<PAGE>
UNITED STATE
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 16, 2000
STRATUS SERVICES GROUP, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 001-15789 22-3499261
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(State or other jurisdiction (Commission File No. (I.R.S. Employer
of incorporation or organization Identification No.)
500 Craig Road, Suite 201, Manalapan, New Jersey 07726
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(Address of principal executive offices)
(732) 866-0300
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(Registrant's telephone number including area code)
<PAGE>
The undersigned Registrant hereby amends and restates its Current
Report on Form 8-K filed with the Securities and Exchange Commission on June
30, 2000 which excluded certain financial statements and pro forma financial
information not available at the time of filing.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On June 16, 2000, Stratus Services Group, Inc., a Delaware corporation
("Stratus" or the "Registrant") purchased substantially all of the tangible and
intangible assets, excluding accounts receivable of eight offices of Tandem, a
division of Outsource International, Inc. ("Outsource"), a Florida corporation,
pursuant to the terms of an Asset Purchase Agreement dated June 16, 2000. The
initial purchase price for the assets was $1.3 million, of which $800,000 was
paid in cash at the closing and the remaining $500,000 was represented by
promissory notes. The first note, representing $400,000, is payable in two
installments of $200,000 plus accrued interest at 8.5% per annum, at 90 days and
180 days after the closing of the asset purchase agreement. The second note,
representing $100,000 bears interest at 8.5% per annum and is payable in 12
equal monthly installments beginning January 1, 2001. In connection with the
transaction, Outsource entered into a Non-competition and Non-Solicitation
Agreement pursuant to which it agreed not to compete with the Registrant in the
territories of the acquired business for a period of two years and to not
solicit the employees or customers of the acquired business for a period of
three years.
The purchase price was arrived at through arms-length negotiations between
the parties. The cash portion of the purchase price was funded from available
cash on hand.
The Tandem branches provide temporary industrial staffing in eight
business locations in the cities of Trenton, NJ, Lebanon, PA, Norristown, PA,
New Brunswick, NJ, Perth Amboy, NJ, Paterson, NJ, Elizabeth, NJ and Cranbury,
NJ, with estimated 1999 revenues of $25 million.
The Registrant currently intends to continue to operate the business
formerly conducted by Tandem at the purchased locations with the purchased
assets for the foreseeable future. The foregoing statement of the Registrant's
intention is a forward looking statement within the meaning of Section 21E of
the Securities Exchange Act of 1934, and is based on certain assumptions,
including among others, general economic conditions, management's expectations
regarding the operating results of the Registrant and the purchased locations,
the capital requirements of continuing Tandem's current business and others.
Should these assumptions change, or prove to be inaccurate, the Registrant's
actual future conduct of Tandem's business could differ materially from the
intention stated.
The above descriptions of the asset purchase agreement and the
Non-competition and Non-solicitation agreements do not purport to be complete
and are qualified in their entirety by the full text of such documents, which
are attached as exhibits hereto.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The financial statements of the Mid-Atlantic Region of OutSource
International, Inc. and the notes thereto are located on pages 3 through 11
of this Form 8-K/A.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Outsource International, Inc.
Delray Beach, Florida:
We have audited the accompanying statements of net assets sold of the
Mid-Atlantic region of Outsource International, Inc. (the "Mid-Atlantic") as of
December 31, 1999 and 1998, and the statements of net revenues, cost of
revenues, and direct operating expenses for each of the three years in the
period ended December 31, 1999, pursuant to the Asset Purchase Agreement dated
June 16, 2000 between Outsource International of America, Inc., a wholly-owned
subsidiary of Outsource International, Inc., and Stratus Services Group, Inc.,
dated June 16, 2000, as described in Note 1 to the financial statements. These
financial statements are the responsibility of Outsource International, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying financial statements were prepared to present the net assets of
the Mid-Atlantic sold to Stratus Services Group, Inc. pursuant to the Asset
Purchase Agreement described in Note 1, and the net revenues, cost of revenues,
and direct operating expenses of the Mid-Atlantic, and are not intended to be a
complete presentation of the Mid-Atlantic's financial position, results of
operations and cash flows.
