S-1 1 fs1062014_intercloud.htm REGISTRATION STATEMENT fs1062014_intercloud.htm
As filed with the Securities and Exchange Commission on July 18, 2014
Registration No. 333-_______


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________________

InterCloud Systems, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
 
7389
 
65-0963722
(State or Other Jurisdiction of
Incorporation or Organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification No.)

1030 Broad Street, Suite 102
Shrewsbury, NJ  07702
(973) 630-5460
(Address, Including Zip Code, and Telephone Number,
 Including Area Code, of Registrant’s Principal Executive Offices)

Mark Munro
Chief Executive Officer
InterCloud Systems, Inc.
1030 Broad Street, Suite 102
Shrewsbury, NJ  07702
(973) 630-5460
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
_________________________

Copies to:
M. Ali Panjwani, Esq.
Eric M. Hellige, Esq.
Pryor Cashman LLP
7 Times Square
New York, New York 10036-6569
Telephone:  (212) 421-4100
Facsimile:  (212) 326-0806
Mitchell S. Nussbaum, Esq.
Giovani Caruso, Esq.
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
Telephone: (212) 407-4000
Facsimile: (212) 407-4990
_________________________
 
Approximate date of commencement of proposed sale to the public: From time to time after this Registration Statement becomes effective.
 
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    x

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o
 
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o
 
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

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
Smaller reporting company
x
(Do not check if a smaller reporting company)
     

 
CALCULATION OF REGISTRATION FEE
 
Title of Each
Class of Securities
To be Registered
 
Proposed
 Maximum
Aggregate
Offering
Price(1)(2)
   
Amount of
Registration Fee
 
Common Stock, $.0001 par value(2)
  $ 9,999,999     $ 1,288  
 

(1)
Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”).
   
(2)
Includes any additional shares of common stock that may be purchased by the underwriters to cover over-allotments, if any.
 
_________________________
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 


 
The information in this prospectus is not complete and may be changed.  The selling stockholders  may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective.  This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED JULY 18, 2014
 
1,425,000 Shares
Common Stock
 
 
 
 
We are offering 1,425,000 shares of our common stock. Our common stock is traded on the NASDAQ Capital Market under the symbol “ICLD.”  On July 15, 2014, the closing price of our common stock on the NASDAQ Capital Market was $6.01 per share.

We are an “emerging growth company” under the federal securities laws and are subject to reduced public company reporting requirements.

Investment in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 13 for risks of an investment in the securities offered by this prospectus, which you should consider before you purchase any shares.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities or passed upon the accuracy or adequacy of this prospectus.  Any representation to the contrary is a criminal offense.
 
Public offering price
  $       $    
Underwriting discounts and commissions (1)
  $       $    
Proceeds, before expenses, to us 
  $       $    
(1)
The underwriters will receive compensation in addition to the underwriting discount described above. See “Underwriting” beginning on page 126 of this prospectus for a description of compensation payable to the underwriters.
 
We have granted a 45-day option to the representative of the underwriters to purchase up to 213,750 additional shares of common stock solely to cover over-allotments, if any.
 
The underwriters expect to deliver our shares to purchasers in the offering on or about          , 2014.
 
Aegis Capital Corp
 
                                 , 2014

 
 
 
TABLE OF CONTENTS
   
 
Page
1
2
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33
33
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS 34
34
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39
40
46
84
99
105
111
112
115
121
122
126
134
134
134
F-1
 
You should rely only on the information contained in this prospectus or in any free writing prospectus that we may specifically authorize to be delivered or made available to you. We have not, and the underwriters have not, authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus may only be used where it is legal to offer and sell shares of our common stock and warrants. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock or warrants. Our business, financial condition, results of operations and prospects may have changed since that date. We are not, and the underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted.
 
For investors outside the United States: We have not and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.
 
 
STATISTICAL DATA AND MARKET INFORMATION
 
This prospectus contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data.  This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. The industry in which we operate is subject to risks and uncertainty due to a variety of factors, including those described in the “Risk Factors” section of this prospectus.  These and other factors could cause results to differ materially from those expressed in these publications and reports.
 
While we are not aware of any misstatements regarding any industry data presented herein, our estimates, in particular as they relate to market share and our general expectations, involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus.
 
 
 

This summary highlights selected information contained in greater detail elsewhere in this prospectus.  This summary does not contain all of the information you should consider before investing in our common stock.  You should read this entire prospectus carefully, especially the “Risk Factors” section of this prospectus and our historical and pro forma consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision.
 
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., AW Solutions, Inc. and AW Solutions Puerto Rico, LLC, Integration Partners – NY Corporation and RentVM, Inc., and our 49%-owned subsidiary, Rives-Monteiro Engineering, LLC.
 
Unless otherwise indicated, the information in this prospectus reflects a one-for-125 reverse stock split of our common stock effected on January 14, 2013 and a one-for-four reverse stock split of our common stock effected on August 1, 2013.  All share and per share data has been adjusted for such reverse stock splits for all periods presented.

Our Company
General

We are a single-source provider of end-to-end information technology (IT) and next-generation network solutions to the telecommunications service provider (carrier) and corporate enterprise markets through cloud platforms and professional services. We offer cloud and managed services, professional consulting and staffing services, and voice, data and optical solutions to assist our customers in meeting their changing technology demands. Our cloud and managed services group offers enterprise and service-provider customers the opportunity to adopt an operational expense model by outsourcing to us certain of their IT needs, rather than the capital expense model that has dominated in recent decades in IT infrastructure management. Our professional services group offers a broad range of solutions to enterprise and service provider customers, including application development teams, analytics, project management, program management, unified communications, network management and field support services on a short and long-term basis. Our applications and infrastructure division offers enterprise and service provider customers specialty contracting services, including engineering, design, installation and maintenance services, that support the build-out and operation of some of the most advanced small cell, Wi-Fi and distributed antenna system (DAS) networks. We believe the migration of these complex networks from proprietary hardware-based solutions to software-defined networks (SDN) and cloud-based solutions provides our company a significant opportunity as we are one of only a few industry competitors that can span across both the legacy and next-generation networks that are actively being designed and deployed in the marketplace. We also believe we are in a position to assist our customers by offering competitive cloud and SDN solutions from a single source, while also maintaining our customers’ legacy hardware-based solutions.
 
 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 cloud services encompass public, private and hybrid cloud offerings within compute, network and storage. In addition, our easy-to-use, intuitive portal assists customers in migrating through an extensive app store and allows customers quickly to add or subtract applications and services. Our experience in system integration and solutions-centric services helps our customers quickly to integrate and adopt cloud-based services. In addition, our managed-services offerings include network management, 24x7x365 monitoring, security monitoring, storage and backup services.
 
 
 
 
 
Applications and Infrastructure/Specialty Contracting Services.  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 Wi-Fi 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 IT and next-generation networks, 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 its maintenance.

Our Industry
 
Advances in technology architectures have supported the rise of cloud computing, which enables the delivery of a wide variety of cloud-based services, such as platform as a service (PaaS), infrastructure as a service (IaaS), database as a service (DbaaS), and software as a service (SaaS). Today, mission-critical applications can be delivered reliably, securely and cost-effectively to our customers over the internet without the need to purchase supporting hardware, software or ongoing maintenance. The lower total cost of ownership, better functionality and flexibility of cloud applications represent a compelling alternative to traditional on-premise solutions. As a result, enterprises are increasingly adopting cloud services to rapidly deploy and integrate applications without building out their own expensive infrastructure and to minimize the growth of their own IT departments and create business agility by taking advantage of accelerated time-to-market dynamics.  Gartner, Inc. (Gartner) expects total cloud spending to increase from $132 billion worldwide in 2013 to $244 billion in 2017.
 
Competitive Strengths
 
We are a single-source provider of end-to-end IT and next-generation network solutions to the telecommunications service provider (carrier) and corporate enterprise markets through cloud platforms and professional services. We believe our market advantages center around our cloud-based applications and services portfolio and positioning.  As a true infrastructure 2.0 provider, we add value by enabling applications and services while helping to contain costs.  Customers now demand a partner that can provide end-to-end IT solutions, that offers a solution that allows the customer to move IT expenditures from capital costs to operating costs, and that offers the customer greater elasticity and the ability to rapidly deploy enterprise applications.  We believe our strengths described below will enable us to continue to compete effectively and to take advantage of anticipated growth in our target markets:
 
 
Single-Source Provider of Cloud and Managed Services Applications and Infrastructure to Enterprise and Service Providers.
       
   
Customizable Cloud Integration Services.  We offer a wide spectrum of flexible and customizable cloud solutions for our customers.  We differentiate our services by our ability to plan and customize a wide variety of cloud solutions for each customer.
 
 

 
 
   
Totally Secure Private and Hybrid Cloud Architectures. While many cloud companies only offer public cloud services, leaving great risks of security challenges within a network, our ability to customize private and hybrid cloud architecture, with multiple levels of security, mitigates these risks.
       
   
Licensed and Open Source SaaS Portfolio. Our software as a service (SaaS) business utilizes top licensed software in the marketplace, including offerings from Microsoft, Hewlett Packard and Citrix.  In addition, we utilize open source platforms that our skilled applications team can customize to fit our customers’ requirements.
       
 
Established Customer Relationships
       
   
Vertical Market Compliance.  Our customer list includes relationships in many vertical markets, such as healthcare, finance and retail, which are specifically sensitive to industry compliance.  Proficiency with standards such as HIPAA, PCI and Ssae16 are essential.  In addition, our applications specialists support customer requirements for unified communication competencies, call center, interactive voice response (IVR) and video applications.
       
   
Service Provider Relationships.  We have established relationships with many leading wireless and wireline telecommunications providers, cable broadband MSOs, OEMs and others.  Our current customers include Ericsson Inc., Verizon Communications Inc., Alcatel-Lucent USA Inc., Century Link, Inc., AT&T Inc. and Hotwire Communications.
       
   
Long-Term Master Service Agreements.  We have over 30 master service agreements with service providers and OEMs.  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.
       
 
Global Professional Services
       
   
Engineering talents.  Our geographical reach and vast engineering talents enable our customers to take advantage of our end-to-end solutions and one-stop shopping.
       
   
Proven Ability to Recruit, Manage and Retain High-Quality 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 and IT personnel.  We also employ highly-skilled recruiters and utilize an electronic hiring process that we believe expedites deployment of personnel and reduces costs.   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 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.
 
 
 
 
Our Growth Strategy
 
Under the leadership of our senior management team, we intend to build our 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:
 
 
Expand Our Cloud-Based Service Offerings.  The IT and telecommunications industries have been undergoing a massive shift in recent years from proprietary hardware solutions to software-defined networking (SDN) and cloud-based solutions.  This shift is being driven by many converging issues, including the “consumerization” of IT, BYOD (bring your own device), meta orchestration of complex networks, video growth and the acceptance of open source network architecture.  We are building a company that can manage the existing network infrastructures of the largest domestic and international corporations and service providers while also delivering a broad range of enterprise-grade cloud solutions.  We believe the ability to provide such services is a critical differentiator as we already have relationships with many potential customers by offering services through our three operating divisions — applications and infrastructure, professional services, and cloud and managed services. Each of our three operating divisions intends to continue to expand by offering additional cloud services, such as cloud management of Wi-Fi and DAS networks, on a virtualized wireless controller running on our cloud rather than installed throughout a customer’s corporate network, which should provide better controls and cost savings for our customers.  We expect to expand the service offerings of our professional services division to include services to support the roll-out of SDN and cloud solutions teams and to market such services to both the service provider and enterprise markets.  These new service offerings are expected to create a new market for professional services as customers in those markets typically do not have next-generation network professionals on staff.  We expect these new services offerings to be a significant growth opportunity in each of those multi-billion-dollar global markets.  Industry experts project that cloud-based IT and telecom solutions will outpace traditional hardware sales by 2016, which supports our strategy and growth plans.
     
 
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.
     
 
Aggressively Expand Our Organic Growth Initiatives.  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 cloud and SDN 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 (ICs), 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 coverage and eliminating redundancies across our newly-acquired businesses, we will be positioned to offer more integrated end-to-end solutions and improve operating margins.
 
Recent Acquisitions
 
We have grown significantly and expanded our service offerings and geographic reach through a series of strategic acquisitions.
 
Since January 1, 2013, we have completed the following acquisitions:
 
 
AW Solutions, Inc. In April 2013, we acquired AW Solutions, Inc. and AW Solutions Puerto Rico, LLC, or, collectively, AW Solutions, a professional, multi-service line, telecommunications infrastructure company that provides outsourced services to the wireless and wireline industry.  AW Solution’s services include network systems design, architectural and engineering services, program management and other technical services.  The acquisition of AW Solutions broadened our suite of services and added new customers to which we can cross-sell our other services.
     
 
Integration Partners-NY Corporation.  In January 2014, we acquired Integration Partners-NY Corporation, or IPC, a full-service voice and data network engineering firm based in New York.  IPC serves both corporate enterprises and telecommunications service providers.  We believe the acquisition of IPC will support the cloud and managed services aspect of our business, as well as improve our systems integration and applications capabilities.
     
 
RentVM, Inc.   In February 2014, we acquired RentVM, Inc., or RentVM, a New Jersey- based provider of infrastructure-as-a-service technology to software developers and to healthcare, education, and other small and medium-sized businesses and enterprises to enable public and private (enterprise) Cloud environments.  RentVM expands our cloud and managed services capabilities by providing us a software defined data center (SDDC) platform to offer enterprise-grade cloud computing solutions.
 
We have also entered into definitive agreements for the following acquisitions:
 
 
Telco Professional Services Division.  In November 2012, we executed a definitive agreement to acquire the Telco Professional Services and Handset Testing business division, or Telco, of Tekmark Global Solutions, LLC, a New Jersey limited liability company.  We plan to integrate this professional service and telecommunications staffing business with our ADEX subsidiary in order to expand our project staffing business and our access to skilled labor. Our acquisition of Telco is dependent on our ability to obtain satisfactory financing for such acquisition following this offering, and there can be no assurance that such financing will be available to us.
     
