in the Agreement, (ii) a promissory note for
the
aggregate amount of $300,000, plus interest accruing at 6% annually from
the
date of the issuance of the promissory note (payable in three years, based
on a
five-year amortization schedule, as described in note), (iii) 25,155 shares
of
our common stock valued at $150,000, 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 stock purchase agreement.
On
November 30, 2007, we entered into a membership interest purchase agreement
with
Rubicon Integration, L.L.C., or Rubicon, a Delaware limited liability company
based in McLean, Virginia, and each of the members of Rubicon. Rubicon provides
consulting, owners’ representation and equipment integration services for
mission-critical facilities to corporate customers across the United States.
Pursuant to the purchase agreement, we acquired 100% of the membership interests
of Rubicon for the aggregate consideration consisting of (i) $4,745,524 in
cash,
including acquisition costs of $ 198,043 and net of cash acquired of $42,660,
(ii) 204,000 shares of our common stock valued at $1,080,800, (iii) contingent
consideration in the form of two unsecured promissory notes in the maximum
amount of $1,500,000 and $2,000,000, respectively, plus interest accruing
at 6%
annually from November 30, 2007, the date of the issuance, payable to the
sellers upon the achievement of certain operational and financial targets
for
December 2007 and for the calendar year 2008, respectively, and (iv) additional
earn-out amounts, contingent upon the achievement of certain earnings targets
by
Rubicon for each of the calendar years 2008-2009.
2
Of
the
$1.5 million contingent note, approximately $1.5 million plus accrued interest
was issued on December 31, 2007 based on Rubicon’s achievement of revenue
bookings targets through that date. The note bore interest at six percent
per
annum from the acquisition date and was paid on January 31, 2008.
Of
the
$2.0 million contingent note, approximately $0.4 million was issued on June
30,
2008 based on Rubicon’s achievement of revenue bookings targets through that
date. The issued note bears interest at six percent per annum from the
acquisition date and was paid on July 31, 2008. We may be required to issue
an
additional note up to $1.6 million, contingent on Rubicon’s achievement of
revenue bookings targets in the second half of 2008.
On
January 2, 2008, we entered into a stock purchase agreement with SMLB, Ltd,
or
SMLB, and each of the stockholders of SMLB, for the acquisition of SMLB,
an
Illinois corporation which provides professional construction management
services for mission-critical facilities. Pursuant to the purchase agreement
we
acquired 100% of the issued and outstanding capital stock of SMLB for an
aggregate consideration consisting of (i) $2,094,560 in cash, including
acquisition costs of $151,133 and net of cash acquired of $56,573, (ii) an
unsecured promissory note for an aggregate amount of $500,000, plus interest
accruing at 6% annually from the date of the issuance, (iii) an aggregate
of
96,896 shares of our common stock valued at $462,775, to be held in escrow
pursuant to a certain indemnity escrow agreement, and (iv) additional earn-out
amounts, contingent upon the achievement of certain operational and financial
targets by SMLB for each of the calendar years 2008 and 2009 and subject
to
satisfaction of any outstanding indemnification obligations by the sellers.
During the three months ended June 30, 2008, we reduced the seller notes to
$15,248 based on a $484,752 working capital adjustment in accordance with
the terms of the stock purchase agreement. Principal installments net of
the adjustment of $3,050, $3,050 and $9,148, plus accrued
interest, are due on January 2, 2009, January 2, 2010 and January 2,
2011, respectively. We may prepay the notes any time without
penalty.
Corporate
Information
We
were incorporated in Delaware on December 20, 2004 as a special
purpose acquisition company under the name “Fortress America Acquisition
Corporation,” for the purpose of acquiring an operating business that performed
services to the homeland security industry. Our principal offices are located
at
7226 Lee DeForest Drive, Suite 203, Columbia, MD 21046, and our telephone
number
is (410) 423-7438. We maintain a web site at www.thefigi.com,
where
certain information about us is available. Please note that the information
contained on the website is not a part of this registration
statement.
RISK
FACTORS
Investing
in our common stock involves a high degree of risk. You should carefully
consider the following risk factors and all other information contained in
this
prospectus and incorporated by reference into this prospectus before purchasing
our common stock. The risks and uncertainties described below are not the
only
ones facing us. Additional risks and uncertainties that we are unaware of,
or
that we currently deem immaterial, also may become important factors that
affect
us. If any of such risks or the risks described below occur, our business,
financial condition or results of operations could be materially and adversely
affected. In that case, the trading price of our common stock could decline,
and
you may lose some or all of your investment.
Risks
Related to our Recent Acquisitions
Our
financial condition and growth depends upon the successful integration of
our
acquired businesses. We may not be able to efficiently and effectively integrate
acquired operations, and thus may not fully realize the anticipated benefits
from such acquisitions.
Achieving
the anticipated benefits of the acquisitions that we have completed starting
in
January 2007 will depend in part upon whether we can integrate our businesses
in
an efficient and effective manner.
Since
January 2007, we have acquired, in chronological order, VTC, L.L.C. and Vortech
L.L.C., Comm Site of South Florida, Inc., Innovative Power Systems, Inc.
and
Quality Power Systems, Inc., Rubicon Integration, LLC and in January 2008,
we
acquired SMLB, Ltd. In the future, we may acquire additional businesses in
accordance with our business strategy. The integration of our acquired
businesses and any future businesses that we may acquire involves a number
of
risks, including, but not limited to:
| • |
demands
on management related to the increase in our size after the
acquisition;
|
3
| • |
the
disruption of ongoing business and the diversion of management’s attention
from the management of daily operations to the integration
of operations;
|
| • |
failure
to fully achieve expected synergies and costs
savings;
|
| • |
unanticipated
impediments in the integration of departments, systems, including
accounting systems, technologies, books and records and procedures,
as
well as in maintaining uniform standards, controls, including
internal
control over financial reporting required by the Sarbanes-Oxley
Act of
2002, procedures and policies;
|
| • |
loss
of customers or the failure of customers to contract for incremental
services that we expect them to contract;
|
| • |
failure
to perform services that are contracted by customers during the
integration period;
|
| • |
higher
integration costs than anticipated; and
|
Successful
integration of these acquired businesses or operations will depend on our
ability to manage these operations, realize opportunities for revenue growth
presented by strengthened service offerings and expanded geographic market
coverage, obtain better terms from our vendors due to increased buying power
and
eliminate redundant and excess costs to fully realize the expected synergies.
Because of difficulties in combining geographically distant operations and
systems which may not be fully compatible, we may not be able to achieve
the
financial strength and growth we anticipate from the acquisitions.
We
cannot
be certain that we will realize our anticipated benefits from our acquisitions,
or that we will be able to efficiently and effectively integrate the acquired
operations as planned. If we fail to integrate the acquired businesses and
operations efficiently and effectively or fail to realize the benefits we
anticipate, we would be likely to experience material adverse effects on
our
business, financial condition, results of operations and future prospects.
Certain
of our key personnel who joined us as a result of the acquisition of TSS/Vortech
are unfamiliar with the requirements of operating a public company, which
may
adversely affect our operations, including reducing our revenues and net
income,
if any.
Upon
the
completion of the acquisition TSS/Vortech, our former Chairman of the Board,
C.