In our opinion, such financial statements present fairly, in all material
respects, the net assets sold of the Mid-Atlantic pursuant to the Asset Purchase
Agreement referred to in Note 1 as of December 31, 1999 and 1998, and the net
revenues, cost of revenues, and direct operating expenses for each of the three
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying statements of net revenues, cost of revenues and direct
operating expenses for the periods ended June 19, 2000 and June 30, 1999 were
not audited by us and, accordingly, we do not express an opinion on them.
DELOITTE & TOUCHE LLP
August 25, 2000
3
<PAGE>
THE MID-ATLANTIC REGION OF OUTSOURCE INTERNATIONAL, INC.
STATEMENTS OF NET ASSETS SOLD (in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
ASSETS
<S> <C> <C>
Property and equipment, net $ 147 $ 161
Goodwill and other intangible assets, net 1,339 3,677
------ ------
1,486 3,838
LIABILITIES
Commitments and contingencies (Note 5) -- --
------ ------
Total net assets sold $1,486 $3,838
====== ======
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
THE MID-ATLANTIC REGION OF OUTSOURCE INTERNATIONAL, INC.
STATEMENTS OF NET REVENUES, COST OF REVENUES, AND DIRECT
OPERATING EXPENSES (in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIODS ENDED YEARS ENDED DECEMBER 31,
----------------- ---------------------------
JUNE 19, JUNE 30,
2000 1999 1999 1998 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues $11,467 $11,476 $24,705 $26,658 $20,445
Cost of revenues 9,393 9,532 20,549 22,224 16,883
------- ------- ------- ------- -------
Gross profit 2,074 1,944 4,156 4,434 3,562
Direct operating expenses 1,426 1,250 2,754 2,547 2,114
------- ------- ------- ------- -------
Excess of gross profit over
direct operating expenses $ 648 $ 694 $ 1,402 $ 1,887 $ 1,448
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
THE MID-ATLANTIC REGION OF OUTSOURCE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE PERIODS ENDED
JUNE 19, 2000 AND JUNE 30, 1999 IS UNAUDITED)
--------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Outsource International, Inc. and Subsidiaries (the
"Company") is a national provider of human resource services focusing on the
flexible industrial staffing market. Industrial staffing services include
recruiting, training and workforce re-deployment.
BASIS OF PRESENTATION - The accompanying financial statements have been
prepared for the purpose of presenting the net assets sold of the
Mid-Atlantic region of the Company (the "Mid-Atlantic") as of December 31,
1999 and 1998 pursuant to the Asset Purchase Agreement (the "Agreement")
dated June 16, 2000 between Outsource International of America, Inc., a
wholly-owned subsidiary of the Company, and Stratus Services Group, Inc.
(the "Buyer") and the Mid-Atlantic's net revenues, cost of revenues and
direct operating expenses for the period from January 1, 2000 to June 19,
2000, the date the transaction was consummated (the "Closing Date") and the
six-month period ended June 30, 1999 and for each of the three years in the
period ended December 31, 1999.
Pursuant to the Agreement, the Company sold to the Buyer all of the tangible
and intangible assets owned or used by the Company exclusively in connection
with the operation of the Mid-Atlantic in exchange for consideration
totaling approximately $1.3 million, consisting of $800,000 in cash and
$500,000 in notes receivable. The Buyer has agreed to assume all liabilities
arising after the Closing Date relating to the Mid-Atlantic's Contracts, as
defined, and on lease agreements related to the operations of the
Mid-Atlantic.
Historically, the Company did not prepare financial statements for the
Mid-Atlantic. The accompanying financial statements are derived from the
historical accounting records of the Company, and present the net assets
sold of the Mid-Atlantic, in accordance with the Agreement, as of December
31, 1999 and 1998, and the statements of net revenues, cost of revenues, and
direct operating expenses for the periods ended June 19, 2000 and June 30,
1999 and for each of the three years in the period ended December 31, 1999,
and are not intended to be a complete presentation of the Mid-Atlantic's
financial position, results of operations and cash flows. The historical
operating results may not be indicative of the results after acquisition by
the Buyer.
