Business context and reporting period
This is Fortress International Group, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2013. The request identifies TSS, Inc.; that does not match the registrant named in the filing and should be verified. Fortress provides consulting, design, construction management, systems installation, and facilities-management services for mission-critical facilities.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 or prior balance-sheet date |
|---|---|---|
| Revenue | $14.12 million | $14.31 million |
| Gross profit; gross margin | $2.76 million; 19.5% | $2.05 million; 14.4% |
| Operating income (loss) | $680 | ($1.21 million) |
| Net income (loss) | ($23,151) | ($1.25 million) |
| Adjusted EBITDA (non-GAAP) | $158,427 | ($1.04 million) |
| Cash from operations | ($830,819) | ($466,774) |
| Cash and cash equivalents | $4.63 million | $5.61 million at Dec. 31, 2012 |
| Total debt | $2.33 million in unsecured convertible notes | $2.46 million at Dec. 31, 2012 |
| Current assets / current liabilities | $18.58 million / $13.50 million | $14.38 million / $9.28 million at Dec. 31, 2012 |
Revenue declined modestly, while gross profit and margin improved, chiefly because of a shift toward higher-margin facilities-management work and lower cost of revenue. SG&A fell to $2.71 million from $2.91 million; Q1 2012 also included $279,286 of restructuring charges. Cash fell by $975,813 during the quarter. Investing cash outflow was $19,994 and financing cash outflow was $125,000, primarily a note repayment.
Changes, outlook, and risks
- Management expected gross margin of 20%–25% for the remainder of 2013; the filing gives no specific revenue or earnings forecast. Management said cash on hand and expected operating cash generation should cover working capital, capital spending, and financing needs for the next 12 months, including $500,000 of note repayments.
- Backlog declined to $15.1 million from $17.3 million at year-end; $7.4 million was authorized to proceed, and management expected approximately 49% of backlog to be recognized within 12 months. Three customers represented 79% of backlog and approximately 81% of Q1 revenue.
- Receivables rose to $12.56 million from $7.53 million at year-end. Management attributed increased operating cash use to working-capital movements, including project receivables and payables.
- The company’s $2 million revolving credit facility was terminated in June 2012 after covenant violations; it had no borrowings outstanding at termination. The filing says termination may limit total bonding capacity. Project performance bonds secured by specific receivables totaled $25.8 million at March 31, 2013.
- Management cited price pressure from larger competitors, project delays or deferrals, and lost work following customer acquisitions. It may further reduce costs, including personnel and marketing. The company had previously recorded a $2.1 million goodwill impairment in 2012.
- Convertible unsecured notes carry 4% interest and were due in 2014; a March 2013 agreement extended the COO-held note’s maturity from April 1 to July 1, 2014. Related-party transactions include subcontracting and office rent. The company reported no material litigation and no off-balance-sheet arrangements.
Important facts to verify
- Confirm the intended issuer: the supplied company name, TSS, Inc., differs from the filing’s registrant, Fortress International Group, Inc.
- Assess whether working-capital demands, rising receivables, customer concentration, and the absence of a revolving credit facility could pressure liquidity or bonding capacity.
- Track whether backlog converts to authorized work and revenue, and whether the anticipated 20%–25% gross-margin range is achieved.
- Review the note repayment schedule, related-party arrangements, and the assumptions underlying management’s 12-month liquidity assessment.