SEC Comment Letter for TSS, Inc. (TSSI) (CIK 0001320760) (TSSI) — Mar 6, 2007
TSS, Inc. (TSSI) (CIK 0001320760)
Date: March 6, 2007 · CIK: 0001320760 · Accession: 0000000000-07-011428
AI Filing Summary & Sentiment
Reasoning
Letter
December 19, 2006 Mr. Harvey Weiss Chief Executive Officer Fortress America Acquisition Corporation 4100 North Fairfax Drive, Suite 1150 Arlington, Virginia 22203 Form 10-K for the period ending December 31, 2005 File No. 0-51426
RE: Fortress America Acquisition Corporation Preliminary Proxy Statement on Schedule 14A Amendment 2 Filed December 8, 2006
Dear Mr. Weiss:
We have reviewed your filing and have th e following comments. Where indicated, we think you should revise your document in response to these comments. If you disagree, we will consider your explanation as to why our commen t is inapplicable or a revision is unnecessary. Please be as detailed as necessa ry in your explanation. In some of our comments, we may ask you to provide us with supplemental informati on so we may better understand your disclosure. After reviewing this information, we ma y or may not raise additional comments.
Please understand that the purpose of our re view process is to assist you in your compliance with the applicable disclosure requir ements and to enhance the overall disclosure in your filing. We look forward to working with you in these respects. We welcome any questions you may have about our comments or on any other aspe ct of our review. Feel free to call us at the telephone numbers listed at the end of this letter.
General
1. In the first risk factor on page 24, the second full paragraph on page 81, and elsewhere as appropriate, revise the disclo sure regarding the company's 'major customer" to identify such customer by name.
Harvey Weiss Fortress America Acquisition Corporation December 19, 2006 Page 2
Fairness Opinion, page 48
2. We note your responses to comments eight, nine , and ten from our le tter of November 30, 2006, especially the statement: "FAAC understands that BVC's views as to TSS/Vortech revenue levels were based on (1) financial pr ojections for TSS/Vortech provided to BVC for 2006, which showed continued revenue from TSS/Vortech's major customer, and (2) a growth rate of 9.6% annually from 2007 th rough 2010." Please cl arify the level of revenue projected and supplied to BVC with respect to "continued revenue from TSS/Vortech's major customer" and include such as disclosure within this section. We may have further comment. To the extent applicable, revise your risk factor on page 24 relating to such issue accordingly.
3. In connection with the preceding comment, we reissue comment nine from our letter of November 30, 2006. With respect to each of the valuation models presented, please include disclosure as to the manner by which the cessation of such cust omer's contracts was taken into account and reflected in the re sultant valuation. It would also appear from your discussion that two of the three va luation models used (Analysis of Comparables and Precedent Me rger and Acquisition Analysis) do not take into account the termination of the revenue stream represented by the afore-mentioned customer and the third (Discounted Cash Fl ow Analysis) was calcu lated as of December 31, 2005, a point at which significan t revenues could still be expected from the relevant contracts.
4. In connection with the preceding two comment s, we reissue comment 11 from our letter of November 30, 2006. To the extent that the level of revenue projected and supplied to BVC with respect to "continued revenue fr om TSS/Vortech's major customer" does not match the realized levels of revenue as disclosed in your pr eliminary proxy statement, at minimum, it would appear that the assumpti ons provided to BVC are no longer valid. If such assumptions are no longer valid, the cu rrent status of the opinion obtained from BVC is unclear. Therefore, please disclose whether management currently views such assumptions to be valid and the resultan t impact upon management's recommendation to shareholders in the case that it does not.
Harvey Weiss Fortress America Acquisition Corporation December 19, 2006 Page 3 Related Party Transactions, page 106
5. We note the disclosure on page 80 with respect to TSS/Vortech's new lease arrangements: "These changes will provide TSS/Vortech with a total of 26,500 square feet of space in 2007 at an estimated annual cost in 2007 of $487,000 versus $229,000 in 2006." Please update your disclosure on page 108 accordingly.
Financial Statements, page F-1
Note 13 – Restatement and Discontinued Operations, page F-14
6. We note your response to prior comment 20. With respect to the pres entation of the cash flows from discontinued operations, it is not ap parent how this presentation is consistent with the requirements of foot note 10 of SFAS 95. We note th at this presentation appears to assume that the net loss from discontinue d operations would be e quivalent to the net cash used by operating activities for each period, and that there are no investing or financing activities relating to the disconti nued operation. Since the S3 division would appear to have operating asse ts and liabilities based on your disclosure in Note 13, it would appear that the net loss from the di scontinued operations would be unlikely to equal the net cash used by those operations. In addition, we note that the S3 division had property and equipment of $101,320. Please cl arify whether the acquisition of these assets is attributable to net cash used in investing activitie s of the discontinued operations, or were otherwise acquired. Pl ease clarify and revise your disclosures accordingly.
Closing Comments
As appropriate, please amend your filing and respond to these comments within 10 business days or tell us when you will provide us with a response. You may wish to provide us with marked copies of the amendment to expedite our review. Please furn ish a cover letter with your amendment that keys your responses to our comments and pr ovides any requested information. Detailed cover lette rs greatly facilitate our review . Please understand that we may have additional comments afte r reviewing your amendment and responses to our comments.
Harvey Weiss Fortress America Acquisition Corporation December 19, 2006 Page 4 You may contact Carlton Tartar at (202) 551-3387 if you have questions regarding comments on the financial statements and related matters. Questions on other disclosure issues may be directed to John Zitko at (202) 551-3399, or Mike Karney, who supervised the review of your filing, at (202) 551-3847.
