f10k2012a1_intercloud.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K/A

Amendment No. 1

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _____________

Commission file number: 001-32034

InterCloud Systems, Inc.

(Exact name of registrant as specified in its charter)

Delaware	65-0963722
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

331 Newman Springs Road

Building 1, Suite 104

Red Bank, New Jersey 07701

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number: (561) 988-1988

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: common stock, par value $0.0001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s)), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o Do not check if a smaller reporting company	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $346,144 as of June 30, 2012, based on the closing price of $0.425 of the Company’s common stock on such date.

The number of outstanding shares of the registrant’s common stock on March 28, 2013 was 2,799,565.

Documents Incorporated by Reference: None.

EXPLANATORY NOTE

In this Amendment No. 1 to Annual Report on Form 10-K, or this 10-K/A, we will refer to InterCloud Systems, Inc., a Delaware corporation, as “our company,” “we,” “us,” and “our.”

We are filing this Form 10-K/A to amend certain disclosures in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as originally filed with the Securities and Exchange Commission on April 1, 2013 (our “Report”), in response to comments made by the Staff of the Securities and Exchange Commission (the “SEC”) in connection with its review of our Registration Statement on Form S-1 (Registration No. 333-185293) originally filed with the SEC on December 5, 2012 (the "Form S-1"). The principal changes to our Report effected by this amendment are the following:

·	In Part I, Item 1 (Business) of our Report,

o	we amended the descriptions of the purchase agreements of our recent and pending acquisitions to add additional disclosure regarding the terms of such acquisitions, including the value of the contingent consideration likely to be paid in connection with each such acquisition.

·	In Part II, Item 6 (Selected Financial Data) of our Report,

in the table furnishing annual selected income statement data, for the year ended December 31, 2012, we revised the amount of other expense, net to $(1,097,863) from $(1,047,324) and the amount of net loss before benefit from income taxes to $(3,859,722) from $(3,809,183) to correct errors in our Report as originally filed.

in the table furnishing balance sheet data as of December 31, 2012, we revised the amount of total current assets to $10,183,971 from $9,666,323 and the amount of other liabilities to $15,159,644 from $14,601,711 to reflect the reclassification of certain accounts as described below, and we changed the title of the line item “Temporary equity” to “Redeemable common and preferred stock.”

·	In Part II, Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of our Report,

Under the caption “Components of Results of Operations – Fair Value of Embedded Derivatives,” we expanded the disclosure to include information regarding our methodology for determining the fair value of the embedded derivative in the warrants issued to the lenders under the MidMarket Loan Agreement, the amount of such value and the components used in the calculation of such value.

Under the caption “Components of Results of Operations – Income Taxes,” we revised the amount of our net operating loss carryforwards at December 31, 2012 and 2011 to $5.9 million and 3.8 million, respectively, from $5.6 million and $5.0 million, respectively, to correct errors in our Report as originally filed.

In the first table under the caption “Results of Operations,” we included in our loss before income taxes for fiscal 2012 our loss in the amount of $50,539 attributable to our former investment in Digital Comm Inc. ("Digital"), which amount was originally included in net loss attributable to common stockholders.

o	Under the caption “Year Ended December 31, 2012 compared to year ended December 31, 2011,” we revised the disclosure to include an analysis of the year-to-year changes in our depreciation and amortization expenses.

o	Under the caption “Liquidity, Capital Resources and Cash Flows,” we added disclosure regarding the amount of our accounts receivable at December 31, 2012 and the amount of such receivables relative to our revenues during fiscal 2012.

Under the caption “Liquidity, Capital Resources and Cash Flows – Cash Flows,” we revised the amount of the net cash used in operations in fiscal 2012 to $2, 975,942 from $3,155,003 and the amount of net cash used in investing activities in fiscal 2012 to $13,735,393 from $13,556,332 to reflect a reclassification from net cash used in investing activities to net cash used in operations.

o	Under the caption “Critical Accounting Policies and Estimates – Stock-based Compensation,” we added disclosure regarding the specific amounts and fair value of our stock-based compensation in fiscal 2012.

·	In Part II, Item 8 (Financial Statements and Supplementary Data) of our Report,

we amended our consolidated balance sheet at December 31, 2012 to (i) include under current assets $523,410 of prepaid registration costs relating to our Form S-1, which increased our total current assets to $10,183,971 from $9,666,325 and reduced our other assets to $118,563 from $636,209, (ii) include under other liabilities $557,933 of long-term contingent consideration, which amount had originally been reported under other liabilities, (iii) revised the amount of our non-controlling interest in Rives - Monteiro Engineering LLC to $71,431 from $121,970 to reflect a change in presentation of the category to non-controlling interest from retained earnings and (iv) reflect a reclassification of certain shares of our common stock to temporary equity.

we amended our consolidated statement of operations for the year ended December 31, 2012 to report our loss in the amount of $50,539 attributable to our equity investment in Digital under “Other income (expense), which amount had originally been reported under net loss attributable to common stockholders.

o	we amended our consolidated statement of changes in stockholders' deficit to reflect the reclassification of certain shares of our common stock to temporary equity.

on our consolidated statement of cash flows for the years ended December 31, 2012 and 2011, we amended our disclosure to reclassify amounts between categories in cash flow provided by/used in operations, financing and investing activities, and we amended our supplemental disclosures of non-cash investing and financing activities to recharacterize the basis for certain of the activities.

in Note 2 (Restatement) to our consolidated financial statements, we amended the consolidated statement of operations data for the three-month period ended March 31, 2012, the three-month period ended June 30, 2012, the six-month period ended June 30, 2012, the three-month period ended September 30, 2012 and the nine-month period ended September 30, 2012 to correct certain line items and add additional disclosure relating to dividends payable on our preferred stock.

in Note 3 (Summary of Significant Accounting Policies) to our consolidated financial statements, (i) under the caption “Going Concern,” we added additional disclosure regarding our plans to generate cash flow to address our liquidity concerns, including potential sources of generating cash; (ii) under the caption “Impairment of Long-lived Intangible Assets and Goodwill,” we added disclosure regarding the methodologies we employ to determine whether it is more likely than not that an impairment exists and the amount of any such impairment; (iii) under the caption “Revenue Recognition,” we added disclosure regarding our recognition of revenue under construction contracts; (iv) under a new caption “2012 Performance Incentive Plan and Employee Purchase Plan,”we added disclosure regarding the shares of our common stock reserved for issuance under our employee incentive plans; (v) under the caption “Fair Value of Financial Instruments,” we added disclosure regarding the fair value measurements of our financial instruments carried at fair value at December 31, 2012 and 2011 and the fair value measurements of our assets and liabilities measured at fair value on a recurring basis at such dates and we added tables to show assets and liabilities measured at fair value based on Level 1, Level 2 and Level 3 inputs, and a summary of changes in fair value of Level 3 instruments, (vi) under the caption “Principals of Consolidation and Investment in Affiliate Company,” we added disclosure to clarify our accounting for our investment in Rives-Monteiro Engineering LLC and to disclose that Digital was fully divested as of December 31, 2012 and (vii) under the caption “Distinguishment of Liabilities from Equity,” we added disclosure to clarify our accounting for derivative liabilities.

in Note 4 (Acquisitions and Deconsolidation of Subsidiary) to our consolidated financial statements, (i) we added disclosure regarding the amounts of our acquisition-related costs for each of our recent acquisitions, (ii) we clarified our disclosure regarding our obligations to either issue addional shares or redeem shares of our Series F Preferred Stock issued as partial consideration in our acquisition of T N S, Inc., (iii) we added additional disclosure regarding our contingent obligations to pay additional consideration in connection with each of the acquisitions we completed in the years ended December 31, 2012 and 2011; (iv) we added disclosure regarding our acquisition of ADEX; and (v) we added additional disclosure regarding the operating results of Digital for the year ended December 31, 2011 and for the period from January 1, 2012 through September 12, 2012, the date of our deconsolidation of Digital, and summary balance sheet information of Digital as of December 31, 2011 and September 12, 2012.

in Note 9 (Term Loans) to our consolidated financial statements, (i) we added disclosure under the caption “Note Payable - UTA” regarding our methodology for determining, and the amount of, our derivative liability relating to the warrants issued under the UTA loan agreement and also added disclosure regarding the number of shares of common stock issuable upon the exercise of such warrants, (ii) under the caption “Term Loan – MidMarket Capital” we added disclosure regarding our methodology for determining, and the amount of, the derivative liability relating to the warrants issued under the MidMarket loan agreement, (iii) we added disclosure under the caption “18% Convertible Promissory Note” regarding our accounting for the beneficial conversion feature of such note upon issuance of such note and the conversion thereof and (iv) we added a table listing the schedule of repayment obligations due under the terms of the MidMarket loan agreement.

in Note 10 (Derivative Instruments) to our consolidated financial statements, (i) we added disclosure regarding our accounting for the put feature of the warrants issued pursuant to the MidMarket loan agreement, our methodology for computing the derivative liability related to such warrants and the warrants issued to the purchasers of our Series E Preferred Stock, and the factors, assumptions and methodology that we used in calculating the fair value of such derivative liabilities at December 31, 2012 and 2011.

in Note 11 (Income Taxes) to our consolidated financial statements, we added disclosure regarding our accounting for deferred tax assets and the adjustments required for the change to the accrual method of accounting for tax purposes for those acquired subsidiaries that had previously applied the cash method of accounting for tax purposes.

in Note 14 (Stockholders’ Equity) to our consolidated financial statements, under the caption “Common Stock – Basis for Determining Fair Value of Shares Issued” we added disclosure regarding our methodologies for determining the fair value of the shares of common stock we issue in connection with acquisitions or debt conversions or as compensation to employees or third parties.

in Note 15 (Redeemable Preferred Stock) to our consolidated financial statements, we added disclosure for each class of our outstanding convertible preferred stock regarding the number of shares of common stock into which such class of preferred stock was convertible at December 31, 2012 and 2011 and the methodology used in calculating such number of shares of common stock. We also added disclosure regarding the redemption terms of our Series F Preferred Stock. In addtion, we amended our disclosure relating to our Series H Preferred Stock to clarify that dividends are payable on such shares at the rate of 10% per month only up to a maximum amount of dividends per share equal to 150% of the stated amount of such share.

o	we added a new Note 16 (Preferred Dividends) to our consolidated financial statements in which we disclosed for each class of our outstanding preferred stock the number of shares outstanding, the annual dividend rate and the amount of accrued dividends for the year ended December 31, 2012.

o	in Note 18 (Subsequent Events) to our consolidated financial statements, we amended our disclosure regarding the terms of our proposed acquisition of the Telco Professional Services and Handset Testing business division of Tekmark Global Solutions LLC to correct certain errors.

·	In Part III, Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters) of our Report,

o	we amended notes (5), (6) and (7) to the beneficial ownership table to include the names of the individuals who have voting and investment control over the applicable shares and/or to provide the address of the beneficial owners.

In addition to the above, we are filing this Form 10-K/A to correct certain inadvertent typographical, clerical and rounding errors in Part II, Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Item 8 (Financial Statements and Supplementary Data) of our Report. We also amended the disclosure in such Items to conform such disclosure to our corresponding disclosure in the Form S-1. We believe those errors and conforming amendments, when considered either individually or in the aggregate, do not result in a material change to the disclosures made in our Report as originally filed.

As required by Rule 12b-15 of the Securities Exchange Act of 1934, as amended, new certifications by our principal executive officer and principal financial officer are being filed as exhibits herewith, and as such, we have included Item 13 of Part III, “Exhibits,” as part of this Form 10-K/A. As further required by Rule 12b-15, this Form 10-K/A sets forth the complete text of each item as amended.

This Form 10-K/A does not affect any section of our Report not specifically discussed herein and continues to speak as of the date of our Report. Other than as specially reflected in this Form 10-K/A, this Form 10-K/A does not reflect events occurring after the filing of our Report or modify or update any related disclosures. Accordingly, this Form 10-K/A should be read in conjunction with our other filings made with the SEC subsequent to the filing of our Report.

FORM 10-K ANNUAL REPORT

FISCAL YEAR ENDED DECEMBER 31, 2012

TABLE OF CONTENTS

		PAGE

Item 1.	Business.	4

PART II
Item 6.	Selected Financial Data	13
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	13
Item 8.	Financial Statements and Supplementary Data.	29

PART III
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.	29
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	31

PART IV
Item 15.	Exhibits, Financial Statement Schedules.	33

SIGNATURES		34
EXHIBIT INDEX		35
FINANCIAL STATEMENTS		F-1

FORWARD-LOOKING STATEMENTS

The statements contained in this report with respect to our financial condition, results of operations and business that are not historical facts are “forward-looking statements”. Forward-looking statements can be identified by the use of forward-looking terminology, such as "anticipate", "believe", "expect", "plan", "intend", "seek", "estimate", "project", "could", "may" or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties. Management wishes to caution the reader of the forward-looking statements that any such statements that are contained in this report reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors, including, but not limited to, economic, competitive, regulatory, technological, key employees, and general business factors affecting our operations, markets, growth, services, products, licenses and other factors, some of which are described in this report including in “Risk Factors” in Item 1A (as set forth in this report as originally filed on April 1, 2013) and some of which are discussed in our other filings with the SEC. These forward-looking statements are only estimates or predictions. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of risks facing our company, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events.

These risk factors should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All written and oral forward looking statements made in connection with this report that are attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given these uncertainties, we caution investors not to unduly rely on our forward-looking statements. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by applicable law or regulation.

Notwithstanding the above, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) expressly state that the safe harbor for forward-looking statements does not apply to companies that issue penny stock. If we are ever considered to be an issuer of penny stock, the safe harbor for forward-looking statements may not apply to us at certain times.

Unless otherwise noted, “we,” “us,” “our,” and the “Company” refer to InterCloud Systems, Inc. and its predecessors and consolidated subsidiaries, including Rives-Monteiro Leasing, LLC, Rives-Monteiro Engineering, LLC, ADEX Corporation, ADEX Puerto Rico, LLC, ADEXCOMM Corporation, T N S, Inc., Tropical Communications, Inc. and Environmental Remediation and Financial Services, LLC

PART I

ITEM 1. BUSINESS

Overview

We are a global single-source provider of value-added services for both corporate enterprises and service providers. We offer cloud and managed services, professional consulting services and voice, data and optical solutions to assist our customers in meeting their changing technology demands. Our cloud solutions offer enterprise and service-provider customers the opportunity to adopt an operational expense model by outsourcing to us rather than the capital expense model that has dominated in recent decades in information technology (IT) infrastructure management. Our professional services groups offer a broad range of solutions, including application development teams, analytics, project management, program management, telecom network management and field services. Our engineering, design, installation and maintenance services support the build-out and operation of some of the most advanced enterprise, fiber optic, Ethernet and wireless networks.

We provide the following categories of offerings to our customers:

●

Cloud and Managed Services. Our cloud-based service offerings include platform as a service (PaaS), infrastructure as a service (IaaS), database as a service (DbaaS), and software as a service (SaaS). Our extensive experience in system integration and solutions-centric services helps our customers quickly to integrate and adopt cloud-based services. Our managed-services offerings include network management, 24x7x365 monitoring, security monitoring, storage and backup services.

●

Applications and Infrastructure. We provide an array of applications and services throughout North America and internationally, including unified communications, interactive voice response (IVR) and SIP-based call centers. We also offer structured cabling and other field installations. In addition, we design, engineer, install and maintain various types of WiFi and wide-area networks, distributed antenna systems (DAS), and small cell distribution networks for incumbent local exchange carriers (ILECs), telecommunications original equipment manufacturers (OEMs), cable broadband multiple system operators (MSOs) and enterprise customers. Our services and applications teams support the deployment of new networks and technologies, as well as expand and maintain existing networks. We also design, install and maintain hardware solutions for the leading OEMs that support voice, data and optical networks.

●

Professional Services. We provide consulting and professional staffing solutions to the service-provider and enterprise market in support of all facets of the telecommunications business, including project management, network implementation, network installation, network upgrades, rebuilds, maintenance and consulting services. We leverage our international recruiting database, which includes more than 70,000 professionals, for the rapid deployment of our professional services. On a weekly basis, we deploy hundreds of telecommunications professionals in support of our worldwide customers. Our skilled recruiters assist telecommunications companies, cable broadband MSOs and enterprise clients throughout the project lifecycle of a network deployment and maintenance.

Our Recent and Pending Acquisitions

We have grown significantly and expanded our service offerings and geographic reach through a series of strategic acquisitions.

Since January 1, 2011, we have completed the following acquisitions:

	●	ADEX Corporation. In September 2012, we acquired ADEX Corporation, a New York corporation (“ADEX”), an Atlanta-based provider of engineering and installation services and staffing solutions and other services to the telecommunications industry. ADEX’s managed solutions diversified our ability to service our customers domestically and internationally throughout the project lifecycle.

	●	T N S, Inc. In September 2012, we also acquired T N S, Inc., an Illinois corporation (“T N S”), a Chicago-based structured cabling company and DAS installer that supports voice, data, video, security and multimedia systems within commercial office buildings, multi-building campus environments, high-rise buildings, data centers and other structures. T N S extends our geographic reach to the Midwest area and our client reach to end-users, such as multinational corporations, universities, school districts and other large organizations that have significant ongoing cabling needs.

	●	Tropical Communications, Inc. In August 2011, we acquired Tropical Communications, Inc., a Florida corporation (“Tropical”), a Miami-based provider of structured cabling and DAS systems for commercial and governmental entities in the Southeast.

	●	Rives-Monteiro Engineering LLC and Rives-Monteiro Leasing, LLC. In December 2011, we acquired a 49% stake in Rives-Monteiro Engineering, LLC, an Alabama limited liability company (“RM Engineering”), a certified Women Business Enterprise (WBE) cable firm based in Tuscaloosa, Alabama that performs engineering services in the Southeastern United States and internationally, and 100% of Rives-Monteiro Leasing, LLC, an Alabama limited liability company (“RM Leasing”, and together with RM Engineering, “Rives-Monteiro”), an equipment provider for cable-engineering services firms. We have an option to purchase the remaining 51% of RM Engineering for a nominal sum at any time. RM Engineering operates from its headquarters in Tuscaloosa, Alabama and provides services to customers located in the United States and Latin America.

	●	Environmental Remediation and Financial Services, LLC. In December 2012, our ADEX subsidiary acquired Environmental Remediation and Financial Services, LLC, a New Jersey limited liability company (“ERFS”), an environmental remediation and disaster recovery company. The acquisition of this company augmented ADEX’s disaster recovery service offerings.

We have also entered into definitive agreements for the following acquisitions:

	●	Telco. In November 2012, we executed a definitive agreement to acquire the Telco Professional Services and Handset Testing business division (“Telco”) of Tekmark Global Solutions, LLC, a New Jersey limited liability company. We plan to integrate this professional services and telecommunications staffing business into our ADEX subsidiary in order to expand our project staffing business and our access to skilled labor.

	●	IPC. In November 2012, we executed a definitive agreement to acquire Integration Partners-NY Corporation, a New York corporation (“IPC”), a New York-based cloud and managed services business, with professional services and applications capabilities. IPC serves both corporate enterprises and telecommunications service providers. We believe the acquisition of IPC will support our cloud and managed services aspect of our business, as well as improve our systems integration and applications capabilities.

In connection with the acquisitions of our subsidiaries, we entered into purchase agreements pursuant to which we agreed to certain on-going financial and other obligations. The following is a summary of the material terms of the purchase agreements for our recent and pending acquisitions.

ADEX Corporation. On September 17, 2012, we entered into an Equity Purchase Agreement (the “ADEX Agreement”) with the shareholders of ADEX and acquired all the outstanding capital stock of ADEX and ADEXCOMM Corporation, a New York corporation (“ADEXCOMM”), and all outstanding membership interests of ADEX Puerto Rico LLC, a Puerto Rican limited liability company (“ADEX Puerto Rico,” and together with ADEX and ADEXCOMM, the “ADEX Entities”). Under the terms of the ADEX Agreement, we acquired all of the outstanding equity interests of the ADEX Entities in exchange for the cash payment at closing of $12,819,594, less the amount of debt of the ADEX Entities repaid by us at the closing (approximately $1,241,000). We also issued a promissory note to pay the sellers the principal amount of $1,046,000 and a note in the principal amount of $1,332,668, which was equal to the net working capital of the ADEX entities as of the closing date. These notes have since been paid in full.

As additional consideration, we agreed to pay the ADEX sellers an amount of cash equal to the product of 0.75 (the “Multiplier”) multiplied by the adjusted EBITDA of the ADEX Entities for the 12-month period beginning on October 1, 2012 (the “Forward EBITDA”), provided that if the Forward EBITDA is less than $2,731,243, the Multiplier shall be adjusted to 0.50 and if the Forward EBITDA is greater than $3,431,243, the Multiplier shall be adjusted to 1.0. We also agreed to pay the ADEX sellers an amount of cash equal to the amount, if any, by which the Forward EBITDA is greater than $3,081,243. In connection with the obligation to make these payments, we reserved for issuance to the sellers 2,000 shares of our Series G Preferred Stock, which shares will be issued to the sellers in the event we default on our obligation to make such payments. Our obligation to deliver shares of our Series G Preferred Stock will be terminated if we make the required payments in cash. We valued the amount of contingent consideration at $2,123,210.

The ADEX Agreement contains representations, warranties, covenants and on-going indemnification obligations. These covenants include an obligation during the year following the closing to continue to operate the ongoing business of the ADEX Entities in the same manner as previously conducted, and to provide certain of the sellers with substantial control over the business operations of the ADEX Entities.

T N S, Inc. On September 17, 2012, we entered into a Stock Purchase Agreement (the “T N S Agreement”) with the stockholders of T N S pursuant to which we acquired all the outstanding capital stock of T N S for the following consideration paid or issued by us at the closing: (i) cash in the amount of $700,000, (ii) 4,150 shares of our Series F Preferred Stock, of which 575 shares are contingent and are subject to cancellation in whole or in part if TNS does not meet certain operating results for the year ending September 30, 2012 and (iii) 40,000 shares of our common stock.

In addition, in the T N S Agreement, we agreed that, upon completion of a public offering of our securities, we will issue to the sellers an aggregate number of shares of common stock equal to (i) $200,000 divided by (ii) the offering price per share of our common stock in such public offering. We have valued such obligation at $259,550 as of the acquisition date and recorded such amount as a liability as of such date. As of December 31, 2012, the fair value of such obligation had not changed.

As additional consideration, we agreed to pay the sellers an amount equal to 20% of T N S’s adjusted EBITDA in excess of $1,275,000 for each of the three 12-month periods immediately following the closing date. During such 36-month period, we agreed to operate T N S in the ordinary course with the commercially-reasonable objective of maximizing the amount payable to the sellers with respect to such three 12-month periods. Finally, in the event the adjusted EBITDA of T N S for the 12-month period beginning October 1, 2012 is greater or less than $1,250,000, we also agreed to issue or cancel, as appropriate, shares of Series F Preferred Stock based on an agreed-upon formula. We valued the contingent consideration likely to be paid at $557,933 as of the date of the acquisition. As of December 31, 2012, the amount of contingent consideration had not changed.

In the T N S Agreement, we granted the sellers the right to put to us the shares of common stock issued at the closing for $50.00 per share, beginning 18 months after the closing and continuing for 60 days thereafter. In addition, the holders of the Series F Preferred Stock can demand that an aggregate of 3,000 shares of Series F Preferred Stock be redeemed beginning on November 27, 2012 at a redemption price of $1,000 per share, with the redemption to occur within 20 days of such request. The holders may also request that an additional 575 shares of Series F Preferred Stock be redeemed beginning on September 17, 2013 and that any additional shares of Series F Preferred Stock be redeemed beginning on September 17, 2014.

Tropical Communications, Inc. On August 15, 2011, we entered into a Stock Purchase Agreement (the “Tropical Agreement”) with the sole shareholder of Tropical pursuant to which we acquired all of the issued and outstanding stock of Tropical for the following consideration: (i) 8,000 shares of common stock, (ii) the assumption of indebtedness in the aggregate amount of $334,369, (iii) an amount equal to 50% of the net income of Tropical Communications during the 18-month period following closing, of which there was none, and (iv) warrants to purchase up to 4,000 additional shares of common stock at a price equal to the lower of a 25% discount to the market price of the common stock on the date of exercise or $37.50 per share, for each $500,000 of EBITDA earned by Tropical during the 24-month period following closing. We valued the contingent consideration likely to be paid at $15,320 for financial reporting purposes as of December 31, 2012.

Rives-Monteiro Engineering LLC and Rives-Monteiro Leasing, LLC. On November 15, 2011, we entered into, and on December 14, 2011 we amended, a Stock Purchase Agreement (the “Rives-Monteiro Agreement”) with the two members of RM Engineering and RM Leasing pursuant to which we acquired 49% of the membership interests of RM Engineering, were granted the right to purchase the remaining 51% of RM Engineering for $1.00 and acquired all of the membership interests of RM Leasing for the following consideration: (i) a cash payment in the amount of $300,000, of which $100,000 was paid on December 29, 2011, the date of consummation of the acquisitions, $100,000 was payable on or before March 29, 2012, and $100,000 was payable on or before June 29, 2012, (ii) 60,000 shares of common stock, (iii) the assumption of indebtedness in the aggregate amount of $211,455, (iv) an amount equal to 50% of the net income of RM Engineering during the 18-month period following date of acquisition of RM Engineering, and (v) warrants to purchase up to 4,000 additional shares of common stock at a price equal to the lower of a 25% discount to the market price of the common stock on the date of exercise or $37.50 per share, for each $500,000 of EBITDA earned by RM Engineering during the 24-month period following the date of acquisition of RM Engineering. The cash payments in the aggregate amount of $200,000 were not paid when due in March and June 2012, and the parties expect that such payments will be made within 90 days of the date of this report. We valued the contingent consideration likely to be paid at $126,287 as of December 31, 2012.

The Rives-Monteiro Agreement contains representations, warranties, covenants and on-going indemnification obligations. These covenants include an obligation during the year following the closing to continue to operate the ongoing business of RM Engineering in the same manner as previously conducted.

Environmental Remediation. On November 30, 2012, ADEX entered into an Equity Purchase Agreement (the “Environmental Remediation Agreement”) with ERFS and the sole stockholder of ERFS pursuant to which ADEX acquired all the outstanding equity interests of ERFS in consideration of our issuance of 4,500 shares of our Series I Preferred Stock. In the Environmental Remediation Agreement, we granted the seller the right to put to us up to $750,000 of the Series I Preferred Stock at a price of $1,000 per share (less the amount of pre-closing receivables collected and paid to the seller) on and after March 31, 2013.

In addition, in the Environmental Remediation Agreement, as additional consideration, we agreed to pay the seller an amount, payable in cash or common stock, at our election, equal to 1.5 times ERFS’s EBITDA in the 12-month period ending December 31, 2013, provided the EBITDA for such period exceeds ERFS's EBITDA for the 12-month period ended November 30, 2012 by $10,000 or more. In addition, we agreed to cause ERFS to pay to the seller on a bi-weekly basis an amount of cash equal to the amount of any receivables related to pre-closing activities of ERFS that are collected after the date of the acquisition, up to a maximum of $750,000. We valued the contingent consideration likely to be paid at $2,100,000 as of December 31, 2012.

Telco. On November 19, 2012, we entered into an Asset Purchase Agreement (the “Tekmark Agreement”) to acquire all the property, assets and business of Telco from Tekmark Global Solutions LLC. Under the terms of the Tekmark Agreement, at the closing of the acquisition, we will pay the seller an aggregate amount in cash equal to the difference between (i) the product of 5.0 multiplied by the Estimated Closing EBITDA (as defined) of Telco for the 12-month period ending on the last day of the month prior to the closing date (the “Estimated Closing TTM EBITDA”), less (ii) $2,600,000. In addition, we will issue to the seller a number of shares of common stock equal to the product of (i) the Estimated Closing TTM EBITDA, and (ii) the price of the common stock sold in our next public offering, rounded to the nearest whole share. We will also pay the seller additional cash compensation in an amount equal to the EBITDA (as defined) of Telco for the 12-month period beginning on the first day of the first calendar month commencing after the closing date (the “Initial Earnout Period”).

Following the closing, as additional consideration, we will make supplemental payments to the seller in cash for (i) the 12-month period beginning on the first day of the thirteenth calendar month commencing after the closing date (the “First Supplemental Earnout Period”) and (ii) the 12-month period beginning on the first day of the twenty-fifth calendar month commencing after the closing date (the “Second Supplemental Earnout Period”). The payment made for the First Supplemental Earnout Period will be an amount equal to the product of 2.0 multiplied by the positive difference, if any, between (A) the EBITDA of Telco for the First Supplemental Earnout Period, minus (B) the Closing TTM EBITDA (as defined). The payment made for the Second Supplemental Earnout Period will be an amount equal to the product of 2.0 multiplied by the positive difference, if any, between (Y) the EBITDA of Telco for the Second Supplemental Earnout Period, minus (Z) the Closing TTM EBITDA.

The Tekmark Agreement contains customary representations, warranties, covenants and indemnification provisions. The closing of the acquisition remains subject to closing conditions, including the accuracy of representations and warranties of the parties in the Tekmark Agreement and consummation of an equity financing, to secure sufficient funding for the transaction. The Tekmark Agreement may be terminated at any time prior to closing (i) by mutual consent of the parties, (ii) by either party if the closing has not occurred by May 15, 2013, (iii) by either party if the other party has breached any of its representations, warranties or covenants or (iv) by either party if a court or governmental authority has issued a final order or ruling prohibiting the transaction.

IPC. On November 20, 2012, we entered into a Stock Purchase Agreement (the “IPC Agreement”) to acquire all the outstanding capital stock of IPC. Under the terms of the IPC Agreement, at the closing of the acquisition, we will pay the sellers (a) a cash payment in an amount equal to (i) the product of 5.2 multiplied by the TTM EBITDA (as defined), (ii) less Estimated Closing Debt (as defined), (iii) less Estimated Company Unpaid Transaction Expenses (as defined), (iv) plus any Estimated Working Capital Surplus (as defined) or less any Estimated Working Capital Deficiency (as defined), less the Escrow Amount (the “Initial Cash Payment”) and (b) a stock payment consisting of a number of shares of common stock equal to the quotient obtained by dividing (A) (i) the product of 0.2 multiplied by the TTM EBITDA, (ii) less Estimated Closing Debt, (iii) less Estimated Company Unpaid Transaction Expenses, (iv) plus any Estimated Working Capital Surplus or less any Estimated Working Capital Deficiency, by (B) the price of a share of common stock in our next public offering. Each seller may elect to receive a portion of such seller’s pro rata share of the Initial Cash Payment, up to an amount equal to such Seller’s pro rata share of the TTM EBITDA, in shares of common stock in lieu of cash (the “Elected Amount”) provided that such seller (i) provides proper notification of such election and (ii) the number of shares to be so issued shall be determined by dividing such seller’s Elected Amount by the price of a share of common stock in our next public offering.

As additional consideration, following the closing, we will make an additional cash payment in an amount equal to the aggregate amount of (i) the product of 0.6 multiplied by the EBITDA of IPC for the 12-month period beginning on the first day of the first calendar month commencing after the closing date (the “Forward EBITDA”), plus (ii) in the event that the Forward EBITDA exceeds the TTM EBITDA by 5.0% or more, an amount equal to 2.0 multiplied by this difference.

The IPC Agreement contains customary representations, warranties, covenants and indemnification provisions. The closing remains subject to closing conditions, including the accuracy of representations and warranties of the parties in the IPC Agreement and completion of a public offering of our common stock. The IPC Agreement may be terminated at any time prior to closing (i) by mutual consent of the parties, (ii) by either party if the closing has not occurred by May 15, 2013, (iii) by either party if the other party has breached any of its representations, warranties or covenants or (iv) by either party if a court or governmental authority has issued a final order or ruling prohibiting the transaction.

Our Industry

Global Internet traffic is expected to continue to grow rapidly, driven by factors such as the increased use of smart phones, tablets and other internet devices, the proliferation of social networking and the increased adoption of cloud-based services. Corporate enterprises are increasingly adopting cloud-based services, which enable them and other end users to rapidly deploy applications without building out their own expensive infrastructure and to minimize the growth in their own IT departments.

Global Internet traffic is expected to quadruple from 2011 to 2016 according to a 2012 white paper prepared by Cisco Systems, Inc. (Cisco). Global data traffic (including as a result of the use of smartphones, tables, laptops and other mobile telecommunications devices) is expected to increase 18 times from 2011 to 2016, according to the same report. Subscriptions to either free or paid cloud services are expected to continue to increase from 500 million consumers worldwide in 2012, to an estimated 625 million in 2013, and then double over the course of four years to reach 1.3 billion by 2017, according to the IHS iSuppli Mobile & Wireless Communications service report.

Source: IHS iSuppli Research, October 2012

Corporate enterprises are increasingly adopting cloud-based services to integrate applications, decrease capital and operational expense and create business agility by taking advantage of accelerated time to market dynamics. Demand for cloud-based services creates demand for both providing solutions to end-user corporate enterprises as well as augmenting the offerings of telecommunications service providers.

The rapid increase in data traffic, usage of wireless networks and evolution of services and technology are also driving telecommunications providers to undertake a number of initiatives to increase coverage, capacity and performance of their existing networks, including adding and upgrading cell sites nationwide.

To remain competitive and meet the rapidly-growing demand for state-of-the-art mobile data services, telecommunications and cable companies rely on outsourcing to provide a wide range of network and infrastructure services, as well as project staffing services, to help build out and maintain their networks. OEMs supplying equipment to those telecommunications and cable service providers also frequently rely on outsourced solutions for project management and network deployment. Demand for these services is expected to grow rapidly. According to the Telecommunications Industry Association 2012 ICT Market Review, the wireless telecommunications and network infrastructure outsourcing market has grown 9.5% per year since 2004 and is expected to continue to grow at a 5.9% rate through 2014, becoming a $21.6 billion market in 2014.

Technological convergence of voice, video and data, as well as competitive pressures, are driving consolidation in the telecommunications industry and cable broadband marketplace. Because of the immense integration challenges, merging entities rely in part on specialty solutions providers to efficiently integrate different technologies and networks into a single network.

In building out and managing telecommunications networks, service providers and enterprise customers face many challenges, including difficulty locating, recruiting, hiring and retaining skilled labor, significant capital investment requirements and competitive pressures on operating margins. In response to these ongoing challenges, telecommunications providers and enterprise customers continue to seek and outsource solutions in order to reduce their investment in capital equipment, provide flexibility in workforce sizing and expand product offerings without large increases in incremental hiring. Outsourcing professional services also allows telecommunications providers and enterprise customers to focus on those competencies they consider core to their business success.

Our Solution

We seek to become the single-source provider of choice of end-to-end outsourced cloud and managed services, network infrastructure and project staffing solutions, to corporate enterprises and telecommunications and broadband service providers. We believe that our strengths described below will enable us to continue to compete effectively and to take advantage of anticipated growth in our target markets.

Our Competitive Strengths

Single-Source Provider of End-to-End Network Infrastructure, Cloud and Managed Services and Project Staffing Needs, Applications and Infrastructure to Enterprise and Service Providers. We believe our ability to address a wide range of end-to-end network solutions, infrastructure and project staffing needs for our clients is a key competitive advantage. Our ability to offer diverse technical capabilities (including design, engineering, construction, deployment, installation and integration services) allows customers to turn to a single source for these specific specialty services, as well as to entrust us with the execution of entire turn-key solutions.

Established Customer Relationships With Leading Infrastructure Providers. We have established relationships with many leading wireless and wireline telecommunications providers, cable broadband MSOs, OEMs and others. We have over 30 master service agreements with service providers and OEMs. Our current customers include Ericsson Inc., Verizon Communications Inc., Alcatel-Lucent USA Inc., Century Link, Inc., AT&T Inc. and Hotwire Communications. Our relationships with our customers and existing master service agreements position us to continue to capture existing and emerging opportunities, both domestically and internationally. We believe the barriers are extremely high for new entrants to obtain master service agreements with service providers and OEMs unless there are established relationships and a proven ability to execute.