 
VaultLogix, LLC. In March 2014, we executed a definitive agreement to acquire from London Bay-VL Acquisition Company, LLC its three operating subsidiaries, VaultLogix, LLC, Data Protection Services, LLC and U.S. Data Security Acquisition, LLC, or collectively VaultLogix, leading providers of cloud backup services to nearly 10,000 businesses around the world.  VaultLogix safeguards a wide range of enterprise-class operating systems and applications through its unique combination of encryption, block-level data duplication and compression.  In addition, through its partner program, VaultLogix offers software branding, a robust partner portal and dedicated account management. We believe the acquisition of VaultLogix will broaden our suite of cloud service offerings by adding VaultLogix’s cloud backup services to our wide range of cloud services, including IaaS, virtual desktop, hosted exchange, disaster recovery in the cloud and file sharing, and will add new customers and resellers to which we can cross-sell our other services. We intend to complete this acquisition during the third quarter of 2014.
 
 
 
 
Summary Risk Factors
 
Our business is subject to numerous risks described in the section entitled “Risk Factors” and elsewhere in this prospectus.  You should carefully consider these risks before making an investment.  Some of these risks include:
 
 
We may be unable to integrate our recent and future acquisitions, which would adversely affect our business, financial condition, result of operations and prospects.
     
 
We derive a significant portion of our revenue from master service agreements that may be cancelled by customers on short notice, or that we may be unable to renew on favorable terms or at all.
     
 
Our business is labor-intensive and if we are unable to attract and retain key personnel and skilled labor, or if we encounter labor difficulties, our ability to bid for and successfully complete contracts may be negatively impacted.
     
 
Our industry is highly competitive, with a variety of larger companies with greater resources competing with us, and our failure to compete effectively could reduce the number of new contracts awarded to us or adversely affect our market share and harm our financial performance.
     
 
We have a history of losses, deficiency in working capital and a stockholders’ deficit and may continue to incur losses in the future.  If we cannot achieve sustained profitability, our stockholders may lose all or a portion of their investment in our company.
     
 
We have identified material weaknesses in our internal control over financial reporting, and our management has concluded that our disclosure controls and procedures are not effective. We cannot assure you that additional material weaknesses or significant deficiencies will not occur in the future.  If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
     
 
Our substantial indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations.
 
 
 
 
If any of the foregoing risks or the risks described under the heading “Risk Factors” were to occur, you may lose part or all of your investment.  You should carefully consider all the information in this prospectus, including matters set forth under the heading “Risk Factors” commencing on page 13 of this prospectus, before making an investment decision.
 
Our Corporate Information
 
We were incorporated under the name i-realtyauction.com, Inc. in the State of Delaware on November 22, 1999 as a subsidiary of i-Incubator.com, Inc. (INQU).  In November 2000, we registered our common stock pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” and commenced filing periodic reports under the Exchange Act in March 2001.  On August 16, 2001, we changed our name to Genesis Realty Group, Inc. and began to focus our attention on the acquisition, development and management of real property.  In August 2008, we changed our name to Genesis Group Holdings, Inc., and on January 10, 2013, we changed our name to InterCloud Systems, Inc.  We commenced operations in our current line of business in January 2010 when we acquired Digital Comm, Inc., a provider of turnkey services and solutions to the communications industry.
 
Our principal executive offices are located at 1030 Broad Street, Suite 102, Shrewsbury, NJ 07702. The telephone number of our principal executive offices is 732-898-6408, and we maintain a corporate website at http://www.InterCloudsys.com that contains information about our company. The information on, or accessible from, our website is neither part of this prospectus nor incorporated herein by reference.
 
We qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.  For as long as we are deemed an emerging growth company, we may take advantage of specified reduced reporting and other regulatory requirements that are generally unavailable to other public companies. These provisions include:
 
 
an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002;
     
 
an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies, which exemption we have elected not to apply;
     
 
an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements; and
     
 
reduced disclosure about our executive compensation arrangements, such as disclosure regarding the compensation policies of our board of directors, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any executive severance arrangements not previously approved.
 
 
 
 
We will continue to be deemed an emerging growth company until the earliest of:
 
 
the last day of our fiscal year in which we have total annual gross revenues of $1,000,000,000 (as such amount is indexed for inflation every five years by the Commission to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest $1,000,000) or more;
     
 
the last day of our fiscal year following the fifth anniversary of the date of our first sale of common equity securities pursuant to an effective registration statement under the Securities Act;
     
 
the date on which we have, during the prior three-year period, issued more than $1,000,000,000 in non-convertible debt; or
     
 
the date on which we are deemed to be a ‘large accelerated filer,” as defined in Regulation S-K under the Securities Act.
 
We also qualify as a “smaller reporting company,” as defined by Regulation S-K under the Securities Act of 1933, as amended, or the “Securities Act.”  As such, we also are exempt from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and also are subject to less extensive disclosure requirements regarding executive compensation in our periodic reports and proxy statements, and to exemptions from the requirements to hold a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.  We will continue to be deemed a smaller reporting company until our public float exceeds $75 million on the last day of our second fiscal quarter in any fiscal year.
 
About This Offering
 
Common stock offered
1,425,000 shares
   
Common stock to be outstanding immediately after this offering
15,080,578 shares
   
Underwriter’s option to purchase additional shares of common stock in this offering
We have granted the underwriter a 45-day option to purchase up to 213,750 additional shares at the public offering price less underwriting discounts and commissions.
   
Dividend policy
We currently intend to retain future earnings, if any, for use in the operation of our business. We have never paid cash dividends on our common stock and we do not anticipate paying any cash dividends for the foreseeable future. See “Dividend Policy.”
   
Use of  Proceeds
We estimate that the net proceeds from this offering will be approximately $7.7 million (approximately $8.9 million if the underwriter exercises its option to purchase additional shares of common stock in full) based upon an assumed offering price of $6.01 per share, which was the last reported sale price of our common stock as reported by the NASDAQ Capital Market on July 15, 2014, after deducting the underwriting discounts and commissions and our estimated offering expenses in the amount of $235,000. We expect to use the net proceeds from this offering for general corporate purposes, including working capital. See “Use of Proceeds.”:
   
NASDAQ Capital Market Symbol
ICLD
   
Risk Factors
You should carefully read and consider the information set forth under “Risk Factors” and all other information included in this prospectus for a discussion of factors that you should consider before deciding to invest in shares of our common stock.
 
 
 
 
 
The number of shares of common stock to be outstanding immediately after this offering is based on 10,863,889 shares of common stock outstanding as of March 31, 2014 and assumes the issuance and sale of 1,425,000 shares of common stock in this offering.  The number of shares of common stock to be outstanding after this offering also includes:
 
 
91,241 shares of common stock issued in April 2014 in connection with our purchase of certain assets;
     
 
an aggregate of 1,551,725 shares of common stock issued in April, June and July 2014 upon the conversion of certain indebtedness;
     
 
an aggregate of 1,139,772 shares of common stock issued in April and May 2014 to certain of our officers, directors, employees and consultants for services rendered or to be rendered, including an aggregate of 940,367 restricted shares of common stock that are subject to three-year vesting; and
     
 
an aggregate of 8,934 shares of common stock issued in May 2014 in payment of accrued interest on certain outstanding promissory notes.
 
The number of shares of common stock to be outstanding after this offering excludes an aggregate of up to approximately 3,569,761 shares of common stock based upon the following:
 
 
234,233 shares of common stock issuable upon the exercise of stock purchase warrants outstanding on March 31, 2014 with an exercise price of $4.00 per share that expire on September 7, 2014, subject to extension if certain minimum EBITDA thresholds are not achieved;
     
 
159,359 shares of common stock issuable upon the exercise of stock purchase warrants outstanding on March 31, 2014 with an exercise price of $5.00 per share that expire on November 5, 2018;
     
 
31,250 shares of common stock issuable upon the exercise of stock purchase warrants outstanding on March 31, 2014 with an exercise price of $5.00 per share that expire on November 5, 2017;
     
 
225,000 shares of common stock issuable upon the exercise of stock purchase warrants issued on April 15, 2014 with an exercise price of $7.25 per share that expire on April 15, 2017;
     
  up to 58,870 shares of common stock issuable upon the exercise of stock purchase warrants issued on July 1, 2014 with an exercise price of $7.25 per share that expire on July 1, 2017;
     
 
up to 1,231,615 shares of common stock (exclusive of subsequently issued shares referred to above) that are issuable upon the conversion of, or in connection with payments made by us on, convertible debentures outstanding on March 31, 2014 with a current conversion price of $6.36 per share that mature on June 13, 2015;
     
 
1,018,082 shares of common stock issuable upon the conversion of convertible promissory notes outstanding on March 31, 2014 with a current conversion price of $6.36 per share that mature on June 30, 2015;
     
 
397,602 shares of common stock issuable upon conversion of a convertible promissory note outstanding on March 31, 2014 with a current conversion price of $16.99 per share that matures on December 31, 2014; and
     
 
213,750 shares of common stock issuable upon the exercise of the underwriter’s over-allotment option to purchase additional shares of common stock.
 
The number of shares outstanding at March 31, 2014 also does not include 1,067,749 shares of common stock (exclusive of subsequently issued shares referred to above) reserved for future issuance at March 31, 2014 under our 2012 Performance Incentive Plan or 585,586 shares of common stock reserved for future issuance at such date under our Employee Stock Purchase Plan.
 
 
 
 
Selected Financial Information
 
The following table sets forth our summary consolidated financial data for the three-month periods ended March 31, 2014 and 2013 and the years ended December 31, 2013 and 2012. The summary consolidated financial statements of operations data for the fiscal years ended December 31, 2013 and 2012 and the summary consolidated balance sheet data as of December 31, 2013 and 2012 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of operations data for the three-month periods ended March 31, 2014 and 2013 and the summary consolidated balance sheet data as of March 31, 2014 are derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of our results to be expected for any future period.

The following summary consolidated financial data should be read in conjunction with, and is qualified in its entirety by reference to, the information contained under the captions “Selected Consolidated Historical Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and related notes appearing elsewhere in this prospectus.
 
   
For the three months ended
March 31,
   
For the years ended
December 31,
 
   
2014
   
2013
   
2013
   
2012
 
   
(unaudited)
       
Statement of Operations Data:
  (in thousands, except share and per share data)  
Revenue
  $ 14,075     $ 11,243     $ 51,407     $ 17,090  
Gross profit
    3,934       2,966       14,127       5,121  
Operating expenses
    6,665       2,663       20,468       7,929  
Income (loss) from operations
    (2,731 )     303       (6,341 )     (2,808 )
Other income (expense), net
    9,576       (1,278 )     (19,075 )     (1,098 )
Income (loss) before benefit for income taxes
    6,845       (975 )     (25,416 )     (3,906 )
Provision (benefit) for income taxes
    137       (317 )     (588 )     (2,646 )
Dividends on preferred stock
    -       (591 )     (1,084 )     (843 )
Net income (loss) income attributable to InterCloud Systems, Inc common stockholders
    6,655       (1,050 )     (25,438 )     (2,073 )
(Loss) earnings per share, basic
  $ 0.70     $ (0.50 )   $ (7.85 )   $ (1.33 )
(Loss) earnings per share, diluted
  $ (1.52 )   $ (0.50 )   $ (7.85 )   $ (1.33 )
Basic weighted average shares outstanding
    9,449,622       2,103,957       3,240,230       1,553,555  
Diluted weighted average shares outstanding
    9,449,622       2,103,957       3,240,230       1,553,555  
 
         
As of
 
   
March 31,
   
December 31,
 
   
2014
   
2013
   
2012
 
    (unaudited)        
Balance Sheet Data:
  (in thousands)  
Cash
  $ 3,956     $ 17,869     $ 606  
Accounts receivable, net
    10,874       7,822       7,661  
Total current assets
    18,047       28,307       10,184  
Goodwill and intangible assets, net
    60,849       29,846       23,927  
Total assets
    79,894       60,690       43,317  
                         
Total current liabilities
    29,762       24,112       14,861  
Long term liabilities
    19,287       38,254       15,160  
Redeemable common and preferred stock
    -       -       16,585  
Stockholders' equity (deficit)
    30,845       (1,676 )     (3,229 )
 
 
 
 
Summary Pro Forma Combined Condensed Financial Data
 
The following summary unaudited pro forma combined condensed financial information for the year ended December 31, 2013 presents summary combined condensed information as if we had completed on January 1, 2013 each of the acquisitions of AW Solutions and IPC. An unaudited pro forma combined condensed statement of operations for the three months ended March 2014 is not presented because the statements of operations for each of the acquired entities, including related acquisition adjustments, is included in our condensed consolidated statement of operations for the three months ended March 31, 2014. An unaudited pro forma combined condensed balance sheet as of March 31, 2014 is not presented because the balance sheet of each of the acquired entities, including related acquisition adjustments, is included in our consolidated balance sheet as of such date. The unaudited pro forma combined condensed financial information for the year ended December 31, 2013 does not include any information relating to RentVM because the size and historical financial results of such entity did not meet the significance thresholds of the regulatory guidelines applicable to the provision of financial statements of an acquired entity. The summary unaudited pro forma combined condensed statement of operations data has been prepared from, and should be read in conjunction with, the unaudited pro forma condensed and unaudited consolidated combined statement of operations data set forth under the caption “Unaudited Pro Forma Condensed Combined Financial Information” and the respective historical consolidated audited and unaudited consolidated condensed financial statements and related notes of our company and of AW Solutions and IPC included in this prospectus.
 
The summary historical profit and loss accounts of each of these entities have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The pro forma acquisition adjustments described in the summary unaudited pro forma combined condensed financial information are based on available information and certain assumptions made by us and may be revised as additional information becomes available as the purchase accounting for the acquisition is finalized. The pro forma adjustments are based on preliminary estimates of the fair values of assets acquired and information available as of the date of this prospectus. Certain valuations are currently in process.  Actual results may differ from the amounts reflected in the unaudited pro forma combined condensed financial statements, and the differences may be material.
 