Thomas McMillen, resigned and became our Vice Chairman, and our former Chief
Executive Officer, President and Secretary, Harvey L. Weiss, resigned from
those
positions and became our Chairman of the Board. Thomas P. Rosato became our
Chief Executive Officer, and Gerard J. Gallagher became our President and
Chief
Operating Officer. Neither Mr. Rosato nor Mr. Gallagher has
significant public company experience, and both are unfamiliar with the unique
requirements of operating a public company under United States securities
laws.
Our Chief Financial Officer, Timothy C. Dec, joined us in August 2007.
Accordingly, we could be required to expend significant resources to assist
our
management team with regulatory and stockholder relations issues, which could
be
expensive and time-consuming and could lead to various regulatory issues
that
may adversely affect our operations, including reducing our revenues and
net
income, if any.
If
the acquisitions’ benefits do not meet the expectations of financial or industry
analysts, the market price of our common stock may
decline.
The
market price of our common stock may decline as a result of our various
acquisitions if:
| • |
we
do not achieve the perceived benefits of each acquisition as
rapidly as,
or to the extent anticipated by, financial or industry analysts;
or
|
| • |
the
effect of the acquisitions on our financial results is not consistent
with
the expectations of financial or industry
analysts.
|
Accordingly,
investors may experience a loss as a result of a decreasing stock
price.
4
The
Chairman, Vice Chairman and one member of our Board of Directors may have
conflicts of interest that could hinder our ability to make
acquisitions.
One
of
our growth strategies is to make selective acquisitions of specialty engineering
and information technology/networking consulting and system integration
companies that focus on mission-critical facilities. The current Vice Chairman
of our Board of Directors, Mr. McMillen, is the President, Chief Executive
Officer and Chairman of the Board of Directors of Homeland Security Capital
Corporation (“HSCC”). HSCC has announced that its intended strategic direction
is “to focus on owning and operating small- and mid-sized growth businesses that
provide homeland security solutions through innovative technologies to both
the
public and private sector and to drive growth through management, strategic
guidance, capital and financial support, and government marketing expertise.”
It is possible that HSCC could be interested in acquiring businesses that
we would also be interested in acquiring and that these relationships could
hinder our ability to carry out our acquisition strategy.
Additionally,
our Chairman of the Board, Mr. Weiss, Vice Chairman of the Board, Mr. McMillen,
and Director, Mr. Hutchinson, serve as the Co-Chairman of the Board,
Co-Chairman of the Board, and Director, respectively, on the Board of Directors
of Secure America Acquisition Corporation, or Secure America, a blank check
Company formed for the purpose of acquiring, or acquiring control of, through
a
merger, capital stock exchange, asset acquisition, stock purchase or other
similar business combination, one or more operating businesses in the homeland
security industry. It is possible that Secure America could be interested
in
acquiring businesses that we would also be interested in acquiring and that
these relationships could hinder our ability to carry out our acquisition
strategy.
Voting
control by our executive officers, directors and other affiliates may limit
your
ability to influence the outcome of director elections and other matters
requiring stockholder approval.
Persons
who are parties to a voting agreement (Messrs. McMillen, Weiss, Gallagher
and Rosato) own approximately 38.2% of our issued voting stock at October
8,
2008. Moreover, this concentration will increase if additional shares are
issued
under the employment agreements entered into with Messrs. Rosato and
Gallagher or upon conversion by Mr. Gallagher of the remaining $4,000,000
convertible promissory notes delivered in connection with TSS/Vortech
acquisition (Mr. Rosato has recently converted all of his remaining convertible
promissory notes). These persons have made certain
agreements to vote for each other’s designees to our Board of Directors through
the 2008 director elections. Accordingly, they are able to significantly
influence the election of directors and, therefore, our policies and direction
during the term of the voting agreement. This concentration of ownership
and the
voting agreement could have the effect of delaying or preventing a change
in our
control or discouraging a potential acquirer from attempting to obtain control
of us, which in turn could have a material adverse effect on the market price
of
our common stock or prevent our stockholders from realizing a premium over
the
market price for their shares of common stock.
Actual
or potential conflicts of interest are likely to develop between us and
Messrs. Rosato and Gallagher.
Thomas
P.
Rosato and Gerard J. Gallagher, the selling members of TSS/Vortech, continue
to
own significant businesses other than TSS/Vortech that are not owned or
controlled by us. We will have an ongoing business relationship with certain
of
these businesses of the selling members. This will likely create actual or
potential conflicts of interest between the selling members, who are executive
officers and members of our Board of Directors and thus in a position to
influence corporate decisions and us.
We
may not have sufficient financial resources to carry out our acquisition
strategy; we may need to use our stock to fund acquisitions to a greater
extent
than we originally intended.
In
January 2007, we announced a common stock repurchase program. As a result
of that program, through December 31, 2007, we had utilized $2,036,015 of
cash
to purchase 379,075 shares of our common stock at an average price of $5.37
per
share. We retired 221,000 of the repurchased shares on June 13, 2007. The
repurchase program was suspended during the third quarter of 2007. These
stock repurchases reduced the amount of cash available to fund acquisitions.
As
a result, we may have to incur more debt, or issue more common stock or other
equity securities, than would otherwise have been necessary in connection
with
acquisitions and we may not have sufficient financial resources to carry
out our
acquisition strategy to the extent we had initially planned.
5
If
third parties bring claims against us or if acquired companies breached any
of
its representations, warranties or covenants set forth in the purchase
agreement, we may not be adequately indemnified for any losses arising
therefrom.
Although
the purchase agreement provides that Messrs. Rosato and Gallagher will
indemnify us for losses arising from a breach of the representations, warranties
and covenants by TSS/Vortech or Messrs. Rosato and Gallagher set forth in
the purchase agreement, such indemnification is limited, in general terms,
to an
aggregate amount of $5 million and claims may be asserted against
Messrs. Rosato and Gallagher only if a claim exceeds $8,000 and the
aggregate amount of all claims exceeds $175,000. In addition, with some
exceptions, the survival period for claims under the purchase agreement is
limited to the 18-month period following the closing of the acquisition and
has
expired. We are prevented from seeking indemnification for most claims above
the
aggregate threshold or arising after the applicable survival period. For
the
Rubicon, Innovative, and subsequent to year end, SMLB acquisitions, we are
indemnified for any losses arising from a breach of the representations,
warranties, and covenants by the sellers through the right to reduce any
future
contingent consideration earned by the sellers; however, we may not be
adequately indemnified for the full value of any loses arising there
from.
As
a result of our acquisitions, we have substantial amounts of goodwill and
intangible assets, and changes in future business conditions could cause
these
assets to become impaired, requiring substantial write-downs that would
adversely affect our operating results.
Our
acquisitions were accounted for as purchases and involved purchase
prices well in excess of tangible asset values, resulting in the creation
of a
significant amount of goodwill and other intangible assets. Since
December 31, 2006, we completed the acquisitions of
TSS/Vortech, Comm Site, Innovative, Rubicon, and SMLB and we plan to
continue acquiring businesses if and when opportunities arise, further
increasing our goodwill and purchased intangibles amount. Under generally
accepted accounting principles, we do not amortize goodwill and intangible
assets acquired in a purchase business combination that are determined to
have
indefinite useful lives, but instead review them annually (or more frequently
if
impairment indicators arise) for impairment. To the extent we determine that
such an asset has been impaired, we will write-down its carrying value on
our
balance sheet and book an impairment charge in our statement of operations.
In
the second quarter of 2008, we recorded a $1.2 million of impairment
charge.