Proven Ability to Recruit, Manage and Retain High Quality Telecommunications Personnel. Our ability to recruit, manage and retain skilled labor is a critical advantage in an industry in which a shortage of skilled labor is often a key limitation for our customers and competitors alike. We own and operate an actively-maintained database of more than 70,000 telecom personnel. We also employ highly-skilled recruiters and utilize an electronic hiring process that we believe expedites deployment of personnel and reduces costs. Our staffing capabilities allow us to efficiently locate and engage skilled personnel for projects, helping ensure that we do not miss out on opportunities due to a lack of skilled labor. We believe this access to a skilled labor pool gives us a competitive edge over our competitors as we continue to expand.

Strong Senior Management Team with Proven Ability to Execute. Our highly-experienced management team has deep industry knowledge and a strong track record of successful execution in major corporations, as well as startup ventures. Our senior management team brings an average of over 25 years of individual experience across a broad range of disciplines. We believe our senior management team is a key driver of our success and is well-positioned to execute our strategy.

Scalable and Capital Efficient Business Model. We typically hire workers to staff projects on a project-by-project basis and we believe this business model enables us to staff our business efficiently to meet changes in demand. Our operating expenses, other than staffing, are primarily fixed; we are generally able to deploy personnel to infrastructure projects in the United States and beyond with incremental increases in operating costs.

Our Growth Strategy

Under the leadership of our senior management team we intend to build out sales, marketing and operations groups to support our rapid growth while focusing on increasing operating margins. While organic growth will be a main focus in driving our business forward, acquisitions will play a strategic role in augmenting existing product and service lines and cross selling opportunities. We are pursuing several strategies, including:

Grow Revenues and Market Share through Selective Acquisitions. We plan to continue to acquire private companies that enhance our earnings and offer complementary services or expand our geographic reach. We believe such acquisitions will help us to accelerate our revenue growth, leverage our existing strengths, and capture and retain more work in-house as a prime contractor for our clients, thereby contributing to our profitability. We also believe that increased scale will enable us to bid and take on larger contracts. We believe there are many potential acquisition candidates in the high-growth cloud computing space, the fragmented professional services markets, and in the applications and infrastructure arena.

Deepen Our Relationships With Our Existing Customer Base. Our customers include many leading wireless and wireline telecommunications providers, cable broadband MSOs, OEMs and enterprise customers. As we have expanded the breadth of our service offerings through both organic growth and selective acquisitions, we believe we have opportunities to expand revenues with our existing clients by marketing additional service offerings to them, as well as by extending services to existing customers in new geographies.

Expand Our Relationships with New Service Providers. We plan to expand new relationships with smaller cable broadband providers, competitive local exchange carriers (CLECs), integrated communication providers (IC’s), competitive access providers (CAPs), network access point providers (NAPs) and integrated communications providers (ICPs). We believe that the business model for the expansion of these relationships, leveraging our core strength and array of service solutions, will support our business model for organic growth.

Increase Operating Margins by Leveraging Operating Efficiencies. We believe that by centralizing administrative functions, consolidating insurance coverages and eliminating redundancies across our newly-acquired businesses, we will be positioned to offer more integrated end-to-end solutions and improve operating margins.

Our Services

We provide cloud- and managed-service-based platforms, professional services, applications and infrastructure to both the telecommunications industry and corporate enterprises. Our cloud-based and managed services and our engineering, design, construction, installation, maintenance and project staffing services support the build-out, maintenance, upgrade and operation of some of the most advanced fiber optic, Ethernet, copper, wireless and satellite networks. Our breadth of services enables our customers to selectively augment existing services or to outsource entire projects or operational functions. We divide our service offerings into the following categories of services:

	●	Cloud and Managed Services. We provide integrated cloud-based solutions that allow organizations around the globe to integrate their applications on various services into a web-hosted environment. We combine engineering expertise with service and support to maintain and support telecommunications networks. We provide hardware solutions and applications, as well as professional services, that work as a seamless extension of a telecommunications service provider or enterprise end user.

	●	Applications and Infrastructure. We provide an array of applications and services, including unified communications, voice recognition and call centers, as well as structured cabling, field installations and other infrastructure solutions. Our design, engineering, installation and maintenance of various types of local and wide-area networks, DAS systems, and other broadband installation and maintenance services augment ILECs, telecommunications OEMs, cable broadband MSOs and large end-users. Our services and applications support the deployment of new networks and technologies, as well as expand and maintain existing networks. We also sell hardware and applications for the leading OEMs that support voice, data and optical networks.

	●	Applications. We apply our expertise in networking, converged communications, security, data center solutions and other technologies utilizing our skills in consulting, integration and managed services to create customized solutions for our enterprise customers. We provide applications for managed data, converged services (single and multiple site); voice recognition, session initiation protocol (SIP trunking-Voice Over IP, streaming media, UC) collocation services and others.

	●	Wireless and Wireline Installation, Commission and Integration. We provide a full-range of solutions to OEMs, wireless carriers and enterprise customers throughout the United States, including structured cabling, wiring and field installation of various types of local and wide-area networks and DAS systems, and outside plant work. Our technicians construct, install, maintain and integrate wireless communications and data networks for some of the largest cellular broadband and digital providers in the United States. Our projects include services to Verizon Communications and Ericsson in connection with their 4G/LTE network deployments throughout the United States.

	●	Turn-Key Communications Services. Our telecom and broadband services group addresses the growing demand for broadband-based unified communications and structured cabling. Our services include switch conditioning, switch re-grooming, cable splicing and grounding audits. Our premise wiring services include design, engineering, installation, integration, maintenance and repair of telecommunications networks for voice, video and data inside various corporate enterprises, as well as state and local government properties. Additionally, we provide maintenance and installation of electric utility grids and water and sewer utilities. We provide outside plant telecommunications services primarily under hourly and per-unit-basis contracts to local telephone companies. We also provide these services to U.S. corporations, long distance telephone companies, electric utility companies, local municipalities and cable broadband MSOs.

	●	Disaster Recovery. Our disaster recovery services provide emergency network restoration services and environmental remediation services to leading telecommunications carriers throughout the United States, including projects for Hurricane Sandy relief, Hurricane Katrina relief, Alabama Tornado relief and Southern California flood assistance. Customers include AT&T, Verizon Wireless and Century Link/Quest.

	●	Professional Services. As a result of our acquisition of ADEX, we have a proprietary international recruiting database of more than 70,000 telecom professionals, the majority of which are well-qualified engineering professionals and experienced project managers. We believe our skilled recruiters, combined with an entirely electronic staffing process, reduce our overall expenses for any project because of our efficient recruiting and deployment techniques. On a weekly basis, we deploy hundreds of telecommunications professionals in support of network infrastructure deployments worldwide.

Customers

Our customers include many leading corporate enterprises, wireless and wireline telecommunications providers, cable broadband MSOs and OEMs and small independent phone companies. Our enterprise solutions are provided to small businesses and Fortune 500 companies. Our current service provider and OEM customers include leading telecommunications companies, such as Ericsson, Inc., Verizon Communications, Sprint Nextel Corporation and AT&T.

Our top two customers, Verizon Communications and Danella Construction, accounted for approximately 73% of our total revenues in the year ended December 31, 2011. Our top four customers, Nexlink, Ericsson, Inc., Verizon Communications and Ericsson Caribbean, accounted for approximately 59% of our total revenues in the year ended December 31, 2012. Ericsson, as an OEM provider for seven different carrier projects, accounted for approximately 33% of our total revenues in the year ended December 31, 2012.

A substantial portion of our revenue is derived from work performed under multi-year master service agreements and multi-year service contracts. We have entered into master service agreements (MSAs) with numerous service providers and OEMs, and generally have multiple agreements with each of our customers. MSAs are awarded primarily through a competitive bidding process based on the depth of our service offerings, experience and capacity. MSAs generally contain customer-specified service requirements, such as discrete pricing for individual tasks, but do not require our customers to purchase a minimum amount of services. To the extent that such contracts specify exclusivity, there are often a number of exceptions, including the ability of the customer to issue work orders valued above a specified dollar amount to other service providers, perform work with the customer’s own employees and use other service providers. Most of our MSAs may be cancelled by our customers upon minimum notice (typically 60 days), regardless of whether we are then in default. In addition, many of these contracts permit cancellation of particular purchase orders or statements of work without any prior notice. Our cloud-managed service offerings have multi-year agreements and provide the customers with service level commitments. This is one of the fastest growing portions of our business.

Suppliers and Vendors

We have agreements with major telecommunications vendors such as Ericsson. For a majority of the contract services we perform, our customers supply the necessary materials. We expect to continue to further develop these relationships and to broaden our scope of work with each of our partners. In many cases, our relationships with our partners have extended for over a decade, which we attribute to our commitment to excellence. It is our objective to selectively expand our partnerships moving forward in order to expand our service offerings.

Competition

The business of providing infrastructure and managed services to telecommunications companies and enterprise clients is highly fragmented and the business is characterized by a large number of participants, including several large companies, as well as a significant number of small, privately-held, local competitors.

Our current and potential larger competitors include Arrow Electronics, Inc., Black Box Corporation Dimension Data, Dycom Industries, Inc., Goodman Networks, Inc., MasTec, Inc., TeleTech Holdings, Inc., Unisys Corporation, Unitek Global Services, Inc., Tech Mahindra and Volt Information Sciences, Inc. A significant portion of our services revenue is currently derived from MSAs and price is often an important factor in awarding such agreements. Accordingly, our competitors may underbid us if they elect to price their services aggressively to procure such business. Our competitors may also 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. The principal competitive factors for our services include geographic presence, breadth of service offerings, worker and general public safety, price, quality of service and industry reputation. We believe we compete favorably with our competitors on the basis of these factors.

Safety and Risk Management

We require our employees to participate in internal training and service programs from time to time relevant to their employment and to complete any training programs required by law. We review accidents and claims from our operations, examine trends and implement changes in procedures to address safety issues. Claims arising in our business generally include workers’ compensation claims, various general liability and damage claims, and claims related to vehicle accidents, including personal injury and property damage. We insure against the risk of loss arising from our operations up to certain deductible limits in substantially all of the states in which we operate. In addition, we retain risk of loss, up to certain limits, under our employee group health plan. We evaluate our insurance requirements on an ongoing basis to help ensure we maintain adequate levels of coverage.

We carefully monitor claims and actively participate with our insurers in determining claims estimates and adjustments. The estimated costs of claims are accrued as liabilities, and include estimates for claims incurred but not reported. Due to fluctuations in our loss experience from year to year, insurance accruals have varied and can affect the consistency of our operating margins. If we experience insurance claims in excess of our umbrella coverage limit, our business could be materially and adversely affected.

Employees

As of March 28, 2013, we had 449 full-time employees and six part-time employees, of whom 52 were in administration and corporate management, ten were accounting personnel and 390 were technical and project managerial personnel.

In general, the number of our employees varies according to the level of our work in progress. We maintain a core of technical and managerial personnel to supervise all projects and add employees as needed to complete specific projects. Because we also provide project staffing, we are well-positioned to respond to changes in our staffing needs.

Environmental Matters

A portion of the work we perform is associated with the underground networks of our customers. As a result, we are potentially subject to material liabilities related to encountering underground objects that may cause the release of hazardous materials or substances. We are subject to federal, state and local environmental laws and regulations, including those regarding the removal and remediation of hazardous substances and waste. These laws and regulations can impose significant fines and criminal sanctions for violations. Costs associated with the discharge of hazardous substances may include clean-up costs and related damages or liabilities. These costs could be significant and could adversely affect our results of operations and cash flows.

Regulation

Our operations are subject to various federal, state, local and international laws and regulations, including licensing, permitting and inspection requirements applicable to electricians and engineers; building codes; permitting and inspection requirements applicable to construction projects; regulations relating to worker safety and environmental protection; telecommunication regulations affecting our fiber optic licensing business; labor and employment laws; and laws governing advertising.

We believe that we have all the licenses required to conduct our operations. Our failure to comply with applicable regulations could result in substantial fines or revocation of our operating licenses.

PART II

ITEM 6. SELECTED FINANCIAL DATA

The following tables set forth selected consolidated financial data for us for the years ended December 31, 2012 and 2011. The selected consolidated financial data for the fiscal years ended December 31, 2012 and 2011 were derived from our audited consolidated financial statements included elsewhere in this report. The financial data set forth below should be read in conjunction with, and are qualified in their entirety by, reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our historical financial statements and related notes included elsewhere in this report.

	For the years ended December 31,
	2012			2011
Statement of Operations Data:				(Restated)

Revenues	$	17,235,585		$	2,812,210
Gross profit		5,176,486			961,192
Operating expenses		7,938,345			6,343,931
Loss from operations		(2,761,859	)		(5,382,739	)
Other expense, net		(1,097,863	)		(1,021,889	)
Net loss before benefit for income taxes		(3,859,722	)		(6,404,628	)
Benefit for income taxes		(2,646,523	)		-
Dividends on preferred stock		(843,215	)		-
Net loss attributable to common stockholders		(2,072,862	)		(6,404,628	)
Loss per share, basic and diluted	$	(1.33	)	$	(6.38	)
Basic and diluted weighted average shares outstanding		1,553,555			1,003,264

	As of December 31,
	2012			2011
Balance Sheet Data:				(Restated)

Cash	$	646,978		$	89,285
Accounts receivable, net		8,481,999			347,607
Total current assets		10.183,971			456,585
Goodwill and intangible assets, net		29,667,823			1,146,117
Total assets		41,866,243			2,245,545

Total current liabilities		13,410,481			2,357,618
Other liabilities		15,159,644			1,672,900
Redeemable common and preferred stock		16,584,704			620,872
Stockholders’ equity (deficit)		(3,288,586	)		(2,405,845	)

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This management’s discussion and analysis of financial condition and results of operations contains certain statements that are forward-looking in nature relating to our business, future events or our future financial performance. Prospective investors are cautioned that such statements involve risks and uncertainties and that actual events or results may differ materially from the statements made in such forward-looking statements. In evaluating such statements, prospective investors should specifically consider the various factors identified in this report, including the matters set forth under Item 1A “Risk Factors,” which could cause actual results to differ from those indicated by such forward-looking statements.

Overview

We were incorporated in 1999, but functioned as a development stage company with limited activities through December 2009. In January 2010, we acquired Digital Comm, Inc. (“Digital”), a provider of specialty contracting services primarily in the installation of fiber optic telephone cable. Until September 2012, substantially all of our revenue came from our specialty contracting services. In the year ending December 31, 2012, primarily as a result of our acquisition of ADEX, approximately 39% of our revenue was derived from specialty contracting services, with the remaining 61% coming from our telecommunications staffing services.

We operate in one reportable segment as a specialty contractor and staffing service, providing engineering, construction, maintenance and installation services to telecommunications providers and underground facility locating services, as well as related staffing services to various utilities, including telecommunications providers, and other construction and maintenance services to electric and gas utilities and others. All of our operating divisions have been aggregated into one reporting segment due to their similar economic characteristics, products, production methods and distribution methods.

Our revenue increased from $2.8 million for the year ended December 31, 2011 to $17.2 million for the year ended December 31, 2012. Our net loss attributable to common stockholders decreased from $6.4 million for the year ended December 31, 2011 to $2.1 million for the year ended December 31, 2012. As of December 31, 2012, our accumulated deficit was $12.5 million. A significant portion of our services are performed under master service agreements and other arrangements with customers that extend for periods of one or more years. We are currently party to numerous master service agreements, and typically have multiple agreements with each of our customers. Master service agreements generally contain customer-specified service requirements, such as discrete pricing for individual tasks. To the extent that such contracts specify exclusivity, there are often a number of exceptions, including the ability of the customer to issue work orders valued above a specified dollar amount to other service providers, perform work with the customer’s own employees and use other service providers when jointly placing facilities with another utility. In most cases, a customer may terminate an agreement for convenience with written notice. The remainder of our services are provided pursuant to contracts for specific projects. Long-term contracts relate to specific projects with terms in excess of one year from the contract date. Short-term contracts for specific projects are generally of three to four months in duration.

During 2012, the majority of our revenue and expenses came from our acquired companies. Of the $17.2 million in total revenues in the year ended December 31, 2012, $16.7 million came from the companies we acquired in 2011 and 2012.

Cost of revenues from the companies acquired in the years ended December 31, 2011 and 2012, accounted for $11.0 million of our $12.1 million cost of revenues during the year ended December 31, 2012.

Gross profit from the companies acquired in the years ended December 31, 2011 and 2012, accounted for $5.0 million of our $5.2 million gross profit during the year ended December 31, 2012.

Operating expenses, including salaries and wages and depreciation and amortization from the companies acquired in the years ended December 31, 2011 and 2012, accounted for $4.2 million of our $7.9 million of operating expenses during the year ended December 31, 2012.

The following table summarizes our revenues from multi-year master service agreements and other long-term contracts, as a percentage of contract revenues:

	Year ended December 31,
	2012			2011
Multi-year master service agreements		60	%		59	%
Total long-term contracts		60	%		59	%

The percentage of revenue from long-term contracts varies between periods, depending on the mix of work performed under our contracts.

A significant portion of our revenue is derived from several large customers. The following table reflects the percentage of total revenue from those customers that contributed at least 10% to our total revenue in the years ended December 31, 2012 and 2011:

	Year ended December 31,
	2012			2011
Verizon Communications, Inc.		7	%		56	%
Ericsson, Inc.		38	%		-
Danella Construction			*		17	%
Nexlink		14	%		-

* Represented less than 5% of the total revenues during the period.

Telecommunications providers and enterprise customers continue to seek and outsource solutions in order to reduce their investment in capital equipment, provide flexibility in workforce sizing and expand product offerings without large increases in incremental hiring. As a result, we believe there is significant opportunity to expand both our United States and international telecommunications solutions services and staffing services capabilities. As we continue to expand our presence in the marketplace, we will target those customers going through new network deployments and wireless service upgrades.

We expect to continue to increase our gross margins on our specialty contracting services by leveraging our single-source end-to-end network to efficiently provide a full spectrum of telecommunications contracting and staffing services to our customers. We believe this will alleviate some of the inefficiencies typically present in our industry, which result, in part, from the highly-fragmented nature of the telecommunications industry, limited access to skilled labor and the difficulty of managing multiple specialty-service providers to address our customers’ needs. As a result, we believe we can provide superior service to our customers and eliminate certain redundancies and costs for them. We believe our ability to address a wide range of end-to-end solutions network, infrastructure and project staffing service needs for our telecommunications industry clients is a key competitive advantage. Our ability to offer diverse technical capabilities (including design, engineering, construction, deployment, and installation and integration services) allows customers to turn to a single source for these specific specialty services, as well as to entrust us with the execution of entire turn-key solutions.

As a result of our recent acquisitions, we have become a multi-faceted company with an international presence. We believe this platform will allow us to leverage our corporate and other fixed costs and capture gross margin benefits. Our platform is highly scalable. We typically hire workers to staff projects on a project-by-project basis and our other operating expenses are primarily fixed. Accordingly, we are generally able to deploy personnel to infrastructure projects in the United States and beyond without incremental increases in operating costs, allowing us to achieve greater margins. We believe this business model enables us to staff our business efficiently to meet changes in demand.

Finally, given the worldwide popularity of telecommunications and wireless products and services, we will selectively pursue international expansion, which we believe represents a compelling opportunity for additional long-term growth.

Our planned expansion will place increased demands on our operational, managerial, administrative and other resources. Managing our growth effectively will require us to continue to enhance our operations management systems, financial and management controls and information systems and to hire, train and retain skilled telecommunications personnel. The timing and amount of investments in our expansion could affect the comparability of our results of operations in future periods.

Our recent acquisitions and planned acquisitions have been timed with the additions to our management team of skilled professionals with deep industry knowledge and a strong track record of execution. Our senior management team brings an average of over 25 years of individual experience across a broad range of disciplines. We believe our senior management team is a key driver of our success and is well-positioned to execute our strategy.

Factors Affecting Our Performance

Changes in Demand for Data Capacity and Reliability.

The telecommunications industry has undergone and continues to undergo significant changes due to advances in technology, increased competition as telephone and cable companies converge, the growing consumer demand for enhanced and bundled services and increased governmental broadband stimulus funding. As a result of these factors, the networks of our customers increasingly face demands for more capacity and greater reliability. Telecommunications providers continue to outsource a significant portion of their engineering, construction and maintenance requirements in order to reduce their investment in capital equipment, provide flexibility in workforce sizing, expand product offerings without large increases in incremental hiring and focus on those competencies they consider core to their business success. These factors drive customer demand for our services.

Telecommunications network operators are increasingly relying on the deployment of fiber optic cable technology deeper into their networks and closer to consumers in order to respond to demands for capacity, reliability and product bundles of voice, video and high-speed data services. Fiber deployments have enabled an increasing number of cable companies to offer voice services in addition to their traditional video and data services. These voice services require the installation of customer premise equipment and, at times, the upgrade of in-home wiring. Additionally, fiber deployments are also facilitating the provisioning of video services by local telephone companies in addition to their traditional voice and high-speed data services. Several large telephone companies have pursued fiber-to-the-premise and fiber-to-the-node initiatives to compete actively with cable operators. These long-term initiatives and the likelihood that other telephone companies will pursue similar strategies present opportunities for us.

Cable companies are continuing to target the provision of data and voice services to residential customers and have expanded their service offerings to business customers. Often times, these services are provided over fiber-optic cables using “metro Ethernet” technology. The commercial geographies that cable companies are targeting for network deployments generally require incremental fiber optic cable deployment and, as a result, require the type of engineering and construction services that we provide.

The proliferation of smart phones and other wireless data devices has driven demand for mobile broadband. This demand and other advances in technology have prompted wireless carriers to upgrade their networks. Wireless carriers are actively increasing spending on their networks to respond to the explosion in wireless data traffic, upgrade network technologies to improve performance and efficiency and consolidate disparate technology platforms. These customer initiatives present long-term opportunities for us for the wireless services we provide. Further, the demand for mobile broadband has increased bandwidth requirements on the wired networks of our customers. As the demand for mobile broadband grows, the amount of cellular traffic that must be “backhauled” over customers’ fiber and coaxial networks increases and, as a result, carriers are accelerating the deployment of fiber optic cables to cellular sites. These trends are increasing the demand for the types of services we provide.

Our Ability to Recruit, Manage and Retain High Quality Telecommunications Personnel.

The shortage of skilled labor in the telecommunications industry and the difficulties in recruiting and retaining skilled personnel can frequently limit the ability of specialty contractors to bid for and complete certain contracts. In September 2012, we acquired ADEX, a telecommunications staffing firm. Through ADEX, we manage a database of more than 70,000 telecom personnel, which we use to locate and deploy skilled workers for projects. We believe our access to a skilled labor pool gives us a competitive edge over our competitors as we continue to expand. However, our ability to continue to take advantage of this labor pool will depend, in part, on our ability to successfully integrate ADEX into our business.

Our Ability to Integrate Our Acquired Businesses and Expand Internationally.

We completed five acquisitions since August 2011 and plan to consummate additional acquisitions in the near term. Our success will depend, in part, on our ability to successfully integrate these businesses into our global telecommunications platform. In addition, we believe international expansion represents a compelling opportunity for additional growth over the long-term because of the worldwide need for telecommunications infrastructure. As of December 31, 2012, our operations in Puerto Rico have generated $887,000 in revenue. We plan to expand our global presence either by expanding our current operations or by acquiring subsidiaries with international platforms.

Our Ability to Expand and Diversify Our Customer Base.

Our customers for specialty contracting services consist of leading telephone, wireless, cable television and data companies. Ericsson Inc. is our principal telecommunications staffing services customer. Historically, our revenue has been significantly concentrated in a small number of customers. Although we still operate at a net loss, our revenue in recent years has increased as we have acquired additional subsidiaries and diversified our customer base and revenue streams. The percentage of our revenue attributable to our top 10 customers, as well as key customers that contributed at least 10% of our revenue in at least one of the years specified in the following table, were as follows:

Customer:	Year ended December 31,
	2012			2011
Top 10 customers, aggregate		77	%		97	%
Customer:
Verizon Communications, Inc.		7	%		56	%
Danella Construction			*		17	%
Nexlink		14	%		-
Ericsson, Inc.		33	%		-

* Represented less than 5% of the total revenues during the period.

Business Unit Transitions.

In the year ended December 31, 2011, 100% of our revenue came from our specialty contracting services. In the year ended December 31, 2012, approximately 39% of our revenue came from our specialty contracting services, and the remaining 61% come from our telecommunications staffing services. This change in focus is primarily attributable to our acquisition of ADEX in September 2012. Due to the shift of our business focus from exclusively providing specialty contracting services to also providing professional staffing services, we have expanded our customer base.

In addition, we have acquired four other companies since August 2011, and each of these acquisitions has either enhanced certain of our existing business units or allowed us to gain market share in new lines of business. For example, our acquisition of T N S in September 2012 extended the geographic reach of our structured cabling and digital antenna system services. Our proposed acquisition of IPC will allow us to improve our systems integration capabilities. Our proposed acquisition of Telco will further expand our professional staffing business and our access to skilled labor.

We expect these acquisitions to facilitate geographic diversification that should protect against regional cyclicality. We believe our diverse platform of services, capabilities, customers and geographies will enable us to grow as the market continues to evolve.

The table below summarizes the revenues for each of our product lines for the years ended December 31, 2012 and 2011.

	Year ended December 31,
	2012			2011
Revenue from:
Specialty contracting services	$	6,658,388		$	2,812,210
Telecommunications staffing services		10,577,197			—
As a percentage of total revenue:
Specialty contracting services		39	%		100	%
Telecommunications staffing services		61	%		0	%

With our acquisition of ADEX in September 2012, we believe our revenue generated from telecommunications staffing services will continue to increase as a percentage of our overall revenue.

Impact of Pending and Recently-Completed Acquisitions

We have grown significantly and expanded our service offerings and geographic reach through a series of strategic acquisitions. Since January 1, 2011, we have completed five acquisitions. We expect to regularly review opportunities, and periodically to engage in discussions, regarding possible additional acquisitions. Our ability to sustain our growth and maintain our competitive position may be affected by our ability to identify, acquire and successfully integrate companies.

We intend to operate all of the companies we acquire in a decentralized model in which the management of the companies will remain responsible for daily operations while our senior management will utilize their deep industry expertise and strategic contacts to develop and implement growth strategies and leverage top-line and operating synergies among the companies, as well as provide overall general and administrative functions.

In November 2012, we executed definitive agreements to acquire Telco and IPC, which acquisitions which we intend to complete within 90 days of the date of this report. After the completion of the Telco and IPC acquisitions and reflecting the consolidation of these entities in our results of operations, we expect our revenues, cost of revenues and operating expenses will increase substantially. Accordingly, our future results of operations may differ significantly from those described in this report. The impact of the pending acquisitions is not reflected in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and the impact of a completed acquisition is only included from the period commencing on the acquisition date. The unaudited pro forma combined condensed financial information included in this report is not intended to represent what our results of operations would have been if the acquisitions had occurred on January 1, 2012 or to project our results of operations for any future period. Since we and each of these entities were not under common control or management for any period presented, the unaudited pro forma combined condensed financial results may not be comparable to, or indicative of, future performance.

General Economic Conditions.

Within the context of a slowly-growing economy and the current volatility in the credit and equity markets, we believe the latest trends and developments support our steady industry outlook. We will continue to closely monitor the effects that changes in economic and market conditions may have on our customers and our business and we will continue to manage those areas of the business we can control.

Components of Results of Operations

Revenue.

In the year ended December 31, 2011, we derived virtually all of our revenue from our specialty contracting services. In the year ended December 31, 2012, we derived approximately 39% of our revenue from our specialty contracting services and approximately 61% of our revenue from our telecommunications staffing and training services.

Cost of Revenues.

Cost of revenues in the year ended December 31, 2012 was 70% of revenues as compared to 66% in the year ended December 31, 2011, primarily due to lower margins in our telecommunications staffing business. Cost of revenues in the telecommunications staffing business was 71% of revenues in the year ended December 31, 2012. We are trying to increase efficiency in the year ending December 31, 2013 and will focus our efforts on improving margins. Cost of revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct materials, insurance claims and other direct costs.

We retain the risk of loss, up to certain limits, for claims related to automobile liability, general liability, workers’ compensation, employee group health and location damages. We are sometimes subject to claims for damages resulting from property and other damages arising in connection with our specialty contracting services. A change in claims experience or actuarial assumptions related to these risks could materially affect our results of operations.

For a majority of the contract services we perform, our customers provide all required materials while we provide the necessary personnel, tools and equipment. Materials supplied by our customers, for which the customer retains financial and performance risk, are not included in our revenue or costs of revenues. We expect cost of revenue to continue to increase if we succeed in continuing to grow our revenue.

General and Administrative Costs.

General and administrative costs include all of our corporate costs, as well as costs of our subsidiaries’ management personnel and administrative overhead. These costs primarily consist of employee compensation and related expenses, including legal, consulting and professional fees, information technology and development costs, provision for or recoveries of bad debt expense and other costs that are not directly related to performance of our services under customer contracts. Our senior management, including the senior managers of our subsidiaries, perform substantially all of our sales and marketing functions as part of their management responsibilities and, accordingly, we have not incurred material sales and marketing expenses. Information technology and development costs included in general and administrative expenses are primarily incurred to support and to enhance our operating efficiency. We expect these expenses to continue to generally increase as we expand our operations, but expect that such expenses as a percentage of revenues will decrease if we succeed in increasing revenues. Between January 1, 2012 and December 31, 2012, we increased our workforce by 346 employees, primarily as a result of the acquisitions of ADEX and its affiliated entities, T N S and ERFS, which will increase ongoing headcount-related expenses.

Fair Value of Embedded Derivatives.

We used the Black-Scholes option-pricing model to determine the fair value of the derivative liability related to warrants and the put and effective price of future equity offerings of equity-linked financial instruments. We derived the fair value of warrants using the common stock price, the exercise price of the warrants, the risk-free interest rate, the historical volatility and our dividend yield. We do not have sufficient historical data to use our historical volatility; therefore the expected volatility is based on the historical volatility of comparable companies. We developed scenarios to take into account estimated probabilities of future outcomes. The fair value of the warrant liabilities is classified as Level 3 within our fair value hierarchy.

On August 6, 2010, we issued to UTA Capital LLC warrants to purchase 16% of our common stock on a fully-diluted basis, which were exercisable at $18.75 per share and provided for cashless exercise. Such warrants were cancelled in September 2012 in consideration of the issuance of 215,099 shares of our common stock. In connection with the preparation of our financial statements for the year ended December 31, 2011, we evaluated the anti-dilution provisions of such warrants and deemed their impact to be immaterial. The relative fair value of such warrants was calculated using the Black-Scholes Option pricing model. This amount, totaling approximately $872,311, was recorded as a derivative liability and debt discount and charged to interest expense over the life of the related promissory note. The warrants issued to UTA Capital LLC did not meet the criteria to be classified as equity in accordance with ASC 815-40-15-7D and were classified as derivative liabilities at fair value and marked to market because they were not indexed to our stock as the settlement amount was not fixed due to the variability of the number of shares issuable pursuant to such warrants. The derivative liability associated with this debt was revalued each reporting period and the increase or decrease was recorded to our consolidated statement of operations under the caption “change in fair value of derivative instruments.”

On February 14, 2011, we entered into an extension and modification agreement with UTA Capital LLC in connection with our outstanding note payable to UTA Capital LLC, which had a balance of $775,000 at December 31, 2010. The modification agreement provided for an extension of the original maturity date of the note from August 6, 2011 to September 30, 2011. In exchange for consenting to the modification agreement, UTA Capital LLC was issued 10,257 shares of our common stock, which had a fair value of $153,850 and was recorded as a debt discount. Additionally, as additional consideration for our failure to satisfy a certain covenant in the agreement, UTA Capital LLC was issued 4,000 shares of our common stock, which shares were recorded as a penalty paid to the lender and recorded as an expense. As of December 31, 2011, these two additional grants of shares had not been physically issued. However, such shares were reflected in our financial statements for the year ended December 31, 2011 as if issued. This amendment was accounted for as an extinguishment and therefore the unamortized deferred loan costs of $53,848, debt discount from the original agreement of $504,648 and debt discount from this amendment of $153,850 were expensed.

Pursuant to the MidMarket Loan Agreement, on September 17, 2012, we issued warrants to the lenders to purchase an aggregate of 4,423,681shares of common stock. The warrants were amended on November 13, 2012 in connection with the first amendment to the MidMarket Loan Agreement to increase the aggregate number of shares issuable upon exercise of such warrants to 6,007,529 shares. Pursuant to the second amendment to the MidMarket Loan Agreement dated March 22, 2013, the aggregate number of shares of common stock issuable upon exercise of such warrants was set at 749,542 shares. The warrants have an exercise price of $1.25 per share, subject to adjustment as set forth in the warrants, and will expire on September 17, 2014 provided certain conditions are met. The warrants have anti-dilution rights in connection with the exercise price. For financial reporting purposes, we have determined that the fair value of the anti-dilution rights is immaterial. If we issue stock, warrants or options at a price below the $1.25 per share exercise price, the price of the warrants resets to the lower price. As of March 31, 2013, the lenders had not exercised the warrants. These warrants meet the criteria in ASC 480 to be classified as liabilities because there is a put feature pursuant to which we have an obligation to repurchase such warrants. The derivative liability associated with this debt will be revalued each reporting period and the increase or decrease in value will be recorded to the consolidated statement of operations under the caption “change in fair value of derivative instruments.”

On September 17, 2012, when the warrants were issued, we recorded a derivative liability in the amount of $193,944. The amount was recorded as a debt discount and is being amortized over the life of the loan. The amount of the derivative liability was computed by using the Black-Scholes Option pricing model to determine the value of the warrants issued.

The fair value of the MidMarket warrant derivative at each measurement date was calculated using the Black-Scholes option pricing model with the following factors, assumptions and methodologies:

	December 31,
	2012

Fair value of our common stock		$0.6875- $10.00

Volatility		56.78 - 112%

Exercise price		$0.95 - $10.00

Estimated life	1.75 years

Risk free interest rate (based on 2 year treasury rate)		0.0266 - 0.12%

We account for the exercise features included in our warrants as derivative liabilities. The aggregate fair value of derivative liabilities as of December 31, 2012 and 2011 amounted to $33,593 and $38,557, respectively.

As of each of December 31, 2012 and 2011, the number of shares of common stock issuable upon exercise of the warrants issued under the MidMarket Loan Agreement and the warrants issued to UTA Capital LLC was 6,007,529 and 0 and 0 and 578,566, respectively.

Income Taxes.

In the year ended December 31, 2012, we booked a benefit for income taxes due of $2.6 million. Certain states do not recognize net operating loss carryforwards, and we have operations in some of those states. The provision for state and local income taxes was offset by an increase in deferred tax liabilities of $2.8 million. This tax benefit was a result of our acquisition of ADEX and TNS in 2012, which resulted in a deferred tax liability based on the value of the intangible assets acquired. This benefit was offset by the fact that ADEX and TNS were cash-basis taxpayers when they were acquired and were converted to accrual-basis taxpayers upon acquisition, which resulted in an increase in liability. As of December 31, 2012 and 2011, we had net operating loss carryforwards (NOLs) of $5.9 million and $3.8 million, respectively, which will be available to reduce future taxable income and expense through 2030. Utilization of the net operating loss and credit carryforwards is subject to an annual limitation due to the ownership percentage change limitations provided by Section 382 of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of the net operating loss carryforwards before utilization.

Credit Risk.