Sincerely,
John Reynolds Assistant Director
Show Raw Text
MAIL STOP 3561
December 19, 2006
Mr. Harvey Weiss
Chief Executive Officer
Fortress America Acquisition Corporation
4100 North Fairfax Drive, Suite 1150
Arlington, Virginia 22203
RE: Fortress America Acquisition Corporation
Preliminary Proxy Statement on Schedule 14A
Amendment 2 Filed December 8, 2006
Form 10-K for the period ending December 31, 2005
File No. 0-51426
Dear Mr. Weiss:
We have reviewed your filing and have th e following comments. Where indicated, we
think you should revise your document in response to these comments. If you disagree, we will
consider your explanation as to why our commen t is inapplicable or a revision is unnecessary.
Please be as detailed as necessa ry in your explanation. In some of our comments, we may ask
you to provide us with supplemental informati on so we may better understand your disclosure.
After reviewing this information, we ma y or may not raise additional comments.
Please understand that the purpose of our re view process is to assist you in your
compliance with the applicable disclosure requir ements and to enhance the overall disclosure in
your filing. We look forward to working with you in these respects. We welcome any questions
you may have about our comments or on any other aspe ct of our review. Feel free to call us at
the telephone numbers listed at the end of this letter.
General
1. In the first risk factor on page 24, the second full paragraph on page 81, and elsewhere as
appropriate, revise the disclo sure regarding the company's 'major customer" to identify
such customer by name.
Harvey Weiss
Fortress America Acquisition Corporation
December 19, 2006 Page 2
Fairness Opinion, page 48
2. We note your responses to comments eight, nine , and ten from our le tter of November 30,
2006, especially the statement: "FAAC understands that BVC's views as to TSS/Vortech revenue levels were based on (1) financial pr ojections for TSS/Vortech provided to BVC
for 2006, which showed continued revenue from TSS/Vortech's major customer, and (2)
a growth rate of 9.6% annually from 2007 th rough 2010." Please cl arify the level of
revenue projected and supplied to BVC with respect to "continued revenue from TSS/Vortech's major customer" and include such as disclosure within this section. We
may have further comment.
To the extent applicable, revise your risk factor on page 24 relating to such issue
accordingly.
3. In connection with the preceding comment, we reissue comment nine from our letter of
November 30, 2006. With respect to each of the valuation models presented, please include disclosure as to
the manner by which the cessation of such cust omer's contracts was taken into account
and reflected in the re sultant valuation.
It would also appear from your discussion that two of the three va luation models used
(Analysis of Comparables and Precedent Me rger and Acquisition Analysis) do not take
into account the termination of the revenue stream represented by the afore-mentioned
customer and the third (Discounted Cash Fl ow Analysis) was calcu lated as of December
31, 2005, a point at which significan t revenues could still be expected from the relevant
contracts.
4. In connection with the preceding two comment s, we reissue comment 11 from our letter
of November 30, 2006. To the extent that the level of revenue projected and supplied to
BVC with respect to "continued revenue fr om TSS/Vortech's major customer" does not
match the realized levels of revenue as disclosed in your pr eliminary proxy statement, at
minimum, it would appear that the assumpti ons provided to BVC are no longer valid. If
such assumptions are no longer valid, the cu rrent status of the opinion obtained from
BVC is unclear. Therefore, please disclose whether management currently views such
assumptions to be valid and the resultan t impact upon management's recommendation to
shareholders in the case that it does not.
Harvey Weiss
Fortress America Acquisition Corporation
December 19, 2006 Page 3
Related Party Transactions, page 106
5. We note the disclosure on page 80 with respect to TSS/Vortech's new lease
arrangements: "These changes will provide TSS/Vortech with a total of 26,500 square
feet of space in 2007 at an estimated annual cost in 2007 of $487,000 versus $229,000 in
2006." Please update your disclosure on page 108 accordingly.
Financial Statements, page F-1
Note 13 – Restatement and Discontinued Operations, page F-14
6. We note your response to prior comment 20. With respect to the pres entation of the cash
flows from discontinued operations, it is not ap parent how this presentation is consistent
with the requirements of foot note 10 of SFAS 95. We note th at this presentation appears
to assume that the net loss from discontinue d operations would be e quivalent to the net
cash used by operating activities for each period, and that there are no investing or financing activities relating to the disconti nued operation. Since the S3 division would
appear to have operating asse ts and liabilities based on your disclosure in Note 13, it
would appear that the net loss from the di scontinued operations would be unlikely to
equal the net cash used by those operations. In addition, we note that the S3 division had
property and equipment of $101,320. Please cl arify whether the acquisition of these
assets is attributable to net cash used in investing activitie s of the discontinued
operations, or were otherwise acquired. Pl ease clarify and revise your disclosures
accordingly.
Closing Comments
As appropriate, please amend your filing and respond to these comments within 10
business days or tell us when you will provide us with a response. You may wish to provide us
with marked copies of the amendment to expedite our review. Please furn ish a cover letter with
your amendment that keys your responses to our comments and pr ovides any requested
information. Detailed cover lette rs greatly facilitate our review . Please understand that we may
have additional comments afte r reviewing your amendment and responses to our comments.
Harvey Weiss
Fortress America Acquisition Corporation
December 19, 2006 Page 4
You may contact Carlton Tartar at (202) 551-3387 if you have questions regarding
comments on the financial statements and related matters. Questions on other disclosure issues
may be directed to John Zitko at (202) 551-3399, or Mike Karney, who supervised the review of
your filing, at (202) 551-3847.
Sincerely,
John Reynolds Assistant Director
cc: Michael B. Gardiner (by facsimile)
(614) 365-2499