We
amortize intangible assets with estimable useful lives over their respective
estimated useful lives to their estimated residual values and also review
them
for impairment. If, as a result of acquisitions or otherwise, the amount
of
intangible assets being amortized increases, so will our depreciation and
amortization charges in future periods.
Risks
Related to Our Business and Operations
We
derive a significant portion of our revenues from a limited number of
customers.
We
derive
and believe that we will continue to derive in the near term, a significant
portion of our revenues from a limited number of customers. To the extent
that
any significant customer uses less of our services or terminates its
relationship with us, our revenues could decline significantly, which would
have
an adverse effect on our financial condition and results of operations. For
the
years ended December 31, 2007, 2006 and 2005, we had one large project
with our major real estate investment trust (REIT) customer, Corporate
Office Properties Trust, which is providing mission-critical space to a
government end user and which comprised approximately 12.0%, 63.0%, and 78.0%,
respectively, of our revenues. Our 10 largest customers accounted for
approximately 58.5% and 80.4% of our total revenues for the years ended
December 31, 2007 and 2006, respectively.
Most
of our contracts may be canceled on short notice, so our revenue and
potential profits are not guaranteed.
Most
of
our contracts are cancelable on short notice by the customer either at its
convenience or upon our default. If one of our customers terminates a
contract at its convenience, then we typically are able to recover only costs
incurred or committed, settlement expenses and profit on work completed prior
to
termination, which could prevent us from recognizing all of our potential
revenue and profit from that contract. If one of our customers terminates
the
contract due to our default, we could be liable for excess costs incurred
by
the customer in re-procuring services from another source, as well as other
costs. Many of our contracts, including our service agreements, are periodically
open to public bid. We may not be the successful bidder on its existing
contracts that are re-bid. We also provide an increasing portion of our
services on a non-recurring, project-by-project basis. We could experience
a
reduction in our revenue, profitability and liquidity if:
|
•
|
our
customers cancel a significant number of
contracts;
|
6
| • |
we
fail to win a significant number of its existing contracts upon
re-bid;
or
|
| • |
we
complete the required work under a significant number of our
non-recurring
projects and cannot replace them with similar
projects.
|
We
do business with customers that may require additional funding to complete
committed or contracted work, so our revenue and potential profits may be
adversely affected due to their inability to raise additional funds.
We
have
contracts with customers that are in the process of raising capital to fund
their respective commitments to us. An inability of our customers to raise
funds may result in nonpayment to us, while we may have a continued contractual
obligation to our vendors, which would have an adverse effect on our financial
condition and results of operations.
Our
backlog varies and is subject to unexpected adjustments and cancellations
and
is, therefore, not guaranteed to be recognized as
revenue.
We
cannot
assure that the revenues attributed to uncompleted projects under contract
will
be realized or, if realized, will result in profits. Included in our backlog
is
the maximum amount of all uncompleted indefinite delivery/indefinite quantity
(“ID/IQ”) or similar contracts and task order contracts, or a lesser amount
if we do not reasonably expect to be issued task orders for the maximum amount
of such contracts. We perform services only when purchase orders are issued
under the associated contracts.
The
backlog amounts are estimates, subject to change or cancellation, and
accordingly, the actual customer purchase orders to perform work may vary
in
scope and amount from the backlog amounts. Accordingly, we can not provide
any
assurance that we will in fact be awarded the maximum amount of such contracts
or be awarded any amount at all. Our backlog as of June 30, 2008 was
approximately $224.1 million.
The
majority of our projects are accounted for on the percentage-of-completion
method, and if actual results vary from the assumptions made in estimating
percentage-of-completion, our revenue and income could be
reduced.
We
generally recognize revenue on our projects on the percentage-of-completion
method. Under the percentage-of-completion method, we record revenue as work
on
the contract progresses. The cumulative amount of revenue recorded on a contract
at a specified point in time is that percentage of total estimated revenue
that
incurred costs to date bear to estimated total contract costs. The
percentage-of-completion method therefore relies on estimates of total expected
contract costs. Contract revenue and total cost estimates are reviewed and
revised periodically as the work progresses. Adjustments are reflected in
contract revenue in the fiscal period when such estimates are revised. Estimates
are based on management’s reasonable assumptions and experience, but are only
estimates. Variation between actual results and estimates on a large project
or
on a number of smaller projects could be material. We immediately recognize
the
full amount of the estimated loss on a contract when our estimates indicate
such
a loss. Any such loss would reduce our revenue and income.
We
submit change orders to our customers for work we perform beyond the scope of
some of our contracts. If our customers do not approve these change orders,
our
results of operations could be adversely impacted.
We
typically submit change orders under some of our contracts for payment of
work
performed beyond the initial contractual requirements. The applicable customers
may not approve or may contest these change orders and we cannot assure you
that
these claims will be approved in whole, in part or at all. If these claims
are
not approved, our net income and results of operations could be adversely
impacted.
We
may not accurately estimate the costs associated with services provided under
fixed-price contracts, which could impair our financial
performance.
A
portion
of our revenue is derived from fixed price contracts. Under these contracts,
we
set the price of our services and assume the risk that the costs associated
with
our performance may be greater than we anticipated. Our profitability is
therefore dependent upon our ability to estimate accurately the costs associated
with our services. These costs may be affected by a variety of factors, such
as
lower than anticipated productivity, conditions at the work sites differing
materially from what was anticipated at the time we bid on the contract and
higher than expected costs of materials and labor. Certain agreements or
projects could have lower margins than anticipated or losses if actual costs
for
contracts exceed our estimates, which could reduce our profitability and
liquidity.
7
Failure
to properly manage projects may result in costs or
claims.
Our
engagements often involve relatively large scale, highly complex projects.
The
quality of our performance on such projects depends in large part upon our
ability to manage the customer relationship, to manage effectively the project
and to deploy appropriate resources, including third-party
contractors and our own personnel, in a timely manner. Any defects or errors
or
failure to meet customers’ expectations could result in claims for substantial
damages against us. We currently maintain comprehensive general liability,
umbrella, and professional liability insurance policies. We cannot be certain
that the insurance coverage we carry to cover such claims will be adequate
to
protect us from the full impact of such claims. Moreover, in certain instances,
we guarantee customers that we will complete a project by a scheduled date
or that the project will achieve certain performance standards. If the project
experiences a performance problem, we may not be able to recover the additional
costs we will incur, which could exceed revenues realized from a project.
Finally, if we underestimate the resources or time we need to complete a
project
with capped or fixed fees, our operating results could be seriously
harmed.
We
may choose, or be required, to pay our subcontractors even if our customers
do not pay, or delay paying, us for the related
services.
We
use
subcontractors to perform portions of our services and to manage work flow.
In
some cases, we pay our subcontractors before our customers pay us for the
related services. If we choose, or are required, to pay our subcontractors
for work performed for customers who fail to pay, or delay paying us for
the
related work, we could experience a decrease in profitability and
liquidity.
We
operate in a highly competitive industry, which could reduce our growth
opportunities, revenue and operating results.
The
mission-critical IT industry in which we operate is highly competitive. We
often
compete with other IT consulting and integration companies, including several
that are large domestic companies that may have financial, technical and
marketing resources that exceed our own. Our competitors may develop the
expertise, experience and resources to provide services that are equal or
superior in both price and quality to our services, and we may not be able
to
maintain or enhance our competitive position. Although our customers
currently outsource a significant portion of these services to us and our
competitors, we can offer no assurance that our existing or prospective
customers will continue to outsource specialty contracting services to us
in the
future.