We are subject to concentrations of credit risk relating primarily to our cash and equivalents, accounts receivable, other receivables and costs and estimated earnings in excess of billings. Cash and equivalents primarily include balances on deposit in banks. We maintain substantially all of our cash and equivalents at financial institutions we believe to be of high credit quality. To date, we have not experienced any loss or lack of access to cash in our operating accounts.

We grant credit under normal payment terms, generally without collateral, to our customers. These customers primarily consist of telephone companies, cable broadband MSOs and electric and gas utilities. With respect to a portion of the services provided to these customers, we have certain statutory lien rights that may, in certain circumstances, enhance our collection efforts. Adverse changes in overall business and economic factors may impact our customers and increase potential credit risks. These risks may be heightened as a result of economic uncertainty and market volatility. In the past, some of our customers have experienced significant financial difficulties and, likewise, some may experience financial difficulties in the future. These difficulties expose us to increased risks related to the collectability of amounts due for services performed. We believe that none of our significant customers were experiencing financial difficulties that would materially impact the collectability of our trade accounts receivable as of December 31, 2012.

Contingent Consideration.

We recognize the acquisition-date fair value of contingent consideration as part of the consideration transferred in exchange for the acquiree or assets of the acquiree in a business combination. The contingent consideration is classified as either a liability or equity in accordance with ASC 480-10 (“Accounting for certain financial instruments with characteristics of both liabilities and equity “). If classified as a liability, the liability is remeasured to fair value at each subsequent reporting date until the contingency is resolved. Increases in fair value are recorded as losses on our consolidated statement of operations, while decreases are recorded as gains. If classified as equity, contingent consideration is not remeasured and subsequent settlement is accounted for within equity.

Litigation and Contingencies.

Litigation and contingencies are reflected in our consolidated financial statements based on management’s assessment of the expected outcome of such litigation or expected resolution of such contingency. An accrual is made when the loss of such contingency is probable and reasonably estimable. If the final outcome of such litigation and contingencies differs significantly from our current expectations, such outcome could result in a charge to earnings.

Results of Operations

The following table shows our results of operations for the year indicated. The historical results presented below are not necessarily indicative off the results that may be expected for any future period.

	Year ended December 31,
	2012			2011
				(Restated)
Revenue	$	17,235,585		$	2,812,210

Cost of revenues		12,059,099			1,851,018
Gross profit		5,176,486			961,192

Operating expenses:
Depreciation and amortization		348,172			39,229
Salaries and wages		3,802,158			5,053,600
General and administrative		3,788,015			1,251,102
Total operating expenses		7,938,345			6,343,931

Loss from operations		(2,761,859	)		(5,382,739	)

Total other expense		(1,097,863	)		(1,021,889	)
Loss before benefit for income taxes		(3,859,722	)		(6,404,628	)

Benefit for income taxes		(2,646,523	)		-

Net loss		(1,213,199	)		(6,404,628	)

Net loss attributable to non-controlling interest		(16,448	)		-

Net loss attributable to InterCloud Systems, Inc.		(1,229,647	)		(6,404,628	)

Less dividends on Series C, D, E, F and H Preferred Stock		(843,215	)		-

Net loss attributable to InterCloud Systems, Inc. common stockholders	$	(2,072,862	)	$	(6,404,628	)

Year ended December 31, 2012 compared to year ended December 31, 2011

Revenue.

	Year ended December 31,				Change
	2012		2011		Dollars		Percentage
Specialty contracting services	$	6,658,388	$	2,812,210	$	3,846,178		137	%
Telecommunication staffing services		10,577,197		-		10,577,197		100	%
Total	$	17,235,585	$	2,812,210	$	14,422,775		513	%

Total revenue for the year ended December 31, 2012 was $17.2 million, which represented an increase of $14.4 million, or 513%, compared to total revenue of $2.8 million for the year ended December 31, 2011. The increase in total revenue during this period was attributed to revenue generated by our acquired companies. For the year ended December 31, 2011, substantially all of our revenue was derived from our specialty contracting services, while for the year ended December 31, 2012, 39% of our revenue was derived from our specialty contracting services and 61% of our revenue was derived from our telecommunications staffing services. This change in telecommunication staffing revenue was a result of our acquisition of ADEX in September 2012.

Cost of revenue and gross profit.

	Year ended December 31,						Change
	2012			2011			Dollars		Percentage
Cost of revenue	$	12,059,099		$	1,851,018		$	10,208,081		552	%
Gross profit	$	5,176,486		$	961,192		$	4,215,294		439	%
Gross profit percentage		30	%		34	%

Our cost of revenue increased $10.2 million from $1.9 million for the year ended December 31, 2011 to $12.1 million for the year ended December 31, 2012. This increase was primarily due to the acquisitions completed in the years ended December 31, 2011 and 2012. For the year ending December 31, 2011, all of our operations were in the specialty contracting services division. For the year ended December 31, 2012, we had a revenue mix of 39% specialty contracting services as compared to telecommunications staffing services of 61%, primarily as a result of our acquisition of ADEX.

Gross profit dollars from our specialty contracting services business increased primarily due to increased revenue. Specialty contracting services accounted for 100% of our revenue in the year ended December 31, 2011 and accounted for 39% of our revenue for the year ended December 31, 2012. The change was a result of the acquisition of ADEX in September 2012.

Our gross profit percentage was 30% for the year ended December 31, 2012 compared to 34% for the year ended December 31, 2011. The decrease was a result of the acquisitions we completed in 2012. The gross margins on our telecommunications staffing services were only 21%, which decreased the overall margin. It is expected that as the telecommunications staffing services portion of our revenue increases, our overall gross margin percentage will continue to decline, while the gross margin dollars will increase.

General and Administrative.

	Year ended December 31,						Change
	2012			2011			Dollars		Percentage
General and administrative	$	3,788,015		$	1,251,102		$	2,536,913		203	%
Percentage of revenue		22	%		44	%

Our general and administrative expenses increased $2.5 million, from $1.3 million for the year ended December 31, 2011 to $3.8 million for the year ended December 31, 2012. The increases were primarily as a result of increased overhead expenses resulting from the acquisitions we completed in the years ended December 31, 2011 and 2012. General and administrative expenses decreased to 22% of revenue in the year ended December 31, 2012, from 44% in the year ended December 31, 2011. This decrease in percentage was a result of the increased revenue, which did not cause a corresponding increase in general and administrative expenses.

Salaries and Wages.

	Year ended December 31,						Change
	2012			2011			Dollars			Percentage
Salaries and wages	$	3,802,158		$	5,053,600		$	(1,251,442	)		(25	)%
Percentage of revenue		22	%		180	%

Our salaries and wages decreased $1.2 million from $5.0 million for the year ended December 31, 2011 to $3.80 million for the year ended December 31, 2012. The decrease was a result of a significant decrease in the value of our common stock during 2012. Stock compensation decreased from $4.1 million in the year ended December 31, 2011 to $0.8 million in the year ended December 31, 2012. The decrease in stock compensation was partially offset by an increase in the number of employees.

Depreciation and amortization:

	Year ended
	December 31,						Change
	2012			2011			Dollars		Percentage
Depreciation and amortization	$	348,172		$	39,229		$	308,943		788	%
Percentage of revenue		2	%		1	%

Depreciation and amortization expense increased by approximately $309,000 to $348,000 in the year ended December 31, 2012, as compared to $39,000 in the year ended December 31, 2011. The increase was a result of the acquisitions completed in 2011 and 2012, which increased amortization expense approximately $228,000 and depreciation expense approximately $81,000 from 2011.

Changes in Fair Value of Derivative Liabilities.

The aggregate fair value of derivative liabilities as of December 31, 2012 and December 31, 2011 amounted to $33,593 and $38,557, respectively.

As a result of the change in the fair value of our derivative instruments, we recorded a gain of $198,908 and $421,340 in the years ended December 31, 2012 and 2011, respectively.

Net Gain on Deconsolidation of Digital Subsidiary

During September 2012, we sold 60% of the outstanding shares of common stock of Digital Comm. We recognized a gain on deconsolidation of $528,000 based on the negative investment carrying amount. We made additional investments in Digitalof approximately $179,000 during the remainder of 2012, and on December 31, 2012 we sold the remaining balance of our investment in Digital Comm. The result for the year was a net gain of $453,000 on the deconsolidation of Digital Comm.

Interest Expense.

	Year ended December 31,				Change
	2012		2011		Dollars		Percentage
Interest expense	$	1,699,746	$	1,443,229	$	256,517		18	%

Interest expense increased $0.3 million from $1.4 million in the year ended December 31, 2011 to $1.7 million for the year ended December 31, 2012, primarily due to increases in our outstanding debt obligations. Included in interest expense is the amortization of debt discount and deferred loan costs. In the year ended December 31, 2012, amortization was $0.4 million compared to $1.1 million for the year ended December 31, 2011. The decrease was a result of the debt extinguishments to our loan from UTA Capital LLC in 2011, together with additional costs associated with the issuance of the debt in 2011.

Net Loss Attributable to our Common Stockholders.

Net loss attributable to our common stockholders was $2.1 million for the year ended December 31, 2012, as compared to $6.4 million for the year ended December 31, 2011.

Liquidity, Capital Resources and Cash Flows

We have satisfied our capital and liquidity needs primarily through private sales of equity securities and bank borrowings. As of December 31, 2012, we had cash and cash equivalents of $646,978, which were exclusively denominated in U.S. dollars and consisted of bank deposits. As of December 31, 2012, $14,250 of cash was held by foreign subsidiaries. We believe these amounts can be repatriated without significant tax consequences.

We incurred net losses attributable to our common stockholders of $2.1 million and $6.4 million during the years ended December 31, 2012 and 2011, respectively. Our accumulated deficit as of December 31, 2012 was $12.5 million.

Indebtedness.

MidMarket Loan Agreement. On September 17, 2012, we entered into the MidMarket Loan Agreement, pursuant to which the lenders thereunder provided us with senior secured first-lien term loans in an aggregate principal amount of $13,000,000. We used a portion of the proceeds of such loans to finance our recent acquisitions, to repay certain outstanding indebtedness and to pay related fees, costs and expenses.

On November 13, 2012, we entered into a first amendment to the MidMarket Loan Agreement, pursuant to which the lenders provided us with additional senior secured first-lien term loans in an aggregate principal amount of $2,000,000 and made certain other amendments to the MidMarket Loan Agreement.

As of December 31, 2012, we were in default under the covenants of the MidMarket Loan Agreement relating to our minimum liquidity, our senior and total debt leverage ratios and our senior and total fixed charge coverage ratios. On March 22, 2013, we entered into a second amendment, consent and waiver agreement, pursuant to which the lenders waived the past defaults and amended certain financial covenants under the MidMarket Loan Agreement as described in Note 9 to our Consolidated Financial Statements included herein.

The original $13,000,000 loans under the MidMarket Loan Agreement mature on September 17, 2017. However, if we fail to raise at least $30,000,000 in connection with a public offering of our voting equity securities by March 17, 2014, such loans will mature on an accelerated basis and will come due on June 17, 2014. We were required to repay up to $750,000 of such loans to the extent we did not complete an acquisition. Interest on the loans under the MidMarket Loan Agreement accrues at a rate per annum equal to 12.0%.

Subject to certain exceptions, all our obligations under the MidMarket Loan Agreement are unconditionally guaranteed by each of our existing direct and indirect domestic subsidiaries and are secured by a first priority security interest in substantially all of our assets and the assets of our subsidiaries, and by the capital stock of our subsidiaries, subject to certain customary exceptions.

In the MidMarket Loan Agreement, we made certain representations and warranties, affirmative covenants, negative covenants and financial covenants. The MidMarket Loan Agreement also contains events of default, including, but not limited to, the failure to make payments of interest or premium, if any, on, or principal under the loans, the failure to comply with the covenants and agreements specified in the MidMarket Loan Agreement and other loan documents entered into in connection therewith, the acceleration of certain other indebtedness resulting from the failure to pay principal on such other indebtedness, certain events of insolvency and the occurrence of any event, development or condition which has had or could reasonably be expected to have a material adverse effect. If any event of default occurs, the principal, premium, if any, interest and any other monetary obligations on all the then outstanding loans under the MidMarket Loan Agreement may become due and payable immediately.

Pursuant to the MidMarket Loan Agreement, we issued to the lenders warrants to purchase 749,542 shares of common stock at an initial exercise price of $1.25 per share, subject to adjustment as set forth in the warrants, on or before September 17, 2014, subject to extension if certain of our financial statements have not been delivered to the holders of such warrants in a timely manner showing that certain financial thresholds have been met.

Wellington Promissory Note. On September 17, 2012, we entered into a promissory note with Wellington Shields & Co. LLC (Wellington Note) as evidence of the fees we owed to Wellington for services rendered relating to the MidMarket Loan Agreement. The Wellington Note is for a term of 35 days with interest in arrears from September 17, 2012 at the lowest applicable federal rate of interest. As of December 31, 2012, $95,000 of principal plus accrued interest remained outstanding on the Wellington Note, and we were in default due to our failure to pay such amounts in full.

Note and Warrant Purchase Agreement with UTA Capital LLC. On August 6, 2010, we secured a working capital loan from UTA Capital LLC, with Digital as the borrower. In connection with such loan, we issued to UTA Capital, LLC warrants initially to purchase 167,619 shares of our common stock with an exercise price of $18.75 per share. The warrants were exchanged for 208,759 shares of common stock on September 6, 2012. We paid off the remaining outstanding balance of this loan in September 2012.

Proceeds from Equity Issuances.

In the years ended December 31, 2012 and 2011, we raised net proceeds of $6.9 million and $70,000, respectively, through private sales of equity securities.

Accounts Receivable

We had accounts receivable at December 31, 2012 of $8,481,999. Accounts receivable at December 31, 2012 was significant relative to the annual revenues for the year ended December 31, 2012 for the following reasons:

●	We acquired ERFS on December 17, 2012. The revenue we recorded for ERFS for the year ended December 31 2012 was $146,036, while the accounts receivable for ERFS included in our consolidated accounts receivable at December 31, 2012 was $821,353.

●	We acquired T N S on September 17, 2012. The revenue that was included for T N S from September 17, 2012 through December 31, 2012 was $969,839, while the amount of accounts receivable included in our consolidated accounts receivable on December 31, 2012 was $558,849.

●	We acquired the ADEX entities on September 17, 2012. The revenue that was included for the ADEX entities from September 17, 2012 through December 31, 2012 was $10,577,197, while the amount of accounts receivable included in our consolidated accounts receivable on December 31, 2012 was $6,758,439.

Our days sales outstanding calculated on an annual basis was not meaningful at December 31, 2012 because we had owned the companies only for a short period. Our days sales outstanding as of June 30, 2013 was 75 days, which we believe is more representative of what should be expected going forward.

Going Concern

During the years ended December 31, 2012 and 2011, we suffered losses from operations that may raise doubt about our ability to continue as a going concern. As of December 31, 2012 and 2011, we had negative working capital and continued losses. Our management believes that actions presently being taken to obtain additional funding, including the consummation of this offering, provide the opportunity for us to continue as a going concern. However, there can be no assurance that additional financing that is necessary for us to continue our business will be available to us on acceptable terms, or at all.

Our consolidated financial statements included elsewhere in this report have been prepared on a going concern basis. We had a net loss of approximately $2.1 million during 2012, and we had a working capital deficit of approximately $3.2 million at December 31, 2012. At December 31, 2012 we had total indebtedness of $21.2 million. We cannot be certain that our operations will generate funds sufficient to repay our existing debt obligations as they come due. Our failure to repay our indebtedness and make interest payments as required by our debt obligations could have a material adverse effect on our operations. We intend to secure additional debt or equity financing to satisfy certain of our existing obligations. While we believe that we will ultimately satisfy our obligations as they become due, we cannot guarantee that we will be able to do so or that we will be able to secure additional debt or equity financing on favorable terms, or at all. Should we default on certain of our obligations and the lender foreclose on the debt, the operations of our subsidiaries will not initially be impacted. However, following default, the lender could potentially liquidate the holdings of our operating subsidiaries sometime in the future and our operations would be significantly impacted. Our consolidated financial statements included elsewhere in this report do not include any adjustments that might result from the outcome of this uncertainty.

Working Capital.

At December 31, 2012 and 2011, we had working capital deficits of approximately $3.2 million and $1.9 million, respectively. The increase in our working capital deficit from December 31, 2011 to December 31, 2012 was primarily the result of the additional indebtedness we incurred as a result of our acquisitions of ADEX and T N S in September 2012, which was offset in part by the reduction in our net payables resulting from the deconsolidation of 60% of our Digital subsidiary.

Cash Flows

The following summary of our cash flows for the periods indicated has been derived from our historical consolidated financial statements, which are included elsewhere in this report:

Summary of Cash Flows
	Year ended December 31,
	2012			2011
Net cash used in operations	$	(2,975,942	)	$	(1,068,532	)
Net cash used in investing activities		(13,735,393	)		(120,474	)
Net cash provided by financing activities		17,269,028			1,255,815

Cash flows (used in) operating activities. We have historically experienced cash deficits from operations as we continued to expand our business and sought to establish economies of scale. Our largest uses of cash for operating activities are for general and administrative expenses. Our primary source of cash flow from operating activities is cash receipts from customers. Our cash flow from operations will continue to be affected principally by the extent to which we grow our revenues and increase our headcount.

Net cash used in operating activities for the year ended December 31, 2012 of $2.9 million was primarily attributable to a net loss of $2.1 million excluding non-cash charges and an increase in accounts receivable of $2.3 million primarily due to revenue growth for the year ended December 31, 2012, which was offset in part by an increase in accounts payable and accrued expenses of $2.1 million.

Net cash used in operating activities for the year ended December 31, 2011 of $1.1 million was primarily attributable to a net loss of $6.4 million excluding non-cash charges and an increase in accounts receivable of $66,866 primarily due to the revenue growth for the year ended December 31, 2011, which was offset in part by an increase in accounts payable and accrued expenses of $542,535.

Net cash used in investing activities. Net cash used in investing activities for the years ended December 31, 2012 and 2011 was $13.7 million and $0.1 million, respectively, consisting primarily of purchases of capital equipment in 2011 and cash used for acquisitions in 2012.

Net cash provided by financing activities. Net cash provided by financing activities for the years ended December 31, 2012 was $17.3 million, which resulted primarily from the proceeds from the loans under the MidMarket Loan Agreement and the sale of preferred shares. Net cash provided by financing activities for the year ended December 31, 2011 was $1.3 million, which resulted primarily from the loans from Tekmark and MMD Genesis.

Rental Obligations.

We and our operating subsidiaries have real property leases as described in Item 1. “Business” under the caption “Properties”.

The future minimum obligation during each year through 2016 under the leases with non-cancelable terms in excess of one year is as follows:

Years Ended December 31,	Future Minimum Lease Payments
2013	$	197,397
2014		133,214
2015		121,655
2016		66,000
Total	$	518,266

Capital expenditures

We had capital expenditures of $89,258 and $81,144 for the years ended December 31, 2012 and 2011, respectively. We expect our capital expenditures for the year ending December 31, 2013 to be approximately $100,000. These capital expenditures will be primarily utilized for equipment needed to generate revenue and for office equipment. We expect to fund such capital expenditures out of our working capital

We also require approximately $17.5 million and $18.2 million over the next 90 days to pay the cash portion of the purchase prices of each of Telco and IPC, respectively. We expect to obtain such funds through the sale of equity securities and expect to consummate the acquisition of such companies concurrently with the consummation of the sale of such equity securities. There can be no assurance, however, that we will be able to consummate the sale of our equity securities on terms that are acceptable to us, or at all.

Off-balance sheet arrangements

During the years ended December 31, 2012 and 2011, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Contingencies

We are involved in claims and legal proceedings arising from the ordinary course of our business. We record a provision for a liability when we believe that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on our financial statements.

Critical accounting policies and estimates

The discussion and analysis of our financial condition and results of operations are based on our historical and pro forma consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make certain estimates and assumptions that affect the amounts reported therein and accompanying notes. On an ongoing basis, we evaluate these estimates and assumptions, including those related to recognition of revenue for costs and estimated earnings in excess of billings, the fair value of reporting units for goodwill impairment analysis, the assessment of impairment of intangibles and other long-lived assets, income taxes, accrued insurance claims, asset lives used in computing depreciation and amortization, allowance for doubtful accounts, stock-based compensation expense for performance-based stock awards and accruals for contingencies, including legal matters. These estimates and assumptions require the use of judgment as to the likelihood of various future outcomes and as a result, actual results could differ materially from these estimates.

We have identified the accounting policies below as critical to the accounting for our business operations and the understanding of our results of operations because they involve making significant judgments and estimates that are used in the preparation of our historical and pro forma consolidated financial statements. The impact of these policies affects our reported and expected financial results and are discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. We have discussed the development, selection and application of our critical accounting policies with the Audit Committee of our board of directors, and the Audit Committee has reviewed the disclosure relating to our critical accounting policies in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed below, are also important to understanding our historical and pro forma consolidated financial statements. The notes to our consolidated financial statements in this report contain additional information related to our accounting policies, including the critical accounting policies described herein, and should be read in conjunction with this discussion.

Emerging Growth Company.

On April 5, 2012, the Jumpstart Our Business Startups Act (the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company,” we may delay adoption of new or revised accounting standards applicable to public companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period for complying with such new or revised accounting standards. We have elected not to take advantage of the benefits of this extended transition period. As a result, our financial statements will be comparable to those of companies that comply with such new or revised accounting standards. Upon issuance of new or revised accounting standards that apply to our financial statements, we will disclose the date on which we will adopt the recently-issued accounting guidelines.

Revenue Recognition.

We recognize revenue on arrangements in accordance with ASC Topic 605-10-S99, Revenue Recognition-Overall-SEC Materials. Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.

Our revenues related to specialty contracting services are generated from contracted services to design, installation and repair services of structured data and voice cabling systems to small and mid-sized commercial and governmental entities. Prior to commencement of services and depending on the length of the services to be provided, we secure the client’s acceptance of a written proposal. Generally, the services are provided over a period ranging between two to 14 days. If we anticipate that the services will span over a month, we usually require a down payment from the customer, which help pay for the cabling and accessories and we will provide monthly progress billing, based on services rendered, or upon completion of the contracted services.

Our revenues related to telecommunications staffing services are generated from contracted services to provide technical engineering and management solutions to large voice and data communications providers, as specified by the clients. The contracts provide payment to us for our services may be based on either (i) direct labor hours at fixed hourly rates or (ii) fixed-price contracts. Our services provided under the contracts are generally provided within a month. Occasionally, the services may be provided over a period of up to four months. If we anticipate that the services span over a month and depending on the contract terms, we provide either progress billing at least once a month or upon completion of the clients’ specifications. We recognize revenues of contracts based on direct labor hours and fixed-price contracts that do not overlap a calendar month based on services provided.

Allowances for Doubtful Accounts.

We maintain an allowance for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments. Management analyzes the collectability of accounts receivable balances each period. This analysis considers the aging of account balances, historical bad debt experience, changes in customer creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of these factors change, the estimate made by management may also change, which could affect the level of our future provision for doubtful accounts. We recognize an increase in the allowance for doubtful accounts when it is probable that a receivable is not collectable and the loss can be reasonably estimated. Any increase in the allowance account has a corresponding negative effect on our results of operations. We believe that none of our significant customers were experiencing financial difficulties that would materially impact our trade accounts receivable or allowance for doubtful accounts as of December 31, 2012 and 2011.

Goodwill and Intangible Assets.

As of December 31, 2012 and 2011, we had goodwill in the amount of $20,561,980 and $343,986, respectively. We did not recognize any goodwill impairment during the years ended December 31, 2012 or 2011.

We account for goodwill in accordance with Financial Accounting Standards Board (FASB) ASC Topic 350, Intangibles-Goodwill and Other (ASC Topic 350). Our reporting units and related indefinite-lived intangible assets are tested annually during the fourth fiscal quarter of each year in accordance with ASC Topic 350 in order to determine whether their carrying value exceeds their fair value. In addition, they are tested on an interim basis if an event occurs or circumstances change between annual tests that would more likely than not reduce their fair value below carrying value. If we determine the fair value of goodwill or other indefinite-lived intangible assets is less than their carrying value as a result of the tests, an impairment loss is recognized. Impairment losses, if any, are reflected in operating income or loss in the consolidated statements of operations during the period incurred.

In accordance with ASC Topic 360, Impairment or Disposal of Long-Lived Assets, we review finite-lived intangible assets for impairment whenever an event occurs or circumstances change which indicates that the carrying amount of such assets may not be fully recoverable. Recoverability is determined based on an estimate of undiscounted future cash flows resulting from the use of an asset and its eventual disposition. An impairment loss is measured by comparing the fair value of the asset to its carrying value. If we determine the fair value of an asset is less than the carrying value, an impairment loss is incurred. Impairment losses, if any, are reflected in operating income or loss in the consolidated statements of operations during the period incurred.

We use judgment in assessing if goodwill and intangible assets are impaired. Estimates of fair value are based on our projection of revenues, operating costs, and cash flows taking into consideration historical and anticipated future results, general economic and market conditions, as well as the impact of planned business or operational strategies. To measure fair value, we employ a combination of present value techniques which reflect market factors. Changes in our judgments and projections could result in significantly different estimates of fair value potentially resulting in additional impairments of goodwill and other intangible assets.

Our goodwill resides in multiple reporting units that are aggregated for our goodwill impairment testing. The profitability of individual reporting units may suffer periodically from downturns in customer demand and other factors resulting from the cyclical nature of our business, the high level of competition existing within our industry, the concentration of our revenues from a limited number of customers, and the level of overall economic activity. During times of slowing economic conditions, our customers may reduce capital expenditures and defer or cancel pending projects. Individual reporting units may be relatively more impacted by these factors than us as a whole. As a result, demand for the services of one or more of our reporting units could decline resulting in an impairment of goodwill or intangible assets.

Certain of our business units also have other intangible assets, including customer relationships, trade names and non-compete agreements. As of December 31, 2012 and 2011, we believed the carrying amounts of these intangible assets were recoverable. However, if adverse events were to occur or circumstances were to change indicating that the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment and the assets could be impaired.

Stock-Based Compensation.

Our stock-based award programs are intended to attract, retain and reward employees, officers, directors and consultants, and to align stockholder and employee interests. We have granted stock-based awards to individuals. Our policy going forward will be to issue awards under our recently-adopted 2012 Employee Incentive Plan and Employee Stock Purchase Plan.

Compensation expense for stock-based awards is based on the fair value of the awards at the measurement date and is included in operating expenses. The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option pricing model based on certain assumptions including: expected volatility based on the historical price of our stock over the expected life of the option, the risk-free rate of return based on the United States treasury yield curve in effect at the time of the grant for the expected term of the option, the expected life based on the period of time the options are expected to be outstanding using historical data to estimate option exercise and employee termination; and dividend yield based on history and expectation of dividend payments. Stock options generally vest ratably over a three-year period and are exercisable over a period up to ten years.

The fair value of restricted stock is estimated on the date of grant and is generally equal to the closing price of our common stock on that date. The price of our common stock price has varied greatly during the the year ended December 31, 2012. Some of the factors that influenced the market price of our stock during these periods include: (i) the closing of three acquisitions, ADEX, TNS and ERFS, since September 2012; (ii) increasing indebtedness to fund such acquisitions; (iii) the entering into of a definitive agreement to acquire Telco; (iv) the approval and eventual effectuation of a 1-for-125 reverse stock split in January 2013, which caused uncertainty and volatility; and (v) our stock being very thinly traded, resulting in large fluctuations in value. The total amount of stock-based compensation expense ultimately is based on the number of awards that actually vest and fluctuates as a result of performance criteria, as well as the vesting period of all stock-based awards. Accordingly, the amount of compensation expense recognized during any fiscal year may not be representative of future stock-based compensation expense. In accordance with ASC Topic 718, Compensation – Stock Compensation (ASC Topic 718), compensation costs for performance-based awards are recognized over the requisite service period if it is probable that the performance goal will be satisfied. We use our best judgment to determine probability of achieving the performance goals in each reporting period and recognize compensation costs based on the number of shares that are expected to vest.

The following tables summarize our stock-based compensation for the year ended December 31, 2012:

Year Ended December 31, 2012

Date	Shares of Common Stock	Closing Stock Price on Grant Date		Fair Value Per Share		Fair Value of Instrument Granted
8/8/2012	16,000	$	1.50	$	1.50	$	24,000
9/19/2012	24,000		2.125		2.125		51,000
10/9/2012	32,000		3.0125		3.0125		96,400
10/19/2012	20,000		3.375		3.375		67,500
11/16/2012	40,000		2.50		2.50		100,000

In the three months ended March 31, 2013, the Company issued 45,000 shares of stock-based compensation with a fair value of $142,100.

Income Taxes.

We account for income taxes under the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. ASC Topic 740, Income Taxes (ASC Topic 740), prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC Topic 740 also provides guidance on derecognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Under ASC Topic 740, companies may recognize a previously-unrecognized tax benefit if the tax position is effectively (rather than “ultimately”) settled through examination, negotiation or litigation.

Contingencies and Litigation.

In the ordinary course of our business, we are involved in certain legal proceedings. ASC Topic 450, Contingencies (ASC Topic 450), requires that an estimated loss from a loss contingency should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued, we evaluate, among other factors, the probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. If only a range of probable loss can be determined, we accrue for our best estimate within the range for the contingency. In those cases where none of the estimates within the range is better than another, we accrue for the amount representing the low end of the range in accordance with ASC Topic 450. As additional information becomes available, we reassess the potential liability related to our pending contingencies and litigation and revise our estimates. Revisions of our estimates of the potential liability could materially impact our results of operations. Additionally, if the final outcome of such litigation and contingencies differs adversely from that currently expected, it would result in a charge to earnings when determined.

Distinguishing of Liabilities From Equity.

We rely on the guidance provided by ASC 480, Distinguishing Liabilities from Equity, to classify certain redeemable and/or convertible instruments, such as our preferred stock. We first determine whether the particular financial instrument should be classified as a liability. We will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that we must or may settle by issuing a variable number of our equity shares.

Once we determine that the financial instrument should not be classified as a liability, we determine whether the financial instrument should be presented under the liability section or the equity section of the balance sheet (“temporary equity”). We will determine temporary equity classification if the redemption of the preferred stock or other financial instrument is outside our control (i.e. at the option of the holder). Otherwise, we account for the financial instrument as permanent equity.

Initial Measurement.

We record our financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received.

Subsequent Measurement.

We record the fair value of our financial instruments classified as liabilities at each subsequent measurement date. The changes in fair value of our financial instruments classified as liabilities are recorded as other expense/income.

Temporary Equity.

At each balance sheet date, we re-evaluate the classification of our redeemable instruments, as well as the probability of redemption. If the redemption amount is probable or the instrument is currently redeemable, we record the instrument at its redemption value. Upon issuance, the initial carrying amount of a redeemable equity security is its fair value. If the instrument is redeemable currently at the option of the holder, it will be adjusted to its maximum redemption amount at each balance sheet date. If the instrument is not redeemable currently and it is not probable that it will become redeemable, it is recorded at its fair value. If it is probable the instrument will become redeemable, it will be recognized immediately at its redemption value. The resulting increases or decreases in the carrying amount of a redeemable instrument will be recognized as adjustments to additional paid-in capital.

Business Combinations.

We account for our business combinations under the provisions of ASC 805-10, Business Combinations (ASC 805-10), which requires that the purchase method of accounting be used for all business combinations. Assets acquired and liabilities assumed, including non-controlling interests, are recorded at the date of acquisition at their respective fair values. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred. If the business combination provides for contingent consideration, we record the contingent consideration at fair value at the acquisition date and any changes in fair value after the acquisition date are accounted for as measurement-period adjustments if they pertain to additional information about facts and circumstances that existed at the acquisition date and that we obtained during the measurement period. Changes in fair value of contingent consideration resulting from events after the acquisition date, such as earn-outs, are recognized as follows: (i) if the contingent consideration is classified as equity, the contingent consideration is not re-measured and its subsequent settlement is accounted for within equity, or (ii) if the contingent consideration is classified as an asset or a liability, the changes in fair value are recognized in earnings.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated balance sheets as of December 31, 2012 and 2011, and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows for each of the two years in the years ended December 31, 2012 and 2011, together with the related notes and the reports of our independent registered public accounting firms, are set forth on pages F-1 to F-52 of this report.

PART III

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS

The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 28, 2013 by:

●

each person known by us to be a beneficial owner of more than 5% of our outstanding common stock;

●

each of our directors;

●

each of our named executive officers; and

●

all directors and executive officers as a group.

The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the Securities and Exchange Commission governing the determination of beneficial ownership of securities. Under the rules of the Securities and Exchange Commission, 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 60 days after, March 28, 2013. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities as to which he has no economic interest. Except as indicated by footnote, to our knowledge, the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.

In the table below, percentage of ownership of our common stock is based on 2,799,565 shares of common stock outstanding as of March 28, 2013. Unless otherwise noted below, the address of the persons listed on the table is c/o InterCloud Systems, Inc., 2500 N. Military Trail, Suite 275, Boca Raton, Florida 33431.

	Common Stock Beneficially Owned
Name of Beneficial Owner	Number	Percentage
Executive Officers and Directors
Mark Munro(1)	2,266,914		44.8	%
Mark F. Durfee(2)	3,075,151		52.6	%
Charles K. Miller(3)	110,886		3.8	%
Neal Oristano(4)	207,734		6.9	%
Daniel J. Sullivan	—		—
Lawrence B. Sands	37,318			*
Roger Ponder	—		—
All named executive officers and directors as a group	5,698,003		67.6	%
5% or More Stockholders
Forward Investment LLC(5)	3,352,463		54.5	%
Mark Munro 1996 Charitable Remainder Trust(6)	304,308		9.8	%
American Financial Group, Inc.(7)	831,042		23.4	%
UTA Capital LLC(8)	225,355		8.0	%

___________

* Less than 1.0%.

(1)

Includes (i) 9,960 shares of common stock, and (ii) 2,256,954 shares of common stock issuable upon conversion of 10,004 shares of Series B Preferred Stock held by Mr. Munro. Does not include shares attributable to shares held by the Mark Munro 1996 Charitable Remainder Trust separately set forth herein because Mark Munro does not have shared or sole voting or dispositive power over this irrevocable trust.

(2)	Includes (i) 26,996 shares of common stock, and (ii) 3,048,155 shares of common stock issuable upon conversion of 12,566 shares of Series B Preferred Stock held by Mr. Durfee.

(3)

Includes (i) 23,065 shares of common stock issuable upon conversion of 25 shares of Series E Preferred Stock, (ii) 11,744 shares of common stock issuable upon exercise and conversion of a common stock purchase warrant, and (iii) 76,077 shares of common stock issuable upon conversion of 263 shares of Series B Preferred Stock held by Mr. Miller.

(4)

Includes (i) 138,117 shares of common stock issuable upon conversion of 50 shares of Series C Preferred Stock, (ii) 46,977 shares of common issuable upon conversion of 50 shares of Series E Preferred Stock, and (iii) 23,488 shares of common issuable upon exercise of a common stock purchase warrant held by Mr. Oristano.

(5)

Includes 3,352,463 shares of common stock issuable upon conversion of 13,616 shares of Series B Preferred Stock held by Forward Investment LLC. Pursuant to Amendment No. 1 to the Schedule 13D filed by Forward Investments LLC with the SEC on July 11, 2011, Douglas Shooker is the manager of Forward Investments LLC. The address of Forward Investments LLC is 1416 North Donnelly, Mt. Dora, Florida 32757.

(6)	Includes 304,870 shares of common stock issuable upon conversion of 1,051 shares of Series B Preferred Stock held by Mark Munro 1996 Charitable Remainder Trust.