The unaudited pro forma combined condensed statement of operations data included in this prospectus is not intended to represent what our results of operations would have been if the acquisitions had occurred on January 1, 2013 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.
 
   
For the year
 
   
ended
 
   
December 31,
 
   
2013
 
   
(unaudited)
 
   
(In thousands,
except share and
per share data)
 
       
Statement of Operations Data:
     
Revenue
  $ 81,282  
Gross profit
    22,180  
Operating expenses
    26,428  
Other income (expense), net
    (19,576 )
Income (loss) before benefit for income taxes
    (23,857 )
Provision for income taxes
    33  
Net (loss)
    (23,824 )
Dividends on preferred stock
    (1,084 )
Net (loss) attributable to InterCloud Systems, Inc common stockholders, basic
    (25,017 )
Loss per share, basic and diluted
  $ (7.35 )
Basic and diluted shares outstanding
    3,403,367  
 
 
 

Investing in our securities involves a high degree of risk.  You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our securities.  If any of the following risks occur, our business, financial condition, results of operations and prospects could be materially and adversely affected.  In that case, the market price of our common stock could decline, and you could lose some or all of your investment.
 
Risks Related to Our Business
 
A failure to successfully execute our strategy of acquiring other businesses to grow our company could adversely affect our business, financial condition, results of operations and prospects.
 
We intend to continue pursuing growth through the acquisition of companies or assets to expand our project skill-sets and capabilities, enlarge our geographic markets, add experienced management and increase critical mass to enable us to bid on larger contracts.  However, we may be unable to find suitable acquisition candidates or to complete acquisitions on favorable terms, if at all.  Moreover, any completed acquisition may not result in the intended benefits.  For example, while the historical financial and operating performance of an acquisition target are among the criteria we evaluate in determining which acquisition targets we will pursue, there can be no assurance that any business or assets we acquire will continue to perform in accordance with past practices or will achieve financial or operating results that are consistent with or exceed past results.  Any such failure could adversely affect our business, financial condition or results of operations.  In addition, any completed acquisition may not result in the intended benefits for other reasons and our acquisitions will involve a number of other risks, including:
 
 
We may have difficulty integrating the acquired companies;
     
 
Our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically or culturally diverse enterprises;
     
 
We may not realize the anticipated cost savings or other financial benefits we anticipated;
     
 
We may have difficulty applying our expertise in one market to another market;
     
 
We may have difficulty retaining or hiring key personnel, customers and suppliers to maintain expanded operations;
     
 
Our internal resources may not be adequate to support our operations as we expand, particularly if we are awarded a significant number of contracts in a short time period;
     
 
We may have difficulty retaining and obtaining required regulatory approvals, licenses and permits;
     
 
We may not be able to obtain additional equity or debt financing on terms acceptable to us or at all, and any such financing could result in dilution to our stockholders, impact our ability to service our debt within the scheduled repayment terms and include covenants or other restrictions that would impede our ability to manage our operations;
 
 
 
We may have failed to, or were unable to, discover liabilities of the acquired companies during the course of performing our due diligence; and

 
We may be required to record additional goodwill as a result of an acquisition, which will reduce our tangible net worth.
 
Any of these risks could prevent us from executing our acquisition growth strategy, which could adversely affect our business, financial condition, results of operations and prospects.
 
We may be unable to successfully integrate our recent and future acquisitions, which could adversely affect our business, financial condition, results of operations and prospects.
 
We recently acquired a number of companies, including AW Solutions in April 2013, IPC in January 2014 and RentVM in February 2014, and have entered into a definitive agreements for the acquisition of Telco and VaultLogix. The operation and management of recent acquisitions, or any of our future acquisitions, may adversely affect our existing income and operations or we may not be able to effectively manage any growth resulting from these transactions.  Before we acquired them, these companies operated independently of one another.  Until we establish centralized financial, management information and other administrative systems, we will rely on the separate systems of these companies, including their financial reporting systems.
 
Our success will depend, in part, on the extent to which we are able to merge these functions, eliminate the unnecessary duplication of other functions and otherwise integrate these companies (and any additional businesses with which we may combine in the future) into a cohesive, efficient enterprise.  This integration process may entail significant costs and delays could occur.  Our failure to integrate the operations of these companies successfully could adversely affect our business, financial condition, results of operations and prospects.  To the extent that any acquisition results in additional goodwill, it will reduce our tangible net worth, which might adversely affect our business, financial condition, results of operations and prospects, as well as our credit and bonding capacity.
 
We derive a significant portion of our revenue from master service agreements that may be cancelled by customers on short notice, or which we may be unable to renew on favorable terms or at all.
 
During the years ended December 31, 2013 and 2012 and the three-month periods ended March 31, 2014 and 2013, we derived approximately 65%, 60%, 35% and 82%, respectively, of our revenues from master service agreements and long-term contracts, none of which require our customers to purchase a minimum amount of services.  The majority of these contracts may be cancelled by our customers upon minimal notice (typically 60 days), regardless of whether or not we are in default.  In addition, many of these contracts permit cancellation of particular purchase orders or statements of work without any notice.
 
These agreements typically do not require our customers to assign a specific amount of work to us until a purchase order or statement of work is signed. Consequently, projected expenditures by customers are not assured until a definitive purchase order or statement of work is placed with us and the work is completed. Furthermore, our customers generally require competitive bidding of these contracts. As a result, we could be underbid by our competitors or required to lower the price charged under a contract being rebid. The loss of work obtained through master service agreements and long-term contracts or the reduced profitability of such work could adversely affect our business or results of operations.
 
 
If we do not accurately estimate the overall costs when we bid on a contract that is awarded to us, we may achieve a lower than anticipated profit or incur a loss on the contract.
 
A significant portion of our revenues from our engineering and professional services offerings are derived from fixed unit price contracts that require us to perform the contract for a fixed unit price irrespective of our actual costs.  We bid for these contracts based on our estimates of overall costs, but cost overruns may cause us to incur losses.  The costs incurred and any net profit realized on such contracts can vary, sometimes substantially, from the original projections due to a variety of factors, including, but not limited to:
 
 
onsite conditions that differ from those assumed in the original bid;
     
 
delays in project starts or completion;
     
 
fluctuations in the cost of materials to perform under a contract;
     
 
contract modifications creating unanticipated costs not covered by change orders;
     
 
availability and skill level of workers in the geographic location of a project;
     
 
our suppliers’ or subcontractors’ failure to perform due to various reasons, including bankruptcy;
     
 
fraud or theft committed by our employees;
     
 
citations or fines issued by any governmental authority;
     
 
difficulties in obtaining required governmental permits or approvals or performance bonds;
     
 
changes in applicable laws and regulations; and
     
 
claims or demands from third parties alleging damages arising from our work or from the project of which our work is a part.
 
These factors may cause actual reduced profitability or losses on projects, which could adversely affect our business, financial condition, results of operations and prospects.
 
Our contracts may require us to perform extra or change order work, which can result in disputes and adversely affect our business, financial condition, results of operations and prospects.
 
Our contracts generally require us to perform extra or change order work as directed by the customer, even if the customer has not agreed in advance on the scope or price of the extra work to be performed.  This process may result in disputes over whether the work performed is beyond the scope of the work included in the original project plans and specifications or, if the customer agrees that the work performed qualifies as extra work, the price that the customer is willing to pay for the extra work.  Even when the customer agrees to pay for the extra work, we may be required to fund the cost of such work for a lengthy period of time until the change order is approved by the customer and we are paid by the customer.
 
 
To the extent that actual recoveries with respect to change orders or amounts subject to contract disputes or claims are less than the estimates used in our financial statements, the amount of any shortfall will reduce our future revenues and profits, and this could adversely affect our reported working capital and results of operations.  In addition, any delay caused by the extra work may adversely impact the timely scheduling of other project work and our ability to meet specified contract milestone dates.
 
We derive a significant portion of our revenue from a few customers and the loss of one of these customers, or a reduction in their demand for our services, could adversely affect our business, financial condition, results of operations and prospects.
 
Our customer base is highly concentrated. Due to the size and nature of our contracts, one or a few customers have represented a substantial portion of our consolidated revenues and gross profits in any one year or over a period of several consecutive years. Ericsson Inc. and its affiliates accounted for approximately 20% of our total revenues in the three-month period ended March 31, 2014, 41% of our total revenues in the year ended December 31, 2013 and 33% of our total revenues in the year ended December 31, 2012.  Our top four customers, Ericsson, Crown Castle, New York State Office of Court Administration and New York State Department of Corrections, accounted for approximately 38% of our total revenues in the three-month period ended March 31, 2014. Our top four customers, Ericsson, Inc., Crown Castle, NX Utilities and Uline, accounted for approximately 57% of our total revenues in the year ended December 31, 2013. Our top four customers, Ericsson, Inc., Nexlink, Verizon Communications and Ericsson Caribbean accounted for approximately 59% of our total revenues in the year ended December 31, 2012. Revenues under our contracts with significant customers may continue to vary from period to period depending on the timing or volume of work that those customers order or perform with their in-house service organizations. A limited number of customers may continue to comprise a substantial portion of our revenue for the foreseeable future. Because we do not maintain any reserves for payment defaults, a default or delay in payment on a significant scale could adversely affect our business, financial condition, results of operations and prospects. We could lose business from a significant customer for a variety of reasons, including:
 
 
the consolidation, merger or acquisition of an existing customer, resulting in a change in procurement strategies employed by the surviving entity that could reduce the amount of work we receive;
     
 
our performance on individual contracts or relationships with one or more significant customers are impaired due to another reason, which may cause us to lose future business with such customers and, as a result, our ability to generate income would be adversely impacted;
     
 
the strength of our professional reputation; and
     
 
key customers could slow or stop spending on initiatives related to projects we are performing for them due to increased difficulty in the credit markets as a result of the recent economic crisis or other reasons.
 
Since many of our customer contracts allow our customers to terminate the contract without cause, our customers may terminate their contracts with us at will, which could impair our business, financial condition, results of operations and prospects.
 
 
Our failure to adequately expand our direct sales force will impede our growth.

We will need to continue to expand and optimize our sales infrastructure in order to grow our customer base and our business. We plan to continue to expand our direct sales force, both domestically and internationally. Identifying and recruiting qualified personnel and training them requires significant time, expense and attention. Our business may be adversely affected if our efforts to expand and train our direct sales force do not generate a corresponding increase in revenue. If we are unable to hire, develop and retain talented sales personnel or if new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the intended benefits of this investment or increase our revenue.

Our business is labor intensive and if we are unable to attract and retain key personnel and skilled labor, or if we encounter labor difficulties, our ability to bid for and successfully complete contracts may be negatively impacted.
 
Our ability to attract and retain reliable, qualified personnel is a significant factor that enables us to successfully bid for and profitably complete our work.  Our future success depends on our ability to attract, hire and retain project managers, estimators, supervisors, foremen, equipment operators, engineers, linemen, laborers and other highly-skilled personnel.  Our ability to do so depends on a number of factors, such as general rates of employment, competitive demands for employees possessing the skills we need and the level of compensation required to hire and retain qualified employees.  We may also spend considerable resources training employees who may then be hired by our competitors, forcing us to spend additional funds to attract personnel to fill those positions.  Competition for employees is intense, and we could experience difficulty hiring and retaining the personnel necessary to support our business.  Our labor expenses may also increase as a result of a shortage in the supply of skilled personnel.  If we do not succeed in retaining our current employees and attracting, developing and retaining new highly-skilled employees, our reputation may be harmed and our future earnings may be negatively impacted.
 
If we are unable to attract and retain qualified executive officers and managers, we will be unable to operate efficiently, which could adversely affect our business, financial condition, results of operations and prospects.
 
We depend on the continued efforts and abilities of our executive officers, as well as the senior management of our subsidiaries, to establish and maintain our customer relationships and identify strategic opportunities.  The loss of any one of them could negatively affect our ability to execute our business strategy and adversely affect our business, financial condition, results of operations and prospects.  Competition for managerial talent with significant industry experience is high and we may lose access to executive officers for a variety of reasons, including more attractive compensation packages offered by our competitors.  Although we have entered into employment agreements with certain of our executive officers and certain other key employees, we cannot guarantee that any of them or other key management personnel will remain employed by us for any length of time.
 
Because we maintain a workforce based upon current and anticipated workloads, we may incur significant costs in adjusting our workforce demands, including addressing understaffing of contracts, if we do not receive future contract awards or if these awards are delayed.
 
Our estimates of future performance depend, in part, upon whether and when we will receive certain new contract awards.  Our estimates may be unreliable and can change from time to time.  In the case of larger projects, where timing is often uncertain, it is particularly difficult to project whether and when we will receive a contract award.  The uncertainty of contract award timing can present difficulties in matching workforce size with contractual needs.  If an expected contract award is delayed or not received, we could incur significant costs resulting from retaining more staff than is necessary.  Similarly, if we underestimate the workforce necessary for a contract, we may not perform at the level expected by the customer and harm our reputation with the customer.  Each of these may negatively impact our business, financial condition, results of operations and prospects.
 
 
Timing of the award and performance of new contracts could adversely affect our business, financial condition, results of operations and prospects.
 
It is generally very difficult to predict whether and when new contracts will be offered for tender because these contracts frequently involve a lengthy and complex design and bidding process, which is affected by a number of factors, such as market conditions, financing arrangements and governmental approvals.  Because of these factors, our results of operations and cash flows may fluctuate from quarter to quarter and year to year, and the fluctuation may be substantial.  Such delays, if they occur, could adversely affect our operating results for current and future periods until the affected contracts are completed.
 
Our operating results may fluctuate due to factors that are difficult to forecast and not within our control.
 