The
industries we serve have experienced and may continue to experience rapid
technological, structural and competitive changes that could reduce the need
for
our services and adversely affect our revenues.
The
mission-critical IT industry is characterized by rapid technological change,
intense competition and changing consumer and data center needs. We generate
a
significant portion of our revenues from customers in the mission-critical
IT
industry. New technologies, or upgrades to existing technologies by customers,
could reduce the need for our services and adversely affect our revenues
and
profitability. Improvements in existing technology may allow companies to
improve their networks without physically upgrading them. Reduced demand
for our
services or a loss of a significant customer could adversely affect our results
of operations, cash flows and liquidity.
If
federal, state or local government or private enterprise spending on
mission-critical facility related capital expenditures decreases, the demand
for
services like those provided by us would likely decline. This decrease could
reduce our opportunity for growth, increase our marketing and sales costs
and
reduce the prices we can charge for services, which could reduce our revenue
and
operating results.
We
may be unable to obtain sufficient bonding capacity to support certain service
offerings.
Some
of
our contracts require performance and surety bonds. Bonding capacity for
construction projects has become increasingly difficult to obtain and bonding
companies are denying or restricting coverage to an increasing number of
contractors. Companies that have been successful in renewing or obtaining
coverage have sometimes been required to post additional collateral to secure
the same amount of bonds which would reduce availability under any credit
facility. We may not be able to maintain a sufficient level of bonding capacity
in the future, which could preclude us from being able to bid for certain
contracts and successfully contract with certain customers. In addition,
even if
we are able to successfully renew or obtain performance or payment bonds
in the
future, we may be required to post letters of credit in connection with the
bonds.
8
We
may be unable to hire and retain sufficient qualified personnel; the loss
of any
of our key executive officers may adversely affect our
business.
We
believe that our future success will depend in large part on our ability
to
attract and retain highly skilled, knowledgeable, sophisticated and qualified
managerial, professional and technical personnel. Our business involves the
development of tailored solutions for customers, a process that relies heavily
upon the expertise and services of employees. Accordingly, our employees
are one
of our most valuable resources. Competition for skilled personnel, especially
those with security clearance, is intense in our industry. Recruiting and
training these personnel require substantial resources. Our failure to attract
and retain qualified personnel could increase our costs of performing our
contractual obligations, reduce our ability to efficiently satisfy our
customers’ needs, limit our ability to win new business and constrain our future
growth.
Our
business is managed by a small number of key executive officers, including
Mr. Weiss, our Chairman, Mr. McMillen, our Vice Chairman,
Mr. Rosato, our Chief Executive Officer, Mr. Gallagher, our President
and Chief Operating Officer and Mr. Dec, our Chief Financial Officer. The
loss
of any of these key executive officers could have a material adverse effect
on
our business.
Some
United States government projects require our employees to maintain various
levels of security clearances, and we may be required to maintain certain
facility security clearances complying with United States government
requirements.
Obtaining
and maintaining security clearances for employees involve a lengthy process,
and
it is difficult to identify, recruit and retain employees who already hold
security clearances. If our employees are unable to obtain or retain security
clearances or if such employees who hold security clearances terminate their
employment, the customer whose work requires cleared employees could terminate
the contract or decide not to renew it upon expiration. To the extent we
are not
able to engage employees with the required security clearances for a particular
contract, we may not be able bid on or win new contracts, or effectively
re-bid
on expiring contracts, which could adversely affect our business.
In
addition, we expect that some of the contracts on which we will bid will
require us to demonstrate our ability to obtain facility security
clearances and perform work with employees who hold specified types of security
clearances. A facility security clearance is an administrative determination
that a particular facility is eligible for access to classified information
or
an award of a classified contract. Although contracts may be awarded prior
to
the issuance of a facility security clearance, in such cases the contractor
is
processed for facility security clearance at the appropriate level and must
meet
the eligibility requirements for access to classified information. A contractor
or prospective contractor must meet certain eligibility requirements before
it
can be processed for facility security clearance. Our ability to obtain and
maintain facility security clearances has a direct impact on our ability
to
compete for and perform United States government projects, the performance
of
which requires access to classified information.
Our
failure to comply with the regulations of the United States Occupational
Safety
and Health Administration and other state and local agencies that oversee
safety
compliance could reduce our revenue, profitability and
liquidity.
The
Occupational Safety and Health Act of 1970, as amended, or OSHA, establishes
certain employer responsibilities, including maintenance of a workplace free
of
recognized hazards likely to cause death or serious injury, compliance with
standards promulgated by the Occupational Safety and Health Administration
and
various record keeping, disclosure and procedural requirements. Various
standards, including standards for notices of hazards, safety in excavation
and
demolition work, may apply to our operations. We have incurred, and will
continue to incur, capital and operating expenditures and other costs in
the
ordinary course of our business in complying with OSHA and other state and
local laws and regulations.
9
Our
quarterly revenue, operating results and profitability will
vary.
Our
revenue, operating results and profitability may fluctuate significantly
and
unpredictably in the future. In particular, the changes in contract mix that
is
inherent to our business may significantly affect our results.
Factors
that may contribute to the variability of our revenue, operating results
or
profitability include:
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·
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Fluctuations
in revenue earned on contracts;
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·
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Commencement,
completion and termination of contracts, especially contracts
relating to
our major customers;
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·
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Declines
in backlog that are not replaced;
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·
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Additions
and departures of key personnel;
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·
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Strategic
decisions by us and our competitors, such as acquisitions,
divestitures,
spin-offs, joint ventures, strategic investments and changes
in business
strategy;
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·
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Contract
mix and the extent of subcontractor use;
and
|
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·
|
Any
seasonality of our
business.
|
Therefore,
period-to-period comparisons of our operating results may not be a good
indication of our future performance. Our quarterly operating results may
not
meet the expectations of securities analysts or investors, which in turn
may
have an adverse affect on the market price of our common stock.
If
we are unable to engage appropriate subcontractors or if our subcontractors
fail
to perform their contractual obligations, our performance as a prime contractor
and ability to obtain future business could be materially and adversely
impacted.
Our
contract performance may involve the engagement of subcontracts to other
companies upon which we rely to perform all or a portion of the work we are
obligated to deliver to our customers. Our inability to find and engage
appropriate subcontractors or a failure by one or more of our subcontractors
to
satisfactorily deliver on a timely basis the agreed-upon supplies and/or
perform
the agreed-upon services may materially and adversely affect our ability
to
perform our obligations as a prime contractor.
In
extreme cases, a subcontractor’s performance deficiency could result in the
customer terminating the contract for default with us. A default termination
could expose us to liability for excess costs of reprocurement by the customer
and have a material adverse effect on our ability to compete for future
contracts and task orders.
If
we are unable to manage our growth, our business may be adversely
affected.
Sustaining
our historical growth may place significant demands on our management, as
well
as on our administrative, operational and financial resources. If we sustain
significant growth, we must improve our operational, financial and management
information systems and expand, motivate and manage our workforce. If we
are
unable to do so, or if new systems that we implement to assist in managing
any
future growth do not produce the expected benefits, our business, prospects,
financial condition or operating results could be adversely
affected.
Risk
Related to Our Capital Structure and our Experience as a Public
Company
Because
we do not currently intend to pay dividends on our common stock, stockholders
will benefit from an investment in our common stock only if it appreciates
in
value.