(7)

Includes (i) 524,679 shares of common stock shares issuable upon exercise of a warrant held by Great American Life Insurance Company (“GALIC”) and (ii) 224,863 shares of common stock shares issuable upon exercise of a warrant held by Great American Insurance Company (“GAIC”). Pursuant to the Schedule 13D filed by American Financial Group, Inc. (“AFG”) with the SEC on April 1, 2013, GALIC and GAIC are subsidiaries of AFG and AFG beneficially owns the shares owned by GALIC and GAIC, including the shares issuable upon exercise of the warrants held by such subsidiaries. The address of AFG is 301 East Fourth Street, Cincinnati, Ohio 45202.

(8)

Pursuant to Amendment No. 1 to the Schedule 13G filed by UTA Capital LLC with the SEC on February 2, 2012, the managing member of UTA Capital LLC is YZT Management LLC, a New Jersey limited liability company, and Udi Toledano is the managing member of YZT Management LLC. The address of UTA Capital LLC, YZT Management LLC and Udi Toledano is 100 Executive Drive, Suite 330, West Orange, NJ 07052.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Procedures for Approval of Related Party Transactions

A “related party transaction” is a transaction, arrangement or relationship in which we or any of our subsidiaries was, is or will be a participant, and which involves an amount exceeding $120,000, and in which any related party had, has or will have a direct or indirect material interest. A “related party” includes

●

any person who is, or at any time during the applicable period was, one of our executive officers or one of our directors;

●

any person who beneficially owns more than 5% of our common stock;

●

any immediate family member of any of the foregoing; or

●

any entity in which any of the foregoing is a partner or principal or in a similar position or in which such person has a 10% or greater beneficial ownership interest.

Our board of directors plans to adopt a written related party transactions policy. Pursuant to this policy, our board of directors, likely by a corporate governance and nominating committee of our board of directors which may also be formed, will review all material facts of all related party transactions and either approve or disapprove entry into the related party transaction, subject to certain limited exceptions. In determining whether to approve or disapprove entry into a related party transaction, our directors and corporate governance committee shall take into account, among other factors, the following: (i) whether the related party transaction is on terms no less favorable to us than terms generally available from an unaffiliated third-party under the same or similar circumstances, (ii) the extent of the related party’s interest in the transaction and (iii) whether the transaction would impair the independence of a non-employee director.

Related Party Transactions

The following transactions were entered into prior to the adoption of the approval procedures described above.

Sale of Interest in Digital Comm. On September 13, 2012, pursuant to a Purchase and Sale Agreement dated July 30, 2012, we sold 60% of the outstanding shares of common stock of Digital, one of our subsidiaries, to Billy Caudill, a director and our President at that time, in consideration of the issuance to us by Mr. Caudill of a non-recourse promissory note in the principal amount of $125,000. The promissory note bears no interest except following an event of default, in which case it bears interest at the rate of 18% per annum, matures on September 13, 2013 and is secured by the purchased shares of Digital.

In connection with the sale, (i) we agreed to use our best efforts to secure additional financing or lines of credit to support the business of Digital, (ii) it was agreed that all of Digital’s future work would be offered to us to perform on a subcontract basis, (iii) it was agreed that the 40% interest we retained in Digital will be non-dilutable, and (iv) we are to be paid 5% of the cash receipts of Digital, up to a maximum of $50,000 annually, for accounting and administrative support services for Digital.

Loan Transactions. On July 5, 2011, we entered into a definitive master funding agreement with Tekmark Global Solutions, LLC, of which our director, Charles K. Miller, is the chief financial officer. Pursuant to the agreement, we received financing in the original principal amount of up to $2,000,000 from Tekmark and a line of credit in the original principal amount of up to $1,000,000 from MMD Genesis LLC, a company in which Mr. Munro is a principal. The Tekmark funding was secured by our accounts receivable. Funding by Tekmark had been in the form of payroll funding support for specific and approved customers of Digital. At December 31, 2012, this loan had been repaid in full.

Series B Preferred Stock Financing. Between July 2011 and December 2012, we sold an aggregate of 37,500 shares of our Series B Preferred Stock for an aggregate purchase price of $2,216,760 to certain of our existing stockholders that qualified as “accredited investors” within the meaning of the Securities Act, including certain of our affiliates. Forward Investment LLC, which owns more than 5% of our outstanding capital stock, purchased 13,615 shares for a purchase price of $825,000. Mark Munro 1996 Charitable Remainder Trust, which owns more than 5% of our outstanding capital stock, purchased 1,051 shares for a purchase price of $100,000. Additionally, our Chief Executive Officer, Mark Munro, purchased 7,902 shares for a purchase price of $469,460, Charles Miller, a director, purchased 263 shares for a purchase price of $25,000 and Mark Durfee, a director, purchased 12,566 shares for a purchase price of $725,000.

Series C Preferred Stock Financing. Between January 2012 and July 2012, we sold an aggregate of 1,500 shares of our Series C Preferred Stock at $1,000 per share for an aggregate purchase price of $1,500,000. These sales were made to “accredited investors” within the meaning of the Securities Act, including certain of our affiliates. A company owned by our Chief Executive Officer, Mark Munro, purchased 75 shares for a purchase price of $75,000 and Neal Oristano, a director, purchased 50 shares for a purchase price of $50,000.

Issuance of Series D Preferred Stock. In July 2012, we issued to Billy Caudill, a director of our company and our President at that time, 400 shares of our Series D Preferred Stock, which shares were valued at $400,000, in consideration of a pledge by Mr. Caudill of his home to secure a third-party loan made to Digital. On November 20, 2012, Mr. Caudill converted all of his shares of Series D Preferred Stock into 128,000 shares of our common stock.

Series E Preferred Stock Financing. Between September 2011 and February 2013, we sold an aggregate of 2,825 shares of our Series E Preferred Stock at $1,000 per share for an aggregate purchase price of $2,825,000. These sales were made to “accredited investors” within the meaning of the Securities Act, including certain of our affiliates. Charles K. Miller, a director, purchased 25 shares for a purchase price of $25,000 and a company owned by our Chief Executive Officer, Mark Munro, purchased 25 shares for a purchase price of $25,000.

Independence of the Board of Directors

Our board of directors consists of four members: Messrs. Mark Munro, Mark Durfee, Charles Miller and Neal Oristano. Our board of directors determined that all of the members of our board of directors, except our chief executive officer, Mr. Munro, are “independent directors” as defined in applicable rules of the SEC and NASDAQ. All directors will hold office until their successors have been elected. Officers are appointed and serve at the discretion of our board of directors.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibits

The exhibits required by this item are listed on the Exhibit Index attached hereto.

Financial Statements

Our financial statements and the Reports of Independent Registered Public Accounting Firms are presented in the “F” pages following this report after the “Index to Financial Statements” attached hereto.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: October 16, 2013
	By: /s/ Mark Munro
	Name: Mark Murno
	Title: Mark Munro

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Mark Munro	Chief Executive Officer and Chairman of the Board of Directors	October 16, 2013
Mark Munro	(Principal Executive Officer)

/s/ Daniel Sullivan	Chief Financial Officer	October 16, 2013
Daniel Sullivan	(Principal Financial Officer and Principal Accounting Officer)

/s/ Mark Durfee	Director	October 16, 2013
Mark Durfee

/s/ Charles K. Miller	Director	October 16, 2013
Charles K. Miller

/s/ Neal L. Oristano	Director	October 16, 2013
Neal L. Oristano

EXHIBIT INDEX

Exhibit Number		Description of Document

2.1		Stock Purchase Agreement, dated as of January 14, 2010, between Digital Comm, Inc. and the Company (incorporated by reference to Exhibit 2.1 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

2.2†		Stock Purchase Agreement, dated as of November 15, 2011, between Margarida Monteiro, Carlos Monteiro and the Company (incorporated by reference to Exhibit 2.2 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

2.3		Amendment to Stock Purchase Agreement, dated as of December 14, 2011, between Margarida Monteiro, Carlos Monteiro and the Company (incorporated by reference to Exhibit 2.3 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

2.4†		Stock Purchase Agreement, dated as of August 15, 2011, between William DeVierno and the Company (incorporated by reference to Exhibit 2.4 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

2.5†		Stock Purchase Agreement, dated as of September 17, 2012, between T N S, Inc., Joel Raven and Michael Roeske and the Company (incorporated by reference to Exhibit 2.5 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

2.6†		Equity Purchase Agreement, dated as of September 17, 2012, between ADEX Corporation, ADEXCOMM Corporation, ADEX Puerto Rico, LLC, Peter Leibowitz, Gary McGuire, Marc Freedman and Justin Leibowitz and the Company (incorporated by reference to Exhibit 2.6 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

2.7†		Asset Purchase Agreement, dated as of November 19, 2012, between Tekmark Global Solutions, LLC and the Company (incorporated by reference to Exhibit 2.7 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

2.8†		Stock Purchase Agreement dated as of November 20, 2012, by and among Integration Partners-NY Corporation, Bart Graf, David Nahabedian, and Frank Jadevaia and the Company (incorporated by reference to Exhibit 2.8 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

2.9		Equity Purchase Agreement dated as of November 30, 2012 among ADEX Corporation, Environmental Remediation and Financial Services, LLC and Mark Vigneri (incorporated by reference to Exhibit 2.9 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC on March 26, 2013).

3.1		Certificate of Incorporation of the Company, as amended by the Certificate of Amendment dated August 16, 2001 and the Certificate of Amendment dated September 4, 2008, filed in the office of the Secretary of State of the State of Delaware on September 3, 2008 (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

3.2		Series A Certificate of Designation filed with the Delaware Secretary of State on July 11, 2011 (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

3.3		Series B Certificate of Designation filed with the Delaware Secretary of State on June 28, 2011 (incorporated by reference to Exhibit 3.3 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

3.4		Series C Certificate of Designation filed with the Delaware Secretary of State on January 10, 2012 (incorporated by reference to Exhibit 3.4 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

3.5		Series D Certificate of Designation filed with the Delaware Secretary of State on March 5, 2012 (incorporated by reference to Exhibit 3.5 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

3.6		Series E Certificate of Designation filed with the Delaware Secretary of State on September 18, 2012 (incorporated by reference to Exhibit 3.6 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

3.7		Series F Certificate of Designation filed with the Delaware Secretary of State on September 17, 2012 (incorporated by reference to Exhibit 3.7 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

3.8		Series G Certificate of Designation filed with the Delaware Secretary of State on September 17, 2012 (incorporated by reference to Exhibit 3.8 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

3.9		Amendment No. 1 to Series B Certificate of Designation filed with the Delaware Secretary of State on October 23, 2012 (incorporated by reference to Exhibit 3.9 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

3.10		Series H Certificate of Designation filed with the Delaware Secretary of State on November 16, 2012 (incorporated by reference to Exhibit 3.10 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

3.11		Series I Certificate of Designation filed with the Delaware Secretary of State on December 6, 2012 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the SEC on December 6, 2012).

3.12		Certificate of Amendment dated January 10, 2013 to the Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.12 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC on March 26, 2013).

3.13		Amended and Restated Bylaws of the Company, dated as of November 16, 2012 (incorporated by reference to Exhibit 3.12 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

4.2		Promissory Note, dated September 17, 2012, of the Company issued to Wellington Shields & Co (incorporated by reference to Exhibit 4.2 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.1		2012 Performance Incentive Plan (incorporated by reference to Exhibit A to the Company’s Information Statement filed with the SEC on December 17, 2012 (File No. 000-32037).

10.3		Form of Indemnification Agreement with Executive Officers and Directors (incorporated by reference to Exhibit 10.3 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.4		Director Compensation Policy (incorporated by reference to Exhibit 10.4 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.5		Employee Stock Purchase Plan (incorporated by reference to Exhibit B to the Company’s Information Statement filed with the SEC on December 17, 2012 (File No. 000-32037).

10.6		Executive Employment Agreement, dated as of September 1, 2009, between Gideon Taylor and the Company (incorporated by reference to Exhibit 10.6 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.7		Executive Employment Agreement, dated as of January 16, 2010, between Billy Caudill and the Company (incorporated by reference to Exhibit 10.7 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.8		Executive Employment Agreement, dated as of January 18, 2010, between Lawrence Sands and the Company (incorporated by reference to Exhibit 10.8 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.9		Amendment to Executive Employment Agreement, dated November 29, 2010, between Billy Caudill and the Company (incorporated by reference to Exhibit 10.9 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.10		Amendment to Executive Employment Agreement, dated November 29, 2010, between Gideon Taylor and the Company (incorporated by reference to Exhibit 10.10 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.11		Purchase and Sale Agreement, dated as of July 30, 2012, between Billy Caudill and the Company (incorporated by reference to Exhibit 10.11 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.12		Stock Purchase Agreement, dated as of September 6, 2012, between the Company and UTA Capital, LLC (incorporated by reference to Exhibit 10.12 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.13		Promissory Note, dated as of September 13, 2012, issued by Billy Caudill to the Company (incorporated by reference to Exhibit 10.13 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.14		Loan and Security Agreement, dated as of September 17, 2012, among and the Company, Rives-Monteiro Leasing, LLC, Tropical Communications, Inc., the lenders party thereto and MidMarket Capital Partners, LLC, as agent (incorporated by reference to Exhibit 10.14 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.15		Guaranty and Suretyship Agreement, dated as of September 17, 2012, among Rives-Monteiro Leasing, LLC and Tropical Communications, Inc. in favor of MidMarket Capital Partners, LLC, as agent (incorporated by reference to Exhibit 10.15 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.16		Assumption and Joinder Agreement, dated as of September 17, 2012, among and the Company, ADEX Corporation, T N S, Inc. and MidMarket Capital Partners, LLC, as agent (incorporated by reference to Exhibit 10.16 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.17		Pledge Agreement, dated as of September 17, 2012, by the Company in favor of MidMarket Capital Partners, LLC, as agent (incorporated by reference to Exhibit 10.17 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.18		Form of Warrant, dated September 17, 2012, issued by the Company in connection with the Loan and Security Agreement dated as of September 17, 2012 (incorporated by reference to Exhibit 10.18 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.19		Promissory Note, dated as of September 17, 2012, issued by Company in connection with the acquisition of ADEX Corporation (incorporated by reference to Exhibit 10.19 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.20		Form of Subscription Agreement for Series E Preferred Stock (incorporated by reference to Exhibit 10.20 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.21		Form of Common Stock Purchase Warrant of the Company issued in connection with the Series E Preferred Stock (incorporated by reference to Exhibit 10.21 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.22		Letter Agreement dated November 1, 2012 between and the Company and Gideon Taylor (incorporated by reference to Exhibit 10.22 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.23		Letter Agreement dated November 6, 2012 between and the Company and Billy Caudill (incorporated by reference to Exhibit 10.23 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.24†		First Amendment to Loan and Security Agreement, dated as of November 13, 2012, among and the Company, Rives-Monteiro Leasing, LLC, Tropical Communications, Inc., the lenders party thereto and MidMarket Capital Partners, LLC, as agent (incorporated by reference to Exhibit 10.24 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.25		First Amendment dated November 13, 2012 to Form of Warrant of the Company dated September 17, 2012 (incorporated by reference to Exhibit 10.25 of the Company’s Registration Statement on Form S-1 (Registration No. 33-185293) filed with the SEC on December 5, 2012).

10.26		Second Amendment, Consent and Waiver dated as of March 22, 2013 among the Company, Rives- Monteiro Leasing, LLC, Tropical Communications, Inc., ADEX Corporation, T N S, Inc., the lenders party thereto and MidMarket Capital Partners, LLC, as Agent (incorporated by reference to Exhibit 10.26 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC on March 26, 2013).

10.27		Assumption and Joinder Agreement dated as of March 22, 2013 between ADEXCOMM Corporation and Environmental Remediation and Financial Services, LLC and MidMarket Capital Partners, LLC, as Agent (incorporated by reference to Exhibit 10.27 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC on March 26, 2013).

10.28		Pledge Agreement dated as of March 22, 2013 between the Company and MidMarket Capital Partners, LLC, as Agent (incorporated by reference to Exhibit 10.28 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC on March 26, 2013).

10.29		Pledge Agreement dated as of March 22, 2013 between the ADEX Corporation and MidMarket Capital Partners, LLC, as Agent (incorporated by reference to Exhibit 10.29 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC on March 26, 2013).

10.30		Master Agreement dated as of June 24, 2011 by and among Tekmark Global Solutions, LLC, MMD Genesis LLC, and the Company (incorporated by reference to Exhibit 10.30 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC on March 26, 2013).

10.31		Revolving Credit Agreement, dated as of June 30, 2011, by and between the Company, Digital Comm Inc. and MMD Genesis LLC (incorporated by reference to Exhibit 10.31 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC on March 26, 2013).

21.1		List of Subsidiaries (incorporated by reference to Exhibit 21.1 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC on March 26, 2013).

31.1		Certification of our Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.

31.2		Certification of our Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.

32.1		Certification of our Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of our Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

_____________

†	Certain schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant undertakes to furnish supplemental copies of any of the omitted schedules upon request by the Securities and Exchange Commission.

INTERCLOUD SYSTEMS, INC.

INDEX TO FINANCIAL STATEMENTS

	PAGE
InterCloud Systems, Inc.
Reports of Independent Registered Public Accounting Firms	F-2
Consolidated balance sheets as of December 31, 2012 and December 31, 2011 (Restated)	F-4
Consolidated statements of operations for the years ended December 31, 2012 and December 31, 2011 (Restated)	F-5
Consolidated statements of changes in stockholders’ equity for the years ended December 31, 2012 and December 31, 2011 (Restated)	F-6
Consolidated statements of cash flows for the years ended December 31, 2012 and December 31, 2011 (Restated)	F-7
Notes to audited consolidated financial statements as of December 31, 2012 and December 31, 2011 and for the years ended December 31, 2012 and December 31, 2011 (Restated)	F-8 to F-52

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

InterCloud Systems, Inc.

Boca Raton, FL

We have audited the accompanying consolidated balance sheet of InterCloud Systems, Inc. as of December 31, 2012 and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the year ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of InterCloud Systems, Inc. at December 31, 2012, and the results of its operations and its cash flows for the year ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a deficiency in working capital and stockholders’ equity that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ BDO USA, LLP

New York, New York

March 25, 2013

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

InterCloud Systems, Inc.

(formerly known as Genesis Group Holdings, Inc.)

We have audited the accompanying consolidated balance sheet of InterCloud Systems, Inc. (formerly known as Genesis Group Holdings, Inc. and Subsidiaries) (the “Company”) as of December 31, 2011 and the related consolidated statements of operations, changes in stockholders' deficit and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reposting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and its subsidiaries as of December 31, 2011, and the results of their operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered losses from operations, and has an accumulated deficit and net cash used in operations of $1,068,532 for the year ended December 31, 2011. This raises substantial doubt about its ability to continue as a going concern. Management's plans in regards to these matters are described in Note 3 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The accompanying financial statements for the year ended December 31, 2011 have been restated to give effect to the correction of accounting errors (see Note 2).

/s/Sherb & Co., LLP

Sherb & Co., LLP

Boca Raton, FL

April 10, 2012, except for Note 2,

as to which the date is March 22, 2013

F-3

INTERCLOUD SYSTEMS, INC.

(Formerly known as GENESIS GROUP HOLDINGS, INC.)

CONSOLIDATED BALANCE SHEETS

	December 31,			December 31,
ASSETS	2012			2011
Current Assets:				(restated)
Cash and cash equivalents	$	646,978		$	89,285
Accounts receivable, net of allowances of $522,297 and $1,444, respectively		8,481,999			347,607
Inventory		-			10,992
Deferred loan costs		298,517			-
Prepaid registration costs		523,410			-
Other current assets		233,067			8,701
Total current assets		10,183,971			456,585

Property and equipment, net		367,624			338,759
Goodwill		20,561,980			343,986
Intangible assets, net		9,105,843			802,131
Deferred loan costs, net of current portion		1,528,262			-
Other assets		118,563			304,084

Total assets	$	41,866,243		$	2,245,545

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities:
Accounts payable and accrued expenses	$	4,164,464		$	991,302
Deferred revenue		135,319			-
Income taxes payable		123,605			-
Bank debt, current portion		352,096			114,358
Notes, related parties		378,102			5,364
Contingent consideration		4,624,367			141,607
Term loans, current portion, net of debt discount		3,632,528			1,104,987
Total current liabilities		13,410,481			2,357,618

Other Liabilities:
Bank debt, net of current portion		207,831			698,289
Notes, related parties, net of current portion		105,694			936,054
Deferred tax liability		2,374,356			-
Term loans, net of current portion, net of debt discount		11,880,237			-
Long term contingent consideration		557,933			-
Derivative financial instruments at estimated fair value		33,593			38,557
Total other liabilities		15,159,644			1,672,900

Total Liabilities		28,570,125			4,030,518

Redeemable common stock, $0.0001 par value, with $12.50 put option, 40,000 and 0 shares issued and outstanding, at December 31, 2012 and December 31, 2011, $500,000 liquidation preference		499,921			-

Redeemable Series B, convertible preferred stock, $0.0001 par value,
authorized 60,000 shares, 37,500 and 15,000 shares issued and outstanding
at December 31, 2012 and December 31, 2011; $2,216,760 and $15,000 liquidation preference		2,216,760			15,000
Redeemable Series C, convertible preferred stock, $0.0001 par value,
10% cumulative annual dividend; $1,000 stated value, authorized 1,500 shares;
1,500 and 0 issued and outstanding at December 31, 2012 and December 31, 2011; $1,500,000 and $0 liquidation preference		1,500,000			-
Redeemable Series D, convertible preferred stock, $0.0001 par value, 10% cumulative
annual dividend $1,000 stated value, authorized
1,000 shares; 608 and 608 shares issued and outstanding at December 31, 2012 and December 31, 2011, $605,872 and $605,872 liquidation preference		605,872			605,872
Redeemable Series E, convertible preferred stock, $0.0001 par value,
12% cumulative annual dividend; $1,000 stated value,
3,500 shares authorized; 2,575 and 0 issued and outstanding at December 31, 2012 and December 31, 2011, $2,575,000 and $0 liquidation preference		2,575,000			-
Redeemable Series F, convertible preferred stock, $0.0001 par value,
12% cumulative annual dividend; 4,800 shares authorized
4,150 and 0 issued and outstanding at December 31, 2012 and December 31, 2011, $3,575,000 liquidation preference		3,575,000			-
Redeemable Series G, convertible preferred stock, $0.0001 par value, 12% cumulative annual dividend; 3,500 shares authorized, none issued and outstanding		-			-
Redeemable Series H, convertible preferred stock, $0.0001 par value,
10% cumulative monthly dividend up to 150%; 2,000 shares authorized
1,425 and 0 issued and outstanding at December 31, 2012 and December 31, 2011, $1,425,000 liquidation preference		1,425,000			-
Redeemable Series I, convertible preferred stock, $0.0001 par value, authorized 4,500 shares, 4,500 and 0 shares issued and outstanding at December 31, 2012 and December 31, 2011, $4,500,000 liquidation preference		4,187,151			-
Total redeemable common and preferred stock		16,584,704			620,872

Stockholders' Equity (Deficit):
Series A, convertible preferred stock, $0.0001 par value,
20,000,000 authorized; 2,000,000 and 2,000,000 issued and outstanding as of December 31, 2012 and December 31, 2011		200			200
Common stock; $0.0001 par value; 500,000,000 shares authorized;
1,955,930 and 1,269,901 issued and outstanding as of December 31, 2012 and December 31, 2011		200			127
Additional paid-in capital		9,095,517			7,871,322
Accumulated deficit		(12,455,783	)		(10,382,921	)
Total InterCloud Systems, Inc. stockholders' equity (deficit)		(3,360,017	)		(2,511,367	)
Non-controlling interest		71,431			105,522
Total stockholders' equity (deficit)		(3,288,586	)		(2,405,845	)

Total liabilities, non-controlling interest and stockholders’ equity (deficit)	$	41,866,243		$	2,245,545

See Notes to Consolidated Financial Statements.

F-4

INTERCLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the year ended
	December 31,
	2012			2011
				(Restated)


Revenues	$	17,235,585		$	2,812,210
Cost of revenue		12,059,099			1,851,018
Gross profit		5,176,486			961,192

Operating expenses:
Depreciation and amortization		348,172			39,229
Salaries and wages		3,802,158			5,053,600
General and administrative		3,788,015			1,251,102
Total operating expenses		7,938,345			6,343,931

Income (loss) from operations		(2,761,859	)		(5,382,739	)

Other income (expenses):
Change in fair value of derivative instruments		198,908			421,340
Interest expense		(1,699,746	)		(1,443,229	)
Equity loss attributable to affiliate		(50,539	)		-
Net gain from deconsolidation of Digital subsidiary and write-off of related investment in subsidiary		453,514			-
Total other expense		(1,097,863	)		(1,021,889	)

Loss before benefit for income taxes		(3,859,722	)		(6,404,628	)

Benefit for income taxes		(2,646,523	)		-

Net loss		(1,213,199	)		(6,404,628	)

Net (income) loss attributable to non-controlling interest		(16,448	)		-

Net loss attributable to InterCloud Systems, Inc.		(1,229,647	)		(6,404,628	)

Less dividends on Series C ,D, E, F and H Preferred Stock		(843,215	)		-

Net loss attributable to InterCloud Systems, Inc. common stockholders	$	(2,072,862	)	$	(6,404,628	)

Loss per share attributable to InterCloud Systems, Inc. common stockholders:
Basic	$	(1.33	)	$	(6.38	)
Diluted	$	(1.33	)	$	(6.38	)

Basic weighted average common shares outstanding		1,553,555			1,003,264
Diluted weighted average common shares outstanding		1,553,555			1,003,264

See Notes to Consolidated Financial Statements.

F-5

INTERCLOUD SYSTEMS, INC.

(Formerly known as GENESIS GROUP HOLDINGS INC.)

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

From January 1, 2011 to December 31, 2012

						Preferred Stock										Non-
	Common Stock					Series A Convertible				Additional			Accumulated			Controlling
	Shares			$		Shares		$		Paid-in Capital			Deficit			Interest			Total

Balance January 1, 2011		847,792		$	85		-	$	-	$	2,573,418		$	(3,978,293	)	$	-		$	(1,404,790	)

Issuance of shares to UTA pursuant to loan modifications		16,596			2		-		-		242,700			-			-			242,702
Issuance from sale of shares		27,271			2		-		-		54,997			-			-			54,999
Issuance of shares for consulting services		24,000			2		-		-		349,998			-			-			350,000
Issuance of shares pursuant to loans		48,000			5		-		-		373,461			-			-			373,466
Issuance of shares to employees and officers		84,000			8		2,000,000		200		3,760,792			-			-			3,761,000
Issuance of shares from conversion of notes payable		117,386			12		-		-		123,986			-			-			123,998
Issuance of shares for acquisition not completed		16,856			2		-		-		290,764			-			-			290,766
Issuance of shares pursuant to completed acquisition		68,000			7		-		-		76,113			-			105,522			181,642
Issuance of shares in settlement of note payable		20,000			2		-		-		24,998			-			-			25,000
Net loss		-			-		-		-		-			(6,404,628	)		-			(6,404,628	)
Ending balance, December 31, 2011 (Restated)		1,269,901			127		2,000,000		200		7,871,227			(10,382,921	)		105,522			(2,405,845	)

Issuance of shares pursuant to convertible notes payable		177,270			18		-		-		153,198			-			-			153,216
Issuance of shares to officers for compensation		40,000			4		-		-		29,996			-			-			30,000
Issuance of shares pursuant to completed acquisition		40,000			4		-		-		77,496			-			-			77,500
Reclassification to temporary equity		(40,000	)		-		-		-		(77,496	)		-			-			(77,496	)
Issuance of shares to non-employees for services		132,000			13		-		-		338,887			-			-			338,900
Stock based compensation for options issued to consultant		-			-		-		-		45,000			-			-			45,000
Issuance of shares for extinguishment of debt and cancellation of warrants		208,759			21		-		-		352,742			-			-			352,763
Conversion of Series D Preferred Stock		128,000			13		-		-		352,331			-			-			352,344
Distribution to non-controlling interest		-			-		-		-		-			-			(50,539	)		(50,539	)
Change in value of redeemable securities		-			-		-		-		(248,015	)		-			-			(248,015	)
Contributed capital by CEO for waiver of salary		-			-		-		-		200,000			-			-			200,000
Preferred dividends											-			(843,215	)					(843,215	)
Net loss		-			-		-		-		-			(1,229,647	)		16,448			(1,213,199	)

Ending balance, December 31, 2012		1,955,930		$	200		2,000,000	$	200	$	9,095,366		$	(12,455,783	)	$	71,431		$	(3,288,586	)

See Notes to Consolidated Financial Statements.

F-6

INTERCLOUD SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the year ended
	December 31,
	2012			2011
				(Restated)

Cash flows from operating activities:
Net loss	$	(1,213,199	)	$	(6,404,628	)
Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operations:
Depreciation and amortization		348,172			39,229
Amortization of debt discount and deferred debt issuance costs		163,590			1,104,011
Fair value of options issued for services		45,000			-
Stock compensation for services		338,900			4,111,000
Change in fair value of derivative liability		(198,908	)		(421,340	)
Issuance of common shares for extinguishment of debt and cancellation of warrants		352,763			-
Issuance of shares pursuant to convertible notes		-			21,669
Fair value of shares issued to officer		382,344			-
Deferred taxes		(2,800,972	)		-
Equity loss attributable to affiliate		50,539			-
Net gain on deconsolidation of Digital subsidiary and write off of related investment in subsidiary		(453,514	)		-
Undistributed earnings from non-controlled interest		16,448			-
Changes in operating assets and liabilities:
Accounts receivable		(2,252,492	)		(66,866	)
Other assets		10,992			5,858
Deferred revenue		135,319			-
Accounts payable and accrued expenses		2,099,076			542,535
Total adjustments		(1,762,743	)		5,336,096
Net cash used in operating activities		(2,975,942	)		(1,068,532	)

Cash flows from investing activities:
Advances to affiliate		(179,061	)		-
Purchases of equipment		(89,258	)		(81,144	)
Issuance of convertible notes receivable		-			-
Consideration paid for acquisitions, net of cash received		(13,467,074	)		(39,330	)

Net cash used in investing activities		(13,735,393	)		(120,474	)

Cash flows from financing activities:
Proceeds from sale of common stock		-			55,000
Proceeds from sale of preferred stock, net of issuance costs		6,954,429			15,000
Increase in deferred loan costs		(1,339,043	)		-
Proceeds from bank borrowings		150,000			136,168
Repayments of notes and loans payable		(2,107,635	)		(392,742	)
Proceeds from third party borrowings		15,187,796			1,422,326
Proceeds from related party borrowings		852,668			20,063
Repayments of acquisition notes payable		(2,378,648	)		-
Distribution to non-controlling interest		(50,539	)		-


Net cash provided by financing activities		17,269,028			1,255,815

Net increase (decrease) in cash		557,693			66,809

Cash, beginning of period		89,285			22,476

Cash, end of period	$	646,978		$	89,285

Supplemental disclosures of cash flow information:
Cash paid for interest	$	581,229		$	108,938
Cash paid for income taxes	$	9,890		$	-

Non-cash investing and financing activities:
Common stock issued for loan modification	$	-		$	242,702
Common stock issued on debt conversion	$	153,216		$	25,000
Common stock issued for acquisition not completed	$	290,766		$	290,766
Forfeiture of officers compensation	$	200,000		$	-
Preferred Stock issued for waiver of salary	$	-		$	200,000
Conversion of preferred shares into common shares	$	352,344		$	-
Common stock issued for acquisition	$	-		$	76,120
Redeemable common stock	$	499,921		$	-
Redeemable preferred stock issued for acquisition	$	8,320,054		$	-
Promissory notes issued for acquisition	$	2,378,668		$	341,607
Common stock issued for deferred loan cost	$	-		$	373,446
Preferred stock issued in settlement of debt obligation	$	616,760		$	605,872
Preferred dividends	$	843,215		$	-
Fair value of warrants accounted for as derivatives and corresponding increase in debt discount	$	193,944		$	-
Notes payable to satisfy liabilities associated with deferred loan costs	$	610,000		$	-

See Accompanying Notes to audited and unaudited Consolidated Financial Statements.

F-7

INTERCLOUD SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

InterCloud Systems, Inc. (formerly known as Genesis Group Holdings, Inc. and Genesis Realty Group, Inc.) (the “Company”) was incorporated on November 22, 1999 under the laws of the State of Delaware. Prior to December 31, 2009, the Company was a development-stage company and had limited activity. The Company’s initial activities were devoted to developing a business plan, structuring and positioning itself to take advantage of available acquisition opportunities and raising capital for future operations and administrative functions. The Company began filing periodic reports with the Securities and Exchange Commission in November 2000. The Company has not previously listed its shares on any national securities exchange. The Company's shares have been quoted on the OTCBB since March 2011.

On August 1, 2008, the Company authorized an increase in the number of shares of common stock to 500,000,000 shares of common stock and authorized 50,000,000 shares of a new class of preferred stock, par value $0.0001 per share.

On January 14, 2010, the Company acquired all of the outstanding shares of Digital Comm, Inc., a Florida corporation (“Digital”), in exchange for 50,000,000 shares of common stock of the Company. Digital was originally formed on September 13, 2006 and, on January 14, 2010, was reorganized as a wholly-owned subsidiary of the Company. Digital is a provider of specialty contracting services, primarily in the installation of fiber optic telephone cable. These services are provided throughout the United States and include engineering, construction, maintenance and installation services to telecommunications providers, underground facility locating services to various utilities, including telecommunications providers, and other construction and maintenance services to electric and gas utilities and others. On September 13, 2012, the Company sold 60% of the outstanding shares of common stock of Digital to the Company’s former president and a former director. The Company did not attribute any value to its equity investment in Digital at December 31, 2012 based on Digital's historical recurring losses, expected future losses and its liabilities far exceeding the value of its tangible and intangible assets at such date. (See Note 4)

For financial accounting purposes, the acquisition of Digital was treated as a recapitalization of the Company with the former stockholders of the Company retaining approximately 40% of the outstanding common stock. This transaction has been accounted for as a reverse acquisition and, accordingly, the transaction has been treated as a recapitalization of Digital, with Digital as the accounting acquirer. The historical financial statements are a continuation of the financial statements of Digital, and any difference of the capital structure of the combined entity as compared to Digital’s historical capital structure is due to the recapitalization of the acquired entity.

Since January 1, 2011, the Company has also completed the following acquisitions:

●	Tropical Communications, Inc. In August 2011, the Company acquired Tropical Communications, Inc. (“Tropical”), a Miami-based provider of services to construct, install, optimize and maintain structured cabling for commercial and governmental entities in the Southeast.

●

Rives-Monteiro Engineering LLC and Rives-Monteiro Leasing, LLC. In December 2011, the Company acquired a 49% stake in Rives-Monteiro Engineering LLC (“RM Engineering”), a certified Women Business Enterprise (WBE) cable firm based in Tuscaloosa, Alabama that performs engineering services in the Southeastern United States and internationally, and 100% of Rives-Monteiro Leasing, LLC (“RM Leasing”), an equipment provider for cable-engineering services firms. The Company has an option to purchase the remaining 51% of RM Engineering for a nominal sum at any time.

●

ADEX Corporation. In September 2012, the Company acquired ADEX Corporation (“ADEX”), an Atlanta-based provider of staffing solutions and other services to the telecommunications industry. ADEX’s project staffing solutions diversified our ability to service our customers domestically and internationally throughout the project lifecycle.

F-8

●

T N S, Inc. In September 2012, the Company also acquired T N S, Inc. (“TNS”), a Chicago-based structured cabling company and DAS installer that supports voice, data, video, security and multimedia systems within commercial office buildings, multi-building campus environments, high-rise buildings, data centers and other structures. T N S extends the Company's geographic reach to the Midwest area and the Company's client reach to end-users, such as multinational corporations, universities, school districts and other large organizations that have significant ongoing cabling needs.