The statements of net revenues, cost of revenues and direct operating
expenses include all revenues and expenses directly attributable to
Mid-Atlantic, which consisted of eight flexible industrial staffing branch
offices located in the states of Pennsylvania and New Jersey. Direct
operating expenses consist primarily of amortization of goodwill, interest
expense on a note payable, and selling, general and administrative expenses.
The statements do not include allocations of corporate service center costs,
such as interest on Company debt or corporate service center employees'
salaries. The Company did not maintain the Mid-Atlantic as a separate
business unit and had never allocated indirect costs to the region.
Accordingly, it is not practical to isolate or allocate indirect operating
costs applicable to the Mid-Atlantic.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
6
<PAGE>
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amount of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
REVENUE RECOGNITION - All staffing revenues are based upon the gross payroll
of the Mid-Atlantic's staffing employees plus a corresponding fee. The
Mid-Atlantic's fee structure is based upon the estimated costs of
employment-related taxes, health benefits, workers' compensation benefits,
insurance and other services offered by the Mid-Atlantic plus a negotiated
mark-up. All staffing customers are invoiced on a periodic basis ranging
from weekly to monthly. The staffing revenues, and related costs of wages,
salaries, employment taxes and benefits related to worksite employees, are
recognized in the period in which those employees perform the staffing
services.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost and
depreciated or amortized on straight-line bases over the estimated useful
service lives of the respective assets, which range from five to seven
years. Leasehold improvements are stated at cost and amortized over the
shorter of the term of the lease or estimated useful life of the
improvement.
LONG-LIVED ASSETS - In accordance with Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF, impairments, measured using fair
value, are recognized whenever events or changes in circumstances indicate
that the carrying amount of long-lived assets may not be recoverable and the
projected future undiscounted cash flows attributed to the assets are less
than their carrying values.
GOODWILL AND OTHER INTANGIBLE ASSETS - Identifiable intangible assets
include customer lists, employee lists and covenants not to compete acquired
in connection with acquisitions. Such assets are recorded at fair value on
the date of acquisition as determined by management with assistance by an
independent valuation consultant and are being amortized over the estimated
periods to be benefited, ranging from less than one year to 15 years.
Goodwill relates to the excess of cost over the fair value of net assets of
the businesses acquired. Amortization is calculated on a straight-line basis
over a weighted average period of 30 years.
Management assesses on an ongoing basis if there has been an impairment in
the carrying value of its intangible assets. If the undiscounted future cash
flows over the remaining amortization period of the respective intangible
asset indicate that the value assigned to the intangible asset may not be
recoverable, the carrying value of the respective intangible asset will be
reduced. The amount of any such impairment would be determined by comparing
anticipated discounted future cash flows from acquired businesses, which is
the basis for estimating fair value, with the carrying value of the related
assets. In performing this analysis, management considers such factors as
current results, trends and future prospects, in addition to other relevant
factors.
WORKERS' COMPENSATION - Effective January 1, 1997 through June 19, 2000, the
Company's workers' compensation insurance coverage provided for a $250,000
deductible per accident or industrial illness with an aggregate maximum
dollar limit. The Company employs an independent third-party administrator
to assist it in establishing an appropriate accrual for the uninsured
portion of workers' compensation claims arising in those years, including
claims incurred but not reported, based on prior experience and other
relevant data. The Company's policy is to accrue workers' compensation
expense equal to the fully developed cost of claims incurred up to those
maximum dollar limits, using internally generated rates that reflect the
specific risk profile of each geographic region in order to allocate the
maximum dollar limit between regions.
7
<PAGE>
Workers' compensation expense is included in the accompanying statements of
net revenues, costs of revenues and direct operating expenses, and amount to
$485,000, $424,000, $888,000, $964,000 and $796,000 for the periods ended
June 19, 2000 and June 30, 1999 and for the years ended December 31, 1999,
1998 and 1997, respectively.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Computer equipment $161 $135
Computer software 15
Leasehold improvements 122 117
Furniture and fixtures 24 23
---- ----
Property and equipment 322 275
Less accumulated depreciation 175 114
---- ----
Property and equipment, net $147 $161
==== ====
</TABLE>
Under the terms of the Agreement, the Buyer has the option to purchase up
to thirteen vans from the Company by June 26, 2000, which would then be
executed under a separate promissory note. The Company has not been
informed of any intent to purchase these vehicles, which have accordingly
been excluded from the statement of assets sold.