We
have
never declared or paid any cash dividends on our common stock. We currently
intend to retain all future earnings, if any, for use in the operations and
expansion of our business. As a result, we do not anticipate paying cash
dividends in the foreseeable future. Any future determination as to the
declaration and payment of cash dividends will be at the discretion of our
Board
of Directors and will depend on factors our Board of Directors deems relevant,
including, among others, our results of operations, financial condition and
cash
requirements,
business
prospects, and the terms of our credit facilities and other financing
arrangements. Accordingly, realization of a gain on stockholders’ investments
will depend on the appreciation of the price of our common stock. There is
no
guarantee that our common stock will appreciate in value or even maintain
the
price at which stockholders purchased their shares.
10
The
significant number of our outstanding warrants and options to purchase our
shares of common stock may place a ceiling on, or otherwise adversely
affect, the value of our common stock.
We
have
17,810,300 outstanding warrants and options to purchase shares of our
common stock at a weighted average exercise price of $5.20 per share, with
weighted average remaining life of 0.9 years and only 12,557,669
outstanding shares of common stock as of October 8, 2008. Our warrants represent
a very significant market overhang that may limit the value of our common
stock, at least in the near term and unless and until we can substantially
grow
our business.
If
we are unable to maintain a current prospectus relating to the common stock
underlying our warrants, our warrants may be
worthless.
Our
warrants will be exercisable and we will not be obligated to issue shares
of
common stock unless, at the time a holder seeks to exercise such warrant,
a
prospectus relating to the common stock issuable upon exercise of the warrant
is
current and the common stock has been registered or qualified or deemed to
be
exempt under the securities laws of the state of residence of the holder
of the
warrants. Under the terms of the warrant agreement between Continental Stock
Transfer & Trust Company, as warrant agent, and us, we have agreed to use
our reasonable best efforts to maintain a current prospectus relating to
the
common stock issuable upon exercise of our warrants until the expiration
of our
warrants. However, we cannot assure warrant holders that we will be able
to do
so. The warrant agreement does not provide that we are required to net-cash
settle the warrants if we are unable to maintain a current prospectus. If
the
prospectus relating to the common stock issuable upon exercise of the warrants
is not current, or if the common stock is not qualified or exempt from
qualification in the jurisdictions in which the holders of the warrants reside,
our warrants may not be exercisable before they expire. Thus, our warrants
may
be deprived of any value, the market for our warrants may be limited or
non-existent and the warrants may expire worthless.
The
warrant agreement governing our warrants permits us to redeem the warrants
after
they become exercisable, and it is possible that we could redeem the warrants
at
a time when a prospectus is not current, resulting in the warrant holder
receiving less than fair value of the warrant or the underlying common
stock.
Under the
warrant agreement governing our outstanding warrants, we have the right to
redeem outstanding warrants, at any time after they become exercisable and
prior
to their expiration, at the price of $0.01 per warrant, provided that the
last
sales price of our common stock is at least $8.50 per share on each of 20
trading days within any 30 trading day period ending on the third business
day
prior to the date on which notice of redemption is given. The warrant agreement
does not require, as a condition to giving notice of redemption, that we
have in
effect a current prospectus relating to the common stock issuable upon exercise
of our warrants. Thus, it is possible that we could issue a notice of redemption
of the warrants at a time when holders of our warrants are unable to exercise
their warrants and thereafter immediately resell the underlying common stock
under a current prospectus. Under such circumstances, rather than face
redemption at a nominal price per warrant, warrant holders could be forced
to
sell the warrants or the underlying common stock for less than fair
value.
Increased
scrutiny of financial disclosure could adversely affect investor confidence
and
any restatement of earnings could increase litigation risks and limit our
ability to access the capital markets.
Congress,
the Securities and Exchange Commission, or the SEC, other regulatory authorities
and the media are intensely scrutinizing a number of financial reporting
issues
and practices. If we were required to restate our financial statements as
a
result of a determination that we had incorrectly applied generally accepted
accounting principles, that restatement could adversely affect our ability
to
access the capital markets or the trading price of our securities. The recent
scrutiny regarding financial reporting has also resulted in an increase in
litigation. There can be no assurance that any such litigation against us
would
not materially adversely affect our business or the trading price of our
securities.
11
Prior
to the acquisition of TSS/Vortech, we did not have operations, and TSS/Vortech
had never operated as a public company. Fulfilling our obligations incident
to
being a public company will be expensive and time
consuming.
Prior
to
the acquisition of TSS/Vortech, both we, as a company without operations,
and
TSS/Vortech, as a private company, had maintained relatively small finance
and
accounting staffs. We have engaged a firm to perform internal audit
services and assist with the effort to remediate the weaknesses described
below
and be compliant with Section 404. We have maintained limited disclosure
controls and procedures and internal control over financial reporting as
required under the federal securities laws with respect to our limited
activities prior to the acquisition, but we have not been required to maintain
and establish such disclosure controls and procedures and internal controls
as
are required with respect to a business such as TSS/Vortech with substantial
operations following the acquisition. Under the Sarbanes-Oxley Act of 2002
and
the related rules and regulations of the SEC, as well as the rules of NASDAQ,
we
must implement additional internal and disclosure control procedures and
corporate governance practices and adhere to a variety of reporting requirements
and complex accounting rules. Compliance with these obligations will require
significant management time, place significant additional demands on our
finance
and accounting staff and on our financial, accounting and information systems,
and increase our insurance, legal and financial compliance costs.
Section
404 of the Sarbanes-Oxley Act of 2002 requires us to document and test our
internal controls over financial reporting for fiscal 2007 and beyond and
will
require an independent registered public accounting firm to report on our
assessment as to the effectiveness of these controls for fiscal 2009 and
beyond.
Any delays or difficulty in satisfying these requirements could adversely
affect
our future results of operations and our stock price.
Section
404 of the Sarbanes-Oxley Act of 2002 requires us to document and test the
effectiveness of our internal controls over financial reporting in accordance
with an established internal control framework and to report on our conclusion
as to the effectiveness of our internal controls for our fiscal year ending
December 31, 2007 and subsequent years. In connection with this evaluation,
we retained internal audit services to further enhance our internal control
environment. It will also require an independent registered public accounting
firm to test, evaluate and report on the completeness of our assessment for
our
fiscal year ending December 31, 2009 and subsequent years. It may cost us
more than we expect to comply with these control- and procedure-related
requirements.
Through
December 31, 2006, we had no operations, no full-time personnel and very
few
personnel of any kind. Our activities from inception in late 2005 and into
2006
focused on completing our initial public offering, identifying acquisition
candidates and then completing the acquisition of TSS/Vortech on January
19,
2007. As of December 31, 2007, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer, of the effectiveness of the design and operation of our
“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures
were ineffective at that time for the purpose of ensuring that the information
required to be disclosed in our reports filed with the SEC under the Exchange
Act is (1) recorded, processed, summarized, and reported within the time
periods
specified in the SEC’s rules and forms and (2) is accumulated and communicated
to our management, including the Chief Executive Officer, as appropriate
to
allow timely decisions regarding required disclosure.
