COMMITMENTS AND CONTINGENCIES |
12 Months Ended | ||||||||||||||||||||||||||||
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Sep. 30, 2015 | |||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Text Block] |
Guarantees The Chief Executive Officer (“CEO”) personally guaranteed several obligations of the Company during fiscal 2014 and during the first quarter of fiscal 2015. The CEO established a personal credit card account for the purchase of goods and services by FTE. While the credit card balances were reflected in the Company’s books and records, the CEO was personally liable for the payment of the entire amount of the open credit obligation, which was as high as $30,000 during the guaranty period. Additionally, the Company entered into several secured equipment financing arrangements during 2015 with total obligations of approximately $360,000 as of September 30, 2015 that required the guaranty of a Company officer, which was provided by the CEO. During 2014, the Company entered into factoring agreements subject to, and agreed-upon based, in part, on the guarantees of the Company, and its Chief Executive Officer and the President of FTE Network Services. Both officers provided the form of guaranty requested by the factoring company. Related Party Advances During 2015, the CEO provided short-term cash advances aggregating to approximately $183,000 to the Company in order to meet short-term liquidity needs.
Property Lease Obligations On November 1, 2013, the Company entered into a two year lease for 3,310 square feet of office space located in Naples, Florida. The lease required a $5,000 security deposit and the prepayment of the last two months’ rent at the inception of the lease. Monthly payments under the lease are $3,500 per month. (See Note 13 – Subsequent Events). On September 22, 2014, the Company entered into a one year lease for 7,669 square feet of office space in Seattle, Washington, at a monthly rent of $6,300. (See Note 13 – Subsequent Events). On October 1, 2014, the Company entered into a one year lease for 4,000 square feet of office space in Indianapolis, Indiana, at a monthly rent of $2,417. (See Note 13 – Subsequent Events). On March 1, 2015, the Company entered into a one year lease for 1,333 square feet of warehouse space in Ocala, Florida, at a monthly rent of $663. The remaining aggregate commitment for lease payments under the operating lease for the facilities as of September 30, 2015 are as follows:
Rental expense, resulting from property lease agreements, for the years ending September 30, 2015 and 2014, respectively was $181,895 and $167,300. In July 2013, the Company defaulted on two lease obligations with terms through December 2015 and February 2016, respectively. Claims made by the landlord at one location were settled during July 2015 for an aggregate of $105,000, consisting of cash payments totaling $55,000 and the issuance of 125 shares of the companies Series D preferred stock valued at $50,000. As of September 30, 2015, $38,000 of the settlement amount remains unpaid. During October 2015, the Company arrived at settlement of $75,000 with the landlord of the other location to be paid in cash. The Company has accrued $113,000 for these lease obligations as of September 30, 2015. Employment Agreements
On October 14, 2013, FTE Networks entered into an employment agreement with John Wood whereby Mr. Wood agreed to serve as the Company’s Chief Operating Officer and President of its subsidiary FTE Network Services in consideration of a salary of $162,500 per year, with standard employee insurance and other benefits. The employment agreement commenced on October 14, 2013 and ends on October 14, 2016, after which it is renewable on a year to year basis, until terminated by either party with 30 days written notice. During May 2015, Mr. Wood’s salary was increased to $200,000 per annum.
On June 2, 2014, FTE Networks entered into an employment agreement with David Lethem whereby Mr. Lethem agreed to serve as the Company’s Chief Financial Officer in consideration of a salary of $120,000 per year, with standard employee insurance and other benefits. The employment agreement commenced on June 2, 2014 and ends on June 2, 2016, after which it is renewable on a year to year basis, until terminated by either party with 30 days written notice. On June 2, 2014, FTE Networks entered into an employment agreement with John Klumpp whereby Mr. Klumpp agreed to serve on the Board of Directors. Subsequently, Mr. Klumpp joined the FTE Networks executive team as Chief Strategy Officer in consideration of a salary of $180,000 per year, with standard employee insurance and other benefits.
On June 13, 2014, FTE Networks entered into an employment agreement with Michael Palleschi whereby Mr. Palleschi agreed to serve as the Company’s Chief Executive Officer in consideration of a salary of $250,000 per year, with standard employee insurance and other benefits. The employment agreement commenced on June 13, 2014 and ends on June 13, 2017, after which it is renewable on a year to year basis, until terminated by either party with 30 days written notice. Accrued Litigation Expense
Legal Matters - The Company is involved in litigation claims arising in the ordinary course of business. Legal fees and other costs associated with such actions are expensed as incurred. In addition, the Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and contingencies. The Company reserves for costs relating to these matters when a loss is probable and the amount can be reasonably estimated. As of September 30, 2014, the Company had reserved $1,848,226 related to litigation. As of September 30, 2015, the Company had reserved an aggregate of $1,840,891 in Accrued Litigation Costs for the following legal matters, however, the amount of future accruals required associated with these claims, if any, cannot be determined with certainty.