Property and equipment of the Mid-Atlantic has been pledged as collateral
under the Company's borrowing facilities as of December 31, 1999 and 1998.
Depreciation and amortization expense for property and equipment for the
periods ended June 19, 2000 and June 30, 1999 and for the years ended
December 31, 1999, 1998 and 1997 was $0, $139,000, $259,000, $263,000 and
$203,000, respectively (see Note 3).
3. RESTRUCTURING, SALE OF OPERATIONS AND ASSETS HELD FOR DISPOSITION
On August 6, 1999, the Company announced its intention to improve its
short-term liquidity, concentrate its operations within the flexible
staffing segment and improve its operating performance within that segment
through the sale, franchise, closure or consolidation of 47 of the 117
flexible staffing branch offices existing as of June 30, 1999 (the
"Restructuring"). Of the 47 branch offices that have been or will be
eliminated in connection with the Restructuring, 26 and 41 offices had been
sold, franchised, closed, or consolidated as of December 31, 1999 and August
15, 2000, respectively. These offices, which included the Mid-Atlantic, were
not or are not expected to be adequately profitable in the near future or
are inconsistent with the Company's operating strategy of clustering offices
within specific geographic regions. As of December 31, 1999, 21 flexible
staffing offices remained to be sold as part of the Restructuring, and the
Company has classified the related tangible and intangible assets, excluding
cash, accounts receivable and deferred income taxes, as assets held for
disposition. Upon classification as assets held for disposition, the Company
discontinued the related depreciation and amortization for these assets. The
estimated fair value of these assets held for disposition was based, in some
cases, on management's judgment.
8
<PAGE>
The Company's assets held for disposition as of December 31, 1999 and
included in the Agreement were stated at the lower of original cost (net of
accumulated depreciation or amortization) or fair value (net of selling and
disposition costs) and presented in thousands, as follows:
<TABLE>
<CAPTION>
ORIGINAL COST, NET
------------------------------------------------ LOWER OF
PROPERTY AND GOODWILL AND OTHER COST OR
EQUIPMENT INTANGIBLE ASSETS TOTAL FAIR VALUE
----------- -------------------------- --------- ----------
<S> <C> <C> <C> <C>
Assets held for disposition $ 147 $ 3,504 $ 3,651 $ 1,486
</TABLE>
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following amounts, which
are presented in thousands, and, with respect to the December 31, 1999
balances, are after the effect of the impairment reduction discussed
earlier:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
DECEMBER 31, DECEMBER 31, AMORTIZATION
1999 1998 PERIODS
----------- ----------- -------------
<S> <C> <C> <C>
Goodwill $1,389 $3,558 30.0 years
Customer lists 370 370 8.0 years
Covenants not
to compete 73 73 5.0 years
Employee lists 30 30 0.1 year
------ ------
Goodwill and other
intangible assets 1,862 4,031 27.3 years
Less accumulated
amortization 523 354
------ ------
Goodwill and other
intangible assets, net $1,339 $3,677 25.4 years
====== ======
</TABLE>
The costs of each acquisition were allocated to the assets acquired and
liabilities assumed based on their fair values at the date of acquisition as
determined by management with the assistance of an independent valuation
consultant.
5. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS - The Mid-Atlantic conducts its operations in various
leased facilities under leases that are classified as operating leases for
financial reporting purposes. The leases provide for the Company to pay real
estate taxes, common area maintenance and certain other expenses. Lease
terms, excluding renewal option periods exercisable by the Company at
escalated rents, expire between 2000 and 2005. Also, certain equipment used
in the Mid-Atlantic's operations is leased under operating leases.