●

Environmental Remediation and Financial Services, LLC. In November 2012, the Company's ADEX subsidiary acquired Environmental Remediation and Financial Services, LLC (“ERFS”), an environmental remediation and disaster recovery company. The acquisition of this company augmented ADEX’s disaster recovery service offerings.

On December 7, 2012, the Company’s stockholders approved a reverse stock split of its common stock at a ratio of 1-for-125. The reverse stock split became effective on January 14, 2013. All applicable share and per-share amounts have been retroactively adjusted to reflect the reverse stock split.

2. RESTATEMENT

In March 2013, the Company determined that the previously-issued financial statements for fiscal years 2010 to 2012, including annual and quarterly financial statements within such fiscal periods, should no longer be relied upon due to the Company’s failure to properly account for certain items under generally accepted accounting principles in effect during the aforementioned periods. The Company, in conjunction with its independent registered public accounting firm, has evaluated the errors that occurred during the periods. As a result, the Company determined that the financial statements for fiscal years ended December 31, 2011 and 2010, along with the interim periods ended March 31, June 30 and September 30, 2012, can no longer be relied upon and require restatement. The proper application of the relevant accounting provisions requires reclassifications and adjustments to the Company’s previously-issued Consolidated Balance Sheets and Consolidated Statement of Operations and Statement of Stockholders’ Deficit.

The Company has performed an assessment of stock-based compensation issued to employees during the periods 2010 to 2012 to determine if the accounting previously applied was within the scope of Accounting Standards Codification Topic 718 (ASC 718), which was effective as of January 1, 2006. Under the fair value recognition provisions of ASC 718, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, based on the terms of the awards. The Company concluded that the issuances of stock-based compensation are within the scope of ASC 718, although the provisions of ASC 718 were not properly applied. In January 2010, the Company issued 4,000,000 shares of common stock to one of its officers with a fair value of $2,400,000 for services rendered for the years 2010 to 2012. The compensation expense of $2,400,000 was previously recognized over the three-year service period of the related employment contract ($800,000 per year during each of 2011 and 2010, $150,000 in the interim period ended March 31, 2012, and $200,000 in each of the interim periods ended June 30, 2012 and September 30, 2012). The Company has determined that because the award did not contain any explicit or implicit performance or service condition, the fair value of the award should have been expensed upon its grant, which was in January 2010. As a result, salaries and wages were understated by $1,600,000 for the annual period ended December 31, 2010, overstated by $800,000 for the annual period ended December 31, 2011, overstated $150,000 for the interim period ending March 31, 2012 and overstated by $200,000 for each of the interim periods ended June 30, 2012 and September 30, 2012.

In August 2010, the Company entered into a Note and Warrant Purchase Agreement pursuant to which it sold warrants for the right to purchase up to 167,619 shares of the Company’s common stock at $18.75 per share. The warrants were treated as detachable warrants under ASC 815, Broad Transactions – Derivatives and Hedging, in error and accounted for as a reduction in stockholders’ equity in an amount equal to the fair value of the warrants. The Company has determined that the warrants should have been treated as a debt discount (reduction in notes payable balance instead of shareholder equity) and amortized over the term of the related note using the effective interest method. As a result, notes payable was overstated by $381,145 and additional paid in capital was understated by $381,145. The warrant included a derivative feature, which was not an equity contract, and its full value upon issuance should have been allocated to the loan proceeds as a debt discount. Additionally, the understatement of debt discount resulting from this misstatement should have been amortized over the term of the loan.

As a result, notes payable was overstated by $381,145 at December 31, 2010 and $228,465 at December 31, 2011. Additional paid-in-capital was understated by $381,145 as of September 30, 2012, June 30, 2012, March 31, 2012 and December 31, 2011 and 2010. Interest expense was understated by $158,810 for the year ended December 31, 2010, and by $162,810 for the year ended December 31, 2011.

F-9

In December 2011, the Company entered into a Third Loan Modification Agreement with its lender UTA Capital LLC (“UTA”). As a result of this amendment the Company recorded an increase to its additional paid-in capital for a debt discount of $301,876 resulting from perceived amendments to the terms of the warrants issued to UTA when the Company entered into the modification of the loan agreement. However, the terms of the warrants were not amended, and the modification of the loan agreement only confirmed that the number of warrants outstanding should have increased pursuant to the anti-dilution provisions included in the initial terms of the warrants, as granted. The error also resulted in an overstatement of interest expense due to the amortization of debt of the discount during 2012 for $261,876 and $40,000 in 2011. The Company noted that it incorrectly calculated the fair value of the additional warrants issued and noted the impact of such miscalculation to the profit and loss statement was immaterial in 2012 and 2011.

On August 6, 2010, the Company issued 167,619 warrants to purchase 167,619 shares of the Company’s common stock at $18.75 per share to a lender. The warrants qualified as a derivative instrument and are therefore required to be recorded as a liability at fair value when issued and adjusted to current fair value on a quarterly basis in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. As, a result, the change in fair value of the derivative and the corresponding derivative liability were understated by $37,414 at December 31, 2011, $37,414 at March 31, 2012 and $37,414 at June 30, 2012.

5)	The Company recorded certain consideration provided to lenders as deferred loan costs, which amounted to $53,848 at December 31, 2011. The Company reclassified the carrying value of the unamortized consideration to debt discount at December 31, 2011.

6)	The Company properly recorded the compensation expense in 2011 to a former officer for $200,000 but incorrectly recorded the liability as additional paid in capital.

The Company did not properly allocate an amount to intangible assets for the acquisitions of Tropical and RM Engineering, as of December 31, 2011, and on TNS and ADEX, as of September 17, 2012, until it had an independent party prepare a valuation report in 2013. Based on the results of the report, the Company corrected its original allocations and increased additional paid in capital for the value of the stock issued by $69,226, increased acquisition notes payable by $141,607, decreased the impairment of goodwill by $437,000 and increased the carrying value of goodwill and other intangible assets by $509,381. The Company amortized the intangible assets with a useful life of two to ten years and recorded amortization expense of $39,314 in the third quarter of 2012, $15,922 in the second quarter of 2012, and $15,922 in the first quarter of 2012. Based on the results of the report, the Company recorded goodwill and intangible assets of $458,331 for Tropical, $51,050 for RM Engineering, $505,631 for TNS and $2,200,791 for ADEX. The Company also recorded the contingent consideration to be paid, which was $15,320 for Tropical, $127,385 for RM Engineering, $2,123,210 for ADEX and $259,550 for TNS.

At the date of disposition, the Company had a receivable from Digital of approximately $880,000. In the quarter ended September 30, 2012, the Company recorded a loss of $880,393 on the write-off of the receivable. The Company also recorded a note receivable from the former president in the amount of $125,000 and recorded its remaining investment in Digital in the amount of $83,333. The Company also recorded a contribution to additional paid in capital in the amount of $1,586,919 based on the disposition.

The Company subsequently reviewed the accounting for the transaction and concluded that it should write off the $125,000 promissory note from its former president, as it deemed it unlikely that he could repay the note. The Company also adjusted the negative investment carrying amount at the time of deconsolidation to zero, which resulted in a net gain of approximately $528,000. The Company does not attribute any value to its equity investment in Digital at December 31, 2012 based on Digital's historical recurring losses and expected future losses and Digital's liabilities far exceeding the value of its tangible and intangible assets at such date.

F-10

In September 2012, the Company entered into a Loan and Security Agreement with a lender to provide the Company term loans in the aggregate amount of $13,000,000. As part of the agreement, the Company issued to the lender warrants to purchase up to 10% of the Company’s common stock on a fully-diluted basis. The Company has determined that the warrants should have been treated as a debt discount (reduction in notes payable balance instead of shareholder equity) and amortized over the term of the related note. The Company recorded the derivative value of the warrants issued to the lender on September 17, 2012 as a derivative liability in the amount of $360,738 and expensed the amount as a change in fair value of derivative instruments. The Company recomputed the amount of the derivative liability as $193,944 and recorded the amount as a debt discount.

10)

In September 2012, the Company issued its former president 400 shares of Series D Preferred Stock with a fair value of $352,344 for services rendered during the quarter ended September 30, 2012, but did not record compensation expense for that amount in the quarter ended September 30, 2012. As a result, salaries and wages were understated by $352,344 in the quarter ended September 30, 2012. No other periods were impacted by the error.

11)

During the quarter ended September 30, 2012, the Company issued Series E Preferred Stock. The Company recorded the amount of subscriptions received as subscriptions for shares of Series E Preferred Stock, but subsequently, it was determined that some of the shares of Series E Preferred Stock should have been classified as Series B Preferred Stock. The Company also classified the Series E Preferred Stock as equity, and subsequently determined that, based on the redeemable feature of the Series E Preferred Stock, it should have been classified as temporary equity.

12)

The Company classified its Series D Preferred Stock as permanent equity and subsequently determined that, based on the redeemable feature of the Series D Preferred Stock, such stock should be classified as temporary equity. The Series D Preferred Stock was listed as $566 in the equity section of the balance sheet, but should have been recorded at the redemption value of $605,872 in the temporary equity section of the balance sheet at March 31, 2012, June 30, 2012 and September 30, 2012, and at $605,872 at December 31, 2011.

13)

The Company recorded the Series A Preferred Stock as temporary equity with a value of $200,000. The Company evaluated the Series A Preferred Stock and determined that based on the par value of such stock, along with its low probability of being redeemed, such stock should be classified as permanent equity, with the amount listed at par value. This resulted in a change of $199,800 to the Series A Preferred Stock value.

14)	During the quarters ended March 31, 2012 and June 30, 2012, the Company reclassified Series C Preferred Stock as permanent equity. Upon reviewing the redeemable features of such stock, the Company reclassified the value of the outstanding shares as temporary equity.

15)

On February 14, 2011, the Company and UTA entered into a First Loan Extension and Modification Agreement (the “Modification Agreement”) in connection with the Company’s existing note payable, which had a balance of $775,000 at December 31, 2010. The Modification Agreement provided for an extension of the original maturity date of the note from August 6, 2011 to September 30, 2011. In exchange for consenting to the Modification Agreement, UTA was granted 10,257 shares of the Company’s common stock, which had a fair value of $153,850 and was recorded as a debt discount. Additionally, as additional consideration for the Company’s failure to satisfy a certain covenant in the loan agreement, UTA was granted 4,000 shares of the Company’s common stock, which shares were recorded as a penalty paid to the lender and recorded as an expense. As of December 31, 2011, these two additional grants of shares had not been physically issued. However, such shares are reflected on the accompanying financial statements as if issued. This amendment was accounted for as an extinguishment and therefor the unamortized deferred loan costs of $53,848, debt discount from the original agreement of $504,648 and debt discount from this amendment of $153,850 were expensed.

The following are the previously-reported and as adjusted balances on the Company’s consolidated balance sheets at September 30, 2012, June 30, 2012, March 31, 2012, and December 31, 2011 and 2010 and consolidated statements of operations for the periods ended September 30, 2012, June 30, 2012 and March 31,2012 and for the years ended December 31, 2011 and 2010, and the corresponding over/understatement on each appropriate financial caption for each error.

F-11

	Quarter Ended March 31, 2012
	As Previously
Consolidated Statement of Operations	Reported			Adjustments				As Restated
Operating expenses	(unaudited)			(unaudited)				(unaudited)
Depreciation and amortization	$	14,208		$	15,522		7	$	29,730
Salaries and wages		180,000			(150,000	)	1		30,000
Total operating expenses		1,048,867			(134,478	)			914,389
Other income (expenses)
Interest expense		(289,223	)		227,893		5		(61,330	)
Total other income (expense)		(290,003	)		227,893				(62,110	)
Net Loss		(683,515	)		362,371				(321,144	)
Net income attributable to non-controlling interest		5,051			-				5,051
Net Loss attributable to InterCloud Systems, Inc		(678,464	)		362,371				(316,093	)
Less dividends on Series C,D,E,F and H Preferred stock		(17,722	)		-				(17,722	)
Net Loss attributable to InterCloud Systems, Inc common stockholders	$	(696,186	)	$	362,371			$	(333,815	)

	As of March 31, 2012
	As Previously
Consolidated Balance Sheet	Reported			Adjustments				As Restated
	(Unaudited)			(Unaudited)				(Unaudited)
Current assets
Deferred loan costs		54,420		$	(54,420	)	5	$	-
Total current assets	$	801,923			(54,420	)			747,503
Intangible assets, net		717,236			493,859		7		1,211,095
Total assets		2,139,980			439,439				2,579,419
Current liabilities
Accounts payable		447,724			200,000		6		647,724
Contingent consideration		-			141,607		7		141,607
Total current liabilities		1,401,136			341,607				1,742,743
Derivative liabilities		1,923			37,414		4		39,337
Total other liabilities		1,842,009			37,414				1,879,423
Series C Preferred stock		-			800,000		14		800,000
Series D Preferred stock		-			605,872		12		605,872
Total temporary equity		318,839			1,405,872				1,724,711
Stockholders' equity (deficit)
Series C Preferred stock		1			(1	)	14		-
Series D Preferred Stock		566			(566	)	12		-
Additional paid-in capital		8,768,447			(985,224	)	1,10		7,783,223
Accumulated deficit		(10,317,112	)		(359,663	)	1,4,5,6,7		(10,676,775	)
Total stockholders' deficit		(1,421,554	)		(1,345,454	)			(2,767,008	)
Total liabilities, non-controlling interest and stockholders' deficit	$	2,139,980		$	439,439			$	2,579,419

F-12

	Quarter Ended June 30, 2012
	As Previously
Consolidated Statement of Operations	Reported			Adjustment				As Restated
Operating expenses	(unaudited)			(unaudited)				(unaudited)
Depreciation and amortization	$	25,002		$	15,522		7	$	40,524
Salaries and wages		200,000			(200,000	)	1		-
Total operating expenses		883,859			(184,478	)			699,381
Other income (expenses)
Interest expense		(251,889	)		24,191		5		(227,693	)
Total other income (expense)		(250,974	)		24,191				(226,783	)
Net loss		(719,743	)		208,669				(511,074	)
Net Loss attributable to InterCloud Systems, Inc		(707,846	)		208,669				(499,177	)
Net Loss attributable to InterCloud Systems, Inc common stockholders	$	(743,082	)	$	208,669			$	(534,413	)

	Six Months Ended June 30, 2012
	As Previously
Consolidated Statement of Operations	Reported			Adjustment				As Restated
Operating expenses	(unaudited)			(unaudited)				(unaudited)
Depreciation and amortization	$	39,210		$	31,044		7	$	70,254
Salaries and wages		380,000			(350,000	)	1		30,000
Total operating expenses		1,932,727			(318,956	)			1,613,771
Other income (expenses)
Interest expense		(541,106	)		252,084		5		(289,022	)
Total other income (expense)		(540,976	)		252,084				(288,892	)
Net loss		(1,403,258	)		571,040				(832,218	)
Net Loss attributable to InterCloud Systems, Inc		(1,386,310	)		571,040				(815,270	)
Net Loss attributable to InterCloud Systems, Inc common stockholders	$	(1,439,268	)	$	571,040			$	(868,228	)

	As of June 30, 2012
Consolidated Balance Sheet	As Previously Reported			Adjustment				As Restated
	(Unaudited)			(Unaudited)				(Unaudited)
Current assets
Deferred loan costs	$	30,229		$	(30,229	)	5	$	-
Total current assets		703,343			(30,229	)			673,114
Intangible assets, net		717,236			478,337		7		1,195,573
Total assets		2,122,107			448,108				2,570,215
Current liabilities
Accounts payable		653,687			200,000		6		853,687
Contingent consideration		-			141,607		7		141,607
Total current liabilities		2,877,016			341,607				3,218,623
Derivative liabilities		1,013			37,414		4		38,427
Total other liabilities		512,766			37,414				550,180
Series C Preferred stock					1,150,000		14		1,150,000
Series D Preferred stock					605,872		12		605,872
Total temporary equity		326,750			1,755,872				2,082,622
Stockholders' equity (deficit)
Series C Preferred stock		1			(1	)	14		-
Series D Preferred Stock		566			(566	)	12		-
Additional paid-in capital		9,355,272			(1,535,224	)	2,12		7,820,048
Accumulated deficit		(11,082,070	)		(150,994	)	1,4,5,6,7		(11,233,064	)
Total stockholders' deficit		(1,594,425	)		(1,686,785	)			(3,281,210	)
Total liabilities, non-controlling interest and stockholders' deficit	$	2,122,107		$	448,108			$	2,570,215

F-13

	Quarter Ended September 30, 2012
	As Previously
Consolidated Statement of Operations	Reported			Adjustment			As Restated
Operating expenses	(unaudited)			(unaudited)			(unaudited)
Depreciation and amortization	$	41,434		$	39,314	7	$	80,748
Salaries and wages		223,998			152,344	1		376,342
Total operating expenses		882,462			191,658			1,074,120
Other income (expenses)
Interest expense		(723,675	)		-			(723,675	)
Change in fair value of derivative		(360,868	)		360,738	9		(130	)
Gain (loss) from deconsolidation of Digital		(880,393	)		1,462,429	8		582,036
Total other income (expense)		(2,017,975	)		1,823,167			(194,808	)
Net loss		(2,442,410	)		1,631,509			(810,901	)
Net income attributable to non-controlling interest		16,163			-			16,163
Net Loss attributable to InterCloud Systems, Inc		(2,426,247	)		1,631,509			(794,738	)
Less dividends on Series C,D,E,F and H Preferred stock		(52,999	)		-			(52,999	)
Net Loss attributable to InterCloud Systems, Inc common stockholders	$	(2,479,246	)	$	1,631,509		$	(847,737	)

	Nine Months Ended September 30, 2012
	As Previously
Consolidated Statement of Operations	Reported			Adjustment				As Restated
Operating expenses	(unaudited)			(unaudited)				(unaudited)
Depreciation and amortization	$	80,644		$	70,358		7	$	151,002
Salaries and wages		603,998			(197,656	)	1		406,342
Total operating expenses		3,653,187			(127,298	)			3,525,889
Other income (expenses)
Change in fair value of derivative		(360,738	)		360,738		9		-
Gain (loss) from deconsolidation of Digital		(880,393	)		1,462,429		8		582,036
Interest expense		(1,370,738	)		252,084		5		(1,118,654	)
Total other income (expense)		(2,589,888	)		2,075,251				(514,637	)
Net loss		(3,845,628	)		2,169,438				(1,676,190	)
Net income attributable to non-controlling interest		33,111			33,111				66,222
Net Loss attributable to InterCloud Systems, Inc		(3,812,517	)		2,202,549				(1,609,968	)
Less dividends on Series C,D,E,F and H Preferred stock		(105,957	)		-				(105,957	)
Net Loss attributable to InterCloud Systems, Inc common stockholders	$	(3,918,474	)	$	2,202,549			$	(1,715,925	)

	As of September 30, 2012
	As Previously
Consolidated Balance Sheet	Reported			Adjustment				As Restated
	(Unaudited)			(Unaudited)				(Unaudited)
Current assets
Deferred loan costs	$	1,823,465		$	(1,529,830	)	5	$	293,635
Total current assets		9,779,553			(1,529,830	)			8,249,723
Goodwill and Intangible assets, net		15,731,611			3,013,825		7		18,745,436
Note receivable - related party		125,000			(125,000	)			-
Investment in Digital		83,333			(83,333	)			-
Deferred loan costs, net of current portion		-			1,499,601		7		1,499,601
Total assets		26,177,676			2,775,263				28,952,939
Current liabilities
Accounts payable		1,250,170			200,000		6		1,450,170
Notes payable, acquisitions		-			2,522,465		7		2,522,465
Total current liabilities		6,322,473			2,722,465				9,044,938
Term loan, net of current portion, net of debt discount		12,350,000			(193,944	)			12,156,056
Derivative liabilities		361,881			(129,380	)	4		232,501
Total other liabilities		12,962,324			(129,380	)			12,832,944
Series A Preferred Stock		200,000			(200,000	)	13		-
Series B Preferred Stock		384,063			958,216		11		1,342,279
Series D Preferred stock		-			1,491,690		12		1,491,690
Series E Preferred stock		-			2,225,000		11		2,225,000
Series F Preferred stock		4,150,000			-				4,150,000
Total temporary equity		6,734,063			4,474,906				11,208,969
Stockholders' equity (deficit)
Series A Preferred Stock		-			200		13		200
Series D Preferred Stock		566			(566	)	12		-
Series E Preferred stock		4			(4	)	11		-
Additional paid-in capital		13,664,000			(7,151,459	)	1,8,11		6,512,541
Accumulated deficit		(13,599,948	)		2,859,101		1,4,5,6,7,8		(10,740,847	)
Total stockholders' deficit		158,816			(4,292,728	)			(4,133,912	)
Total liabilities, non-controlling interest and stockholders' deficit	$	26,177,676		$	2,775,263			$	28,952,939

F-14

	As of December 31, 2010
	As Previously
Consolidated Balance Sheet	Reported			Adjustment				As Restated
Current liabilities
Term loans, current portion	$	509,268		$	(222,335	)	2	$	286,933
Total current liabilities		1,368,030			(222,335	)			1,145,695
Stockholders' equity (deficit)
Additional paid-in capital		581,800			1,991,657		1,2		2,573,457
Accumulated deficit		(2,219,483	)		(1,758,810	)	1,2		(3,978,293	)
Total InterCloud Systems, Inc. stockholders' deficit		(1,627,086	)		222,335				(1,404,751	)
Total stockholders' deficit		(1,627,086	)		222,335				(1,404,751	)
Total liabilities, non-controlling interest and stockholders' deficit	$	430,383		$	-			$	430,383

	For The Year Ended December 31, 2010
	As Previously
Consolidated Statement of Operations	Reported			Adjustment				As Restated
Operating expenses
Salaries and wages	$	1,574,374		$	1,600,000		1	$	3,174,374
Total operating expenses		3,203,855			597,219				3,801,074
Other income (expenses)
Interest expense		(267,368	)		(158,810	)	2		(426,178	)
Total other income (expense)		109,420			(158,810	)			(49,390	)
Net loss	$	(2,141,596	)	$	(1,758,810	)		$	(3,900,406	)

	For The Year Ended December 31, 2011
	As Previously
Consolidated Statement of Operations	Reported			Adjustment				As Restated
Operating expenses
Salaries and wages	$	5,853,600		$	(800,000	)	1	$	5,053,600
Total operating expenses		8,994,949			(2,651,018	)			6,343,931
Other income (expenses)
Change in fair value of derivative		458,754			(37,414	)	2,4		421,340
Goodwill impairment		(437,000	)		437,000		7		-
Interest expense		(1,240,457	)		(202,772	)	2,3,7		(1,443,229	)
Total other income (expense)		(1,218,703	)		196,814				(1,021,889	)
Net loss	$	(7,401,442	)	$	996,814			$	(6,404,628	)

	As of December 31, 2011
	As Previously
Consolidated Balance Sheet	Reported			Adjustment				As Restated
Current Assets
Deferred loan costs	$	53,848		$	(53,848	)	5	$	-
Total current assets		510,433			(53,848	)			456,585
Goodwill		636,736			(292,750	)			343,986
Intangible assets		-			802,131				802,131
Total assets		1,790,012			455,533				2,245,545
Current liabilities
Accounts payable and accrued expenses		791,302			200,000		6		991,302
Notes payable for earnouts		-			141,607		7		141,607
Term loans, current portion		876,522			228,465		2,5		1,104,987
Total current liabilities		1,787,547			570,071				2,357,618
Other liabilities
Derivative liability		1,143			37,414		4		38,557
Total other liabilities		1,635,486			37,414				1,672,900
Series D Preferred Stock		-			605,872				605,872
Total Temporary Equity		15,000			605,872				620,872
Stockholders' Equity (Deficit)
Additional paid-in capital		7,850,944			20,283		1,2,3,6,10		7,871,227
Accumulated deficit		(9,620,926	)		(761,995	)	1,2,3,4,10		(10,382,921	)
Total InterCloud Systems, Inc. stockholders' deficit		(1,648,021	)		(757,824	)			(2,405,845	)
Total liabilities, non-controlling interest and stockholders' deficit	$	1,790,012		$	455,533			$	2,245,545

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION AND GOING CONCERN

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary in order to prepare the financial statements have been included.

F-15

Going Concern

During the years ended December 31, 2011 and 2012, the Company suffered recurring losses from operations and has a deficiency in working capital and stockholders equity that raise substantial doubt about its ability to continue as a going concern. The Company may raise capital through the sale of equity securities, through debt securities, or through borrowings from principals and/or financial institutions. The Company's management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern. However, there can be no assurance that additional financing that is necessary for the Company to continue its business will be available to us on acceptable terms, or at all.

The accompanying consolidated financial statements have been prepared on a going concern basis. The Company had a net loss of approximately $2.1 million during 2012 and had a working capital deficit of approximately $3.2 million at December 31, 2012. At December 31, 2012, the Company had total indebtedness of $21.2 million. The Company cannot be certain that its operations will generate funds sufficient to repay its existing debt obligations as they come due. The Company’s failure to repay its indebtedness and make interest payments as required by its debt obligations could have a material adverse effect on its operations. The Company intends to secure additional debt and equity financing to satisfy its existing obligations. While the Company believes that it will ultimately satisfy its obligations, it cannot guarantee that it will be able to do so on favorable terms, or at all. Should the Company default on certain of its obligations and the lender foreclose on the debt, the operations of the Company’s subsidiaries will not be initially impacted. However, following default, the lender could potentially liquidate the holdings of the Company’s operating subsidiaries sometime in the future and the Company’s operations would be significantly impacted. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company plans to generate cash flow to address liquidity concerns through four potential sources. The first potential source is net income from its subsidiaries and the recent acquisition of ERFS in December 2012. In addition, the Company will now generate income from ADEX and T N S for the full fiscal year following its acquisitions of ADEX and T N S in September 2012. The second potential source of generating cash flow will be through a senior secured financing of the Company’s accounts receivable. The Company met with several financial institutions and anticipates closing a suitable financing in the second quarter of 2013. The third potential source of generating cash is to increase the Company’s cash flow loan through MidMarket or other cash flow lenders. Finally, the fourth potential source of generating cash flow is through the consummation of the IPC and Telco acquisitions. The Company expects that these entities will contribute positively to the Company’s consolidated operating income after they are integrated into the business.

PRINCIPLES OF CONSOLIDATION AND ACCOUNTING FOR INVESTMENT IN AFFILIATE COMPANY

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, which include Tropical (since August 2011), RM Leasing (since October 2011), ADEX (since September 2012), TNS (since September 2012), and ERFS (since December 2012). All significant inter-company accounts and transactions have been eliminated in consolidation.

The Company consolidates all entities in which it has a controlling voting interest and a variable interest in a variable interest entity (“VIEs”) in which the Company is deemed to be the primary beneficiary.

The consolidated financial statements include the accounts of RM Engineering (since December 2011), in which the Company owns an interest of 49%. RM Engineering is a VIE since it meets the following criteria: (i) the entity has insufficient equity to finance its activities without additional subordinated financial support from other parties and the 51% owner guarantees its debt, (ii) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the legal entity, and (iii) substantially all of the legal entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. The Company has the ability to exercise its call option to acquire the remaining 51% of RM Engineering for a nominal amount and thus makes all significant decisions related to RM Engineering even though it absorbs only 49% of the losses. Additionally, substantially all of the entity’s activities either involve or are conducted on behalf of the entity by the 51% holder of RM Engineering. The Company records 100% of revenue, cost of revenue and general and administrative expenses of RM Engineering in its consolidated statements of operations. The 51% of RM Engineering not owned by the Company is treated as net income or loss attributed to non-controlling interests.

The consolidation of RM Engineering resulted in increases of $848,433 in assets and $362,087 in liabilities in the Company’s consolidated balance sheet and $2.6 million in revenue and $26,147 in net income in the consolidated statement of operations as of and for the year ended December 31, 2012.

The consolidation of RM Engineering resulted in increases of $889,112 in assets and $313,346 in liabilities in the Company’s consolidated balance sheet as of December 31, 2011. No amounts were included in the consolidated statement of operations for the year December 31, 2011 as the acquisition of RM Engineering occurred on December 29, 2011.

The consolidated financial statements include the accounts of Digital, in which the Company owned a 100% interest until September 13, 2012, and a 40% interest thereafter and the Company accounted for this 40% interest under the equity method of accounting. As of December 31, 2012, the Company had divested itself of the remaining 40% interest in Digital and had no ongoing interest.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Changes in estimates and assumptions are reflected in reported results in the period in which they become known. Use of estimates includes the following: 1) valuation of derivative instruments and preferred stock, 2) allowance for doubtful accounts, and 3) estimated useful lives of property and equipment. Actual results could differ from those estimates.

SEGMENT INFORMATION

The Company operates in one reportable segment as a specialty contractor, providing engineering, construction, maintenance and installation services to telecommunications providers, underground facility-locating services to various utilities, including telecommunications providers, and other construction and maintenance services to electric and gas utilities and others. All of the Company’s reporting units aggregate into one operating segment which has been aggregated into one reporting segment due to their similar economic characteristics, products, production methods and distribution methods, including the operations of ERFS, which was acquired by the Company in December 2012 and is not material.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of checking accounts and money market accounts. For purposes of reporting cash flows, the Company considers all highly-liquid investments purchased with an original maturity of three months or less to be cash equivalents.

F-16

BUSINESS COMBINATIONS

The Company accounts for its business combinations under the provisions of ASC 805-10, Business Combinations (ASC 805-10), which requires that the purchase method of accounting be used for all business combinations. Assets acquired and liabilities assumed, including non-controlling interests, are recorded at the date of acquisition at their respective fair values. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred. If the business combination provides for contingent consideration, the Company records the contingent consideration at fair value at the acquisition date and any changes in fair value after the acquisition date are accounted for as measurement-period adjustments if they pertain to additional information about facts and circumstances that existed at the acquisition date and that the Company obtained during the measurement period. Changes in fair value of contingent consideration resulting from events after the acquisition date, such as earn-outs, are recognized as follows: 1) if the contingent consideration is classified as equity, the contingent consideration is not re-measured and its subsequent settlement is accounted for within equity, or 2) if the contingent consideration is classified as an asset or a liability, the changes in fair value are recognized in earnings.

The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined using Level 3 inputs in the fair value hierarchy (see Fair Value Measurements in Note 3). The estimated fair value of the net assets acquired was determined using the income approach to valuation based on the discounted cash flow method. Under this method, expected future cash flows of the business on a stand-alone basis are discounted back to a present value. The estimated fair value of identifiable intangible assets, consisting of customer relationships, the trade names and non-compete agreements acquired, also were determined using an income approach to valuation based on excess cash flow, relief of royalty and discounted cash flow methods.

The discounted cash flow valuation method requires the use of assumptions, the most significant of which include: future revenue growth, future earnings before interest, taxes, depreciation and amortization, estimated synergies to be achieved by a market participant as a result of the business combination, marginal tax rate, terminal value growth rate, weighted average cost of capital and discount rate.

The excess earnings method used to value customer relationships requires the use of assumptions, the most significant of which include: the remaining useful life, expected revenue, survivor curve, earnings before interest and tax margins, marginal tax rate, contributory asset charges, discount rate and tax amortization benefit.

The most significant assumptions under the relief of royalty method include: estimated remaining useful life, expected revenue, royalty rate, tax rate, discount rate and tax amortization benefit. The discounted cash flow method used to value non-compete agreements includes assumptions such as: expected revenue, term of the non-compete agreements, probability and ability to compete, operating margin, tax rate and discount rate. Management, with the assistance of a third-party valuation specialist, has developed these assumptions on the basis of historical knowledge of the business and projected financial information of the Company. These assumptions may vary based on future events, perceptions of different market participants and other factors outside the control of management, and such variations may be significant to estimated values.

IMPAIRMENT OF LONG-LIVED INTANGIBLE ASSETS AND GOODWILL

The Company reviews the impairment of long-lived intangible assets and goodwill annually (as of December 31) or whenever circumstances indicate the carrying value of an asset may not be recoverable.

For goodwill and because the Company has a negative carrying value in its reporting unit, the Company is required to qualitatively assess whether it is more likely than not that goodwill impairment exists. If it is more likely than not that a goodwill impairment exists the second step of the goodwill impairment test should be performed to measure the amount of impairment loss, if any. The Company concluded through its assessment that it was not more likely than not that that goodwill impairment exists. The Company considered macroeconomic conditions and noted no unusual deterioration in the marketplace and no limitations to capital as this were supported by the Company’s ability to access capital. The Company also considered industry and market considerations and noted there was no unusual deterioration in the environment in which an entity operates or an increased competitive environment, nor any decline in market-dependent multiples. The Company believes that current market conditions for this industry are favorable and that corporate spending on these areas will continue to grow. The Company also noted no unusual cost factors that would impact operations based on the nature of the working capital requirements of this business. The Company also noted that the overall financial performance of the Company and its acquisitions indicated that no goodwill impairment existed. The Company looked at each of the acquired companies and determined that each of them was performing as expected since the date of acquisition. The acquired entities were generating income from operations at levels to support the amount of goodwill. The results of these quantitative analyses, conducted in accordance with ASC 350, concluded that no impairment existed at December 31, 2012. With regard to other long-lived assets and intangible assets with indefinite-lives, the Company follows a similar impairment assessment. The Company will first assess the qualitative factors to determine if a quantitative impairment test of the indefinite-lived intangible asset is necessary. If the qualitative assessment reveals that it is more likely than not that the asset is impaired, a calculation of the asset’s fair value is made. Fair value is calculated using many factors, which include the future discounted cash flows as well as the estimated fair value of the asset in an arm’s-length transaction. As of December 31, 2012, the results of the Company’s analysis indicated that no impairment existed.

For the years ended December 31, 2012 and 2011, none of the reporting units incurred operating losses that would impact the Company’s financial position in a material manner. Current operating results, including any losses, are evaluated by the Company in the assessment of goodwill and other intangible assets. The Company’s reporting units are aggregated for goodwill impairment testing. The estimates and assumptions used in assessing the fair value of the reporting units and the valuation of the underlying assets and liabilities are inherently subject to significant uncertainties. Changes in judgments and estimates could result in a significantly different estimates of the fair value of the reporting units and could result in impairments of goodwill or intangible assets at additional reporting units. Additionally, adverse conditions in the economy and future volatility in the equity and credit markets could impact the valuation of our reporting units. The Company can provide no assurances that, if such conditions occur, they will not trigger impairments of goodwill and other intangible assets in future periods.

Events that could cause the risk for impairment to increase are the loss of a major customer or group of customers, the loss of key personnel and changes to current legislation that may impact the Company’s industry or its customers’ industries. However, based on our assessment of these factors, the Company believes the increase in the risk of impairment to be relatively low as its relationships with key customers and personnel are in good standing and it is unaware of any adverse legislation that may have a negative impact on the Company or its customers. As a result, the Company believes it will continue to operate effectively, continue to execute its acquisition strategy and meet forecasted profitability.

F-17

In the fourth quarter of 2012, the Company performed its annual review of the indefinite-lived intangible assets and goodwill for impairment. Based on this review, the Company determined that there was no impairment as of December 31, 2012 and 2011.

REVENUE RECOGNITION

Revenue is recognized on a contract only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability of the resulting receivable is reasonably assured.

The Company’s revenues are generated from contracted services to provide technical engineering and management solutions to large voice and data communications providers, as specified by their clients. The contracts provide that payment to the Company for its services may be based on either 1) direct labor hours at fixed hourly rates or 2) fixed-price contracts. The services provided by the Company under the contracts are generally provided within a month. Occasionally, the services may be provided over a period of up to four months. If the Company anticipates that the services will span for a period exceeding one month, depending on the contract terms, the Company provides either progress billing at least once a month or upon completion of the clients’ specifications.

The Company recognizes revenues of contracts based on direct labor hours and fixed-price contracts that do not overlap a calendar month based on services provided. The aggregate amount of unbilled work-in-progress recognized by the Company as revenues was insignificant at December 31, 2012 and 2011.