Roadsafe Traffic Systems, Inc. v. Focus Fiber Solutions, LLC, et al vs. Zayo Group.
Complaint filed February 10, 2014 in the State of Arizona, Maricopa County, Docket No.: CV2014-090231.
Plaintiff Roadsafe Traffic Systems, Inc., a services vendor, made breach of contract and other claims against defendants Focus Fiber Solutions, LLC, and Zayo Bandwidth, LLC.
Relief sought is approximately $139,932.
This claim is subject to indemnification from ProFiber Solutions, LLC and MDT Labor, LLC under the Asset Purchase Agreement and related documents dated June 19, 2013.
Enterprise FM Trust v. Focus Venture Partners, Inc., et al,
Complaint filed December 12, 2013, District Court of Tulsa, Oklahoma, Docket No. CJ 2013-05647.
Plaintiff Enterprise FM Trust, a vendor, made breach of contract claims against Defendant Focus Venture Partners, Inc.
Primary relief sought approximately $118,869 in principal. Consent judgment against Focus Venture Partners, Inc. in the amount of $153,043.
This claim is subject to indemnification from ProFiber Solutions, LLC and MDT Labor, LLC under the Asset Purchase Agreement and related documents dated June 19, 2013.
EAN Services, LLC v. Focus Fiber Solutions, LLC, et al,
Complaint filed December 4, 2013 District Court of Tulsa, Oklahoma, Docket No. CJ 2013-05529.
Plaintiff Enterprise FM Trust, a vendor, made breach of contract claims against Defendant Focus Fiber Solutions, LLC.
Primary relief sought is approximately $819,425 in principal. Consent judgment against Focus Fiber Solutions, LLC in the amount of $1,042,796. This claim is subject to indemnification from ProFiber Solutions, LLC and MDT Labor, LLC under the Asset Purchase Agreement and related documents dated June 19, 2013. See FTE Networks, Inc., et al v. ProFiber Solutions, LLC, MDT Labor, LLC et al. FTE Networks, Inc., et al v. ProFiber Solutions, LLC, MDT Labor, LLC et al
Praecipe to Issue Writ of Summons filed June 18, 2015, Commonwealth of Pennsylvania, Philadelphia County, CCP June 2015 Term, Case No. 00255.
Plaintiffs FTE Networks, Inc., formerly d/b/a Beacon Enterprise Solutions Group, LLC, Focus Fiber Solutions, LLC, Jus-Com, Inc., Focus Wireless, LLC, Optos Capital Partners, LLC, and Focus Venture Partners, Inc. filed against ProFiber Solutions, LLC, MDT Labor, LLC, and others for various matters relating to indemnification including but not limited to the following cases: Roadsafe Traffic Systems, Inc. v. Focus Fiber Solutions, LLC, et al vs. Zayo Group, Enterprise FM Trust v. Focus Venture Partners, Inc., et al, and EAN Services, LLC v. Focus Fiber Solutions, LLC, et al and Primus Electric Corporation v. Focus Fiber Solutions, LLC. Michael Martin and Paris Arey vs. Beacon Enterprise Solutions Group, Inc. and MDT Labor, LLC, et al.
Complaint filed October 19, 2012 (amended November 6, 2013) in Jefferson Circuit County, Kentucky Circuit, Docket No. 12CI-05572.
Plaintiffs Michael L. Martin and Paris G. Arey are former employees of Beacon Enterprise Solutions Group, Inc. and MDT Labor, LLC d/b/a MDT Technical. Bruce Widener, and Michael Traina, former officers of said companies, are also defendants. Plaintiffs’ claims are primarily for severance and change in control bonuses under certain employment agreements. The case is being defended by the Company’s D&O insurance carrier, with reservations.
Primary relief sought: $190,000 under the severance claims and $380,000 under the change of control claims. Settled November 2015: $150,000 cash, $250,000 Note, 512,000 Shares of Common Stock. Shorewood Packaging, LLC v. Optos Capital Partners, LLC.
Complaint filed October 2, 2013 in Superior Court of New Jersey, Law Division, Bergen County, Docket No. BER-L-7469-13.
Plaintiff Shorewood Packaging, LLC is a landlord for a commercial property located in New Jersey with claims for damages against Optos Capital Partners, LLC, the guarantor for tenant, Focus Wireless, LLC, relative to a breach of lease agreement.
Primary relief sought approximately $280,000. Settled: October 2015: $75,000. |
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