In
January 2007, we acquired TSS/Vortech and re-evaluated our internal control
process during 2007 based on the framework in “Internal Control-Interpreted
Framework” issued by Committee of Sponsoring Organizations of the Treadway
Commission (COSO). As a result of this re-evaluation, we have determined
that
our internal control over financial reporting is ineffective as of December
31,
2007. We had neither the resources, nor the personnel, to provide for an
adequate internal control environment. The following material weaknesses
in our
internal control over financial reporting were noted at December 31, 2007:
(i)
we did not have the ability to segregate duties; (ii) we lacked the formal
documentation of policies and procedures that were in place; (iii) we lacked
adequate financial personnel; (iv) we lacked general computer controls and
adequate procedures involving change management; and (v) controls are inadequate
to reasonably assume compliance with generally accepted accounting principles
related to revenue.
We
have
begun to address the internal control weaknesses summarized above beginning
in
the first quarter of 2008, with the goal of eliminating such deficiencies
by the
second quarter of 2009. We are working with a certified public accounting
firm
to serve as our internal auditors to further enhance our internal control
environment and a Chief Financial Officer has been with the Company since
August
20, 2007. Our acquisitions during 2007 and the first quarter of 2008, will
require the development of more robust disclosure controls and procedures,
which
we are currently developing. Management will continue to monitor, evaluate
and
test the operating effectiveness of these controls during 2008.
12
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and the documents we have filed with the SEC, that are incorporated
herein by reference, contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements in this prospectus include, but are not limited to, statements
concerning:
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our
mission-critical services business, its advantages and our strategy
for
continuing to pursue our business;
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·
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our
ability to consummate any acquisition or other business combination
and
any other statements that are not historical
facts;
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·
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anticipated
dates on which we will begin providing certain services or reach
specific
milestones in the development and implementation of our business
strategy;
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·
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expectations
as to our future revenue, margin, expenses, cash flows and capital
requirements;
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·
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our
integration of acquired businesses;
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the
amount of cash available to us to execute our business
strategy;
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continued
compliance with government
regulations;
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statements
about industry trends;
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geopolitical
events and regulatory changes; and
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other
statements of expectations, beliefs, future plans and
strategies.
|
The
most
important factors that could prevent us from achieving our stated goals include,
but are not limited to, our failure to:
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·
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implement
our strategic plan, including our ability to make acquisitions
and the
performance and future integration of acquired businesses;
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·
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deliver
services and products that meet customer demands and generate
acceptable
margins;
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·
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increase
sales volume by attracting new customers, retaining existing
customers and
growing the overall number of customers to minimize a significant
portion
of our revenues being dependent on a limited number of
customers;
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risks
relating to revenues and backlog under customer contracts, many
of which
can be cancelled on short notice;
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manage
and meet contractual terms of complex
projects;
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attract
and retain qualified management and other personnel;
and
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·
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meet
all of the terms and conditions of our debt
obligations.
|
In
some
cases, you can identify forward-looking statements by terms such as
“anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,”
“plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar
expressions intended to identify forward-looking statements.
Forward-looking
statements reflect our current views with respect to future events and are
based
on assumptions and subject to risks and uncertainties and other important
factors,
including financial, regulatory, industry growth and trend projections, that
could cause actual events or results,
performance or achievements to be materially different from any future results,
performances or achievements expressed or implied by the forward-looking
statements. These known and unknown risks, uncertainties and other factors
are
described in detail in the “Risk Factors” section and in other sections of this
prospectus and our Annual Report on Form 10-K, as amended, and our
Quarterly Reports on Form 10-Q.
13
Given
these uncertainties, you should not place undue reliance on these
forward-looking statements. You should read this document, any supplements
to
this document and the documents that we reference in this prospectus with
the
understanding that our actual future results may be materially different
from
what we expect. Except as required by law, we do not undertake any obligation
to
update or revise any forward-looking statements contained in this prospectus
and
any supplements to this prospectus, whether as a result of new information,
future events or otherwise.
USE
OF PROCEEDS
We
will
not receive any of the proceeds from the sale of the shares by the selling
stockholders.
DIVIDEND
POLICY
We
currently intend to retain earnings, if any, to finance our growth. We have
not
paid dividends to our stockholders since our inception and do not expect to
pay cash dividends on our common stock in the foreseeable future.
DESCRIPTION
OF SECURITIES
The
description of the securities covered by this prospectus is contained in
our
Registration Statement on
Form
S-1, as amended, initially filed with the SEC on March 23, 2005, under the
heading “Description of Securities―Common Stock,” and
that
description is incorporated herein by reference.
SELLING
STOCKHOLDERS
This
prospectus relates to the resale from time to time of up to a total of 2,327,432
shares of common stock by the selling stockholders, which shares are comprised
of the following securities:
1. 1,750,000
shares of common stock issued in connection with our initial public offering
to
Washington Capital Advisors LLC, Harvey L. Weiss, David J. Mitchell, Donald
L.
Nickles, Asa Hutchinson, Paladin Homeland Security Fund, L.P., Paladin Homeland
Security Fund (NY City), L.P., Paladin Homeland Security Fund (CA), L.P.,
Paladin Homeland Security Fund (Cayman Island), L.P. who demanded to register
their shares of common stock pursuant to a registration rights agreement
dated
July 25, 2005;
2. 452,432
shares of common stock issued in connection with the acquisition of TSS/Vortech
to Thomas P. Rosato, Gerard J. Gallagher and Evergreen Capital, LLC, pursuant
to
a registration rights agreement dated January 19, 2007; and
3. 125,000
shares of common stock issuable upon exercise of warrants at an exercise
price
of $5.00 per share of common stock issued to Maxim Partners, LLC.
When
we
refer to the “selling stockholders” in this prospectus, we mean the entities and
individuals listed in the table below, as well as their transferees, pledgees
or
donees or respective successors.
The
following table, to our knowledge, sets forth information regarding the
beneficial ownership of our common stock by each of the selling stockholders
as
of October 8, 2008 and the maximum number of shares that may be sold hereunder.
The information is based on information provided by or on behalf of the selling
stockholders.
We
do not
know when or in what amounts the selling stockholders will offer shares for
sale. The selling stockholders may choose not to sell any or all of the shares
offered by this prospectus. We cannot estimate the number of shares that
will be
sold in the offering or held by the selling stockholders after completion
of the
offering. Solely for purposes of this table, however, we have assumed that,
after completion of the offering, the maximum number of shares covered by
this
prospectus will have been sold by the selling stockholders.
Mr.
Harvey L. Weiss is the Chairman of our Board of Directors, Mr. Thomas P.
Rosato
is our Chief Executive Officer, Mr. Gerard J. Gallagher is our President
and
Chief Operating Officer and Messrs. David J. Mitchell, Donald L. Nickles
and Asa
Hutchinson serve as directors. In addition, Washington Capital Advisors LLC
is a
limited liability company principally owned and managed by Mr. C. Thomas
McMillen, the Vice-Chairman of our Board of Directors.
14
The
amounts and percentage of common stock beneficially owned are reported on the
basis of regulations of the SEC governing the determination of beneficial
ownership of securities. Under the rules of the SEC, a person is deemed to
be a
“beneficial owner” of a security if that person has or shares “voting power,”
which includes the power to vote or to direct the voting of such security,
or
“investment power,” which includes the power to dispose of or to direct the
disposition of such security. A person is also deemed to be a beneficial
owner
of any securities of which that person has a right to acquire beneficial
ownership within sixty (60) days. Under these rules, more than one person
may be deemed a beneficial owner of the same securities and a person may
be
deemed to be a beneficial owner of securities as to which such person has
no
economic interest. The inclusion of shares in this table does not constitute
an
admission of beneficial ownership of all such shares for the stockholders
named
below. The actual number of shares of common stock that may be sold by the
selling stockholders will be determined by the selling stockholders. Because
the
selling stockholders may sell all, some or none of the shares of common stock
which it holds, no estimate can be given as to the number of shares of common
stock that will be held by the selling stockholders after completion of the
sales. The information set forth in the following table regarding the beneficial
ownership after resale of shares is based on the assumption that the selling
stockholders will sell all of its shares of common stock covered by this
prospectus.