Some of the Company’s revenues are derived from construction contracts. Revenues from those contracts are recognized utilizing the percentage of completion method as described in ASC 605-35, Revenue Recognition. The amount of revenue recognized for each contract is measured by the cost-to-cost method, which compares the percentage of costs incurred to date to the estimated total cost of each contract. Contract costs include all direct materials and labor and indirect costs related to contract performance, including sub-contractor costs. Selling, general and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts, if any, are made in the period in which such losses are determined. Changes in job performance conditions and final contract settlements may result in revisions to costs and income, which are recognized in the period the revisions are determined.

The Company also generates revenue from service contracts with certain customers. These contracts are accounted for under the proportional performance method. Under this method, the Company recognizes revenue in proportion to the value provided to the customer for each project as of each reporting date.

The Company sometimes requires customers to provide a deposit prior to beginning work on a project. When this occurs, the Company records the deposit as deferred revenue and recognizes the revenue when the work is complete.

During the years ended December 31, 2012 and 2011, the Company did not recognize any revenue from cloud-based services.

The Company does not provide refunds to its customers.

LONG-LIVED ASSETS

Long-lived assets, other than goodwill and other indefinite-lived intangibles, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets.

Definite-lived intangible assets primarily consist of non-compete agreements, trade names and customer relationships. For long-lived assets used in operations, impairment losses are only recorded if the asset's carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period they become known. Management analyzes the collectability of accounts receivable each period. This review considers the aging of account balances, historical bad debt experience, changes in customer creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of these factors change, the estimate made by management may also change. Allowance for doubtful accounts was $522,297 and $1,444 at December 31, 2012 and 2011, respectively.

F-18

ADVERTISING

The Company’s policy for reporting advertising expenditures is to expense them as they are incurred. Advertising expense was not material for the years ended December 31, 2012 and 2011.

INVENTORY

Inventory consists primarily of wires and cables. Inventory is stated at the lower of cost or market, with cost determined by the first-in, first-out (FIFO) method. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives. Useful lives are: 3-7 years for vehicles; 5-7 years for equipment; 5 years for small tools: and 3 years for computer equipment. Maintenance and repairs are expensed as incurred and major improvements are capitalized. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in other income.

DEFERRED LOAN COSTS

Deferred loan costs are capitalized and amortized to interest expense using the effective interest method over the terms of the related debt agreements. The amount of amortization of deferred loan costs, which was recorded as interest expense, in the years ended December 31, 2012 and 2011 was $144,264 and $592,008, respectively.

DISTINGUISHMENT OF LIABILITIES FROM EQUITY

The Company relies on the guidance provided by ASC 480, Distinguishing Liabilities from Equity, to classify certain redeemable and/or convertible instruments, such as the Company’s preferred stock. The Company first determines whether the respective financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.

Once the Company determines that the financial instrument should not be classified as a liability, it determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet (“temporary equity”). The Company will determine temporary equity classification if the redemption of the preferred stock or other financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.

F-19

Initial Measurement

The Company records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received.

Subsequent Measurement

Financial instruments classified as liabilities

The Company records the fair value of its financial instruments classified as liability at each subsequent measurement date. The changes in fair value of its financial instruments classified as liabilities are recorded as other expense/income.

Redeemable common and preferred stock

At each balance sheet date, the Company reevaluates the classification of its redeemable instruments, as well as the probability of redemption. If the redemption amount is probable or currently redeemable, the Company records the instruments at its redemption value. Upon issuance, the initial carrying amount of a redeemable equity security at its fair value. If the instrument is redeemable currently at the option of the holder, it will be adjusted to its maximum redemption amount at each balance sheet date. If the instrument is not redeemable currently and it is not probable that it will become redeemable, it is recorded at its fair value. If it is probable the instrument will become redeemable it will be recognized immediately at its redemption value. The resulting increases or decreases in the carrying amount of a redeemable instrument will be recognized as adjustments to additional paid-in capital

F-20

INCOME TAXES

The Company accounts for income taxes under the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. In June 2006, the FASB issued ASC Topic 740, Income Taxes (“ASC Topic 740”) (formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109), which prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC Topic 740 also provides guidance on de-recognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Changes in the fair value of redeemable securities will be reflected as an increase or decrease in net income or loss attributable to common stockholders on the statements of operations.

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Under the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, based on the terms of the awards. The Company adopted a formal stock option plan in December 2012 and it has not issued any options under the plan as of December 31, 2012. The Company issued options prior to the adoption of this plan, but the amount was not material as of December 31, 2012. Historically, the Company has awarded shares to certain of its employees and consultants which did not contain any performance or service conditions. Compensation expense included in the Company’s statement of operations includes the fair value of the awards at the time of issuance. When common stock was issued, it was valued at the trading price on the date of issuance and when preferred stock was issued, it was based on the Option Pricing Model. Compensation expense is recorded over the life of the service agreement. All share based compensation was fully vested in 2012.

2012 PERFORMANCE INCENTIVE PLAN and EMPLOYEE STOCK PURCHASE PLAN

On November 16, 2012, the Company adopted its “2012 Equity Incentive Plan” and its “Employee Stock Purchase Plan”. Both plans were established to attract, motivate, retain and reward selected employees and other eligible persons. For the Equity Incentive Plan, employees, officers, directors and consultants that provide services to us or one of our subsidiaries may be selected to receive awards under the 2012 Plan. A total of 2,000,000 shares of the Company’s common stock was authorized for issuance with respect to awards granted under the 2012 Plan. The share limit will automatically increase on the first trading day in January of each year (commencing with January 2014) by an amount equal to lesser of (i) 4% of the total number of outstanding shares of the Company’s common stock on the last trading day in December in the prior year, (ii) 2,000,000 shares, or (iii) such lesser number as determined by the Company’s board of directors. Any shares subject to awards that are not paid, delivered or exercised before they expire or are canceled or terminated, or fail to vest, as well as shares used to pay the purchase or exercise price of awards or related tax withholding obligations, will become available for other award grants under the 2012 Plan. As of December 31, 2012, no awards had been granted under the 2012 Plan, and the full number of shares authorized under the 2012 Plan was available for award purposes.

The Employee Stock Purchase Plan is designed to allow our eligible employees and the eligible employees of the Company’s participating subsidiaries to purchase shares of the Company’s common stock, at semi-annual intervals, with their accumulated payroll deductions. A total of 500,000 shares of the Company’s common stock is initially available for issuance under the Purchase Plan. The share limit will automatically increase on the first trading day in January of each year (commencing with January 2014) by an amount equal to lesser of (i) 1% of the total number of outstanding shares of the Company’s common stock on the last trading day in December in the prior year, (ii) 500,000 shares, or (iii) such lesser number as determined by the Company’s board of directors. As of December 31, 2012, no shares had been purchased under this plan.

NET LOSS PER SHARE

Basic loss per common share is computed based on the weighted average number of shares outstanding during the period. Diluted loss per share is computed in a manner similar to the basic loss per share, except that the weighted-average number of shares outstanding is increased to include all common shares, including those with the potential to be issued by virtue of warrants, options, convertible debt and other such convertible instruments. Diluted earnings per share contemplate a complete conversion to common shares of all convertible instruments only if they are dilutive in nature with regards to earnings per share. Since the Company has incurred net losses for all periods, basic loss per share and diluted loss per share are the same.

F-21

The anti-dilutive common shares outstanding at December 31, 2012 and 2011 were as follows:

	December 31,
	2012		2011

Series A Preferred Stock		160,000		160,000
Series B Preferred Stock		18,080,050		723,208
Series C Preferred Stock		13,560,038		-
Series D Preferred Stock		194,560		884,364
Series E Preferred Stock		5,119,460		-
Series F Preferred Stock		1,047,319		-
Series G Preferred Stock		-		-
Series H Preferred Stock		2,345,548		-
Series I Preferred Stock		1,135,647		-
Warrants		8,614,274		578,566
		50,256,896		2,346,138

F-22

FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC Topic 820 "Fair Value Measurements and Disclosures" ("ASC Topic 820") provides a framework for measuring fair value in accordance with generally accepted accounting principles.

ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).

The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC Topic 820 are described as follows:

●	Level 1— Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.

●

Level 2— Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

●	Level 3— Inputs that are unobservable for the asset or liability.

The following section describes the valuation methodologies that the Company used to measure different financial instruments at fair value.

Debt

The fair value of the Company's debt, which approximates the carrying value of the Company's debt, as of December 31, 2012 and December 31, 2011 was estimated at $21.2 million and $3.0 million, respectively. Factors that the Company considered when estimating the fair value of its debt include market conditions, liquidity levels in the private placement market, variability in pricing from multiple lenders and term of debt. The level would be considered as level 2.

Additional Disclosures Regarding Fair Value Measurements

The carrying value of cash and cash equivalents, accounts receivable, notes receivable and accounts payable approximate their fair value due to the short-term maturity of those items.

F-23

Preferred Stock

The Company used the Option-Pricing Method back solve ("OPM backsolve") to determine the fair value of its preferred stock and common stock. The OPM backsolve method derives the implied equity value for the company from a transaction involving the company's preferred securities issued on an arms-length basis. The Company used assumptions including exercise price, risk free rate, expected term of liquidity, volatility, dividend yield and solved for the value of equity such that value for the most recent financing equals the amount paid. The OPM backsolve treats convertible preferred stock, common stock, options, and warrants as series of call options on the total equity value of a company, with exercise price based on the liquidation preference of the convertible preferred stock. Therefore, the common stock has value only if the funds available for distribution to the stockholders exceed the value of the liquidation preference at the time of a liquidity event such as a merger, sale, or initial public offering, assuming the company has funds available to make a liquidation preference meaningful and collectible by the stockholders. The OPM backsolve uses the Black-Scholes option-pricing model to price the call options. The Company obtained an appraisal from a third party to assist in the computation on determining such values. The fair value of the Company's preferred stock at issuance is classified as Level 3 within the Company's fair value hierarchy.

Derivative Warrant Liabilities

The Company used the Black-Scholes option-pricing model to determine the fair value of the derivative liability related to the warrants and the put and effective price of future equity offerings of equity-linked financial instruments. The Company derived the fair value of warrants using the common stock price, the exercise price of the warrants, risk-free interest rate, the historical volatility, and the Company's dividend yield. The Company does not have sufficient historical data to use its historical volatility; therefore the expected volatility is based on the historical volatility of comparable companies and the Company's. The Company developed scenarios to take into account estimated probabilities of future outcomes. The fair value of the warrant liabilities is classified as Level 3 within the Company's fair value hierarchy.

In connection with the valuation of the warrants issued in 2010, 2011 and 2012, the Company believed the common stock price had not fully adjusted for the potential future dilution from the private placement of preferred stock completed in 2011 through 2012, primarily due to the trading restrictions on the unregistered shares of common stock issued and issuable from the conversion of debt and warrants, certain conversion restrictions, and the anti-dilution adjustment features of the warrants. Therefore, the Company used a common stock price implied by a recent preferred financing transaction on an arms-length basis. In the OPM backsolve method, the valuation resulted in a model-derived common stock value ranging from $ 0.00075 to $ 0.005 per share. Changes in the assumptions used in the model can materially affect the model-derived common stock value and the fair value estimate of the warrants. The Company determined the anti-dilution rights of the warrants were immaterial based on the various outcomes derived from the scenarios developed. The Company will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire or are amended in a way that would no longer require these warrants to be classified as a liability. Please refer to Note 10, Derivative Financial Instruments.

At December 31, 2012 and 2011, the amount of the derivative liability was computed using the Black Scholes Option Valuation Method to determine the value of the derivative liability.

The fair value of the Company’s financial instruments carried at fair value at December 31, 2012 and 2011 were as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2011:
Warrant derivatives	$	—	$	—	$	38,557

December 31, 2012:
Warrant derivatives	$	—	$	—	$	33,593

Assets and liabilities measured at fair value on a recurring basis at December 31, 2012 and 2011 consisted of:

	Fair Value Measurements at Reporting
	Date Using
	Quoted
	Prices
	in Active
	Markets		Significant
	for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)

	December 31, 2011
Liabilities:
Warrant derivatives	$	-	$	-	$	38,557
Contingent consideration		-		-		141,607

Total liabilities at fair value	$	-	$	-	$	180,164

	December 31, 2012
Liabilities:
Warrant derivatives	$	-	$	-	$	33,593
Long term contingent consideration		-		-		557,933
Contingent consideration		-		-		4,624,367

Total liabilities at fair value	$	-	$	-	$	5,215,893

F-24

The following table provides a summary of changes in fair value of the Company's Level 3 financial instruments for the years ended December 31, 2012 and 2011.

	Amount
Balance December 31, 2010	$	459,897

Change in fair value of derivative		(421,340	)
Fair value of contingent consideration recorded at date of acquisition		141,607
Balance as of December 31, 2011	$	180,164

Change in fair value of derivative		(198,908	)
Warrant derivates fair value on date of issuance		193,944
Fair value of long term consideration recorded at date of acquisition		557,933
Fair value of contingent consideration recorded at date of acquisition		4,482,760
Balance December 31, 2012	$	5,215,893

The fair value of the Company's contingent consideration is based on the Company’s evaluation as to the probability and amount of any earn-out that will be achieved based on expected future performance by the acquired entity.

4. ACQUISITIONS AND DECONSOLIDATION OF SUBSIDIARY

2011 Acquisitions

Acquisition of Tropical Communications, Inc.

On August 22, 2011, the Company acquired 100% of the equity of Tropical, a Florida corporation based in Miami, Florida. Tropical is a state-licensed low voltage and underground contractor that provides services to construct, install, optimize and maintain structured cabling for commercial and governmental entities in the South Florida area. The purchase price for Tropical was 8,000 shares of common stock of the Company valued at $6.92 per share, or $55,360, an earn-out provision for additional shares of common stock of the Company based on a formula tied to future earnings of Tropical. The earn-out provision has been valued at $15,320 and is recorded as a liability at the date of acquisition. The acquisition expanded the Company’s cable installation presence in the southeastern United States. The results of Tropical were included in the consolidated results of the Company effective August 22, 2011. During 2011, Tropical contributed revenue of approximately $450,000 and an operating loss of approximately $191,000 from the acquisition date. The acquisition was accounted for as a stock purchase. As a result of the total consideration paid exceeding the net assets acquired, the Company recorded approximately $175,000 of goodwill. The goodwill is attributable to the synergies and economies to scale provided to the Company, particularly as it pertained to the customer base and presence in the southeastern United States. The Company’s goodwill was not tax deductible. The Company did not incur any acquisition-related costs in connection with the Tropical acquisition.

Acquisition of Rives Monteiro Engineering LLC and Rives Monteiro Leasing LLC

On December 29, 2011, the Company acquired a 49% interest in RM Engineering, an engineering firm and certified Women’s Business Enterprise with offices in Houston, Texas and Tuscaloosa, Alabama. The Company has an option to purchase the remaining 51% of RM Engineering for $1. The Company also acquired 100% of RM Leasing, an equipment provider for the cable engineering services. RM Engineering and RM Leasing have been in business since 1998, performing cable engineering services in the Southeastern United States, with additional services performed internationally.

The total consideration for RM Engineering and RM Leasing was $555,767, which amount included approximately $101,000 in cash, a six-month promissory note in the amount of $200,000, 60,000 shares of common stock of the Company, which was valued at $0.381 per share, and an earn-out tied to future earnings of RM Engineering, which was valued at $127,385 and recorded as a liability at the date of acquisition. During 2011, RM Engineering did not contribute any revenues or earnings because the Company closed the transaction on the second to last business day of the year. The purchase consideration also included an earn-out, which included cashless exercise warrants with an exercise price of $37.50 per share for up to 4,000 additional shares for each $500,000 in net income generated by the Company during the twenty-four months following closing. The acquisition was accounted for as a stock purchase. As a result of the total consideration paid exceeding the net assets acquired, the Company recorded approximately $169,000 of goodwill. The goodwill is attributable to synergies and economies of scale provided to the Company. The goodwill is not deductible for tax purposes.

The final purchase consideration for the 2011 acquisitions of Tropical and RM Engineering were calculated as follows:

	Tropical		RM Engineering
Cash	$	-	$	101,098
Promissory Notes		-		200,000
Contingent consideration		15,320		126,287
Common Stock, based on trading price		55,360		22,860
Non-controlling Interest		-		105,522
Total Purchase Consideration	$	70,680	$	555,767

F-25

The final purchase consideration was allocated to the assets acquired and liabilities assumed as follows:

	Tropical			RM Engineering
Current assets	$	138,001		$	63,900
Goodwill		174,746			169,240
Intangible assets:
Customer list / relationships		162,016			452,092
URL's		2,552			2,552
Tradenames		47,555			131,443
Non-competes		1,368			2,553
Property and equipment		11,576			47,333
Deposits		11,606			-
Current liabilities		(144,371	)		(101,896	)
Notes payable – bank		(221,373	)		(207,722	)
Notes payable - related party		(112,996	)		(3,728	)
Total allocation of purchase consideration	$	70,680		$	555,767

2012 Acquisitions

Acquisition of T N S, Inc.

On September 17, 2012, the Company acquired 100% of the outstanding capital stock of T N S, an Illinois corporation based in Des Plaines, Illinois. T N S is a provider of structured cabling and distributed antenna systems primarily in the Chicago, Illinois area. The purchase consideration for T N S was $5,486,372, which was comprised of (i) $700,000 in cash, (ii) 10,000 shares of common stock of the Company, (iii) additional shares of common stock of the Company to be issued upon the completion by the Company of an underwritten public offering, which shares were valued at the acquisition date at $259,550, were recorded as a liability as of such date and the number of which shares will be determined by dividing $200,000 by the price per share of the common stock in the offering, and (iv) 4,150 shares of Series F Preferred Stock of the Company, which shares were valued at $4,026,822.

Of the 4,150 shares of Series F Preferred Stock issued to the sellers of T N S on September 17, 2012, 575 shares (the “Contingent Shares”) are contingent as they are subject to cancellation in whole or in part if T N S does not meet certain operating results during the earn-out period. If the operating results of T N S exceed certain thresholds during the earn-out period, the Company will be required to issue to the sellers of T N S additional shares of Series F Preferred Stock. The Company is also obligated to pay additional cash consideration and to issue additional shares of Series F Preferred Stock to the T N S sellers if T N S exceeds certain operating thresholds for the three years ending September 30, 2015. The Company has classified its contingent obligation as a liability in the amount of $557,933 on the Company’s balance sheet because the contingent consideration is a fixed monetary amount that is based on the earnings of T N S during the earn-out period that the Company must settle with a variable number of shares of Series F Preferred Stock and additional cash payments. The contingent consideration of $557,993 recognized by the Company is an estimate of the fair value of the contingent consideration. Such estimate of the fair value of the contingent consideration will be adjusted by the Company based on the Company’s revised estimates of, and then ultimately the actual, EBITDA of T N S for each of the reporting periods within the three years following the acquisition.

The Company granted the T N S sellers the right to put the 40,000 shares of common stock to the Company for $12.50 per share beginning on March 17, 2014. The holders of the Series F Preferred Stock also can demand that an aggregate of 3,000 shares of Series F Preferred be redeemed beginning on November 27, 2012, with the redemption to occur within 20 days of such request. Such holders may also request that an additional 575 shares of Series F Preferred be redeemed beginning on September 17, 2013 and that any additional shares of Series F Preferred be redeemed beginning on September 17, 2014. The Contingent Shares cannot be redeemed during the earn-out period. Both the Series F Preferred shares and the shares of common stock that are subject to a put option are accounted for as temporary equity because the decision as to the redemption or retirement of such shares rests with the holders of such shares. The acquisition was accounted for as a stock purchase. As the total consideration paid exceeded the value of the net assets acquired, the Company recorded approximately $4,000,000 of goodwill. The goodwill is attributable to synergies and economies of scale provided to the Company. The goodwill is not tax deductible. The amount of acquisition-related costs for the acquisition of T N S was $81,836, which was recorded on the Company’s consolidated statement of operations as general and administrative expenses.

F-26

Acquisition of ADEX Entities

On September 17, 2012, the Company acquired all the outstanding capital stock of ADEX, a New York corporation, and ADEXCOMM Corporation, a New York corporation (“ADEXCOMM”), and all outstanding membership interests of ADEX Puerto Rico LLC, a Puerto Rican limited liability company (“ADEX Puerto Rico”, and together with ADEX and ADEXCOMM, collectively, the ADEX Entities. The ADEX Entities are collectively an international service organization that provides turnkey services and project staffing solutions exclusively to the telecommunication industry. ADEX assists telecommunications companies throughout the project life cycle of any network deployment. The purchase consideration for the ADEX Entities was $17,321,472, which was paid with $12,819,594 in cash, which payment included the repayment of debt due from the ADEX entities to a lender of approximately $1,241,000, a note in the amount of $1,046,000 and a note in the amount of $1,332,668, which was equal to the net working capital of the ADEX Entities as of the closing date, and contingent consideration in the amount of $2,123,210 that was recorded as a liability at the date of acquisition. The notes were secured by 1,500 shares of Series G Preferred Stock. The payment of contigent consideration was secured by the issuance of 2,000 shares of Series G Preferred Stock. As additional consideration, the Company agreed to pay the ADEX sellers an amount of cash equal to the product of 0.75 (the “Multiplier”) multiplied by the adjusted EBITDA of the ADEX Entities for the twelve months beginning October 1, 2012, (the “Forward EBITDA”). If the Forward EBITDA is less than $2,731,243, the Multiplier shall be adjusted to 0.50, and if the Forward EBITDA is greater than $3,431,243, the Multiplier shall be adjusted to 1.0. The Company also agreed to pay the ADEX sellers an amount of cash equal to the amount, if any, by which the Forward EBITDA is greater than $3,081,243. In connection with the contingent consideration, the Company reserved 2,000 shares of Series G Preferred Stock. These shares are redeemable in the event the Company defaults on its obligation to make the required payments. The shares of Series G Preferred will be automatically cancelled if required payments are made in cash by the Company. The acquisition was accounted for as a stock purchase. As a result of the total consideration paid exceeding the net assets acquired; the Company recorded approximately $10.5 million of goodwill. The goodwill is attributable to synergies and economies to scale provided to the Company. The goodwill is not tax deductible. The amount of acquisition-related costs for the acquisition of the ADEX entities was $152,189, which amount was recorded on the Consolidated Statement of Operations as general and administrative expenses.

Acquisition of Environmental Remediation and Financial Services, LLC

On December 17, 2012, ADEX acquired 100% of the membership interests in ERFS, a New Jersey limited liability company. ERFS is an environmental remediation company that provides in-situ site remediation of oil, chemicals and ground/water. The purchase consideration for ERFS was $6,287,151, which was paid with 4,500 shares of Series I Preferred Stock, which shares were valued at $4,187,151. The seller of ERFS can redeem up to $750,000 of the Series I Preferred Stock on or after March 31, 2013. As additional consideration, the Company agreed to pay the ERFS seller 1.5 times EBITDA for the twelve-month period from January 1, 2013 through December 31, 2013, provided that the EBITDA for such twelve-month period exceeds the EBITDA for the twelve month period prior to closing by $10,000. This earn-out consideration was valued at $2.1 million. The Series I Preferred shares are classified within temporary equity due to the redemption of these shares resting with the holders of these instruments. The Company is still evaluating the purchase price allocation and where the value will be allocated between intangible assets, such as trade name, customer list, non-compete agreements and goodwill. The goodwill is attributable to synergies and economies of scale provided to the Company. The acquisition was accounted for as a stock purchase. The goodwill is not tax deductible. The Company did not incur any acquisition-related costs for the year ended December 31, 2012.

The final purchase consideration for the 2012 acquisitions of TNS, the ADEX Entities and ERFS were calculated as follows:

	TNS		ADEX Entities		ERFS
Cash	$	700,000	$	12,819,594	$	-
Promissory Notes		-		2,378,668		-
Contingent consideration/working capital adjustment		259,550		2,123,210		2,100,000
Preferred Stock, based on OPM		4,026,822		-		4,187,151
Common Stock, based on redemption value		500,000		-		-
Total Purchase Consideration	$	5,486,372	$	17,321,472	$	6,287,151

F-27

The final purchase consideration was allocated to the assets acquired and liabilities assumed as follows:

	TNS			ADEX Entities			ERFS
Current assets	$	474,732		$	5,801,858		$	798,135
Goodwill		4,002,654			10,474,212			5,741,128
Intangible assets:
Customer list / relationships		1,790,048			3,309,143			-
URL's		2,552			2,552			-
Tradenames		347,182			2,888,382			-
Non-competes		79,670			116,047			-
Property and equipment		14,224			75,849			185,271
Deposits		-			12,227			63,493
Current liabilities		(254,807	)		(1,053,398	)		(349,750	)
Notes payable - bank		-			-			(92,259	)
Notes payable - related party		-			-			(8,700	)
Notes payable - other		-			-			(50,167	)
Long-term deferred tax liability		(969,883	)		(4,305,400	)		-
Total allocation of purchase consideration	$	5,486,372		$	17,321,472		$	6,287,151

Unaudited pro forma results of operations data of the Company as if the acquisitions of the ADEX Entities, TNS, Tropical, RM Engineering and ERFS had occurred as of January 1, 2011 are as follows:

	Pro Forma Results
	(Unaudited)
	Year Ended December 31,
	2012			2011
Revenue	$	45,010,501		$	50,209,085

Net Loss	$	(4,067,970	)	$	(6,504,581	)

Basic and diluted earnings per share	$	(2.62	)	$	(6.48	)

Pro forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at January 1, 2011 and is not intended to be a projection of future results.

The pro forma adjustments for the year ended December 31, 2012 and December 31, 2011 consist of the amortization of intangible assets with an identifiable life, customer lists and non-compete agreements in the amount of $597,375 for the years ended December 31, 2012 and 2011. The Company also borrowed the cash portion of the purchase consideration and has recorded interest expense in the amount of $1,560,000 in the years ended December 31, 2012 and 2011.

F-28

The amount of revenues and income (loss) of the acquired companies since the acquisition date included in the consolidated statements of operations are as follows:

2011 Acquisitions

	RME		Tropical
Revenues	$	2,651,711	$	2,284,321

Income (Loss)	$	26,147	$	(466,033	)

2012 Acquisitions

		ADEX		TNS		ERFS
Revenues	$	10,577,197	$	1,042,367	$	146,036

Income	$	807,832	$	78,404	$	46,598

NOTES – CONTINGENT CONSIDERATION

The Company has issued contingent consideration in connection with the acquisitions during 2011 and 2012. The following describes the contingent consideration issued.

ADEX: As additional consideration, the Company agreed to pay the ADEX sellers an amount of cash equal to the product of 0.75 (the “Multiplier”) multiplied by the adjusted EBITDA of the ADEX Entities for the twelve months beginning October 1, 2012, (the “Forward EBITDA”). If the Forward EBITDA is less than $2,731,243, the Multiplier shall be adjusted to 0.50, and if the Forward EBITDA is greater than $3,431,243, the Multiplier shall be adjusted to 1.0. The Company also agreed to pay the ADEX sellers an amount of cash equal to the amount, if any, by which the Forward EBITDA is greater than $3,081,243. In connection with these obligations, the Company reserved 2,000 shares of Series G Preferred Stock. These shares are redeemable in the event the Company defaults on its obligation to make the required payments. The shares of Series G Preferred are automatically cancelled if required payments are made in cash by the Company. The Company has valued the contingent consideration likely to be paid at $2,123,210. The contingent consideration can range from $0, in the event ADEX has zero or negative EBITDA, to unlimited; as there is no cap on the amount that may be earned. The Company has recorded this $2,123,210 contingent consideration as a liability on its consolidated balance sheets. As of December 31, 2012, the amount of contingent consideration had not changed.

F-29

T N S: As additional consideration, the Company agreed to pay amounts tied to certain operating results achieved by T N S. The holders of the Series F Preferred Stock can demand that an aggregate of 3,000 shares of Series F Preferred Stock be redeemed beginning on November 27, 2012, with the redemption to occur within 20 days of such request. In the event T N S achieves certain minimum operating results, the holders may also request that an additional 575 shares of Series F Preferred be redeemed beginning on September 17, 2013. The holders of the Series F Preferred Stock can demand that any remaining Series F Preferred Stock be redeemed beginning on September 17, 2014.

Included in the consideration at the acquisition date is an additional 575 shares of Series F Preferred Stock. However, in the event that certain operating results are achieved or not achieved by T N S for the twelve months ending September 30, 2013, additional shares of Series F Preferred Stock may be issued, or the remaining 575 issued shares of Series F Preferred Stock may be partially or entirely cancelled, based on an agreed upon formula. Therefore, these shares are treated as contingent consideration and are shown as a liability on the Consolidated Balance Sheets. The increase or decrease in the shares is based on 20% of the EBITDA of T N S for each of the three years that is greater than $1,275,000.

The Company has recorded $557,933 as contingent consideration of Series F Preferred Stock as a liability on its consolidated balance sheets. As of December 31, 2012, the amount of contingent consideration had not changed.

ERFS: As additional consideration, the Company agreed to pay the ERFS seller 1.5 times EBITDA for the twelve-month period from January 1, 2013 through December 31, 2013, provided that the EBITDA for such twelve-month period exceeds the EBITDA for the twelve month period prior to closing by $10,000. The Company has valued the contingent consideration likely to be paid at $2,100,000. The contingent consideration can range from $0, in the event ERFS EBITDA for the 12 months following closing is less than $10,000 over the 12 months period prior to closing, to unlimited as there is no cap on the amount that may be earned. The Company recorded the $2,100,000 contingent consideration as a liability on its consolidated balance sheets. As of December 31, 2012, the amount of contingent consideration had not changed.

Tropical: As additional consideration, the Company will issue additional shares of common stock in the Company based on a formula tied to the future earnings of Tropical. The contingent consideration to be paid to the former owners of Tropical was as follows: 50% of the net income of Tropical for the eighteen months following the acquisition, along with warrants with an exercise price of $150.00 per share for up to 1,000 shares of Company common stock for each $500,000 of EBITDA generated by Tropical in the two years after the date of acquisition. The Company has valued the amount of contingent consideration likely to be paid at $15,320. The potential range of contingent consideration can range from $0, in the event Tropical has zero or negative net income, to unlimited, as there was no cap on the amount that may be earned. The Company has recorded this $15,320 contingent Consideration as a liability on its consolidated balance sheets. As of December 31, 2012 and 2011, the amount of contingent consideration had not changed.

RM Engineering: As additional consideration, the Company agreed to pay 50% of the net income of RM Engineering for the eighteen month period following the closing, as well as cashless exercise warrants with an exercise price of $150.00 per share for up to 1,000 additional shares for each $500,000 in net income generated by the Company during the 24 month period following closing. The Company has valued the amount of contingent consideration likely to be paid at $126,287. The potential range of contingent consideration can range from $0, in the event RM Engineering has zero or negative net income, to unlimited, as there is no cap on the amount that may be earned. The Company has recorded this $126,287 contingent consideration as a liability on its consolidated balance sheets. As of December 31, 2012 and 2011, the amount of contingent consideration had not changed.

2012 Deconsolidation

Deconsolidation of Digital Comm, Inc. Subsidiary

On September 13, 2012, the Company sold 60% of the outstanding shares of common stock of Digital to the Company’s former president and a former director. As consideration for the purchase, the former president issued to the Company a non-recourse promissory note in the principal amount of $125,000. The note is secured by the purchased shares. Immediately subsequent to the transaction, the Company wrote off the $125,000 promissory note from its former president, as it deemed it unlikely that he could repay the note. At the date of deconsolidation, the Company wrote off all its receivables from Digital of $880,000 and adjusted the negative investment carrying amount at the time of deconsolidation to zero, which resulted in a net gain of approximately $528,000. Subsequent to the sale of 60% of its ownership interest in Digital, the Company continued to fund the cash flow of Digital into December 2012. These amounts were approximately $179,000, which the Company subsequently wrote down to $0, as the Company has determined that the equity investment is uncollectible as Digital has limited operations and limited ability to repay the amount owed. The Company did not attribute any value to its equity investment in Digital at December 31, 2012 based on Digital's historical recurring losses and expected future losses, and Digital's liabilities far exceeding the value of its tangible and intangible assets at such date.

In the Company’s financial statements for the year ended December 31, 2011, the investment in Digital was eliminated and therefore showed a value of zero. In the Company’s financial statements for the year ended December 31, 2012, the investment in Digital had been written off and also reflected a value of zero.

The below information summarizes the results of operations of Digital for the year ended December 31, 2011 and for the period from January 1, 2012 through September 12, 2012, the date of deconsolidation.

	Year ended			January 1, 2012 through
	December 31, 2011			September 12, 2012
Revenue	$	2,443,441		$	1,691,956

Gross Margin		666,756			139,675

Loss from operations		(455,875	)		(473,918	)

Interest expense		(157,383	)		(251,412	)

Net loss	$	(613,258	)	$	(725,330	)

F-30

The following information provides summary balance sheet information as of December 31, 2011 and September 12, 2012 (the date of deconsolidation):

	December 31, 2011			September 12. 2012
Current assets	$	435,559		$	605,332
Total assets		717,136			833,157
Total liabilities		1,425,290			2,266,640
Stockholder's deficit		(708,154	)		(1,433,483	)

Additionally, the Company believes that the likelihood that it will receive payments under its note receivable from its former president was less than likely at December 31, 2012, and it will recognize payments received under such notes, if any, as a capital contribution from its former officer. Further, the Company continued to accrue losses in proportion to its equity ownership of 40%. Digital will remain a related party after its deconsolidation. During the three months ended December 31, 2012, Digital continued to incur losses and the Company recognized a loss on equity investment of $50,539.

5. PROPERTY AND EQUIPMENT, NET

At December 31, 2012 and 2011, property and equipment consisted of the following:

	December 31,
	2012			2011
Vehicles	$	548,159		$	605,247
Computers and Office Equipment		191,328			91,098
Equipment		399,645			440,241
Small Tools		-			20,504
Total		1,139,132			1,157,090
Less accumulated depreciation		(771,508	)		(818,331	)

Property and equipment, net	$	367,624		$	338,759

On September 30, 2012, the Company sold 60% of its interest in its Digital subsidiary. As a result of the deconsolidation of Digital, the Company sold capital equipment with an original purchase price of $330,669 and accumulated depreciation of $113,111.

Depreciation expense for the years ended December 31, 2012 and 2011 was $120,558 and $39,229, respectively.

6. GOODWILL AND INTANGIBLE ASSETS

Goodwill
	Tropical		RM Engineering		ADEX		TNS		EFRS		Total
Balance December 31, 2010	$	-	$	-	$	-	$	-	$	-	$	-

Acquisitions		174,746		169,240		-		-		-		343,986
Balance December 31, 2011		174,746		169,240		-		-		-		343,986

Acquisitions		-		-		10,474,212		4,002,654		5,741,128		20,217,994
Balance December 31, 2012	$	174,746	$	169,240	$	10,474,212	$	4,002,654	$	5,741,128	$	20,561,980

The following table summarizes the Company’s intangible assets as of December 31, 2012 and 2011:

	December 31, 2012								December 31, 2011
	Estimated	Gross							Gross
	Useful	Carrying		Accumulated			Net Book		Carrying		Accumulated		Net Book
	Life	Amount		Amortization			Value		Amount		Amortization		Value
Customer relationship and lists	10 yrs	$	5,709,049	$	(208,623	)	$	5,500,426	$	614,108	$	-	$	614,108
Non-compete agreements	2-3 yrs		199,638		(18,991	)		180,647		3,921		-		3,921
URL's	Indefinite		10,208		-			10,208		5,104		-		5,104
Tradename	Indefinite		3,414,562		-			3,414,562		178,998		-		178,998

Total purchased intangible assets		$	9,333,457	$	(227,614	)	$	9,105,843	$	802,131	$	-	$	802,131

Amortization expense related to the purchased intangible assets was $235,091 and $0 for the years ended December 31, 2012 and 2011, respectively.