Our past operating results may not be accurate indicators of future performance, and you should not rely on such results to predict our future performance.  Our operating results have fluctuated significantly in the past, and could fluctuate in the future.  Factors that may contribute to fluctuations include:
 
 
changes in aggregate capital spending, cyclicality and other economic conditions, or domestic and international demand in the industries we serve;
     
 
our ability to effectively manage our working capital;
     
 
our ability to satisfy consumer demands in a timely and cost-effective manner;
     
 
pricing and availability of labor and materials;
     
 
our inability to adjust certain fixed costs and expenses for changes in demand;
     
 
shifts in geographic concentration of customers, supplies and labor pools; and
     
 
seasonal fluctuations in demand and our revenue.
 
Unanticipated delays due to adverse weather conditions, global climate change and difficult work sites and environments may slow completion of our contracts, impair our customer relationships and adversely affect our business, financial condition, results of operations and prospects.
 
Because some of our work is performed outdoors, our business is impacted by extended periods of inclement weather and is subject to unpredictable weather conditions, which could become more frequent or severe if general climatic changes occur.  Generally, inclement weather is more likely to occur during the winter season, which falls during our second and third fiscal quarters.  Additionally, adverse weather conditions can result in project delays or cancellations, potentially causing us to incur additional unanticipated costs, reductions in revenues or the payment of liquidated damages.  In addition, some of our contracts require that we assume the risk that actual site conditions vary from those expected.  Significant periods of bad weather typically reduce profitability of affected contracts, both in the current period and during the future life of affected contracts, which can negatively affect our results of operations in current and future periods until the affected contracts are completed.
 
 
Some of our projects involve challenging engineering, procurement and construction phases that may occur over extended time periods, sometimes up to several years.  We may encounter difficulties in engineering, delays in designs or materials provided by the customer or a third party, equipment and material delivery delays, schedule changes, delays from customer failure to timely obtain rights-of-way, weather-related delays, delays by subcontractors in completing their portion of the project and other factors, some of which are beyond our control, but which may impact our ability to complete a project within the original delivery schedule.  In some cases, delays and additional costs may be substantial, and we may be required to cancel a project and/or compensate the customer for the delay.  We may not be able to recover any of these costs.  Any such delays, cancellations, defects, errors or other failures to meet customer expectations could result in damage claims substantially in excess of revenue associated with a project.  These factors could also negatively impact our reputation or relationships with our customers, which could adversely affect our ability to secure new contracts.
 
Environmental and other regulatory matters could adversely affect our ability to conduct our business and could require expenditures that could adversely affect our business, financial condition, results of operations and prospects.
 
Our operations are subject to laws and regulations relating to workplace safety and worker health that, among other things, regulate employee exposure to hazardous substances.  While immigration laws require us to take certain steps intended to confirm the legal status of our immigrant labor force, we may nonetheless unknowingly employ illegal immigrants.  Violations of laws and regulations could subject us to substantial fines and penalties, cleanup costs, third-party property damage or personal injury claims.  In addition, these laws and regulations have become, and enforcement practices and compliance standards are becoming, increasingly stringent.  Moreover, we cannot predict the nature, scope or effect of legislation or regulatory requirements that could be imposed, or how existing or future laws or regulations will be administered or interpreted, with respect to products or activities to which they have not been previously applied.  Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could require us to make substantial expenditures for, among other things, pollution control systems and other equipment that we do not currently possess, or the acquisition or modification of permits applicable to our activities.
 
If we fail to maintain qualifications required by certain governmental entities, we could be prohibited from bidding on certain contracts.
 
If we do not maintain qualifications required by certain governmental entities, such as low voltage electrical licenses, we could be prohibited from bidding on certain governmental contracts.  A cancellation of an unfinished contract or our exclusion from the bidding process could cause our work crews to be idled for a significant period of time until other comparable work becomes available, which could adversely affect our business and results of operations.  The cancellation of significant contracts or our disqualification from bidding for new contracts could reduce our revenues and profits and adversely affect our business, financial condition, results of operations and prospects.
 
 
Fines, judgments and other consequences resulting from our failure to comply with regulations or adverse outcomes in litigation proceedings could adversely affect our business, financial condition, results of operations and prospects.
 
From time to time, we may be involved in lawsuits and regulatory actions, including class action lawsuits that are brought or threatened against us in the ordinary course of business.  These actions may seek, among other things, compensation for alleged personal injury, workers’ compensation, violations of the Fair Labor Standards Act and state wage and hour laws, employment discrimination, breach of contract, property damage, punitive damages, civil penalties, consequential damages or other losses, or injunctive or declaratory relief.  Any defects or errors, or failures to meet our customers’ expectations could result in large damage claims against us.  Claimants may seek large damage awards and, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings.  Any failure to properly estimate or manage cost, or delay in the completion of projects, could subject us to penalties.
 
The ultimate resolution of these matters through settlement, mediation or court judgment could have a material impact on our financial condition, results of operations and cash flows.  Regardless of the outcome of any litigation, these proceedings could result in substantial cost and may require us to devote substantial resources to defend ourselves.  When appropriate, we establish reserves for litigation and claims that we believe to be adequate in light of current information, legal advice and professional indemnity insurance coverage, and we adjust such reserves from time to time according to developments.  If our reserves are inadequate or insurance coverage proves to be inadequate or unavailable, our business, financial condition, results of operations and prospects may suffer.
 
We employ and assign personnel in the workplaces of other businesses, which subjects us to a variety of possible claims that could adversely affect our business, financial condition, results of operations and prospects.
 
We employ and assign personnel in the workplaces of other businesses.  The risks of these activities include possible claims relating to:
 
 
discrimination and harassment;
     
 
wrongful termination or denial of employment;
     
 
violations of employment rights related to employment screening or privacy issues;
     
 
classification of employees, including independent contractors;
     
 
employment of illegal aliens;
     
 
violations of wage and hour requirements;
     
 
retroactive entitlement to employee benefits; and
     
 
errors and omissions by our temporary employees.
 
Claims relating to any of the above could subject us to monetary fines or reputational damage, which could adversely affect our business, financial condition, results of operations and prospects.
 
 
If we are required to reclassify independent contractors as employees, we may incur additional costs and taxes which could adversely affect our business, financial condition, results of operations and prospects.
 
We use a significant number of independent contractors in our operations for whom we do not pay or withhold any federal, state or provincial employment tax.  There are a number of different tests used in determining whether an individual is an employee or an independent contractor and such tests generally take into account multiple factors.  There can be no assurance that legislative, judicial or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that would change, or at least challenge, the classification of our independent contractors.  Although we believe we have properly classified our independent contractors, the U.S. Internal Revenue Service or other U.S. federal or state authorities or similar authorities of a foreign government may determine that we have misclassified our independent contractors for employment tax or other purposes and, as a result, seek additional taxes from us or attempt to impose fines and penalties.  If we are required to pay employer taxes or pay backup withholding with respect to prior periods with respect to or on behalf of our independent contractors, our operating costs will increase, which could adversely impact our business, financial condition, results of operations and prospects.
 
Increases in the cost of fuel could adversely affect our business, financial condition, results of operations and prospects.
 
The price of fuel needed to run our vehicles and equipment is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the OPEC and other oil and gas producers, war and unrest in oil producing countries, regional production patterns and environmental concerns.  Most of our contracts do not allow us to adjust our pricing.  Accordingly, any increase in fuel costs could adversely affect our business, financial condition, results of operations and prospects.
 
Our dependence on subcontractors and suppliers could increase our costs and impair our ability to complete contracts on a timely basis or at all.
 
We rely on third-party subcontractors to perform some of the work on our contracts.  We also rely on third-party suppliers to provide materials needed to perform our obligations under those contracts.  We generally do not bid on contracts unless we have the necessary subcontractors and suppliers committed for the anticipated scope of the contract and at prices that we have included in our bid.  Therefore, to the extent that we cannot engage subcontractors or suppliers, our ability to bid for contracts may be impaired.  In addition, if a subcontractor or third-party supplier is unable to deliver its goods or services according to the negotiated terms for any reason, we may suffer delays and be required to purchase the services from another source at a higher price.  We sometimes pay our subcontractors and suppliers before our customers pay us for the related services.  If customers fail to pay us and we choose, or are required, to pay our subcontractors for work performed or pay our suppliers for goods received, we could suffer an adverse effect on our business, financial condition, results of operations and prospects.
 
Our insurance coverage may be inadequate to cover all significant risk exposures.
 
We will be exposed to liabilities that are unique to the services we provide. While we intend to maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs resulting from risks and uncertainties of our business. It is also not possible to obtain insurance to protect against all operational risks and liabilities. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition, results of operations and prospects.
 
 
Our operations are subject to hazards that may cause personal injury or property damage, thereby subjecting us to liabilities and possible losses, which may not be covered by insurance.
 
Our workers are subject to hazards associated with providing construction and related services on construction sites.  For example, some of the work we perform is underground.  If the field location maps supplied to us are not accurate, or if objects are present in the soil that are not indicated on the field location maps, our underground work could strike objects in the soil containing pollutants that could result in a rupture and discharge of pollutants.  In such a case, we may be liable for fines and damages.  These operating hazards can cause personal injury and loss of life, damage to or destruction of property, plant and equipment and environmental damage.  Even though we believe that the insurance coverage we maintain is in amounts and against the risks that we believe are consistent with industry practice, this insurance may not be adequate to cover all losses or liabilities that we may incur in our operations.  To the extent that we experience a material increase in the frequency or severity of accidents or workers’ compensation claims, or unfavorable developments on existing claims, our business, financial condition, results of operations and prospects could be adversely affected.
 
The Occupational Safety and Health Act of 1970, as amended, or OSHA, establishes certain employer responsibilities, including the maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the Occupational Health and Safety and Health Administration and various recordkeeping, disclosure and procedural requirements.  While we have invested, and will continue to invest, substantial resources in occupational health and safety programs, serious accidents or violations of OSHA rules may subject us to substantial penalties, civil litigation or criminal prosecution, which could adversely affect our business, financial condition, results of operations and prospects.
 
Defects in our specialty contracting services may give rise to claims against us, increase our expenses, or harm our reputation.
 
Our specialty contracting services are complex and our final work product may contain defects.  We have not historically accrued reserves for potential claims as they have been immaterial.  The costs associated with such claims, including any legal proceedings, could adversely affect our business, financial condition, results of operations and prospects.
 
Risks Related to Our Industry
 
Our industry is highly competitive, with a variety of larger companies with greater resources competing with us, and our failure to compete effectively could reduce the number of new contracts awarded to us or adversely affect our market share and harm our financial performance.
 
The contracts on which we bid are generally awarded through a competitive bid process, with awards generally being made to the lowest bidder, but sometimes based on other factors, such as shorter contract schedules or prior experience with the customer.  Within our markets, we compete with many national, regional, local and international service providers, including Arrow Electronics, Inc., Black Box Corporation, Dimension Data, plc, Dycom Industries, Inc., Goodman Networks, Inc., MasTec, Inc., TeleTech Holdings, Inc., Tech Mahindra, Ltd., Unisys Corporation, Unitek Global Services, Inc. and Volt Information Sciences, Inc.  Price is often the principal factor in determining which service provider is selected by our customers, especially on smaller, less complex projects.  As a result, any organization with adequate financial resources and access to technical expertise may become a competitor.  Smaller competitors are sometimes able to win bids for these projects based on price alone because of their lower costs and financial return requirements.  Additionally, our competitors may develop the expertise, experience and resources to provide services that are equal or superior in both price and quality to our services, and we may not be able to maintain or enhance our competitive position.  We also face competition from the in-house service organizations of our customers whose personnel perform some of the services that we provide.
 
 
Some of our competitors have already achieved greater market penetration than we have in the markets in which we compete, and some have greater financial and other resources than we do.  A number of national companies in our industry are larger than we are and, if they so desire, could establish a presence in our markets and compete with us for contracts.  As a result of this competition, we may need to accept lower contract margins in order to compete against competitors that have the ability to accept awards at lower prices or have a pre-existing relationship with a customer.  If we are unable to compete successfully in our markets, our business, financial condition, results of operations and prospects could be adversely affected.
 
Many of the industries we serve are subject to consolidation and rapid technological and regulatory change, and our inability or failure to adjust to our customers’ changing needs could reduce demand for our services.
 
We derive, and anticipate that we will continue to derive, a substantial portion of our revenue from customers in the telecommunications and utilities industries.  The telecommunications and utilities industries are subject to rapid changes in technology and governmental regulation.  Changes in technology may reduce the demand for the services we provide.  For example, new or developing technologies could displace the wireline systems used for the transmission of voice, video and data, and improvements in existing technology may allow telecommunications providers to significantly improve their networks without physically upgrading them.  Alternatively, our customers could perform more tasks themselves, which would cause our business to suffer.  Additionally, the telecommunications and utilities industries have been characterized by a high level of consolidation that may result in the loss of one or more of our customers.  Our failure to rapidly adopt and master new technologies as they are developed in any of the industries we serve or the consolidation of one or more of our significant customers could adversely affect our business, financial condition, results of operations and prospects.
 
Further, many of our telecommunications customers are regulated by the Federal Communications Commission, or the FCC, and other international regulators.  The FCC and other regulators may interpret the application of their regulations in a manner that is different than the way such regulations are currently interpreted and may impose additional regulations, either of which could reduce demand for our services and adversely affect our business and results of operations.
 
Economic downturns could cause capital expenditures in the industries we serve to decrease, which may adversely affect our business, financial condition, results of operations and prospects.
 
The demand for our services has been, and will likely continue to be, cyclical in nature and vulnerable to general downturns in the United States economy.  The United States economy is still recovering from a recession, and growth in United States economic activity has remained slow.  It is uncertain when these conditions will significantly improve.  The wireless telecommunications industry and the staffing services industry are both particularly cyclical in nature and vulnerable to general downturns in the United States and international economies.  Our customers are affected by economic changes that decrease the need for or the profitability of their services.  This can result in a decrease in the demand for our services and potentially result in the delay or cancellation of projects by our customers.  Slow-downs in real estate, fluctuations in commodity prices and decreased demand by end-customers for services could affect our customers and their capital expenditure plans.  As a result, some of our customers may opt to defer or cancel pending projects.  A downturn in overall economic conditions also affects the priorities placed on various projects funded by governmental entities and federal, state and local spending levels.
 