9
<PAGE>
The following is a summary of fixed minimum lease commitments required under
all noncancellable operating leases for the years ended after December 31,
1999:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
2000 $ 192
2001 125
2002 47
2003 21
2004 3
Thereafter -
-----
Total $ 388
=====
</TABLE>
Rent expense, including equipment rental, was $110,000 and $95,000 for the
periods ended June 19, 2000 and June 30, 1999, respectively, and $194,000,
$170,000, and $125,000 for the years ended December 31, 1999, 1998, and
1997, respectively.
UNEMPLOYMENT TAXES - Federal and state unemployment taxes represent a
significant component of the Mid-Atlantic's cost of revenues. State
unemployment taxes are determined as a percentage of covered wages. Such
percentages are determined in accordance with the laws of each state and
usually take into account the unemployment history of the Mid-Atlantic's
employees in that state. The Company has realized reductions in its state
unemployment tax expense as a result of changes in its organizational
structure from time to time. Although the Company believes that these
expense reductions were achieved in compliance with applicable laws, taxing
authorities of a particular state have recently indicated that they may
challenge these reductions. The Company is unable, at this time, to
reasonably estimate the effect of such a challenge by this state or by other
states.
6. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
For the periods ended June 19, 2000 and June 30, 1999, and for the years
ended December 31, 1999 and 1998, approximately 16%, 12%, 13%, and 10%,
respectively, of the Mid-Atlantic's revenues were from the provision of
services to a single customer.
7. EMPLOYEE BENEFIT PLANS
Certain Company subsidiaries had a 401(k) single-employer retirement plan
and two 413(c) multi-employer retirement plans, administered by the Company,
covering all employees of the Company and its subsidiaries, except for (a)
employees under the age of 21 for all plans, (b) employees with less than
one year of service for all plans, (c) certain temporary employees for the
413(c) plans and, (d) all highly compensated employees as defined by the
Internal Revenue Code for the 401(k) plan and certain highly compensated
employees for the 413(c) plans.
One of the 413(c) plans was established for use by not-for-profit employers
only, effective January 1, 1996. During 1997, the 401(k) and one of the
413(c) plans were made inactive by certain of the Company's subsidiaries and
the Company intends to terminate those plans. All participating employees
were enrolled in the currently active 413(c) plan for future contributions
and all previously contributed net assets remained in the inactive plans for
eventual distribution to the employees upon retirement or other qualifying
event.
10
<PAGE>
Eligible employees who participate elect to contribute to the plan an amount
up to 15% of their salary. Each year, the Company's Board of Directors
determines a matching percentage to contribute to each participant's
account; if a determination is not made, the matching percentage is 50% of
the participant's contributions, limited to the first 6% of each
participant's salary contributed by the participants. The matching
contribution by the Company for its Mid-Atlantic region employees was
$1,600, $2,000, $4,200, $3,400 and $600 which is recorded in the
accompanying statements of net revenues, cost of revenues, and direct
operating expenses for the periods ended June 19, 2000 and June 30, 1999,
and for the years ended December 31, 1999, 1998, and 1997, respectively.
Effective April 8, 2000, the active 413(c) plan was assumed by a third party
in connection with the sale of the Company's professional employer
organization business.
8. STOCK-BASED COMPENSATION
Certain of the Mid-Atlantic's core employees have been granted incentive
stock options, allowing them to purchase a specified number of shares of the
Company's common stock at a price not less than the fair market value on the
date of the grant and for a term not to exceed 10 years.
The Company has elected to follow APB Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES ("APB 25") in accounting for stock options. Under APB
25, because the exercise price of the employee stock options equals the fair
value of the underlying stock on the grant date, no compensation expense is
recognized.
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires presentation
of pro forma net income as if the Company had accounted for its employee
stock options under the fair value method. Although the Company has provided
this information in its consolidated financial statements, it is not
considered practicable to segregate the portion of this disclosure related
to the Mid-Atlantic.
* * * * * *
11
<PAGE>
(b PRO FORMA FINANCIAL INFORMATION
Effective January 4, 1999, Stratus Services Group, Inc. ("Stratus")
purchased certain assets including office equipment, furniture and fixtures,
sales and operating records, customer contracts and agreements, vendor lists,
licenses and certificates of B&R Employment, Inc. ("B&R"). B&R provides
temporary light-industrial staffing in Delaware.