F-31

The estimated future amortization expense for the years ending December 31 is as follows:

	Total
2013	$	578,502
2014		576,799
2015		565,822
2016		532,350
2017		518,199
Thereafter		2,909,402
Total	$	5,681,074

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

As of December 31, 2012 and 2011, accrued expenses consisted of the following:

	December 31,
	2012		2011
Accrued interest and preferred dividends	$	864,607	$	15,977
Accrued trade payables		2,442,478		724,430
Accrued compensation		857,379		250,895
	$	4,164,464	$	991,302

8. BANK DEBT

As of December 31, 2012 and 2011, bank debt consisted of the following:

	December 31,
	2012			2011
Two installment notes, monthly principal and interest of $533, interest 9.05% and 0% secured by vehicles, maturing July 2016	$	23,463		$	51,569

Five lines of credit, monthly principal and interest, interest ranging from $0 to $13,166, interest ranging from 5.5% to 9.75%, guaranteed personally by principal shareholders of acquired companies, maturing between July 2013 and February 2020		536,464			761,078
		559,927			812,647
Less: Current portion of bank debt		(352,096	)		(114,358	)

Long-term portion of bank debt	$	207,831		$	698,289

Future maturities of bank debt as of December 31, 2012 were as follows:

Year ending December 31,
2013	$	352,096
2014		75,661
2015		75,661
2016		40,354
2017		16,155
Total	$	559,927

The Company’s assets securing the bank debt had a carrying value of $25,000 and $77,037 at December 31, 2012 and 2011, respectively.

There were no covenants related to the bank debt.

The interest expense associated with the bank debt during the years ended December 31, 2012 and 2011 amounted to $185,479 and $45,678, respectively. The weighted average interest rate on bank debt during 2012 and 2011 was 8.2% and 7.85%, respectively.

F-32

9. TERM LOANS

At December 31, 2012 and 2011, term loans consisted of the following:

	December 31,
	2012			2011
Term loan, UTA, net of debt discount of $0 and $30,013	$	-		$	744,987

Term loan, MidMarket Capital, net of debt discount of $182,631 and $0		14,817,369			-

Convertible promissory notes, unsecured, matured in December 2012		27,500			-

Promissory notes, unsecured, matured in October 2012		195,000			-

Promissory notes, secured, maturing in December 2018		53,396			-

8% convertible promissory notes, unsecured, maturing in November 2011 and March 2013		-			112,500

Promissory note with equity component, due on demand, non-interest bearing, due June 2011, with 8,000 common shares equity component		-			8,000

18% convertible promissory note maturing in January 2013		210,000			-

Promissory note, unsecured, non-interest bearing due July 2011, with 16,000 common shares equity component		9,500			39,500

Acquisition promissory note to former shareholders of RM Engineering and RM Leasing, unsecured, non-interest bearing, imputed interest immaterial, matured in March 2012 and June 2012		200,000			200,000
		15,512,765			1,104,987
Less: Current portion of term loans		(3,632,528	)		(1,104,987	)

Long-term portion term loans, net of debt discount	$	11,880,237		$	-

Future annual payments, as of December 31, 2012 were as follows:

2013	$	1,465,179
2014		1,473,179
2015		2,123,179
2016		3,585,679
2017		6,865,549
Total	$	15,512,765

Note Payable- UTA

On August 6, 2010, UTA Capital LLC (“UTA”) provided a working capital loan to the Company, the parent company of Digital, with Digital also as an additional borrower. The loan was evidenced by a Note and Warrant Purchase Agreement dated August 6, 2010 among the Company, Digital and UTA. Under the agreement, the borrowers delivered two senior bridge notes in the amount of $1 million each, for an aggregate principal amount of $2 million. The notes were each one-year amortized term notes bearing interest at 10% per annum. The Company received an initial draw from the first $1 million note of $960,000 net of fees on August 6, 2010, which was recorded as an investment contribution by the Company in Digital.

Additionally, the Company issued to UTA warrants to purchase 16% of the Company’s common stock on a fully-diluted basis, up to a maximum of 167,619 shares of common stock of the Company, which were exercisable at $18.75 per share and provided for cashless exercise. The Company has evaluated the anti-dilution provision and deemed its impact to be immaterial. The relative fair value of the warrants was calculated using the Black-Scholes Option Valuation Model. This amount, totaling approximately $872,311, has been recorded as a derivative liability and debt discount and charged to interest expense over the life of the promissory note. The UTA warrants do not meet the criteria to be classified as equity in accordance with ASC 815-40-15-7D and are classified as derivative liabilities at fair value and should be marked to market since they are not indexed to the Company’s stock as the settlement amount is not fixed due to the variability of the number of warrants to be issued. The derivative liability associated with this debt will be revalued each reporting period and the increase or decrease will be recorded to the consolidated statement of operations under the caption (change in fair value of derivative instruments.)

F-33

On February 14, 2011, the Company and UTA entered into First Loan Extension and Modification Agreements (the “Modification Agreement”) in connection with the Company’s existing note payable, which had a balance of $775,000 at December 31, 2010. The Modification Agreement provided for an extension of the original maturity date of the note from August 6, 2011 to September 30, 2011. In exchange for consenting to the Modification Agreement, UTA was granted 10,257 shares of the Company’s common stock, which had a fair value of $153,850 and was recorded as a debt discount. Additionally, as additional consideration for the Company’s failure to satisfy a certain covenant in the loan agreement, UTA was granted 4,000 shares of the Company’s common stock, which was recorded as penalty paid to UTA and recorded as an expense. As of December 31, 2011, these two additional grants of shares had not been physically issued. However, such shares are reflected on the accompanying financial statements as if issued. This amendment was accounted for as an extinguishment and therefore the unamortized deferred loan costs of $53,848, debt discount from the original agreement of $509,849 and debt discount from this amendment of $153,850 were expensed. At December 31, 2012 and 2011, the number of shares of common stock issuable upon the exercise of warrants was 0 and 578,568, respectively.

On June 25, 2011, the Company and UTA entered into Second Loan Extension and Modification Agreements (“Second Modification Agreement”). The Second Modification Agreement provided for:

An extension of the original maturity date of the note from August 6, 2011 to July 31, 2012;

A continuation of the interest rate of 10% per annum for the remainder of the loan;

After August 11, 2011, all monthly cash receipts from purchase orders financed pursuant to the agreement entered into on June 30, 2011 between the Company and Tekmark, after reduction for payroll expenses and fees paid to Tekmark relating to the Tekmark financing, were to be distributed at the end of each month in the following order of priority:

On August 31, 2011 and September 30, 2011, the first $50,000 to the Company and $35,000 to UTA as a reduction of principal, and of any remaining balance, 40% to the Company and 60% to UTA as a reduction of principal.

On October 31, 2011 and November 30, 2011, and on the last day of each following month, the first $50,000 to the Company and $50,000 to UTA as a reduction of principal, and of any remaining balance 50% to the Company and 50% to UTA as a reduction of principal.

Monthly, commencing in January 2012, at each month end in which the Company had consolidated gross revenues of $500,000 or more, the Company was required to pay UTA as a reduction of principal, the greater of $50,000 or 10% of the gross consolidated revenues for such month.

The Second Modification Agreement also provided for certain repayments of the loan in the event the Company secured additional equity and/or debt financing. Additionally, in exchange for consenting to the Second Modification Agreement, UTA was issued 2,340 shares of the Company’s common stock; and a continuing provision of additional shares to be issued to UTA to enable UTA to maintain ownership of 1% of the Company’s total outstanding shares until the loan was repaid. The additional shares of common stock were recorded and valued at the fair market price of $43,866 on their date of issue as a debt discount cost and were charged to loan cost expense over the remaining period of the loan. This amendment was accounted for a as a loan modification.

On December 28, 2011, the Company and UTA entered into the Third Loan Extension and Modification Agreements (“Third Modification Agreement”) in connection with the Company’s existing note payable, which had a balance of $775,000 at December 31, 2011. The Third Modification Agreement provided for:

An extension of the original maturity date of the note from August 6, 2011 to January 31, 2013;

A continuation in interest rate of 10% per annum for the remainder of the loan;

F-34

Commencing in January 2012, at each month end in which the Company had consolidated gross revenues of $800,000 or more, the Company was required to pay UTA as a reduction of principal 5% of the gross consolidated revenues of the Company; and

A termination of the loan repayment requirements resulting from the Tekmark financing pursuant to the Second Loan Extension, as described above, as it pertains to Tekmark financing on business with Verizon Wireless or Verizon Communications.

The Third Modification Agreement also provided for certain repayments of the loan in the event the Company secured additional equity and/or debt financing. In exchange for consenting to the Third Modification Agreement, the Company made a $25,000 principal payment on the loan and adjusted the warrant in accordance with the anti-dilution provision. This amendment was accounted for as a loan modification. The warrant was valued under the Black Scholes option Valuation Method at $4,611 and recorded as a debt discount and derivative liability.

The remaining balance of the loan in the original principal amount of $750,000 was paid in full on September 17, 2012. On September 6, 2012, the Company issued to UTA 208,759 shares of common stock in consideration of the cancellation of the warrants issued to UTA. The resulting charge was recorded as interest expense.

Term Loan – MidMarket Capital

On September 17, 2012, the Company entered into a Loan and Security Agreement with the lenders referred to therein (the “Lenders”), MidMarket Capital Partners, LLC, as agent for the Lenders (the “Agent”), and certain subsidiaries of the Company as guarantors (the “Loan Agreement”). Pursuant to the loan agreement, the Lenders provided the Company senior secured first lien term loans in an aggregate amount of $13,000,000 (the “Term Loans”). A portion of the proceeds of the Term Loans were used to finance the acquisitions of the ADEX Entities and TNS, to repay certain outstanding indebtedness (including all indebtedness owed to UTA) and to pay fees, costs and other expenses related thereto. The remainder of the Term Loan may be used by the Company to finance certain other acquisitions (“Potential Acquisitions”) and for working capital and long-term financing needs.

The Term Loans mature on September 17, 2017, provided that if the Company fails to raise by March 14, 2014, at least $30,000,000 in connection with a public offering of voting equity securities of the Company, the Term Loans will mature on June 17, 2014. If no Potential Acquisition was completed within 90 days of September 17, 2012, the Company was required to repay $750,000 of the Term Loan. The Company completed the acquisition of Environmental Remediation and Financial Services on December 17, 2012 and this covenant became void.

In connection with the Term Loans, deferred loan costs of $1,800,051 were recorded. These costs are being amortized over the life of the loan using the effective interest method.

Interest on the Term Loans accrues at the rate of 12% per annum.

Subject to certain exceptions, all obligations of the Company under the Term Loans are unconditionally guaranteed by each of the Company’s existing and subsequently acquired or organized direct and indirect domestic subsidiaries (the “Guarantors”) pursuant to the terms of a Guaranty and Suretyship Agreement dated as of September 17, 2012, by RM Leasing and Tropical, both wholly-owned subsidiaries of the Company, in favor of the Agent (the “Guaranty”), as supplemented by an Assumption and Joinder Agreement dated as of September 17, 2012 by and among the Company, ADEX, TNS and the Agent (the “Joinder”). Pursuant to the terms of the Loan Agreement, the Guaranty (as supplemented by the Joinder) and a Pledge Agreement dated as of September 17, 2012 by the Company in favor of the Agent, the obligation of the Company and the Guarantors in respect of the Term Loans are secured by a first priority security interest in substantially all of the assets of the Company and the Guarantors, subject to certain customary exceptions.

The Term Loans are subject to certain representations and warranties, affirmative covenants, negative covenants, financial covenants and conditions. The Term Loans also contain events of default, including, but not limited to, the failure to make payments of interest or premium, if any, on, or principal under the Term Loans, the failure to comply with certain covenants and agreements specified in the Loan Agreement and other loan documents entered into in connection therewith for a period of time after notice has been provided, the acceleration of certain other indebtedness resulting from the failure to pay principal on such other indebtedness, certain events of insolvency and the occurrence of any event, development or condition which has had or could reasonably be expected to have a material adverse effect. If any event a default occurs, the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding amounts under the Term Loans may become due and payable immediately.

F-35

Pursuant to the Loan Agreement, the Company issued warrants to the Lenders (the “Warrants”), which entitle the Lenders to purchase a number of shares of common stock equal to 10% of the fully-diluted shares of the common stock of the Company on the date on which the Warrants first became exercisable, which was December 6, 2012. The Warrants were amended on November 13, 2012 as part of the First Amendment to the Loan Agreement. At that time, the Warrants were increased from the right to purchase 10% of the fully-diluted shares to the right to purchase 11.5% of the fully-diluted shares. The Warrants have an exercise price of $1.25 per share, subject to adjustment as set forth in the Warrants, and will expire on September 17, 2014, but are subject to extension until certain financial performance targets are met. The Warrants have anti-dilution rights in connection with the exercise price. The fair value of the anti-dilution rights is immaterial. If the Company issues stock, warrants or options at a price below the $1.25 per share exercise price of the Warrants, the exercise price of the Warrants resets to the lower price. As of March 8, 2013, the Lenders had not required the Company to exercise the Warrants. The Warrants meet the criteria in accordance with ASC 480 to be classified as liabilities since there is a put feature that requires the Company to repurchase the Warrants. The derivative liability associated with this debt will be revalued each reporting period and the increase or decrease will be recorded to the consolidated statement of operations under the caption (change in fair value of derivative instruments.)

On September 17, 2012, when the Warrants were issued, the Company recorded a derivative liability in the amount of $193,944. The amount was recorded as a debt discount and is being amortized over the life of the Term Loan. Pursuant to the second amendment to the MidMarket Loan Agreement dated March 22, 2013, the aggregate number of shares of common stock issuable upon exercise of such warrants was set at 187,386 shares. The amount of the derivative liability was computed by using the Black Scholes Option Valuation Method to determine the value of the Warrants issued. The Company used the following assumptions to determine the fair value of the Warrants at the original measurement date of September 17, 2012 and at December 31, 2012. The underlying security price (fair value of shares of common stock) was $0.0072 and $0.0068 at September 17, 2012 and December 31, 2012, respectively. The exercise price at each date was $5.00 based on the terms set forth in the Warrant. The historical volatility was estimated at 109% and 112%, respectively, based on historically volatility of other public comparisons. The selected term was 2 years and 1.7 years, respectively, which correlates to the time to expiration. The risk free rate was estimated at 0.23% and 0.25%, respectively, based on the 2-year treasury rate which was closest to the selected term at each date. At December 31, 2012, the number of shares of common stock issuable upon exercise of the Warrants was 6,007,528 shares.

Pursuant to the Loan Agreement, the Company has covenants that must be maintained in order for the loan to not be in default. The covenants are as follows in the original Loan Agreement:

(A) Minimum Liquidity. Liquidity shall not be less than the amount set forth below, to be maintained at all times during and at the end of each period specified below:

Periods	Liquidity
Closing Date through December 31, 2012	$	1,000,000
January 1, 2013 through March 31, 2013	$	1,500,000
April 1, 2013 through June 30, 2013	$	2,000,000
July 1, 2013 through September 30, 2013	$	2,500,000
October 1, 2013 and at all times thereafter	$	3,000,000

(B) Capital Expenditures. Capital Expenditures (whether or not financed) shall not exceed the amounts specified below for the periods specified below:

Periods	Capital Expenditures
Closing Date through December 31, 2012	$	100,000
Closing Date through March 31, 2013	$	200,000
Closing Date through June 30, 2013	$	300,000
Four fiscal quarters ending on September 30, 2013	$	400,000
Four fiscal quarters ending on each of December 31, 2013 and December 31, 2014	$	500,000
Four fiscal quarters ending on each of March 31, 2015, June 30, 2015, September 30, 2015 and December 31, 2015	$	600,000
Four fiscal quarters ending on March 31, 2016, and each consecutive period of four fiscal quarters thereafter	$	700,000

(C) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio shall be not less than 2.00 to 1.00 as of the end of each fiscal quarter, commencing with the fiscal quarter ending on December 31, 2012, in each case for the trailing period of four (4) consecutive fiscal quarters then ended, provided that, for purposes of calculating compliance with this covenant, with respect to Debt Payments for the fiscal quarter ending on December 31, 2012, the two fiscal quarters ending on March 31, 2013 and the three fiscal quarters ending on June 30, 2013 such Debt Payments shall be annualized by multiplying such Debt Payments by a factor of 4, 2 and 1.33, respectively.

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(D) Total Debt Leverage Ratio. The Total Debt Leverage Ratio shall not be greater than the levels specified below as of the end of, and for, each period indicated below, with Adjusted EBITDA measured for the trailing period of four (4) consecutive fiscal quarters then ended:

Period Ending On	Total Debt Leverage Ratio
December 31, 2012	3.50 to 1.00
March 31, 2013	3.50 to 1.00
June 30, 2013	3.00 to 1.00
September 30, 2013	2.75 to 1.00
December 31, 2013	2.50 to 1.00
March 31, 2014	2.25 to 1.00
June 30, 2014	2.00 to 1.00
September 30, 2014	1.75 to 1.00
December 31, 2014	1.75 to 1.00
March 31, 2015	1.50 to 1.00
June 30, 2015	1.40 to 1.00
September 30, 2015	1.30 to 1.00
December 31, 2015	1.20 to 1.00
March 31, 2016 and the last day of each succeeding fiscal quarter thereafter	1.00 to 1.00

(E) Senior Debt Leverage Ratio. The Senior Debt Leverage Ratio shall not be greater than the levels specified below as of the end of, and for, each period indicated below, with Adjusted EBITDA measured for the trailing period of four (4) consecutive fiscal quarters then ended:

Period Ending On	Senior Debt Leverage Ratio
December 31, 2012	2.60 to 1.00
March 31, 2013	2.60 to 1.00
June 30, 2013	2.40 to 1.00
September 30, 2013	2.20 to 1.00
December 31, 2013	2.00 to 1.00
March 31, 2014	1.80 to 1.00
June 30, 2014	1.60 to 1.00
September 30, 2014	1.50 to 1.00
December 31, 2014	1.40 to 1.00
March 31, 2015	1.30 to 1.00
June 30, 2015	1.20 to 1.00
September 30, 2015	1.10 to 1.00
December 31, 2015 and the last day of each succeeding fiscal quarter thereafter	1.00 to 1.00

On November 13, 2012, the Company and the Agent entered into the First Amendment to the Loan Agreement, pursuant to which an additional $2,000,000 was loaned to the Company. In addition, an additional $60,000 was added as deferred loan cost, and an additional $191,912 was expensed. This amendment was accounted for as a modification.

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The following table summarizes the repayment obligations of the MidMarket Term Loan for the dates and periods indicated:

March 31, 2013	$	162,500
June 30, 2013		162,500
September 30, 2013		162,500
November 14, 2013		2,000,000
December 31, 2013		325,000
2014		1,462,500
2015		2,112,500
2016		3,575,000
2017		4,875,000
Total	$	14,837,500

The Company’s obligations under the Loan Agreement, as amended, are secured by all of the Company’s assets.

Interest expense on the Term Loan was $491,943 in 2012.

Convertible Promissory Notes, Unsecured.

In June 2012, the Company issued an 8% convertible promissory note in the principal amount of $27,500 that bore interest at the rate of 8% per annum and matured in December 2012. This note was convertible into common stock of the Company, at the holder’s option, at a conversion price equal to 50% of the average of the three lowest closing prices of the common stock within the 10-day period prior to the conversion date. As of December 31, 2012, this note was still outstanding. In January 2013, this note was converted into 28,826 shares of common stock. During 2012, the Company recognized $1,100 of interest expense on this note.

Promissory Note, unsecured

In September 2012, the Company issued a promissory note in the principal amount of $530,000 to Wellington Shields & Co. This note bears interest at the lowest rate permitted by law unless the Company is in default on repayment, at which time the note bears interest at the rate of 18% per annum. This note was due in October 2012 and the Company is in default and accruing interest at the higher amount. During 2012, the Company recorded interest expense of $28,090 on this note. The amount outstanding as of December 31, 2012 was $195,000.

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8% Convertible Promissory Notes

Between February and September 2011, the Company issued five 8% convertible promissory notes in the aggregate principal amount of $197,500. These notes bore interest at the rate of 8% per annum and matured between November 2011 and June 2012. The principal and interest of these notes was convertible into common stock of the Company, at the holder’s option, at a rate equal to 50% of the average of the three lowest closing prices of the common stock within the 10-day period prior to the conversion date. As of December 31, 2012, there were no amounts outstanding on these notes. During the years ended December 31, 2012 and 2011, the Company recognized $187,029 and $90,099 of interest expense on the notes. The lender was issued 177,270 and 117,386 shares during the years ended December 31, 2012 and 2011, respectively, in connection with the conversion of the debt.

Promissory Note with Equity Component

On May 11, 2011, the Company issued a promissory note in the principal amount of $25,000. In connection with the issuance of this promissory note, the Company issued to the lender 8,000 shares of the Company’s common stock. This promissory note bore no interest. This promissory note was due in June 2011, and was considered in default at December 31, 2011. This promissory note had a principal balance of $8,000 as of December 31, 2011 and $0 on December 31, 2012. This note was repaid in January 2012.

18% Convertible Promissory Note

In July 2012, the Company issued an 18% convertible promissory note in the principal amount of $210,000, that matured in January 2013. The principal and interest on this note were convertible, at the holder’s option, into the Company’s common stock at a rate equal to 50% of the average of the three lowest closing prices of the common stock within the 10-day period prior to the conversion date. Upon conversion, the beneficial conversion feature was recorded as interest expense in the amount of $280,819. The loss was not materially different than the incremental intrinsic value resulting from the resolution of the contingently adjustable conversion ratios and the corresponding adjustments to the conversion prices. During 2012, the Company recognized interest expense of $11,130 on this note. During March 2013, the note was converted into 36,584 shares of common stock. Upon conversion, the beneficial conversion feature was recorded as interest expense in the amount of $280,819. The loss was not materially different than the incremental intrinsic value resulting from the resolution of the contingently adjustable conversion ratios and the corresponding adjustments to the conversion prices.

Promissory Note, Unsecured

On May 26, 2011, the Company issued a promissory note in the principal amount of $50,000. In connection with the issuance of this promissory note, the Company issued to the lender 16,000 shares of the Company’s common stock. This note bore no interest until the occurrence of an event of default, at which time the note was to bear interest at the rate of 18% per annum on the remaining balance. This note was due in June 2011, and is considered in default. This note had a principal balance of $9,500 and $39,500 as of December 31, 2012 and 2011, respectively. The Company recorded interest expense of $15,689 and $0 in the years ended December 31, 2012 and 2011, respectively.

Acquisition Promissory Note

On December 29, 2011, the Company acquired substantially all of the assets and assumed certain liabilities of RM Engineering. Upon its acquisition of RM Engineering, the Company assumed unsecured, non-interest bearing acquisition promissory notes to former shareholders of RM Engineering due in March and June 2012. As of December 31, 2012, these notes were in default. As of December 31, 2012 and 2011, these notes had a principal balance of $200,000. The Company recorded no interest expense in 2012 or 2011 on these notes.

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10. DERIVATIVE INSTRUMENTS

The Company evaluates and accounts for derivatives conversion options embedded in its convertible and freestanding instruments in accordance with ASC 815, Accounting for Derivative Instruments and Hedging Activities, or ASC 815.

The Company issued warrants to UTA Capital per the terms of a note payable in 2010, which were outstanding through August 2012, at which point the Company and the lender settled the debt and the warrants.

The terms of the warrants, among others, provided that the number of shares issuable upon exercise of the warrants amounted to 16% of the Company’s fully-diluted outstanding common shares and common share equivalents, whether the common share equivalents were fully vested and exercisable or not, and the exercise price, which was initially at $18.75 per common share underlying the warrants, was reset at the lowest effective price per share in the Company’s subsequent financing. The Company reset the exercise price of the warrants in the third amendment to the loan agreement in December 2011. This amendment was accounted for as a loan modification. The adjustment of the warrant was valued under the Black-Scholes Option Valuation Method at $4,611 and recorded as a debt discount and derivative liability.

The Company issued warrants to the lenders under its term loan agreement lenders in 2012. The Company also issued warrants in connection with the issuance of its Series E Preferred Stock in 2012. The warrants were outstanding at December 31, 2012.

The terms of the warrants issued pursuant to the MidMarket Loan Agreement 2012 originally entitled the lender to purchase a number of shares of common stock equal to 10% of the fully-diluted shares of the common stock of the Company on the date on which such warrants first became exercisable, which was December 6, 2012. The warrants were amended on November 13, 2012 in connection with the execution of the first amendment to the MidMarket Loan Agreement. At that time, the number of shares issuable upon exercise of the warrants was increased from the right to purchase 10% of the fully-diluted shares of the Company to the right to purchase 11.5% of the fully-diluted shares of the Company. Pursuant to the second amendment to the MidMarket Loan Agreement dated March 22, 2013, the aggregate number of shares of common stock issuable upon exercise of such warrants was set at 749,542 shares. The warrants have an exercise price of $1.25 per share, subject to adjustment as set forth in the warrants, and will expire on September 17, 2014, but are subject to extension until certain financial performance targets are met. The warrants also have anti-dilution rights in connection with the exercise price. The fair value of the anti-dilution rights is immaterial. If the Company issues stock, warrants or options at a price below the $1.25 per share exercise price of the warrants, the exercise price of the warrants resets to the lower price. Upon the second amendment to the MidMarket Loan Agreement, the anti-dilution rights were cancelled. The warrants meet the criteria to be classified as liabilities in accordance with ASC 480 because there is a put feature in the warrants that requires the Company to repurchase the warrants under certain circumstances. The derivative liability associated with this debt will be revalued each reporting period and the increase or decrease will be recorded to the consolidated statement of operations under the caption "change in fair value of derivative instruments."

On September 17, 2012, the date on which the warrants were issued, the Company recorded a derivative liability in the amount of $193,944. The amount was recorded as a debt discount and is being amortized over the life of the related term loan. The amount of the derivative liability was computed by using the Black Scholes Option Valuation Method to determine the value of the warrants issued. The Company used the following assumptions to determine the fair value of the warrants at the original measurement date of September 17, 2012 and at December 31, 2012. Historically, the Company derived the fair value of its common stock using the OPM back solve method. The underlying security price (fair value of shares of common stock) was $0.0072 and $0.0068 at September 17, 2012 and December 31, 2012, respectively. The exercise price at each date was $1.25 based on the terms set forth in the warrant. The historical volatility was estimated at 109% and 112%, respectively, based on historical volatility of other public comparisons. The selected term was 2 years and 1.7 years, respectively, which correlates to the time to expiration. The risk free rate was estimated at 0.23% and 0.25% respectively, based on the 2-year treasury rate which was closest to the selected term at each date. At December 31, 2012, the number of shares of common stock issuable upon exercise of the warrants was 1,501,882.

The fair value of the MidMarket derivative at each measurement date was calculated using the Black-Scholes option pricing model with the following factors, assumptions and methodology:

	Year Ended December 31,
	2012				2011


Fair value of Company’s common stock		$	0.68755-10.00			$	0.68755-10.00
Volatility (closing prices of 3-4 comparable public companies, including the Company’s historical volatility)			56.78-112	%			56.78-112	%
Exercise price		$	0.95-10.00			$	0.95-10.00
Estimated life		1.75 years				1.5-4 years
Risk free interest rate (based on 1-year treasury rate)			0.0266-0.12	%			0.06-0.12	%

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The terms of the warrants issued to the holders of Series E Preferred Stock provide that, among other things, the number of shares of common stock issuable upon exercise of such warrants amounts to 4.99% of the Company’s fully-diluted outstanding common shares and common share equivalents, whether the common share equivalents are fully vested and exercisable or not, and that the exercise price of such warrants is $125 per share of common stock, subject to adjustment.

The warrants provide for variability involving the effective amount of common share equivalents issued in future equity offerings of equity-linked financial instruments. Additionally, the warrants do not contain an exercise contingency. Accordingly, the settlement of the warrants would not equal the difference between the fair value of a fixed number of shares of the Company’s common stock and a fixed stock price. Accordingly, they are not indexed to the Company’s stock price. The Company accounts for such variability associated with its warrants as derivative liabilities.

The warrants issued to the holders of Series E Preferred Stock do not meet the criteria to be classified as equity in accordance with ASC 815-40-15-7D and should be classified as derivative liabilities at fair value and should be marked to market since they are not considered indexed to the issuer’s stock. At December 31, 2012, the value of the derivative liability for the warrants was minimal and therefore no amount was recorded by the Company.

The fair value of derivatives at each measurement date was calculated using the Black-Scholes option pricing model with the following factors, assumptions and methodologies:

	Year Ended December 31,
	2012				2011

Implied fair value of Company’s common stock		$	0.68755-10.00			$	0.6875-10.00
Volatility (closing prices of 3-4 comparable public companies, including the Company’s historical volatility)			56.78-112	%			56.78-112	%
Exercise price		$	0.2375 – 2.50			$	0.2375 – 2.50
Estimated life		1.75 years				1.5-4 years
Risk free interest rate (based on 1-year treasury rate)			0.0266-0.12	%			0.06-0.12	%

A summary of the transactions related to the derivative liability for the years ended December 31, 2012 and 2011 is as follows:

Derivative liability at January 1, 2011	$	459,897
Decrease in fair value of derivative liability,
recognized as other income		(421,340	)
Derivative liability at December 31, 2011	$	38,557
Fair value of derivative
at issuance, recognized as debt discount	$	193,944
Decrease in fair value of derivative liability,
recognized as other income		(198,908	)
Derivative liability at December 31, 2012	$	33,593

F-41

11. INCOME TAXES

The provision for (benefit from) income taxes for the years ended December 31, 2012 and 2011 was as follows:

	Years Ended December 31,
	2012		2011
Federal	$	-	$	-
State		48,232		-
Foreign		106,217		-
Total Current	$	154,449	$	-

Deferred:
Federal	$	(2,530,775	)	$	-
State		(270,197	)		-
Total deferred		(2,800,972	)		-
Total income tax benefit	$	(2,646,523	)	$	-

The Company’s effective tax rate for the years ended December 31, 2012 and 2011 differed from the U.S. federal statutory rate as follows:

	Years Ended December 31,
	2012			2011
			%			%
Federal tax benefit at Statutory Rate		(34.0	)		(34.0	)
Permanent Differences		(6.7	)		22.1
State tax benefit, net of Federal benefits		0.8			(1.2	)
Other		0.3			-
Effect of foreign income taxed in rates other than the U.S. Federal statutory rate		2.8			-
Net change in valuation allowance		(29.5	)		13.1
Foreign tax credits		(2.8	)		-
Tax provision (benefit)		(69.1	)		-

The tax effects of temporary differences and carryforwards that gave rise to significant portions of the deferred tax assets were as follows (in thousands):

	Year Ended December 31,
	2012			2011
Net operating loss carry forwards	$	2,058,644		$	3,421,000
Accruals and reserves		301,000			84,000
Credits		106,000			-
Total assets		2,465,644			3,505,000

Depreciation		(15,000	)		(33,000	)
Section 481 adjustment		(1,347,000	)		(1,796,000	)
Intangible assets		(3,479,000	)		-
Valuation allowance		-			(1,667,000	)
Total liabilities		(4,841,000	)		(3,505,000	)

Net deferred tax liabilities	$	(2,374,356	)	$	-

As of December 31, 2011, based upon available objective evidence, management believed it was more likely than not that the net deferred tax assets would not be realized. Accordingly, management had established a valuation allowance for all deferred tax assets. The net valuation allowance decreased by approximately $1,516,000 during the year ended December 31, 2012 as a result of the recognition of offsetting deferred tax liabilities, including the Section 481 adjustment as described below and the acquisition of intangible assets in its business combinations. As a result of these items, the Company was in a net deferred tax liability position and the remaining deferred tax assets, primarily net operating losses, are expected to be realized when these deferred tax liabilities are recognized.

As of December 31, 2012, and 2011, the Company had available net operating loss carryforwards of approximately $5,600,000 and $5,500,000 available to reduce future taxable income, if any, for federal and Florida income tax purposes, respectively. The federal and state net operating loss carryforwards begin to expire in 2025. As of December 31, 2012, the Company had federal tax credit carryforwards of $106,000 available to offset future federal taxes payable. These federal credits begin to expire in 2022.

Utilization of the net operating loss and credit carryforwards is subject to an annual limitation due to the ownership percentage change limitations provided by Section 382 of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of the net operating loss carryforwards before utilization. The Company has adjusted it deferred tax asset to record the expected impact of the limitations.

During 2012, the Company acquired ownership of three entities that had historically used the cash method of accounting for tax purposes. Section 446 of the Internal Revenue Code of 1986, as amended, requires that the Company prepare its tax returns using the accrual method of accounting. As a result of this change from cash to accrual accounting for income tax purposes, the Company recorded $4.5 million, or $1.3 million tax affected, as deferred tax liability through purchase accounting (which will be recognized into income over the period 2012 through 2015). A change in method of accounting requires an adjustment under IRC section 481(a). IRC section 481(a) requires those adjustments necessary to prevent amounts from being duplicated or omitted to be taken into account when the taxpayer’s taxable income is computed under a method of accounting different from the method used to compute taxable income for the preceding taxable year. When there is a change in method of accounting to which IRC section 481(a) is applied, income for the taxable year preceding the year of change must be determined under the method of accounting that was then employed, and income for the year of change and the following taxable years must be determined under the new method of accounting as if the new method had always been used. The adjustment represents the cumulative difference between the present and proposed methods. As this was a voluntary method change, the rules allow a four year recognition period for an unfavorable Section 481 adjustment (i.e. additional taxable income).

F-42

The Company applies the standard relating to accounting (ASC740-10) for uncertainty in income taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company is required to recognize in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. There were no significant unrecognized tax benefits recorded as of December 31, 2012, and there was no change to the unrecognized tax benefits during 2012 and 2011.

The Company does not have any tax positions for which it is reasonably possible the total amount of gross unrecognized tax benefits will increase or decrease through December 31, 2013. The unrecognized tax benefits may increase or change during the next year for items that arise in the ordinary course of business.

The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters as a component of income tax expense. As of December 31, 2012 and 2011, there was no accrued interest and penalties related to uncertain tax positions.

The Company is subject to U.S. federal income taxes and to income taxes in various states in the United States. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The tax return years 2009 through 2012 remain open to examination by the major domestic taxing jurisdictions to which the Company is subject. In addition, all of the net operating loss credit carryforwards that may be used in future years are still subject to adjustment. The Company is not currently under examination by any tax jurisdiction.

12. CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash in financial institutions. At December 31, 2011, substantially all of the Company’s cash was in one bank subject to FDIC’s insurance of $250,000 per depositor per insured bank. From December 31, 2011 through December 31, 2012, all noninterest-bearing transaction accounts were fully insured, regardless of the balances of the account and the ownership capacity of the funds under the Dodd-Frank Act.

The Company grants credit under normal payment terms, generally without collateral, to its customers. These customers primarily consist of telephone companies, cable television multiple system operators and electric and gas utilities. With respect to a portion of the services provided to these customers, the Company has certain statutory lien rights that may in certain circumstances enhance the Company’s collection efforts. Adverse changes in overall business and economic factors may impact the Company’s customers and increase credit risks. These risks may be heightened as a result of the current economic developments and market volatility. In the past, some of the Company’s customers have experienced significant financial difficulties and likewise, some may experience financial difficulties in the future. These difficulties expose the Company to increased risks related to the collectability of amounts due for services performed. The Company believes that none of its significant customers were experiencing financial difficulties that would impact the collectability of the Company’s trade accounts receivable as of December 31, 2012 and 2011.