 
In general, economic uncertainty makes it difficult to estimate our customers’ requirements for our services.  Our plan for growth depends on expanding our company both in the United States and internationally.  If economic factors in any of the regions in which we plan to expand are not favorable to the growth and development of the telecommunications industries in those countries, we may not be able to carry out our growth strategy, which could adversely affect our business, financial condition, results of operations and prospects.
 
Risks Related to Our Financial Results and Financing Plans
 
We have a history of losses and may continue to incur losses in the future.
 
We have a history of losses and may continue to incur losses in the future, which could negatively impact the trading value of our common stock.  We incurred losses from operations of $2.7 million, $6.3 million and $2.8 million in the three-month period ended March 31, 2014 and the years ended December 31, 2013 and 2012, respectively.  While we had net income attributable to common stockholders of $6.7 million in the three-month period ended March 31, 2014, we incurred a net loss attributable to common stockholders of $25.4 million and $2.1 million in the years ended December 31, 2013 and 2012, respectively. We may continue to incur operating losses in future periods. These losses may increase and we may never achieve profitability for a variety of reasons, including increased competition, decreased growth in the unified communications industry and other factors described elsewhere in this “Risk Factors” section.  If we cannot achieve sustained profitability, our stockholders may lose all or a portion of their investment in our company.
 
We have identified material weaknesses in our internal control over financial reporting, and our management has concluded that our disclosure controls and procedures are not effective. We cannot assure you that additional material weaknesses or significant deficiencies will not occur in the future.  If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results or prevent fraud, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
 
We have historically had a small internal accounting and finance staff with limited experience in public reporting. This lack of adequate accounting resources has resulted in the identification of material weaknesses in our internal controls over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. In connection with the audit of our financial statements for the year ended December 31, 2013, our management team identified material weaknesses relating to (i) our failure to effectively implement comprehensive entity-level internal controls, (ii) our lack of a sufficient complement of personnel with an appropriate level of knowledge and experience in the application of U.S. GAAP commensurate with our financial reporting requirements and, (iii) our lack of the quantity of resources necessary to implement an appropriate level of review controls to properly evaluate the completeness and accuracy of the transactions we enter into. Our management also has concluded that our disclosure controls and procedures are not effective such that the information relating to our company required to be disclosed in the reports we file with the SEC (a) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) is accumulated and communicated to our management to allow timely decisions regarding required disclosure. We have taken steps, and plan to continue to take additional steps, to remediate these material weaknesses for the year ending December 31, 2014 to improve our financial reporting systems and implement new policies, procedures and controls. If we do not successfully remediate the material weaknesses described above, or if other material weaknesses or other deficiencies arise in the future, we may be unable to accurately report our financial results on a timely basis, which could cause our reported financial results to be materially misstated and require restatement which could result in the loss of investor confidence, delisting and/or cause the market price of our common stock to decline.
 
 
A  lawsuit filed against us in March 2014,  if decided in plaintiffs’ favor, may result in the payment of cash damages that could adversely affect our financial position and liquidity.

In March 2014, a purported class action suit was filed  in the United States District Court for the District of New Jersey against our company, our Chairman of the Board and Chief Executive Officer, Mark Munro, and certain other defendants alleging violations by the defendants (other than Mr. Munro) of Section 10(b) of the Exchange Act and other related provisions in connection with certain alleged courses of conduct that were intended to deceive the plaintiff and the investing public and to cause the members of the purported class to purchase shares of our common stock at artificially inflated prices based on untrue statements of a material fact or omissions to state material facts necessary to make the statements not misleading. The complaint also alleges that Mr. Munro and our company violated Section 20 of the Exchange Act as controlling persons of the other defendants. The complaint seeks unspecified damages, attorney and expert fees, and other unspecified litigation costs.  As of the date of this prospectus, we have not submitted our response to the complaint. We deny the allegations in the complaint and are proceeding to vigorously defend the suit. However, as the outcome of litigation is inherently uncertain, it is possible that the plaintiffs will prevail no matter how vigorously we defend ourselves, which could result in significant compensatory damages on the part of our company and Mr. Munro.  Any such adverse decision in such litigation could have a material adverse affect on our financial position and liquidity and on our business and results of operations.  In addition, regardless of outcome, litigation can have an adverse impact on us because of defense costs, diversion of management resources and other factors.
 
Our substantial indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations.
 
As of March 31, 2014, we had total indebtedness of approximately $31.6 million, consisting of $0.4 million of bank debt, $10.6 million of convertible debentures payable, $16.3 million of related-party indebtedness and $4.3 million of contingent consideration for our completed acquisitions.  Our substantial indebtedness could have important consequences to our stockholders. For example, it could:
 
 
increase our vulnerability to and limit our flexibility in planning for, or reacting to, changes in our business;
     
 
place us at a competitive disadvantage compared to our competitors that have less debt;
     
 
limit our ability to borrow additional funds, dispose of assets, pay dividends and make certain investments; and
     
 
make us more vulnerable to a general economic downturn than a company that is less leveraged.
 
A high level of indebtedness would increase the risk that we may default on our debt obligations.  Our ability to meet our debt obligations and to reduce our level of indebtedness will depend on our future performance.  General economic conditions and financial, business and other factors affect our operations and our future performance.  Many of these factors are beyond our control.  We may not be able to generate sufficient cash flows to pay the interest on our debt and future working capital, borrowings or equity financing may not be available to pay or refinance such debt.  Factors that will affect our ability to raise cash through an offering of our capital stock or a refinancing of our debt include financial market conditions, the value of our assets and our performance at the time we need capital.
 
 
We have in the past failed to comply with certain financial covenants of our loan documents and similar defaults in the future could adversely affect our financial condition and our ability to meet our payment obligations on our indebtedness.
 
On September 23, 2013, we entered into a revolving credit and security agreement dated as of September 20, 2013, or the PNC Credit Agreement, among our company, our subsidiaries, as guarantors, and PNC Bank, National Association, or PNC Bank, as agent and a lender, that provided us a revolving credit facility in the principal amount of up to $10.0 million. As of December 31, 2013 and March 31, 2014, we were not in compliance with certain covenants in the PNC Credit Agreement, including covenants relating to the minimum EBITDA requirement and the fixed charge coverage ratio. On April 4, 2014, we terminated the PNC Credit Agreement.  We have in the past also breached certain covenants under another loan agreement that had resulted in various events of default under such agreement, which events of default were either cured or waived by the lenders thereunder.
 
As of the date of this prospectus, we are not in default of any of the covenants of our outstanding indebtedness.  However, any future breach of any of those covenants could result in defaults or events of default under such indebtedness, in which case, depending on the actions taken by the lenders thereunder or their successors or assignees, such lenders could elect to declare all amounts borrowed, together with accrued interest, to be due and payable. An event of default under such indebtedness could also create an event of default under our other debt agreements or securities. If following an event of default we are unable to repay the borrowings or interest then due under our loan agreements, the lenders could proceed against their collateral, if any, and if the indebtedness under any loan agreements or debt securities were to be accelerated, our assets may not be sufficient to repay such indebtedness in full.
 
Actual results could differ from the estimates and assumptions that we use to prepare our financial statements.
 
To prepare financial statements in conformity with GAAP, management is required to make estimates and assumptions as of the date of the financial statements that affect the reported values of assets and liabilities, revenues and expenses, and disclosures of contingent assets and liabilities.  Areas requiring significant estimates by our management include:
 
 
contract costs and profits and application of percentage-of-completion accounting and revenue recognition of contract change order claims;
     
 
provisions for uncollectible receivables and customer claims and recoveries of costs from subcontractors, suppliers and others;
     
 
valuation of assets acquired and liabilities assumed in connection with business combinations; and
     
 
accruals for estimated liabilities, including litigation and insurance reserves.
 
At the time the estimates and assumptions are made, we believe they are accurate based on the information available.  However, our actual results could differ from, and could require adjustments to, those estimates.
 
 
Risks Related to Our Operating History and Results of Operations
 
Our limited operating history as an integrated company, recent acquisitions and the rapidly-changing telecommunications market may make it difficult for investors to evaluate our business, financial condition, results of operations and prospects, and also impairs our ability to accurately forecast our future performance.
 
Although we were incorporated in 1999, we were a development stage company with limited operations until our 2010 merger with Digital.  We experienced rapid and significant expansion in the years ended December 31, 2013 and 2012 due to a series of strategic acquisitions.  We acquired three companies in 2012, one company in 2013 and two companies in the first quarter of 2014. We also plan to complete the acquisition of VaultLogix in the third quarter of this year.
 
As a result of our recent acquisitions, our financial results are heavily influenced by the application of the acquisition method of accounting.  The acquisition method of accounting requires management to make assumptions regarding the assets purchased and liabilities assumed to determine their fair market value.  If our assumptions are incorrect, any resulting change or modification could adversely affect our financial conditions and/or results of operations.
 
Further, our limited operating history as an integrated company, combined with our short history operating as providers of staffing and cloud-based services, may not provide an adequate basis for investors to evaluate our business, financial condition, results of operations and prospects, and makes accurate financial forecasting difficult for us.  Because we operate in the rapidly-evolving IT and telecommunications markets and because our business is rapidly changing due to a series of acquisitions, we may have difficulty in engaging in effective business and financial planning.  It may also be difficult for us to evaluate trends that may affect our business and whether our expansion may be profitable.  Thus, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history or operated in a more predictable market.
 
If we are unable to sustain our recent revenue growth rates, we may never achieve or sustain profitability.
 
We experienced significant growth in recent years, primarily due to our strategic acquisitions. Our net revenues increased to $14.1 million in the three-month period ended March 31, 2014 from $11.2 million in the three-month period ended March 31, 2013, and to $51.4 million in the year ended December 31, 2013 from $17.1 million in the year ended December 31, 2012. In order to become profitable and maintain our profitability, we must, among other things, continue to increase our revenues.  We may be unable to sustain our recent revenue growth, particularly if we are unable to develop and market our specialty contracting and telecommunications staffing services, increase our sales to existing customers or develop new customers.  However, even if our revenues continue to grow, they may not be sufficient to exceed increases in our operating expenses or to enable us to achieve or sustain profitability.
 
 
Our inability to obtain additional capital may prevent us from completing our acquisition strategy and successfully operating our business; however, additional financings may subject our existing stockholders to substantial dilution.
 
Until we can generate a sufficient amount of revenue, if ever, we expect to finance our anticipated future strategic acquisitions, including our acquisitions of Telco and VaultLogix, through public or private equity offerings or debt financings. Additional funds may not be available when we need them on terms that are acceptable to us, or at all.  If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more strategic acquisitions or business plans.  In addition, we could be forced to discontinue product development and reduce or forego attractive business opportunities.  To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution.  In addition, debt financing, if available, may involve restrictive covenants.  We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time.  Our access to the financial markets and the pricing and terms we receive in the financial markets could be adversely impacted by various factors, including changes in financial markets and interest rates.
 
Our forecasts regarding the sufficiency of our financial resources to support our current and planned operations are forward-looking statements and involve significant risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section.  We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.  Our future funding requirements will depend on many factors, including, but not limited to, the costs and timing of our future acquisitions.
 
We are an emerging growth company within the meaning of the Jumpstart Our Businesses Startups Act of 2012 and, as a result, have elected to comply with the reduced disclosure and other reporting requirements available to us as an EGC.
 
Because we qualify as an emerging growth company, or EGC, under the Jumpstart Our Businesses Startups Act of 2012, or JOBS Act, we have elected to comply with the reduced disclosure and other reporting requirements available to us as an EGC in connection with this prospectus, and for a period of up to five years following our November 2013 offering of shares of common stock if we remain an EGC.  For example, with respect to this prospectus, we have provided only two fiscal years of audited financial information and selected financial data and have provided scaled-down disclosure on executive compensation, such as not including a “Compensation Discussion and Analysis” in this prospectus.  In addition, for as long as we remain an EGC, we are not subject to certain governance requirements, such as holding a “say-on-pay” and “say-on-golden-parachute” advisory votes, and we are not required to obtain an annual attestation report on our internal control over financial reporting from a registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act.  We may take advantage of these reporting exemptions until we are no longer an EGC.  We can be an EGC for a period of up to five years after our November 2013 equity offering, although we will cease to be an EGC earlier than that if our total annual gross revenues equal or exceed $1 billion in a fiscal year, if we issue more than $1 billion in non-convertible debt over a three-year period or if we become a “large accelerated filer” under Rule 12b-2 of the Exchange Act.
 
Accordingly, in this prospectus you are not receiving the same level of disclosure as you would receive in an annual report on Form 10-K of a non-EGC issuer and, following this prospectus, our stockholders will not receive the same level of disclosure that is afforded to stockholders of a non-EGC issuer.  It is also possible that investors will find our shares of common stock to be less attractive because we have elected to comply with the reduced disclosure and other reporting requirements available to us as an EGC, which could adversely affect the trading market for our shares of common stock and the prices at which our stockholders may be able to sell shares of our common stock.
 
 
We exercise judgment in determining our provision for taxes in the United States and Puerto Rico that are subject to tax authority audit review that could result in additional tax liability and potential penalties that would negatively affect our net income.
 
The amounts we record in intercompany transactions for services, licenses, funding and other items affects our tax liabilities.  Our tax filings are subject to review or audit by the U.S. Internal Revenue Service and state, local and foreign taxing authorities.  We exercise judgment in determining our worldwide provision for income and other taxes and, in the ordinary course of our business, there may be transactions and calculations where the ultimate tax determination is uncertain.  Examinations of our tax returns could result in significant proposed adjustments and assessment of additional taxes that could adversely affect our tax provision and net income in the period or periods for which that determination is made.
 
Risks Related to our Common Stock
 
Our common stock price has fluctuated widely in recent years, and the trading price of our common stock is likely to continue to be volatile, which could result in substantial losses to investors and litigation.
 