The
percentage of our share capital before and after this offering is based on
12,557,669 shares of common stock outstanding on October 8, 2008.
|
|
Shares
Beneficially
Owned
|
Maximum
Number of Shares to be Sold Hereunder
|
Shares
Beneficially Owned after the Sale of Maximum Number of
Shares
|
|||||||||||||
|
Name
and Address
|
Number
of
Shares
|
%
|
Number
of
Shares
|
Number
of
Shares
|
%
|
|||||||||||
|
Washington
Capital Advisors LLC
|
575,000
|
4.6
|
575,000
|
0
|
*
|
|||||||||||
|
Harvey
L. Weiss(1)
|
1,070,000
|
8.2
|
575,000
|
495,000
|
3.8
|
|||||||||||
|
David
J. Mitchell(2)
|
170,000
|
1.4
|
150,000
|
20,000
|
*
|
|||||||||||
|
Donald
L. Nickles(3)
|
220,000
|
1.8
|
200,000
|
20,000
|
*
|
|||||||||||
|
Asa
Hutchinson(4)
|
220,000
|
1.8
|
200,000
|
20,000
|
*
|
|||||||||||
|
Thomas
P. Rosato(5)
|
2,542,906
|
19.8
|
254,053
|
2,288,853
|
17.8
|
|||||||||||
|
Gerard
J. Gallagher(6)
|
1,360,516
|
10.8
|
186,589
|
1,173,927
|
9.3
|
|||||||||||
|
Paladin
Homeland Security Fund, L.P.
|
24,765
|
*
|
24,765
|
0
|
*
|
|||||||||||
|
Paladin
Homeland Security Fund (NY City), L.P.
|
15,926
|
*
|
15,926
|
0
|
*
|
|||||||||||
|
Paladin
Homeland Security Fund (CA), L.P.
|
5,553
|
*
|
5,553
|
0
|
*
|
|||||||||||
|
Paladin
Homeland Security Fund (Cayman Island), L.P.
|
3,756
|
*
|
3,756
|
0
|
*
|
|||||||||||
|
Maxim
Partners, LLC(7)
|
125,000
|
1.0
|
125,000
|
0
|
*
|
|||||||||||
|
McLean
Koehler Sparks Hammond(8)
|
41,614
|
*
|
7,234
|
34,380
|
*
|
|||||||||||
|
Philip
Gelso(8)
|
16,037
|
*
|
2,788
|
13,249
|
*
|
|||||||||||
|
Carl
J. Sardegna(8)
|
10,174
|
*
|
1,768
|
8,406
|
*
|
|||||||||||
|
Represents
beneficial ownership of less than 1% of the outstanding shares
of our
common stock.
|
||
|
(1)
|
Includes
452,000 shares of common stock issuable upon the exercise of warrants
held
by Mr. Weiss. Mr. Weiss is our Chairman.
|
|
|
(2)
|
Includes
9,999 shares of unvested restricted common stock which are subject
to
forfeiture. Mr. Mitchell is a member of our board of
directors.
|
|
|
(3)
|
Includes
9,999 shares of unvested restricted common stock which are subject
to
forfeiture. Mr. Nickles is a member of our board of
directors.
|
|
|
(4)
|
Includes
9,999 shares of unvested restricted common stock which are subject
to
forfeiture. Mr. Hutchinson is a member of our board of
directors.
|
|
|
(5)
|
Includes
294,870 shares of common stock issuable upon the exercise of
warrants. Mr. Rosato is our Chief Executive Officer and a member of
our board of directors.
|
|
|
(6)
|
Mr.
Gallagher is our President, Chief Operating Officer and a
member of our board of directors.
|
|
|
(7)
|
Includes
125,000 shares of common stock issuable upon the exercise of warrants
held
by Maxim Partners, LLC. Maxim Partners, LLC is an affiliate of
Maxim Group
LLC, a broker-dealer, and such warrants were received for investment
banking services.
|
|
|
(8)
|
Evergreen
Capital LLC is the registered holder of the
securities.
|
15
PLAN
OF DISTRIBUTION
The
purpose of this prospectus is to permit the selling stockholders and their
pledgees, donees, transferees, or other successors in interest (collectively,
the “selling stockholders”) to offer for sale or to sell shares of common stock
covered by this prospectus at such time and at such prices as each of them,
in
its sole discretion, chooses. We will not receive any of the proceeds from
these
offerings or sales.
The
selling stockholders may sell or distribute some or all of their shares from
time to time through dealers or brokers or other agents or directly to one
or
more purchasers in transactions (which may involve crosses and block
transactions) on the NASDAQ Capital Market or other exchanges on which our
common stock may be listed for trading, through put or call options transactions
relating to the shares, through short sales of shares, in privately negotiated
transactions (including sales pursuant to pledges) or in the over-the-counter
market, or in brokerage transactions or in a combination of these transactions.
In addition, the selling stockholders may sell or distribute some or all
of
their shares of common stock in a transaction involving an underwriter. Such
transactions may be effected by the selling stockholders at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices, which may be changed. Brokers,
dealers or their agents participating in such transactions as agent may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders (and, if they act as agent for the purchaser of the
shares,
from the purchaser). Such discounts, concessions or commissions as to a
particular broker, dealer or other agent might be in excess of those customary
in the type of transaction involved.
If
applicable law requires, we will provide a supplement to this prospectus
to
disclose the specific shares to be sold, the public offering price of the
shares
to be sold, the names of any agents, dealers or underwriters employed by
the
selling stockholders in connection with such sale and any applicable commissions
or discounts with respect to a particular offer.
If
underwriters are used in the sale, the offered securities will be acquired
by
the underwriters for their own account. The underwriters may resell the
securities in one or more transactions, including negotiated transactions,
at a
fixed public offering price or at varying prices determined at the time of
sale.
The obligations of the underwriters to purchase the securities will be subject
to certain conditions. Unless indicated in an accompanying prospectus
supplement, the underwriters must purchase all the securities offered if
any of
the securities are purchased.
The
selling stockholders and any such brokers, dealers or other agents that
participate in such distribution may be deemed to be “underwriters” within the
meaning of the Securities Act of 1933 (the “Securities Act”), and any discounts,
commissions or concessions received by any such brokers, dealers or other
agents
might be deemed to be underwriting discounts and commissions under the
Securities Act. Any underwriters or agents will be identified and their
compensation described in an accompanying prospectus supplement.
We
may
have agreements with the underwriters, dealers and agents to indemnify them
against certain civil liabilities, including liabilities under the Securities
Act, or to contribute with respect to payments that the underwriters, dealers
or
agents may be required to make.