As of, and for the years ended, December 31, 2012 and 2011, concentrations of significant customers were as follows:

	Accounts Receivable			Revenues
2012
C2 Utility		10	%		4	%
Ericsson Caribbean		11	%		5	%
Verizon Communications, Inc.		3	%		7	%
Nexlink		0	%		14	%
Ericsson, Inc.		33	%		33	%

	Accounts Receivable			Revenues
2011
Danella Construction Corp. of FL, Inc.		4	%		17	%
Alpha Technologies Services		8	%		1	%
Verizon Communications, Inc.		48	%		56	%
Hotwire Communications		5	%		4	%
Miami-Dade County ETSD		1	%		5	%
Miami Dade County Public Schools		28	%		4	%

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Geographic Concentration Risk

Substantially all of the Company’s customers are located within the United States.

13. COMMITMENTS AND CONTINGENCIES

The Company leases certain of its property under leases that expire on various dates through 2016. Some of these agreements include escalation clauses and provide for renewal options ranging from one to five years.

Rent expense incurred under the Company’s operating leases amounted to $174,513 and $59,104 during 2012 and 2011, respectively.

The future minimum obligation during each year through 2016 under the leases with non-cancelable terms in excess of one year is as follows:

Years Ended December 31,		Future Minimum Lease Payments
2013	$	197,397
2014		133,214
2015		121,655
2016		66,000
Total	$	518,266

14. STOCKHOLDERS’ DEFICIT

Common Stock:

Basis for determining fair value of shares issued

The Company determines the value at which to record common stock issued in connection with acquisitions using the market price of the common stock on the date of acquisition.

The Company uses the market price of its common stock to determine the fair value of shares of common stock issued in connection with debt conversions and settlements and in connection with loan modifications.

The Company uses the market price of its common stock to determine the fair value of shares of common stock issued in connection with stock compensation issued to employees and third parties.

Issuance of shares of common stock to third-party for services

During 2011, the Company issued 16,000 shares of its common stock to a consultant, Birbragher Ins Trust, in exchange for consulting services relating to corporate matters. The shares were valued at $15 per share.

During 2011, the Company issued 8,000 shares of its common stock to Interactive Business Alliance in exchange for consulting services relating to public relations. The shares were valued at $13.75 per share.

The aggregate consideration for the issuance of shares of the Company’s common stock for services amounted to $350,000 during 2011 and is reflected in the accompanying consolidated statement of operations as operating expenses.

During 2012, the Company issued 132,000 shares of the Company’s common stock in exchange for consulting services. The shares were valued at an average price of $2.57 per share for a value of $338,900.

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Issuance of shares of common stock to employees, directors, and officers

During 2011, the Company issued 84,000 shares of its common stock to employees as bonuses. The shares were valued at the weighted-average price of $16.20 per share. The aggregate consideration for the issuance of shares of the Company’s common stock to its employees amounted to $1,361,000 during 2011 and is reflected in the accompanying consolidated statement of operations as salary and wages.

During 2012, the Company issued 40,000 shares of the Company’s common stock to directors and officers for services rendered. The shares were valued at $0.75 per share for a value of $30,000.

Issuance of shares of common stock pursuant to conversion of notes payable

During 2011, the Company issued 117,386 shares of its common stock to a third-party lender pursuant to the conversion of notes payable aggregating $123,998. The shares were valued at the conversion price of $1.06 per share. The aggregate consideration for the issuance of the shares of the Company’s common stock to the third-party lender amounted to $123,998. The difference between the aggregate consideration issued and the principal amount converted, which amounted to $23,998, has been recorded as interest expense in the accompanying consolidated statement of operations.

Issuance of shares pursuant to convertible notes payable

During 2012, the Company issued 177,270 shares of its common stock pursuant to convertible notes payable at a weighted-average price of $0.86 per share, for a value of $153,216.

Issuance of shares pursuant to completed business combinations

During 2011, the Company issued 68,000 shares of its common stock in connection with the acquisition of Tropical and RM Engineering. The shares were valued at $1.12 per share for an aggregate consideration of $76,120.

During 2012, the Company issued 40,000 shares of its common stock with a fair market price of $1.9375 per share in connection with the acquisition of TNS. The total value of the stock issued was $77,500.

Issuance of shares pursuant to pending acquisition

During 2011, the Company issued in the aggregate 16,856 shares of its common stock to three stockholders of Premier Cable Designs, Inc., an engineering company that the Company proposed to acquire. The shares were valued at $17.25 per share for an aggregate consideration of $290,766. The shares were held in deposit and are reflected as deposits in the accompanying consolidated balance sheet at December 31, 2011. During 2012, the Company determined that that acquisition was not going to occur. As the stockholders of Premier Cable Design did not have to return the shares, the Company expensed the amount recorded as a deposit.

Issuance of shares to satisfy liabilities

During 2011, the Company issued 20,000 shares of its common stock to a third-party lender pursuant to the conversion of a note payable of $25,000. The shares were valued at $1.25 per share. The aggregate consideration for the issuance of the shares of the Company’s common stock to the third-party lender amounted to $25,000.

Issuance of shares pursuant to loans

During 2011, the Company issued 16,000 shares of its common stock to a note holder pursuant to the terms of the loan, and it issued, in the aggregate, 32,000 shares of its common stock to a note holder to cure the lack of payment at maturity dates. The shares were valued at $7.78 per share. The aggregate consideration for the issuance of the shares of the Company’s common stock to the two note holders amounted to $373,426, which is reflected as interest expense in the consolidated balance sheets.

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Issuance from sale of shares

During 2011, the Company sold, in the aggregate, 27,271 shares of its common stock at a price of $2.02 per share, for net proceeds of $55,000.

Issuance of shares pursuant to loan modification

During 2011, the Company recorded the deemed issuance of 16,596 shares of its common stock pursuant to a loan modification. The shares were valued at a price of $14.62 per share. The aggregate consideration for the issuance of the shares of common stock to the lender pursuant to such modifications amounted to $242,702 and has been recorded as debt discount in the consolidated statement of operations.

Issuance of shares to satisfy obligations pursuant to warrants

During 2012, the Company issued 208,759 shares of its common stock to UTA in exchange for forfeiting common stock warrants with an exercise price of $18.75 per share. The common stock was valued at the price of $2.00 per share. The total value of the shares issued was $352,762, and recorded as interest expense.

Preferred Stock:

Series A

On June 1, 2011, the Company designated 20,000,000 of its 50,000,000 authorized shares of preferred stock, par value of $0.0001 per share, as Series A Preferred Stock (the “Series A Preferred Stock”). The Series A Preferred Stock had no dividend rights and was convertible into shares of common stock of the Company at a conversion ratio of .08 shares of common stock for every one share of Series A Preferred Stock. The Series A Preferred Stock was redeemable at a price of $0.0001 per share and entitled the holder to voting rights at a ratio of .08 votes for every one share of Series A Preferred Stock.

On June 1, 2011, the Company’s Board of Directors authorized the issuance of 2,000,000 shares of the Series A Preferred Stock to three of the Company’s principal officers valued at the fair market value of $1.00 per share and recorded in the accompanying financials statements as stock compensation expense. The carrying amount of the Series A Preferred Stock was based on the par value of the Series A Preferred stock of $0.001 per share, or $200, the difference of $1,999,800 between the fair value of the Series A Preferred Stock at date of issuance and the carrying value of $200, was recorded as additional paid in capital.

As of December 31, 2012 and December 31, 2011, the Series A Preferred Stock was convertible into 40,000 and 40,000 shares of common stock, respectively. This conversion is based on a conversion ratio of .08 shares of common stock for each share of Series A Preferred Stock. The total fully diluted common stock outstanding on December 31, 2012 and December 31, 2011 was 13,062,981 and 904,010 respectively.

15. REDEEMABLE PREFERRED STOCK

The Company evaluated and concluded that its Series B, C, E, F, G and H Preferred Stock did not meet the criteria in ASC 480-10 and thus were not considered liabilities. The Company evaluated and concluded that the embedded conversion feature in preferred series B, C, E, G and H did not meet the criteria of ASC 815-10-25-1 and does not need to be bifurcated. In accordance with ASR 268 and ASC 480-10-S99 these equity securities are required to be classified outside of permanent equity since they are redeemable for cash. These instruments are currently redeemable and thus have been adjusted to their maximum redemption amount.

The Company evaluated and concluded that its Series D Preferred Stock did not meet any the criteria in ASC 480-10 and thus was not considered a liability. The Company evaluated and concluded that the embedded conversion feature in the Series D Preferred Stock did not meet the criteria of ASC 815-10-25-1 and does not need to be bifurcated. In accordance with ASR 268 and ASC 480-10-S99, the shares of Series D Preferred Stock should be classified outside of permanent equity because such shares can be redeemed for cash. These share are not currently redeemable and thus have been recorded based on fair value at the time of issuance. If redemption becomes probable (liquidation event) the shares will become redeemable and they will be recorded to redemption value.

The Company evaluated and concluded that its Series I Preferred Stock did not meet any the criteria in ASC 480-10 and thus was not considered a liability. The Company evaluated and concluded that the embedded conversion feature in the Series I Preferred Stock did not meet the criteria of ASC 815-10-25-1 and does not need to be bifurcated. In accordance with ASR 268 and ASC-480-10, the shares of Series I Preferred Stock and should be classified outside of permanent equity because such shares can be redeemed for cash. These shares are not currently redeemable and are not probable of being redeemed and thus have been recorded based on their fair value at the time of issuance. If redemption becomes probable, or the shares will become redeemable, they will be recorded to redemption value.

Series B

On June 28, 2011, the Company designated 60,000 of its authorized shares of preferred stock as Series B Preferred Stock (the “Series B Preferred Stock”). The Series B Preferred Stock has no dividend rights and each share of Series B Preferred Stock is convertible into such number of shares of common stock of the Company as is equal to 0.00134% of the Company’s total common stock outstanding on a fully-diluted basis. The Series B Preferred Stock is redeemable, at the option of the holder, at a price equal to the cash value paid per share but no less than $1.00 per share, and entitles the holders to one vote for each share of common stock to be received on an as if converted basis. As of December 31, 2012 and 2011, the Series B Preferred Stock was redeemable for $2,216,760 and $15,000, respectively. In June 2011, the Company sold and received subscriptions for the sale of 15,000 shares of Series B Preferred Stock at $1,000 per share from three individuals and a trust. One of the individuals is, and the trust is a related party to, the current chief executive officer of the Company. During 2012, the Company sold, and received subscriptions from four individuals for the purchase of, 16,021 shares of Series B Preferred stock for cash consideration in the aggregate amount of $1,585,000. Three individuals also converted a principal amount of debt and accrued interest thereon in the aggregate amount of $616,760 into 6,479 shares of Series B Preferred Stock.

As of December 31, 2012 and December 31, 2011, the Series B Preferred Stock was convertible into 18,080,050 and 723,208 shares of common stock, respectively. The conversion rate at December 31, 2012 and December 31, 2011 was based on each Series B Preferred Share being convertible into .00134% of the Company’s total common stock outstanding on a fully-diluted basis. The total fully-diluted common stock outstanding on December 31, 2012 and December 31, 2011 was 52,251,924 shares and 3,616,039 shares, respectively. At December 31, 2012, the holders of Series B Preferred Stock agreed to convert their shares into common stock, prior to the holders of Series E Preferred Stock, Series H Preferred Stock, Series E Warrants and the MidMarket Warrants.

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Series C

On December 23, 2011, the Company designated 1,500 shares of the authorized shares of preferred stock as Series C Preferred Stock (the “Series C Preferred Stock”). Series C Preferred Stock has a stated value of $1,000.00 per share, and entitles holders to receive cumulative dividends at the rate of 10% of the stated value per annum payable quarterly. The Series C Preferred Stock is redeemable, at the option of the holder, at a price of $1,000 per share, and entitles the holders to one vote for each share of common stock to be received on an as if converted basis. Holders of Series C Preferred Stock have a two-year option to convert their shares of Series C Preferred Stock to common stock at a rate per share equal to 0.025% of the issued and outstanding common stock at the time of the conversion. At December 31, 2012, the holders of Series C Preferred Stock agreed to convert their shares into common stock, prior to the holders of Series E Preferred Stock, Series H Preferred Stock, Series E Warrants and the MidMarket Warrants.

As of December 31, 2012, the Series C Preferred Stock was convertible into 13,560,038 shares of common stock. The conversion rate at December 31, 2012 was based on each Series C Preferred Share being convertible into 0.025% of the Company’s total of common stock outstanding on a fully-diluted basis. The total fully-diluted common stock outstanding on December 31, 2012 was 52,251,924 shares.

Series D

On December 31, 2011, the Company designated 1,000 shares of its authorized shares of preferred stock as Series D Preferred Stock (the “Series D Preferred Stock”). The Series D Preferred Stock has an initial stated value of $1,000 per share and entitles holders to receive cumulative dividends at the annual rate of 10% of the stated value per share, payable quarterly in cash or shares of common stock, at the election of the Company, beginning on March 31, 2012. The Series D Preferred Stock is non-voting and is convertible at any time the market capitalization of the Company’s common stock exceeds $15 million or the shares of common stock are trading at a per share price in excess of $43.75 per share for a 10-day trading period. The number of shares of common stock issuable upon conversion shall be calculated by dividing the stated amount of the Series D Preferred Stock by the closing price of the common stock on the last business date preceding written notice by the Company to the holders of the Series D Preferred Stock of the Company’s decision to convert such shares. These shares are not currently redeemable and thus have been recorded based on fair value at the time of issuance. If redemption becomes probable (deemed liquidation event) the shares will become redeemable and they will be recorded to redemption value. On December 31, 2011, the Company issued 608 shares of Series D Preferred Stock to one of the Company’s former principal officers in settlement of a note payable to the officer aggregating $605,872, including unpaid interest. In September 2012, the Company issued 400 shares of Series D Preferred Stock to one of the Company’s principal officers in settlement of unpaid compensation. The shares had a fair value upon date of issuance of $352,344.

As of December 31, 2012 and December 31, 2011, the Series D Preferred Stock was convertible into 194,560 shares and 884,364 shares of common stock, respectively. This conversion was based on a conversion ratio of $3.00 and $3.96 per share, respectively, of common stock for each share of Series D Preferred Stock. The total fully-diluted common stock outstanding on December 31, 2012 and December 31, 2011 was 52,251,924 shares and 3,616,039 shares, respectively.

On January 30, 2013, holders converted 566 shares of Series D Preferred stock into 39,487 shares of common stock.

Series E

On September 17, 2012, the Company designated 3,500 shares of its authorized shares preferred stock as Series E Preferred Stock (the “Series E Preferred Stock”). Series E Preferred Stock has a stated value of $1,000 per share, and receive cumulative dividends at a rate of 12% per annum paid quarterly, beginning on September 30, 2012. The dividends are payable in cash or shares of the Company’s common stock, at the Company’s option. Holders of Series E Preferred Stock have a one-year option to convert their shares of Series E Preferred Stock to common stock of the Company. In aggregate, the shares of Series E Preferred Stock are convertible into a number of shares of common stock amounting to 9.8% of the fully-diluted capitalization of the Company. The shares of Series E Preferred Stock are redeemable at $1,000 per share, at the option of the holder.

As of December 31, 2012, the outstanding Series E Preferred Stock was convertible into 5,119,460 shares of .common stock. This conversion rate at December 31, 2012 was based on the outstanding shares of Series E Preferred Stock being convertible into 8.05% of the Company's total common stock outstanding on a fully-diluted basis at December 31, 2012. The total fully-diluted common stock outstanding on December 31, 2012 was 52,251,924 shares.

Series F

On September 17, 2012, the Company designated 4,800 shares of its authorized shares preferred stock as Series F Preferred Stock (the “Series F Preferred Stock”). Series F Preferred Stock has an initial stated value of $1,000 per share, and entitles the holders to receive cumulative dividends at the rate of 12% per annum payable quarterly, beginning on September 30, 2012. The dividends are payable in cash or shares of the Company’s common stock, at the Company’s option. In connection with the acquisition of T N S on September 17, 2012, the Company issued 4,150 shares of Series F Preferred Stock. The shares of Series F Preferred Stock are redeemable at $1,000 per share. Holders of Series F Preferred Stock have an option to demand that an aggregate of 3,000 shares of Series F Preferred Stock be redeemed beginning on November 27, 2012, with the redemption to occur within twenty days of such request The holders of Series F Preferred Stock may also request that an additional 575 shares of Series F Preferred Stock be redeemed beginning on September 17, 2013, and that an additional 575 shares of Series F Preferred Stock be redeemed beginning on September 17, 2014. The Company may redeem shares of Series F Preferred Stock at any time on ten business days notice. In the event that certain operating results are achieved or not achieved by T N S, additional shares may be issued, or these shares may be cancelled. The shares of Series F Preferred Stock are convertible at the lesser of (i) the last quoted price of the common stock on third day following the effective date of the associated registration statement or (ii) the average of the last reported sale price for each of the three trading days prior to the date of conversion.

As of December 31, 2012, the Series F Preferred Stock was convertible into 1,383,333 shares of common stock. Such conversion amounts were based on a price per share of the common stock on December 31, 2012 of $3.9625.

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Series G

On September 17, 2012, the Company designated 2,000 shares of its authorized preferred stock as Series G Preferred Stock (the “Series G Preferred Stock”). Series G Preferred Stock has an initial stated value of $1,000 per share. The shares of Series G Preferred Stock were not issued and will only be issued in the event the Company defaults on its obligation to pay any earn out consideration earned by the ADEX sellers. In the event that the Series G Preferred Stock is issued, such shares will entitle the holders to receive cumulative dividends at a rate of 12% per annum payable quarterly, beginning on the date of issuance. The dividends are payable in cash or shares of the Company’s common stock, at the Company’s option. Holders of Series G Preferred Stock have an option to convert their shares of Series G Preferred Stock into the Company’s common stock upon the occurrence of a default of payment of an earnout or working capital loan in connection with the Company’s acquisition of the ADEX Entities and after the associated registration statement is declared effective by the Securities and Exchange Commission. The shares of Series G Preferred Stock are convertible at the rate equal to the earnout or working capital loan payment that is under default divided by $1,000 and by the lesser of (i) the last quoted price of the common stock on third day following the effective date of the associated registration statements or (ii) the average of the last reported sale price of the common stock for each of the three trading days prior to the date of conversion. The shares of Series G Preferred Stock are redeemable at the amount of earnout or working capital loan upon the occurrence of default, at their then carrying value, at the option of the holder.

Series H

On October 25, 2012, the Company designated 2,000 shares of its authorized preferred stock as Series H Preferred Stock (the “Series H Preferred Stock”). Series H Preferred Stock has an initial stated value of $1,000 per share, and entitles the holders to receive cumulative dividends at a rate of 10% per month, up to maximum amount of dividends per share equal to 150% of the stated amount. The Series H Preferred Stock stopped accruing dividends after five months. The dividends are payable in cash or shares of the Company’s common stock, at the Company’s option, upon conversion or redemption. Holders of Series H Preferred Stock have a one-year option to convert their shares of Series H Preferred Stock to common stock, beginning 90 days after the date of issuance. In the aggregate, the shares of Series H Preferred Stock are convertible into a number of shares of common stock equal to 4.49% of the number of shares of common stock of the Company outstanding on a fully-diluted basis. The shares of Series H Preferred Stock are redeemable at $1,000 per share, at the option of the holder, beginning 180 days after the date of their issuance. The Company may delay the payment of the redemption amount by paying interest thereon at the rate of 2% per month until paid. During the fourth quarter of 2012, the Company received subscription agreements and cash and issued 1,425 shares of Series H Preferred Stock in exchange for receiving $1,425,000.

As of December 31, 2012, the Series H Preferred Stock was convertible into 2,345,548 shares of common stock. This conversion ratio December 31, 2012 was based on each Series H Preferred Share being convertible into a number of shares of common stock equal to 4.49% of the number of shares of common stock outstanding on a fully-diluted basis. The number of shares of common stock outstanding on a fully-diluted basis on December 31, 2012 was 52,251,924 shares.

Series I

On November 30, 2012, the Company designated 4,500 shares of its authorized preferred stock as Series I Preferred Stock (the “Series I Preferred Stock”). Series I Preferred Stock has an initial stated value of $1,000 per share. Holders of Series I Preferred Stock have an option to convert their shares of Series I Preferred Stock to common stock on the earlier of the 30th day after the associated registration statement is declared effective by the Securities and Exchange Commission or 120 days after the date of their issuance. The shares of Series I Preferred Stock are convertible into common stock at the rate equal to the average of the last reported sale price of the common stock for each of the three trading days prior to the date of conversion. The shares of Series I Preferred Stock are redeemable at $1,000 per share, at the option of the holder, beginning on the 31st day after the associated registration statement is declared effective by the Securities and Exchange Commission and until the Company has redeemed up to $750,000 of Series I Preferred Stock. As of December 31, 2012, the Series I Preferred Stock was convertible 1,135,647 shares of common stock. Such conversion amounts were based on a price per share of the common stock December 31, 2012 of $3.9625.

F-48

A summary of the transactions related to the Company’s Preferred Stock classified as temporary equity during 2011 and 2012 is as follows:

	Common stock				Series B				Series C				Series D						Series E				Series F				Series H				Series I
	Shares			$	Shares			$	Shares			$	Shares				$		Shares			$	Shares			$	Shares			$	Shares			$
Balance January 1, 2011		-	$	-	-		$	-	-		$	-	-			$	-		-		$	-	-		$	-	-		$	-	-		$	-
Issuance to officer for debt owed		-		-	-			-	-			-		608			605,872		-			-	-			-	-			-	-			-
Issuance pursuant to private placement		-		-		15,000	$	15,000	-			-		-			-		-			-	-			-	-			-	-			-
Balance December 31, 2011		-		-		15,000	$	15,000		-	$	-		608		$	605,872			-	$	-		-	$	-		-	$	-		-	$	-
Issuance pursuant to private placement		-		-		16,021		1,585,000		1,500		1,500,000		-			-			2,575		2,575,000		-		-		1,425		1,425,000		-		-
Issuance pursuant to unpaid 2012 salary		-		-		-		-		-		-		400			352,344			-		-		-		-		-		-		-		-
Issuance from conversion of debt and interest		-		-		6,479		616,760		-		-		-			-			-		-		-		-		-		-		-		-
Conversion of Preferred stock into common shares		-		-		-		-		-		-		(400	)		(352,344	)		-		-		-		-		-		-		-		-
Issuance pursuant to private acquisition		40,000		499,921		-		-		-		-		-			-			-		-		4,150		3,575,000		-		-		4,500		4,187,151
Balance December 31, 2012		40,000	$	499,921		37,500	$	2,216,760		1,500	$	1,500,000		608		$	605,872			2,575	$	2,575,000		4,150	$	3,575,000		1,425	$	1,425,000		4,500	$	4,187,151

16. PREFERRED DIVIDENDS

There were no dividends on the Company’s preferred stock in the year ended December 31, 2011. The Company calculated the dividends on the Preferred Stock for the year ended December 31, 2012 as follows:

Preferred Dividends

Year ended December 31, 2012

	Preferred		Annual
	Shares		Dividend			Accrual	Accrued
	Outstanding		Rate			Period	Dividends
Series C Preferred Stock		1,500		*		January - December	$	175,450
Series D Preferred Stock		608		10	%	January - December		61,340
Series E Preferred Stock		2,575		12	%	September - December		82,675
Series F Preferred Stock		4,150		12	%	September - December		145,250
Series H Preferred Stock		1,425		**		October - December		378,500

Total							$	843,215

* The stated dividend rate is 10%, however if the dividends are not paid, the dividend rate becomes 12%.

** Dividends accrue on the Series H Preferred Stock at the rate of 10% per month for a maximum amount of dividends equal to 150% of the stated amount.

Series C Preferred Stock was issued from January 2012 through July 2012.

Series D Preferred Stock was outstanding for the entire year.

Series E Preferred Stock was issued from August 2012 through December 2012.

Series F Preferred Stock was issued to the former shareholders on TNS in connection with the acquisition of TNS on September 17, 2012.

Series H Preferred Stock was issued from October 2012 through November 2012.

17. RELATED PARTIES

At December 31, 2012 and 2011, the Company had outstanding the following loans from related parties:

	December 31,
	2012			2011

Principal shareholders of the Company, unsecured, non-interest bearing, due on demand	$	-		$	1,635
Promissory notes, 30% interest, maturing in June 2013, unsecured		350,000			825,761
Promissory note with company under common ownership by former owner of Tropical, 9.75% interest, monthly payments of interest only of $1,007, unsecured and personally guaranteed by officer, due November 2016		105,694			110,293

Former owner of ERFS, unsecured, non-interest bearing, due on demand		8,700			-

Former owners of RM Leasing, unsecured, non-interest bearing, due on demand		19,402			3,729
		483,796			941,418
Less: current portion of debt		(378,102	)		(5,364	)
Long term portion of notes payable, related parties	$	105,694		$	936,054

F-49

The interest expense associated with the related-party notes payable in the years ended December 31, 2012 and 2011 amounted to $83,609 and $29,893, respectively.

30% Promissory Note Payable

On July 5, 2011, the Company entered into a definitive master funding agreement (“Master Agreement”) with Tekmark Global Solutions, LLC (“Tekmark”) and MMD Genesis, LLC. (“MMD Genesis”). Pursuant to the Master Agreement, the Company received financing in the original principal amount of up to $2,000,000 from Tekmark and a line of credit in the original principal amount of up to $1,000,000 from MMD Genesis. Each loan was evidenced by a two-year promissory note that bore interest at the rate of 2.5% per month. The Tekmark funding was secured by the Company’s accounts receivable. Funding by Tekmark will be in the form of payroll funding support for specific and approved customers of Digital. As of December 31, 2011, the balances owed to Tekmark and MMD Genesis was $497,381 and $328,380, respectively, or $825,761 in total. As of December 31, 2012, the balances owed to Tekmark and MMD Genesis were $0 and $350,000, respectively.

Series B Preferred Stock Financing

Between July 2011 and December 2012, the Company sold an aggregate of 37,500 shares of its Series B Preferred Stock at for an aggregate purchase price of $2,216,760 to certain of the Company’s existing stockholders that qualified as “accredited investors” within the meaning of the Securities Act, including certain of the Company’s affiliates. Forward Investment LLC, which owns more than 5% of the Company’s outstanding capital stock, purchased 13,615 shares for a purchase price of $825,000. Mark Munro 1996 Charitable Remainder Trust, which owns more than 5% of the Company’s outstanding capital stock, purchased 1,051 shares for a purchase price of $100,000. Additionally, the Company’s Chief Executive Officer, Mark Munro, purchased 7,902 shares for a purchase price of $469,460, Charles Miller, a director of the Company, purchased 263 shares for a purchase price of $25,000 and Mark Durfee, a director of the Company, purchased 12,564 shares for a purchase price of $725,000.

Series C Preferred Stock Financing

Between January 2012 and July 2012, the Company sold an aggregate of 1,500 shares of its Series C Preferred Stock at $1,000 per share for an aggregate purchase price of $1,500,000. These sales were made to “accredited investors” within the meaning of the Securities Act, including certain of the Company’s affiliates. A company owned by the Company’s Chief Executive Officer, Mark Munro, purchased 75 shares for a purchase price of $75,000 and Neal Oristano, a director of the Company, purchased 50 shares for a purchase price of $50,000.

Series E Preferred Stock Financing

Between September 2012 and January 2013, the Company sold an aggregate of 2,725 shares of its Series E Preferred Stock at $1,000 per share for an aggregate purchase price of $2,725,000. These sales were made to “accredited investors” within the meaning of the Securities Act, including certain of the Company’s affiliates. Charles K. Miller, a director of the Company, purchased 25 shares for a purchase price of $25,000. A company owned by the Company’s Chief Executive Officer, Mark Munro, purchased 25 shares for a purchase price of $25,000.

18. SUBSEQUENT EVENTS

Amendment to MidMarket Capital Term Loan

As of December 31, 2012, certain events of default had occurred and were continuing under the Company’s term load agreement with two lenders for which MidMarket Capital was serving as agent (the “Agent”), including events of default relating to a number of financial covenants under the loan agreement. On March 22, 2013, the Company and its subsidiaries entered into the second amendment to the loan agreement with the lenders and the Agent pursuant to which, among other agreements, all of the existing events of default by the Company were waived and the financial covenants that gave rise to certain of the events of default were amended as follows (defined terms are as defined in the loan agreement):

(i) Minimum Liquidity. As amended, liquidity shall not be less than the amount set forth below, to be maintained at all times during and at the end of each period specified below:

Periods	Liquidity
September 17, 2012 through November 13, 2012	$	200,000
November 13, 2012 through December 31, 2012	$	1,000,000
January 1, 2013 through March 22, 2013	$	1,500,000
March 22, 2013 through June 30, 2013	$	200,000
July 1, 2013 through September 30, 2013	$	1,500,000
October 1, 2013 through December 31, 2013	$	2,000,000
January 1, 2014 through March 31, 2014	$	2,500,000
April 1, 2014 and at all times thereafter	$	3,000,000

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(ii) Capital Expenditures. As amended, Capital Expenditures (whether or not financed) shall not exceed $500,000 for the four fiscal quarters ending on each of December 31, 2013, March 31, 2014, June 30, 2014, September 30, 2014 and December 31, 2014.

(iii) Fixed Charge Coverage Ratio. As amended, the Fixed Charge Coverage Ratio as of the end of each fiscal quarter, in each case for the trailing period of four (4) consecutive fiscal quarters then ended, shall be not less than the ratio set forth below opposite the last day of each fiscal quarter set forth below, provided that, for purposes of calculating compliance with this covenant, with respect to Debt Payments for the fiscal quarter ended on December 31, 2012, the two fiscal quarters ending on March 31, 2013 and the three fiscal quarters ending on June 30, 2013, such Debt Payments shall be annualized by multiplying such Debt Payments by a factor of 4, 2 and 1.33, respectively:

Period Ending On		Fixed Charge Coverage Ratio
March 31, 2013		1.05 to 1.00
June 30, 2013		1.05 to 1.00
September 30, 2013		1.15 to 1.00
December 31, 2013		1.20 to 1.00
March 31, 2014		1.25 to 1.00
June 30, 2014		1.30 to 1.00
September 30, 2014		1.35 to 1.00
December 31, 2014		1.40 to 1.00
March 31, 2015		1.45 to 1.00
June 30, 2015		1.50 to 1.00
September 30, 2015		1.60 to 1.00
December 31, 2015		1.70 to 1.00
March 31, 2016		1.80 to 1.00
June 30, 2016		1.90 to 1.00
September 30, 2016 and the last day of each succeeding fiscal quarter thereafter		2.00 to 1.00

(iv) Total Debt Leverage Ratio. As amended, the Total Debt Leverage Ratio shall not be greater than the levels specified below as of the end of, and for, each period indicated below, with Adjusted EBITDA measured for the trailing period of four (4) consecutive fiscal quarters then ended:

Period Ending On		Total Debt Leverage Ratio
March 31, 2013		7.25 to 1.00
June 30, 2013		6.50 to 1.00
September 30, 2013		5.50 to 1.00
December 31, 2013		5.00 to 1.00
March 31, 2014		4.75 to 1.00
June 30, 2014		4.50 to 1.00
September 30, 2014		4.25 to 1.00
December 31, 2014		3.75 to 1.00
March 31, 2015		3.50 to 1.00
June 30, 2015		3.25 to 1.00
September 30, 2015		2.75 to 1.00
December 31, 2015		2.50 to 1.00
March 31, 2016		2.25 to 1.00
June 30, 2016 and the last day of each succeeding fiscal quarter thereafter		2.00 to 1.00

(v) Senior Debt Leverage Ratio. As amended, the Senior Debt Leverage Ratio shall not be greater than the levels specified below as of the end of, and for, each period indicated below, with Adjusted EBITDA measured for the trailing period of four (4) consecutive fiscal quarters then ended:

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Period Ending On		Senior Debt Leverage Ratio
March 31, 2013		5.10 to 1.00
June 30, 2013		5.00 to 1.00
September 30, 2013		4.50 to 1.00
December 31, 2013		3.50 to 1.00
March 31, 2014		3.25 to 1.00
June 30, 2014		3.00 to 1.00
September 30, 2014		2.75 to 1.00
December 31, 2014		2.50 to 1.00
March 31, 2015		2.25 to 1.00
June 30, 2015		2.00 to 1.00
September 30, 2015		1.75 to 1.00
December 31, 2015		1.50 to 1.00
March 31, 2016		1.25 to 1.00
June 30, 2016 and the last day of each succeeding fiscal quarter thereafter		1.00 to 1.00

Proposed Acquisitions

Telco Professional Services Division. In November 2012, the Company executed a definitive agreement to acquire the Telco Professional Services and Handset Testing business division (Telco) of Tekmark Global Solutions, LLC, a New Jersey limited liability company. The Company plans to integrate this professional service and telecommunications staffing business with its ADEX subsidiary in order to expand its project staffing business and its access to skilled labor.

Under the terms of the purchase agreement, the Company will acquire certain assets and assume certain liabilities of Telco in exchange for the following consideration to be paid or issued by the Company at the closing: (i) cash in an amount equal to five times Telco’s trailing twelve-month EBITDA, less $2.6 million, and (ii) a number of shares of the Company’s common stock having a value equal to one times Telco’s trailing 12-month EBITDA. The Company and Tekmark are required within 60 days of closing to adjust the initial closing payment such that it equals Telco’s true trailing 12-month EBITDA after accounting for any additional liabilities or adjustments. The Company also agreed to make a cash payment in an amount equal to Telco’s forward EBITDA calculated for the 12-month period commencing on the day of the first calendar month after the closing date.

In addition, the purchase consideration is also required to be increased by Telco’s excess net working capital at closing, which consists of current assets (including accounts receivable), less current liabilities, less total payroll expenses (including applicable fringe benefits) and fixed operating costs for the 60 days prior to closing.

At Tekmark’s discretion, a portion of the original cash payment can be taken in the Company’s common stock with a put provision requiring the Company to repurchase such shares for the original cash value under certain circumstances.

Finally, as additional consideration, the Company agreed to pay Tekmark an amount equal to two times the growth of Telco’s adjusted EBITDA in excess of the calculation used for the initial cash payment for each of the two 12-month periods immediately following the closing date.

Integration Partners-NY Corporation. In November 2012, the Company executed a definitive agreement to acquire Integration Partners-NY Corporation (IPC), a full-service voice and data network engineering firm based in New York. IPC serves both corporate enterprises and telecommunications service providers. The Company believes the acquisition of IPC will support the cloud and managed services aspect of its business, as well as improve its systems integration and applications capabilities.

Under the terms of the purchase agreement, the Company will acquire all the capital stock of IPC in exchange for the following consideration to be paid or issued by the Company at the closing: (i) cash in an amount equal to five and two tenths (5.2X) times IPC’s trailing 12-month EBITDA, and (ii) a number of shares of the Company’s common stock having a value equal to two tenths of one percent (.2X) times IPC’s trailing 12-month EBITDA.

The Company also agreed to pay an amount equal to six tenths of one percent (.6X) times IPC’s forward EBITDA calculated for the 12-month period commencing on the first day of the first calendar month after the closing date.

As additional consideration, the Company agreed to pay the IPC shareholders an amount equal to two (2X) times the growth of IPC’s adjusted EBITDA in excess of the calculation used for the initial cash payment for each of the two 12-month periods immediately following the closing date.

Any of IPC’s shareholders can elect to take the Company’s common stock instead of cash at closing, provided that such portion of the purchase price cannot exceed one (1X) times IPC’s EBITDA.

An amount equal to seven percent (7%) of the total consideration will be placed in escrow for nine months to account for any contingent liabilities, bad debts or breaches of any representations and warranties and covenants by the sellers in the purchase agreement.

F-52

SIGNATURES

Date: October 16, 2013
	By:	/s/ Mark Munro
		Name: Mark Murno
		Title: Mark Munro