In addition to changes to market prices based on our results of operations and the factors discussed elsewhere in this “Risk Factors” section, the market price of and trading volume for our common stock may change for a variety of other reasons, not necessarily related to our actual operating performance.  The capital markets have experienced extreme volatility that has often been unrelated to the operating performance of particular companies.  These broad market fluctuations may adversely affect the trading price of our common stock.  In addition, the average daily trading volume of the securities of small companies can be very low, which may contribute to future volatility.  Factors that could cause the market price of our common stock to fluctuate significantly include:
 
 
the results of operating and financial performance and prospects of other companies in our industry;
     
 
strategic actions by us or our competitors, such as acquisitions or restructurings;
     
 
announcements of innovations, increased service capabilities, new or terminated customers or new, amended or terminated contracts by our competitors;
     
 
the public’s reaction to our press releases, media coverage and other public announcements, and filings with the Securities and Exchange Commission;
     
 
market conditions for providers of services to telecommunications, utilities and cloud services customers;
     
 
lack of securities analyst coverage or speculation in the press or investment community about us or opportunities in the markets in which we compete;
     
 
changes in government policies in the United States and, as our international business increases, in other foreign countries;
     
 
changes in earnings estimates or recommendations by securities or research analysts who track our common stock or failure of our actual results of operations to meet those expectations;
     
  dilution caused by the conversion into common stock of convertible debt securities or by the exercise of outstanding warrants;

 
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market and industry perception of our success, or lack thereof, in pursuing our growth strategy;
     
 
changes in accounting standards, policies, guidance, interpretations or principles;
     
 
any lawsuit involving us, our services or our products;
     
 
arrival and departure of key personnel;
     
 
sales of common stock by us, our investors or members of our management team; and
     
 
changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural or man-made disasters.
 
Any of these factors, as well as broader market and industry factors, may result in large and sudden changes in the trading volume of our common stock and could seriously harm the market price of our common stock, regardless of our operating performance.  This may prevent stockholders from being able to sell their shares at or above the price they paid for shares of our common stock, if at all.  In addition, following periods of volatility in the market price of a company’s securities, stockholders often institute securities class action litigation against that company.  Our involvement in any class action suit or other legal proceeding, including the lawsuit filed against us in March 2014 and described elsewhere in this prospectus, could divert our senior management’s attention and could adversely affect our business, financial condition, results of operations and prospects.
 
The sale or availability for sale of substantial amounts of our common stock could adversely affect the market price of our common stock.
 
Sales of substantial amounts of shares of our common stock, or the perception that these sales could occur, could adversely affect the market price of our common stock and could impair our future ability to raise capital through common stock offerings.  As of July 15, 2014, we had 13,655,578 shares of common stock issued and outstanding, of which 5,661,220 shares were restricted securities pursuant to Rule 144 promulgated by the SEC.  The sale of these shares into the open market may adversely affect the market price of our common stock.
 
In addition, at July 15, 2014, we also had outstanding $6,475,000 aggregate principal amount of convertible notes that are convertible into 1,018,082 shares of common stock and $6,638,194 aggregate principal amount of our 12% Convertible Debentures due 2015, or the Convertible Debentures, that also are convertible into shares of our common stock.  However, we cannot currently determine the total number of shares of our common stock that may be issued upon the conversion or repayment of the Convertible Debentures because the total number of shares and the conversion prices or the prices at which we can issue our common stock to pay down the principal of and interest on the Convertible Debentures depend on a number of factors, including the prices and nature of any equity securities we may issue in the future and the market prices of our common stock in the periods leading up to any particular amortization payment date on which we elect to make amortization payments on the Convertible Debentures in shares of our common stock.  See Note 8 to Notes to our consolidated financial statements in this prospectus.  As of July 15, 2014, there were also outstanding warrants to purchase an aggregate of 649,842 shares of our common stock at a weighted-average exercise price of $5.42 per share, all of which warrants were exercisable as of such date.  The conversion of a significant principal amount of our outstanding convertible debt securities into shares of our common stock, our repayment of a significant amount of principal, interest or other amounts payable under such debt securities in shares of our common stock or the exercise of outstanding warrants at prices below the market price of our common stock could adversely affect the market price of our common stock.  The market price of our common stock also may be adversely affected by our issuance of shares of our capital stock or convertible securities in connection with acquisitions, including our proposed acquisitions of VaultLogix and Telco, or in connection with other financing efforts.

In connection with this offering, we, our directors and officers, and each other 5% or greater holder of outstanding shares of our common stock on a fully-diluted basis, have agreed, subject to certain limited exceptions, not to offer, sell, contract to sell or otherwise dispose of, or enter into, any transaction that is designed to, or could be expected to, result in the disposition of any shares of our common stock or other securities convertible into or exchangeable or exercisable for shares of our common stock for 90 days after the date of this prospectus without the written consent of the representative of the underwriters, subject to potential extension. As of the date of this prospectus, approximately 3,692,069 shares of our common stock will be subject to the contractual lock-up with the underwriter.  However, the representative of the underwriters may release these securities from these restrictions at any time without notice. See “Underwriting” and “Shares Eligible For Future Sale” for a more detailed description of the restrictions on selling our securities after this offering.

The offering price for shares of our common stock is substantially higher than the pro forma net tangible book value per share, so purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.
 
If you purchase common stock in this offering, you will pay more for your common stock than the amount paid by existing stockholders for their common stock.  As a result, you will experience immediate and substantial dilution of approximately $7.43 per share of common stock, assuming no exercise of outstanding warrants to acquire common stock, representing the difference between our pro forma net tangible book value per share of common stock of $(2.13) at March 31, 2014, after giving effect to this offering at the assumed offering price per share of common stock of $6.01, which was the last reported sale price of our common stock as reported by the NASDAQ Capital Market on July 15, 2014.   In addition, you may experience further dilution to the extent that our common stock is issued upon the exercise of our outstanding warrants.  Approximately 424,842 of the shares of common stock issuable upon the exercise of currently outstanding warrants will be issued at a purchase price that is less than the offering price per share in this offering.  See “Dilution” for a more complete description of how the value of your investment in our common stock will be diluted upon the completion of this offering.
 
 
Our amended and restated certificate of incorporation and amended and restated bylaws, and certain provisions of Delaware corporate law, as well as certain of our contracts, contain provisions that could delay or prevent a change in control even if the change in control would be beneficial to our stockholders.
 
Delaware law, as well as our amended and restated certificate of incorporation and amended and restated bylaws, contains anti-takeover provisions that could delay or prevent a change in control of our company, even if the change in control would be beneficial to our stockholders.  These provisions could lower the price that future investors might be willing to pay for shares of our common stock.  These anti-takeover provisions:
 
 
authorize our board of directors to create and issue, without stockholder approval, preferred stock, thereby increasing the number of outstanding shares, which can deter or prevent a takeover attempt;
     
 
prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;
     
 
establish a three-tiered classified board of directors requiring that not all members of our board be elected at one time;
     
 
establish a supermajority requirement to amend our amended and restated bylaws and specified provisions of our amended and restated certificate of incorporation;
     
 
prohibit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;
     
 
establish limitations on the removal of directors;
     
 
empower our board of directors to fill any vacancy on our board of directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise;
     
 
provide that our board of directors is expressly authorized to adopt, amend or repeal our bylaws;
     
 
provide that our directors will be elected by a plurality of the votes cast in the election of directors;
     
 
establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by our stockholders at stockholder meetings;
     
 
eliminated the ability of our stockholders to call special meetings of stockholders and, after June 30, 2014, to act by written consent; and
     
 
provide that the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action, actions asserting a breach of fiduciary duty and certain other actions against us or any directors or executive officers.
              
 
Section 203 of the Delaware General Corporation Law, the terms of our stock incentive plans, the terms of our change in control agreements with our senior executives and other contractual provisions may also discourage, delay or prevent a change in control of our company.  Section 203 generally prohibits a Delaware corporation from engaging in a business combination with an interested stockholder for three years after the date the stockholder became an interested stockholder.  Our stock incentive plans include change-in-control provisions that allow us to grant options or stock purchase rights that may become vested immediately upon a change in control.  The terms of changes of control agreements with our senior executives and contractual restrictions with third parties may discourage a change in control of our company.  Our board of directors also has the power to adopt a stockholder rights plan that could delay or prevent a change in control of our company even if the change in control is generally beneficial to our stockholders.  These plans, sometimes called “poison pills,” are oftentimes criticized by institutional investors or their advisors and could affect our rating by such investors or advisors.  If our board of directors adopts such a plan, it might have the effect of reducing the price that new investors are willing to pay for shares of our common stock.
 
Together, these charter, statutory and contractual provisions could make the removal of our management and directors more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock. Furthermore, the existence of the foregoing provisions, as well as the significant common stock beneficially owned by our executive officers, key non-executive officer employees, and members of our board of directors, could limit the price that investors might be willing to pay in the future for shares of our common stock.  They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.
 
We have never paid cash dividends and do not anticipate paying any cash dividends on our common stock.
 
We have never paid cash dividends and do not anticipate paying any cash dividends on our common stock in the foreseeable future.  We currently intend to retain any earnings to finance our operations and growth.  As a result, any short-term return on your investment will depend on the market price of our common stock, and only appreciation of the price of our common stock, which may never occur, will provide a return to stockholders.  The decision whether to pay dividends will be made by our board of directors in light of conditions then existing, including, but not limited to, factors such as our financial condition, results of operations, capital requirements, business conditions, and covenants under any applicable contractual arrangements. Investors seeking cash dividends should not invest in our common stock.
 
If equity research analysts do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade our common stock, the market price of our common stock will likely decline.
 
The trading market for our common stock will rely in part on the research and reports that equity research analysts, over whom we have no control, publish about us and our business.  We may never obtain research coverage by securities and industry analysts.  If no securities or industry analysts commence coverage of our company, the market price for our common stock could decline.  In the event we obtain securities or industry analyst coverage, the market price of our common stock could decline if one or more equity analysts downgrade our common stock or if those analysts issue unfavorable commentary, even if it is inaccurate, or cease publishing reports about us or our business.
 
 

Some of the statements under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and elsewhere in this prospectus constitute 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 prospectus 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 prospectus, including under the caption “Risk Factors,” 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 prospectus 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 prospectus or to reflect the occurrence of unanticipated events, except as required by applicable law or regulation.


We estimate that the net proceeds to us from the sale of the 1,425,000 shares of common stock we are offering will be approximately $7.7 million, based upon assumed offering price of $6.01 per share, which was the last reported sale price of our common stock as reported by the NASDAQ Capital Market on July 15, 2014.  “Net proceeds” is what we expect to receive after paying the underwriters fees and commissions, and our estimated offering expenses in the amount of $135,000. If the underwriters’ option to purchase additional shares in this offering is exercised in full, we estimate that our net proceeds would be approximately $8.9 million.
 
Each $1.00 increase (decrease) in the assumed offering price of $6.01 per share would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting fees and estimated offering expenses payable by us, by approximately $1.3 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 100,000 in the number of shares we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting fees and estimated offering expenses payable by us, by approximately $0.6 million, assuming the offering price stays the same. An increase of 100,000 in the number of shares we are offering, together with a $1.00 increase in the assumed offering price per share, would increase the net proceeds to us from this offering, after deducting the estimated placement agent fees and estimated offering expenses payable by us, by approximately $2.0 million. A decrease of 100,000 in the number of shares we are offering, together with a $1.00 decrease in the assumed offering price per share, would decrease the net proceeds to us from this offering, after deducting the estimated underwriting fees and estimated offering expenses payable by us, by approximately $1.8 million. We do not expect that a change in the offering price or the number of shares by these amounts would have a material effect on our intended uses of the net proceeds from this offering, although it may impact the amount of time prior to which we may need to seek additional capital.
 
We have not identified any specific uses for the net proceeds of this offering and intend to use such net proceeds for working capital and general corporate purposes. Until we use the net proceeds of this offering, we intend to invest the funds in short-term, interest-bearing investments, which may include interest-bearing bank accounts, money market funds, certificates of deposit and U.S. government securities.
 
 
Market Information
 
Our common stock began trading on the NASDAQ Capital Market on October 31, 2013 under the symbol “ICLD”.  Prior thereto, our common stock traded on the OTCQB Marketplace operated by the OTC Markets Group Inc., or the OTCQB. The following table sets forth the high and low closing sales prices of our common stock for the periods indicated.  Information for the period from October 31, 2013 to December 31, 2013 is the high and low closing sales prices of our common stock based upon reports of transactions on the NASDAQ Capital Market.  Information for all periods prior thereto is the high and low last sales prices of our common stock on the OTCQB based upon information provided by the OTC Markets Group, Inc.  All prices give effect to the one-for-125 reverse stock split of our common stock effected on January 14, 2013 and the one-for-four reverse stock split of our common stock effected on August 1, 2013.  Quotations reflect inter-dealer prices, without retail mark-up, mark-down commission, and may not represent actual transactions.
 
Fiscal Year Ended December 31, 2012
 
High
 
 
Low
 
First Quarter
 
$
7.90
 
 
$
2.05
 
Second Quarter
 
$
3.75
 
 
$
1.05
 
Third Quarter
 
$
10.00
 
 
$
1.95
 
Fourth Quarter
 
$
18.50
 
 
$
6.08
 
 
 
 
 
 
 
 
 
 
Fiscal Year Ended December 31, 2013
 
 
 
 
 
 
 
 
First Quarter
 
$
36.00
 
 
$
8.00
 
Second Quarter
 
$
13.80
 
 
$
8.00
 
Third Quarter
 
$
12.50
 
 
$
6.00
 
Fourth Quarter
 
$
18.36
 
 
$
2.31
 
                 
Fiscal Year Ending December 31, 2014
               
First Quarter
 
$
18.13
   
$
6.60
 
Second Quarter
 
$
8.58
   
$
5.35  
Third Quarter (through July 15)   $ 6.51     $ 5.39  

As of July 15, 2014, the closing sale price of our common stock, as reported by the NASDAQ Capital Market, was $6.01 per share.
 