In
connection with the offer and sale of the shares of common stock by the selling
stockholders, various state securities laws and regulations require that
any
such offer and sale should be made only through the use of a broker-dealer
registered as such in any state where a selling stockholder engages such
broker-dealer and in any state where such broker-dealer intends to offer
and
sell shares.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in a
distribution of the shares of common stock offered hereby may not simultaneously
engage in market activities with respect to common stock for the applicable
period under Regulation M prior to the commencement of such distribution.
In addition, the selling stockholders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including
Rule 10b-5 and Regulation M, which provisions may limit the timing of
purchases and sale of any of the shares by the selling stockholders. All
of the
foregoing may affect the marketability of the shares offered hereby.
We
will
pay all expenses of the registration of the offered securities, including
SEC
filing fees and expenses of compliance with state securities or “blue sky” laws.
The selling stockholders will pay any underwriting discounts and selling
commissions. The selling stockholders will be indemnified by us against certain
civil liabilities, including certain liabilities under the Securities Act.
The
selling stockholders will indemnify us against certain civil liabilities,
including certain liabilities under the Securities Act.
16
INDEMNIFICATION
Our
second amended and restated certificate of incorporation provides that we,
to
the full extent permitted by Section 145 of the Delaware General Corporation
Law, as amended from time to time, shall indemnify all persons whom it may
indemnify pursuant thereto. It further provides that expenses (including
attorneys’ fees) incurred by an officer or director in defending any civil,
criminal, administrative, or investigative action, suit or proceeding for
which
such officer or director may be entitled to indemnification hereunder shall
be
paid by us in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director
or
officer to repay such amount if it shall ultimately be determined that he
is not
entitled to be indemnified by us as authorized thereby.
Our
amended and restated bylaws provide us with the power to indemnify our officers,
directors, employees and agents or any person serving at our request as a
director, officer, employee or agent of another corporation, partnership,
joint
venture, trust or other enterprise to the fullest extent permitted by Delaware
law.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the registrant pursuant
to the foregoing provisions, we have been informed that in the opinion of
the
SEC such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.
EXPERTS
AND LEGAL MATTERS
The
consolidated financial statements of Fortress International Group, Inc. for
the
fiscal year ended December 31, 2007 and the combined financial statements
of
Vortech, L.L.C. and VTC, L.L.C. for the period from January 1, 2007 through
January 19, 2007, appearing in our Annual Report on Form 10-K for the year
ended December 31, 2007, have been audited by Grant Thornton LLP,
independent registered public accounting firm, as set forth in their reports
incorporated herein by reference, and are included in reliance upon such
report
given on the authority of such firm as experts in accounting and auditing.
The
financial statements of Fortress International Group, Inc. (formerly Fortress
America Acquisition Corporation), as of December 31, 2006 and December 31,
2005,
have been audited by Goldstein Golub Kessler LLP, independent registered
public
accounting firm, as set forth in their report incorporated herein by reference,
and are included in reliance upon such report given on the authority of such
firm as experts in accounting and auditing. The combined financial statements
of
VTC, L.L.C. and Vortech, L.L.C. for the fiscal years ended December 31, 2006
and
2005, have been audited by McGladrey & Pullen, LLP, independent
registered public accounting firm, as set forth in their report incorporated
herein by reference, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The
validity of the shares of common stock offered hereby will be passed upon
for us
by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
WHERE
YOU CAN FIND MORE INFORMATION
We
are
subject to the reporting requirements of the Securities Exchange Act of 1934,
as
amended, and file annual, quarterly and current reports, proxy statements
and
other information with the SEC. You may read and copy these reports, proxy
statements and other information at the SEC’s public reference facilities at 100
F Street, N.E., Room 1580, Washington, D.C. 20549. You can request copies
of
these documents by writing to the SEC and paying a fee for the copying cost.
Please call the SEC at 1-800-SEC-0330 for more information about the operation
of the public reference facilities. SEC filings are also available at the
SEC’s
web site at http://www.sec.gov.
Our
common stock is listed on the NASDAQ Capital Market, and you can read and
inspect our filings at the offices of the Financial Industry Regulatory
Authority located at 1735 K Street, N.W., Washington, D.C. 20006.
This
prospectus is only part of a registration statement on Form S-3 that we have
filed with the SEC under the Securities Act of 1933, as amended, and therefore
omits certain information contained in the registration statement. We have
also
filed exhibits and schedules with the registration statement that are excluded
from this prospectus, and you should refer to the applicable exhibit or schedule
for a complete description of any statement referring to any contract or
other
document. You may inspect a copy of the registration statement, including
the
exhibits and schedules, without charge, at the public reference room or obtain
a
copy from the SEC upon payment of the fees prescribed by the SEC.
17
We
also
maintain a web site at http://www.thefigi.com,
through
which you can access our SEC filings. The information set forth on our web
site
is not part of this prospectus.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The
SEC
allows us to “incorporate by reference” information from other documents that we
file with them, which means that we can disclose important information in
this
prospectus by referring to those documents. The information incorporated
by
reference is considered to be part of this prospectus, and information that
we
file later with the SEC will automatically update and supersede the information
in this prospectus. We incorporate by reference the following documents (unless
otherwise noted, the SEC file number for each of the documents listed below
is 001-33627):
| · |
our
Annual Report on Form 10-K, for the fiscal year ended December
31, 2007,
filed with the SEC on March 31, 2008, as amended by amendment No.
1 on
Form 10-K/A, filed with the SEC on April 28, 2008 and amendment
No. 2 on
Form 10-K/A, filed with the SEC on October 3,
2008;
|
| · |
our
Quarterly Report on Form 10-Q, for the quarterly period ended March
31,
2008, filed with the SEC on May 14,
2008;
|
| · |
our
Quarterly Report on Form 10-Q, for the quarterly period ended June
30,
2008, filed with the SEC on August 14,
2008
|
| · |
our
Current Report on Form 8-K filed with the SEC on May 14,
2008;
|
| · |
our
Current Report on Form 8-K filed with the SEC on August 13,
2008;
|
| · |
our
Current Report on Form 8-K filed with the SEC on August 28,
2008;
|
| · |
the
description of our capital stock contained in our registration
statement
on Form 8-A, filed on July 27, 2007, under the Securities Exchange
Act of 1934, as amended, including amendments or reports filed
for the
purpose of updating such
description;
|
| · |
the
portions of our Definitive Proxy Statement on Schedule 14A that are
deemed “filed” with the SEC under the Securities Exchange Act of 1934, as
amended, filed on May 22, 2007; and
|
| · |
all
reports and other documents subsequently filed by us pursuant to
Sections
13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934,
as
amended, after the date of this prospectus shall be deemed to be
incorporated by reference in this prospectus and to be a part hereof
from
the date of filing such reports and other
documents.
|
We
will
provide without charge to each person, including any beneficial owner, to
whom a
copy of this prospectus is delivered, upon the request of any such person,
a
copy of any or all of the information incorporated herein by reference
(exclusive of exhibits to such documents unless such exhibits are specifically
incorporated by reference herein). Requests, whether written or oral, for
such copies should be directed to Fortress International Group, Inc. Attention:
Chief Executive Officer, 7226 Lee DeForest Drive, Suite 203, Columbia, MD
21046,
telephone number (410) 423-7438.
You
should rely only on information contained in, or incorporated by reference
into,
this prospectus and any prospectus supplement. We have not authorized anyone
to
provide you with information different from that contained in this prospectus
or
incorporated by reference into this prospectus. We are not making offers
to sell
the securities in any jurisdiction in which such an offer or solicitation
is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer
or
solicitation.
18