Holders
 
At July 15, 2014, we had approximately 262 record holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers or registered clearing agencies.
 
Transfer Agent and Registrar
 
We have appointed Corporate Stock Transfer, 3200 Cherry Creek Dr. South, Denver, CO 80209 to act as the transfer agent of our common stock.
 
 
We currently intend to retain future earnings, if any, for use in the operation of our business and to fund future growth.  We have never declared or paid cash dividends on our common stock and we do not intend to pay any cash dividends on our common stock for the foreseeable future.  The terms of our outstanding Convertible Debentures prohibit our payment of cash dividends.  Any future determination related to our dividend policy will be made at the discretion of our board of directors in light of conditions then-existing, including factors such as our results of operations, financial conditions and requirements, business conditions and covenants under any applicable contractual arrangements.
 
 

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2014:
 
 
on an actual basis;
 
 
on a pro forma basis to reflect:
       
 
 
the sale by us in this offering of 1,425,000 shares of common stock at an assumed offering price of $6.01 per share, which is the last reported sale price of our common stock as reported on the NASDAQ Capital Market on July 15, 2014, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us;
 
   
the issuance in April and May 2014 of an aggregate of 1,139,772 shares of common stock to our officers, directors, employees and consultants under our 2012 Incentive Compensation Plan;
 
   
the issuance in April 2014 of 91,241 shares of common stock to purchase certain assets;
 
   
the issuance in May 2014 of 8,934 shares of common stock to noteholders in settlement of outstanding accrued interest payments;
 
   
the issuance in June and July 2014 of an aggregate of 658,876 shares of common stock upon conversion of $3,787,000 aggregate principal amount of our Convertible Debentures; and
 
   
the issuance in July 2014 of $1.5 million aggregate principal amount of convertible notes.
 
The information below is illustrative only. Our cash and cash equivalents and capitalization following the closing of this offering will be adjusted based on the actual offering price and other terms of this offering determined at the pricing of this offering.  You should read this table in conjunction with our consolidated financial statements and related notes and the sections entitled “Selected Consolidated Historical Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Use of Proceeds” and “Description of Capital Stock” appearing elsewhere in this prospectus.
 
   
As of March 31, 2014
 
   
Actual
   
Pro Forma
 
   
(unaudited)
(In thousands)
 
           
Cash and cash equivalents
  $ 3,956     $ 13,163  
                 
Long-term debt (including current portion)
    21,053       18,766  
                 
Stockholders’ equity:
               
Common stock, $0.0001 par value; 500,000,000 shares authorized; 10,863,889 shares issued and outstanding actual; 15,080,578 shares issued and outstanding pro forma
    1       1  
Additional paid-in capital
    61,834       75,807  
Accumulated deficit
    (31,288     (31,536 )
Total stockholders’ equity
    30,845       44,570  
                 
Total capitalization
  $ 51,898     $ 63,336  
  
 
Our capitalization information presented in the foregoing table excludes:
 
 
234,233 shares of common stock issuable upon the exercise of stock purchase warrants outstanding on March 31, 2014 with an exercise price of $4.00 per share that expire on September 7, 2014, subject to extension if certain minimum EBITDA thresholds are not achieved;
     
 
159,359 shares of common stock issuable upon the exercise of stock purchase warrants outstanding on March 31, 2014 with an exercise price of $5.00 per share that expire on November 5, 2018;
     
 
31,250 shares of common stock issuable upon the exercise of stock purchase warrants outstanding on March  31, 2014 with an exercise price of $5.00 per share that expire on November 5, 2017;
     
 
225,000 shares of common stock issuable upon the exercise of stock purchase warrants outstanding on March  31, 2014 with an exercise price of $7.25 per share that expire on April 15, 2017;
     
 
up to 1,231,615 shares of common stock that are issuable upon the conversion of, or in connection with payments made by us on, convertible debentures outstanding on March 31, 2014 with a conversion price of $6.36 per share that mature on June 13, 2015;
     
  up to 58,870 shares of common stock issuable upon the exercise of stock purchase warrants issued on July 1, 2014 with an exercise price of $7.25 per share that expire on July 1, 2017;
     
 
1,018,082 shares of common stock issuable upon the conversion of convertible promissory notes outstanding on March 31, 2014 with a current conversion price of $6.36 per share that mature on June 30, 2015;
     
 
397,602 shares of common stock issuable upon conversion of a convertible promissory note outstanding on March 31, 2014 with a current conversion price of $16.99 per share that matures on December 31, 2014; and
     
  213,750 shares of common stock issuable upon the exercise of the underwriter’s over-allotment option to purchase additional shares of common stock.
 
 
36

 

Dilution represents the difference between the public offering price per share of our common stock and the net tangible book value per share of our common stock immediately after completion of this offering. Net tangible book value is the amount that results from subtracting total liabilities and intangible assets from total assets.
 
At March 31, 2014, on an as adjusted basis to give effect to the issuance of,
 
 
91,241 shares of common stock issued in April 2014 in connection with our purchase of certain assets;
     
 
an aggregate of 1,551,725 shares of common stock issued in April, June and July 2014 upon the conversion of certain indebtedness;
     
 
an aggregate of 1,139,772 shares of common stock issued in April and May 2014 to certain of our officers, directors, employees and consultants for services rendered or to be rendered, including an aggregate of 940,367 restricted shares of common stock that are subject to three-year vesting; and
     
 
an aggregate of 8,934 shares of common stock issued in May 2014 in payment of accrued interest on certain outstanding promissory notes;
 
the net tangible book value of our common stock, which excludes intangible assets, goodwill and deferred loan costs, was approximately $(29.2) million, or approximately $(2.13) per share based upon approximately 13.7 million shares of common stock outstanding.
 
Upon completion of this offering at an assumed public offering price of $6.01 per share, which is the last reported sale price of our common stock as reported on the NASDAQ Capital Market on July 15, 2014, but without taking into account any change in the as adjusted net tangible book value at March 31, 2014 determined as set forth above, other than that resulting from the sale of the shares of  common stock in this offering and the receipt of the total proceeds of $7.7 million (net of underwriting discounts and commissions but excluding estimated offering expenses), our pro forma as adjusted net tangible book value at March 31, 2014 would have been approximately $(21.4) million, or approximately $(1.42) per share of our common stock. Accordingly, the as adjusted net tangible book value of our common stock held by our existing stockholders (approximately 13.7 million shares) would have been increased by $0.71 per share without any additional investment on their part. The purchasers of our common stock in this offering will incur immediate dilution (a reduction in the net tangible book value per share from the assumed offering price of $6.01 per share) of $7.43 per share.
 
The following table illustrates the per share dilution to the new investors without giving any effect to the results of any operations subsequent to March 31, 2014:
 
Assumed public offering price per share
        $ 6.01  
As adjusted net tangible book value per share as of March 31, 2014
  $ (2.13 )        
Increase in net tangible book value per share attributable to new investors
  $ .71          
Pro forma adjusted net tangible book value per share after this offering
          $ (1.42 )
Dilution in net tangible book value per share to new investors
          $ 7.43  
 
If the underwriter exercises its option to purchase additional shares of common stock in full, the increase in net tangible book value per share attributable to new investors will increase to $0.81 and our pro forma adjusted net tangible book value will increase to $(1.32) per share, representing an increase in our adjusted net tangible book value of $0.79 per share to existing holders, and there will be an immediate dilution of $7.33 per share to new investors.
 
Each $1.00 increase in the assumed public offering price of $6.01 per share would increase our as adjusted net tangible book value per share after this offering by $(1.32), and the dilution to new investors by $(8.33) per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses that we must pay.
 
Each $1.00 decrease in the assumed public offering price of $6.01 per share would  decrease our as adjusted net tangible book value per share after this offering by $(1.49), and the dilution to new investors by $6.50 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses that we must pay.
 
The discussion and table above do not include the following:
 
 
234,233 shares of common stock issuable upon the exercise of stock purchase warrants outstanding on March  31, 2014 with an exercise price of $4.00 per share that expire on September 7, 2014, subject to extension if certain minimum EBITDA thresholds are not achieved;
     
 
159,359 shares of common stock issuable upon the exercise of stock purchase warrants outstanding on March  31, 2014 with an exercise price of $5.00 per share that expire on November 5, 2018;
 
 
 
31,250 shares of common stock issuable upon the exercise of stock purchase warrants outstanding on March 31, 2014 with an exercise price of $5.00 per share that expire on November 5, 2017;
     
 
225,000 shares of common stock issuable upon the exercise of stock purchase warrants outstanding on March  31, 2014 with an exercise price of $7.25 per share that expire on April 15, 2017;
     
 
up to 1,231,615 shares of common stock that are issuable upon the conversion of, or in connection with payments made by us on, convertible debentures outstanding on March 31, 2014 with a conversion price of $6.36 per share that mature on June 13, 2015;
     
  up to 58,870 shares of common stock issuable upon the exercise of stock purchase warrants issued on July 1, 2014 with an exercise price of $7.25 per share that expire on July 1, 2017;
     
 
1,018,082 shares of common stock issuable upon the conversion of convertible promissory notes outstanding on March 31, 2014 with a current conversion price of $6.36 per share that mature on June 30, 2015;
     
 
397,602 shares of common stock issuable upon conversion of a convertible promissory note outstanding on March 31, 2014 with a current conversion price of $16.99 per share that matures on December 31, 2014; and
     
  213,750 shares of common stock issuable upon the exercise of the underwriter’s over-allotment option to purchase additional shares of common stock.
 

FINANCIAL INFORMATION
 
The following table sets forth selected consolidated financial data for us for the years ended December 31, 2013 and 2012 and the three-month periods ended March 31, 2014 and 2013.  The selected consolidated financial data for the fiscal years ended December 31, 2013 and 2012 was derived from our audited consolidated financial statements included elsewhere in this prospectus.  The selected consolidated financial data for the three-month periods ended March 31, 2014 and 2013 was derived from our unaudited consolidated financial statements included elsewhere in this prospectus.  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 and pro forma combined condensed   financial statements and related notes included elsewhere in this prospectus. 
  
   
For the three months ended
March 31,
   
For the years ended
December 31,
 
   
2014
   
2013
   
2013
   
2012
 
   
(unaudited)
       
Statement of Operations Data:
  (in thousands, except share and per share data)  
Revenue
  $ 14,075     $ 11,243     $ 51,407     $ 17,090  
Gross profit
    3,934       2,966       14,127       5,121  
Operating expenses
    6,665       2,663       20,468       7,929  
Income (loss) from operations
    (2,731 )     303       (6,341 )     (2,808 )
Other income (expense), net
    9,576       (1,278 )     (19,075 )     (1,098 )
Income (loss) before benefit for income taxes
    6,845       (975 )     (25,416 )     (3,906 )
Provision (benefit) for income taxes
    137       (317 )     (588 )     (2,646 )
Dividends on preferred stock
    -       (591 )     (1,084 )     (843 )
Net  income (loss) income attributable to InterCloud Systems, Inc common stockholders, basic
    6,655       (1,050 )     (25,438 )     (2,073 )
Net (loss) attributable to InterCloud Systems, Inc common stockholders, diluted
    (14,323 )     (1,050 )     (25,438 )     (2,073 )
(Loss) earnings per share, basic
  $ 0.70     $ (0.50 )   $ (7.85 )   $ (1.33 )
(Loss) per share, diluted
  $ (1.52 )   $ (0.50 )   $ (7.85 )   $ (1.33 )
Basic weighted average shares outstanding
    9,449,622       2,103,957       3,240,230       1,553,555  
Diluted weighted average shares outstanding
    9,449,622       2,103,957       3,240,230       1,553,555  
 
         
As of
 
   
March 31,
   
December 31,
 
   
2014
   
2013
   
2012
 
    (in thousands)  
Balance Sheet Data:
                 
Cash
  $ 3,956     $ 17,869     $ 606  
Accounts receivable, net
    10,874       7,822       7,661  
Total current assets
    18,047       28,307       10,184  
Goodwill and intangible assets, net
    60,849       29,846       23,927  
Total assets
    79,894       60,690       43,317  
                         
Total current liabilities
    29,762       24,112       14,861  
Long term liabilities
    19,287       38,254       15,160  
Redeemable common and preferred stock
    -       -       16,585  
Stockholders' equity (deficit)
    30,845       (1,676 )     (3,229 )
 
 
Since January 1, 2013, we have completed the following acquisitions:
 
 
AW Solutions, Inc. In April 2013, we acquired AW Solutions, a professional, multi-service line, telecommunications infrastructure company that provides outsourced services to the wireless and wireline industry.  AW Solution’s services include network systems design, architectural and engineering services, program management and other technical services.  The acquisition of AW Solutions broadened our suite of services and added new customers to which we can cross-sell our other services.
 
 
Integration Partners-NY Corporation. In January 2014, we acquired IPC, a full-service voice and data network engineering firm based in New York. IPC serves both corporate enterprises and telecommunications service providers. We believe the acquisition of IPC will support the cloud and managed services aspect of our business, as well as improve our systems integration and applications capabilities.
 
 
RentVM, Inc. In February 2014, we acquired RentVM, a New Jersey-based provider of infrastructure-as-a-service technology to software developers and to healthcare, education, and other small and medium-sized businesses and enterprises to enable public and private (enterprise) Cloud environments. RentVM expands our cloud and managed services capabilities by providing us a software defined data center (SDDC) platform to offer.
 
The following unaudited pro forma combined condensed statement of operations data for the year ended December 31, 2013 presents combined information as if we had completed on January 1, 2013 the acquisitions of AW Solutions and IPC. An unaudited pro forma combined condensed statement of operations for the three months ended March 2014 is not presented because the statements of operations for each of the acquired entities, including related acquisition adjustments, is included in our condensed consolidated statement of operations for the three months ended March 31, 2014. An unaudited pro forma combined condensed balance sheet as of March 31, 2014 is not presented because the balance sheet of each of the acquired entities, including related acquisition adjustments, is included in our consolidated balance sheet as of such date. The unaudited pro forma combined condensed statement of operations data for the year ended December 31, 2013 does not include any information relating to RentVM prior to it being acquired by our company because the size and historical financial results of such entity did not meet the significance thresholds of the regulatory guidelines applicable to  the provision of financial statements of an acquired entity. The unaudited pro forma combined statement of operations data has been prepared from, and should be read in conjunction with, the respective historical consolidated financial statements and related notes of our company and of each of AW Solutions and IPC included elsewhere in this prospectus.
 
The historical profit and loss accounts of each of these entities have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The pro forma acquisition adjustments described in the unaudited pro forma combined condensed financial information were based on available information and certain assumptions made by us and may be revised as additional information becomes available as the purchase accounting for the acquisition is finalized. The pro forma adjustments are based on preliminary estimates of the fair values of assets acquired and information available as of the date of this prospectus.  Certain valuations are currently in process. Actual results may differ from the amounts reflected in the unaudited pro forma combined financial statements, and the differences may be material.
 
The unaudited pro forma combined condensed statement of operations data included in this prospectus is not intended to represent what our results of operations would have been if the acquisitions had occurred on January 1, 2013 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.

 
40

 
InterCloud Systems, Inc.
Unaudited Proforma Condensed Combined  Statement of Operations
For the Year ended December 31, 2013
Dollar Amounts in Thousands, Except Share Data
 
         
Pre-Acquisition
Results
     
Adjustments
         
Historical
Integration
             
   
InterCloud
   
AW Solutions
    Pro forma    
Proforma
   
Partners - NY
    Pro forma     Pro forma  
   
Systems
   
(acquired 4/15/13)
   
 Adjustments
   
Combined
   
Corporation
   
Adjustments
   
Combined
 
Revenues
  $ 51,407     $ 3,196     $ -     $ 54,603     $ 26,679     $ -     $ 81,282  
Cost of Revenues
    37,280       2,035       -       39,315       19,787       -       59,102  
Gross profit
    14,127       1,161       -       15,288       6,892       -       22,180  
                                                         
Operating expenses:
                                                       
Depreciation and amortization
    1,120       12       135 (a)     1,267       24       818 (b)     2,109  
Salaries and wages
    8,341       137       -       8,478       -       -       8,478  
Goodwill impairment
    -       -       -       -       -       -       -  
General and administrative
    7,876       437       -       8,313       4,489       (92 ) (d)     12,710  
Change in fair value and loss of contingent consideration
    3,131       -       -       3,131       -       -       3,131  
Total operating expenses
    20,468       586       135       21,189       4,513       726       26,428  
(Loss) income from operations
    (6,341 )     575       (135 )     (5,901 )     2,379       (726 )     (4,248 )
                                                         
Other income (expenses):
                                                       
Changes in fair value of derivative instrument
    (14,156 )     -       -       (14,156 )     -       -       (14,156 )
Interest expense
    (5,574 )     (1 )     -       (5,575 )     -       (501 ) (c)     (6,076 )
Commission income
    1,824       -       -       1,824       -       -       1,824  
Loss on extinguishment of debt
    (992 )     -       -       (992 )     -       -       (992 )
Foreign exchange loss
    -       -       -       -       -       -       -  
Other income
    (176 )     -       -       (176 )             -       (176 )
Total other (expense) income
    (19,074 )     (1 )     -       (19,075 )     -       (501 )     (19,576 )
(Loss) income before benefit for income taxes
    (25,415 )     574       (135 )     (24,976 )     2,379       (1,227 )     (23,824 )
                                                         
Benefit for income taxes
    (587 )     18       153 (f)     (416 )     -       449 (g)     33  
Net (loss) income from continuing operations
    (24,828 )     556       (288 )     (24,560 )     2,379       (1,676 )     (23,857 )
                                                         
Net loss attributable to non-controlling interest
    76       -       -       76       -       -       76  
Net (loss) income attributable to InterCloud Systems, Inc
    (24,904 )     556       (288 )     (24,636 )     2,379       (1,676 )     (23,933 )
                                                         
Less dividends on preferred stock
    (1,084 )     -       -       (1,084 )     -       -       (1,084 )
Net loss (income) attributable to InterCloud Systems, Inc common stock holders
  $ (25,988 )   $ 556     $ (288 )   $ (25,720 )   $ 2,379     $ (1,676 )   $ (25,017 )
                                                         
Basic and diluted loss per share attributable to InterCloud Systems, Inc. common stockholders:
  $ (8.02 )                                           $ (7.35 )
Basic weighted average number of common shares outstanding
    3,240,230               58,609 (e)     3,298,839               104,528 (e)     3,403,367  
Diluted weighted average number of common shares outstanding
    3,240,230               58,609       3,298,839               104,528 (e)     3,403,367  
 
 
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
 
Overview

The unaudited pro forma combined condensed financial information is presented for illustrative purposes only and is not indicative of the operating results or financial position that would have occurred if each transaction had been consummated as of January 1, 2013. Pro forma adjustments reflect those adjustments that are factually determined and also include the impact of contingencies that will not be finally determined until the resolution of the contingency. For each acquisition, the purchase consideration and preliminary purchase price allocation is subject to change.

The paragraphs below referenced by “(a)” through “(g)” correspond to and explain the applicable notation appearing in the pro forma combined condensed financial statements set forth above.
 
AW Solutions Acquisition
 
(a)
Adjustment to record amortization expense of $135,000 for the identifiable intangible assets of approximately $3,752,000 for the period of January 1, 2013 through April 15, 2013, as if the acquisition had occurred on January 1, 2013.  The weighted average useful life on the identifiable intangible assets acquired is approximately 9.31 years.  The identifiable assets are amortized to depreciation and amortization expense using the straight line method, which approximates the estimated life.

IPC Acquisition
 
The amounts assigned to the IPC identifiable tangible assets are based on their respective estimated fair values determined as of the acquisition date of January 1, 2013.  The excess of the purchase consideration over the fair values of the tangible and identifiable intangible assets was recorded as goodwill in the amount of approximately $13,329,000.  In accordance with current accounting standards, the goodwill is not being amortized and will be tested for impairment as required by ASC 350.  The goodwill is not deductible for tax purposes.
 
A summary of the preliminary purchase price allocation is as follow:
 
Cash
  $ 13,451,000  
Common stock fair value
    1,447,000  
Convertible note
    6,255,000  
         
Total consideration
  $ 21,153,000  
         
Common stock  issued
    104,528  
         
Common stock par value
  $ 10  
Total stock consideration
  $ 1,447,000  
 
Allocation of Purchase Consideration :
 
Current assets
  $ 6,171,000  
Goodwill
    13,329,000  
Intangible assets
       
  Customer list/relationships
    6,630,000  
  Tradenames
    4,418,000  
  Non-competes
    465,000  
Property and equipment
    21,000  
Other assets
    56,000  
Current liabilities
    (4,570,000 )
Deferred revenue, current portion
    (781,000 )
Adjustment to current portion of deferred revenue to reflect fair value
    195,000  
Deferred revenue, net of current portion
    (378,000 )
Adjustment to deferred revenue, net of current portion, to reflect fair value
    95,000  
Long-term deferred tax liability
    (4,498,000 )
         
Total allocation of consideration
  $ 21,153,000  

Current assets acquired from IPC relate to accounts receivable and other current assets.  We assigned the $11,153,000 of value ascribed to identifiable intangible assets to customer relations of approximately$6,630,000, which are being amortized over their useful lives of ten years, non-compete agreements of $465,000, which are being amortized over three years, and tradenames of approximately $4,418,000, which are not being amortized.
 
(b)
Adjustment to record amortization expense of approximately $818,000 for the period of January 1, 2013 through December 31, 2013, as if the acquisition had occurred on January 1, 2013.  The weighted average useful life of the identifiable intangible assets acquired is approximately 9.33 years.  The identifiable assets are amortized to depreciation and amortization expense using the straight line method which approximates the useful life.
   
(c)
To record the incremental costs of the interest on the note issued in connection with the IPC acquisition of $501,000 in the year ended December 31, 2013.
   
(d)
To reverse the costs related to the IPC acquisition of $92,000 in 2013, which were one time in nature.
 
 Pro forma Shares
 
(e)
The calculation of the pro forma basic weighted average number of common shares outstanding for the year ended December 31, 2013 is as follows:
 
   
For the year
 ended
December 31,
2013
 
Weighted average common shares outstanding as of December 31, 2013
    3,240,230  
Shares issued with the acquisition of AW Solutions adjusted to January 1, 2013
    58,609  
Shares issued with the acquisition of IPC as of January 1, 2013
    104,528  
Pro forma weighted average common shares outstanding
    3,403,367  
 
 
Income Tax Effect of Acquisitions:
 
The following table shows the income tax effect for the year ended December 31, 2013 for the completed acquisition of AW Solutions in April 2013, as if such acquisition had occurred on January 1, 2013.
 
   
AW Solutions
   
Pro forma
Adjustments
   
Total
 
Income before provision for income taxes
  $ 574,000     $ (135,000 )   $ 439,000  
                         
Income tax provision at 39% statutory rate
    224,000       (53,000 )     171,000  
                         
Income tax provision recorded on historical financials
    18,000               18,000  
Pro forma income tax provisions
  $ 206,000     $ (53,000 )   $ 153,000  
 
(f)
To record an adjustment for income taxes for the year ended December 31, 2013 for the acquisition of AW Solutions completed in April 2013.  AW Solutions had pro forma income before income taxes of $439,000 prior to the date of acquisition.  This would have resulted in an income tax provision of $171,000, for which AW Solutions had recorded a provision for income taxes of $18,000, which resulted in a pro forma tax amount of $153,000. Our net operating loss carry-forward may be sufficient to offset the taxable income of AW Solutions in future periods.
 
The following table shows the income tax effect for the year ended December 31, 2013 for the completed acquisition of IPC in January 2014, as if such acquisition had occurred on January 1, 2013.
 
   
IPC
   
Pro forma
Adjustments
   
Total
 
Income before provision for income taxes
  $ 2,379,000     $ (1,227,000 )   $ 1,152,000  
                         
Income tax provision at 39% statutory rate
    928,000       (479,000 )     449,000  
Pro forma income tax provisions
  $ 928,000     $ (479,000 )   $ 449,000  
 
(g)
To record an adjustment for income taxes for the year ended December 31, 2013 for the potential acquisition of IPC completed in January 2014.  IPC had pro forma adjusted income before income taxes of $1,152,000. This would have resulted in an income tax provision of $449,000. Our net operating loss carry-forward may be sufficient to offset the taxable income of IPC in future periods.
 
 
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 prospectus, 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., or 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 years ended December 31, 2013 and 2012, primarily as a result of our acquisition of ADEX, approximately 35% and 38%, respectively, of our revenue was derived from specialty contracting services, with the remaining 65% and 62%, respectively, coming from our telecommunications staffing services.

In 2013, we evaluated our reporting segments and determined that we operated in two reportable segments, specialty contracting services and telecommunication staffing services.  The telecommunication staffing services segment was comprised of the ADEX reporting unit and provided contracted services to provide technical engineering and management solutions to large voice and data communications providers, as specified by their clients.  Specialty contracting services revenues were derived from contracted services to provide technical engineering services along with contracting services to commercial and governmental customers. Our operating divisions had been aggregated into the two reporting segments due to their similar economic characteristics, products, production methods and distribution methods. The specialty contracting service segment included our AW Solutions, T N S, Tropical and RM Engineering reporting units.
 
In January 2014, we acquired the operations of IPC, which  allowed us to gain entry into the telecommunications hardware and software resale sector as well as to expand our services by adding a hardware and software maintenance division.  In February 2014, we acquired the operations of RentVM, which allowed us to gain entry into the cloud computing sector and to expand the range of products and services that we provide to our customers.  

With the acquisitions of IPC and RentVM, we re-evaluated all of our operating subsidiaries and determined that the IPC and RentVM divisions should be aggregated into one of three reporting segments based on their economic characteristics, products, production methods and distribution methods.  The results of operations of IPC and RentVM are categorized within the cloud and managed services segment.  We also re-evaluated our previously-reported segments and determined that our specialty contracting services segment would be presented as the applications and infrastructure segment.  We also re-evaluated our telecommunication staffing services segment and determined that it would be presented as the professional services segment.

Due to the addition of the cloud and managed services segment in 2014, certain comparative percentages mentioned below in our results of operations for the three months ended March 31, 2014 may not be meaningful (N/M).

Our revenue increased from $11.2 million for the three-month period ended March 31, 2013 to $14.0 million for the three month period ended March 31, 2014, and from $17.1 million for the year ended December 31, 2012 to $51.4 million for the year ended December 31, 2013.  Our net loss attributable to common stockholders increased from $2.1 million for the year ended December 31, 2012 to $25.4 million for the year ended December 31, 2013.  As of March 31, 2014, our stockholders’ equity was $30.8 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 the three-month period ended March 31, 2014 and the years ended December 31, 2013 and 2012, the majority of our revenue and expenses was generated by our acquired companies. In the three-month period ended March 31, 2014, $13.0 million of the total $14.1 million in revenues was generated by the companies we had acquired since January 1, 2012. Of the $51.4 million in total revenues in the year ended December 31, 2013, $45.5 million was generated by the companies we acquired in 2012 and 2013. In 2012, $11.7 million of the total $17.1 million in revenues was generated by companies acquired in 2012.

In the three-month period ended March 31, 2014, cost of revenues of the companies we acquired during such period or in 2013 or 2012 accounted for $9.5 million of our $10.1 million cost of revenues. Cost of revenues of the companies we acquired in the years ended December 31, 2012 and 2013 accounted for $34.2 million of our $37.3 million cost of revenues during the year ended December 31, 2013. In 2012, $8.7 million of the total $12.0 million in cost of revenues was incurred by the companies we acquired in 2012.
 
Gross profit generated by the companies we acquired in the three-month period e