Effective June 26, 2000, Stratus purchased substantially all of the
tangible and intangible assets, excluding accounts receivable of the
Mid-Atlantic region of Outsource International, Inc. ("Outsource") comprising
eight offices of Tandem, a division of Outsource. The Tandem offices provide
temporary industrial staffing in locations in New Jersey and Pennsylvania. The
Tandem offices had 1999 revenues of approximately $24.7 million. The total
consideration paid for the Tandem offices was $1.3 million, consisting of
$800,000 in cash and $500,000 in notes.
The following unaudited pro forma financial statements present the
historical results of Stratus and give effect to the acquisitions of B&R and the
Tandem offices. Note that no pro forma balance sheet is provided as of June 30,
2000 as the June 30, 2000 Stratus balance sheet previously included in the
Company's Form 10-QSB filed with the Securities and Exchange Commission on
August 9, 2000, already includes the effect of the acquisitions of B&R and the
Tandem offices. Also note that no pro forma amounts are included for B&R for the
nine months ended June 30, 2000 as the B&R acquisition was effective January 4,
1999 and therefore is already included in Stratus' results for the nine months
ended June 30, 2000.
The pro forma financial data does not purport to represent what the
Company's financial position or results of operations would actually have been
if such transactions in fact had occurred at October 1, 1998 or to project the
Company's financial position or results of operations for any future period.
12
<PAGE>
STRATUS SERVICES GROUP, INC.
Unaudited Pro Forma Condensed Statement of Operations
For the Nine Months Ended June 30, 2000
<TABLE>
<CAPTION>
For the Nine Months Ended
June 30, 2000 June 30, 2000 Pro Forma
Stratus Tandem Adjustments Pro Forma
-------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues $25,785,217 $17,888,000 $ -- $43,673,217
Cost of revenue 19,679,510 14,720,000 -- 34,399,510
-------------- ------------- ------------ --------------
Gross profit 6,105,707 3,168,000 -- 9,273,707
Operating expenses 4,987,047 2,057,000 129,000 (a,d) 7,173,047
-------------- ------------- ------------ --------------
Earnings (loss) from operations 1,118,660 1,111,000 (129,000) 2,100,660
Other income (expenses):
Finance charges (373,356) -- (196,770) (b) (570,126)
Interest expense (278,849) -- (1,327) (c) (280,176)
Other income 28,980 -- -- 28,980
-------------- ------------- ------------ --------------
(623,225) -- (198,087) (821,322)
Net earnings (loss) $ 495,435 $1,111,000 $ (327,097) $1,279,338
============== ============= ============= ==============
Pro forma earnings per common share -
Basic $ .03 $ .27
Diluted .03 .26
Weighted average shares outstanding
Basic 4,666,244 4,666,244
Diluted 4,900,908 4,900,908
No provision for income taxes has been made due to net operating loss
carryforwards.
</TABLE>
See accompanying notes to unaudited pro forma condensed statements of
operations
13
<PAGE>
STRATUS SERVICES GROUP, INC.
Notes to Unaudited Pro Forma Statement of Operations
For the Nine Months Ended June 30, 2000
(a) Adjustment to reflect the amortization expense ($75,000) relating to the
goodwill recorded in conjunction with the acquisition of the Tandem
offices for the nine months ended June 30, 2000. Goodwill recorded in
conjunction with the acquisition approximated $1.5 million and is being
amortized over fifteen years.
(b) Adjustment to reflect the increase in finance charges relating to the
accounts receivable of the Tandem offices, which would have been financed
under Stratus' agreement with a factor.
(c) Records the interest on the notes payable to OutSource International, Inc.
in connection with the acquisition of the Tandem offices.
(d) Adjustment to reflect estimated depreciation and amortization expense
($54,000) not recorded in the operations of Tandem after August 6, 1999.
14
<PAGE>
STRATUS SERVICES GROUP, INC.
Unaudited Pro Forma Condensed Statement of Operations
For the Year Ended September 30, 1999
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE THREE FOR THE YEAR
ENDED MONTHS ENDED ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1998 1999 PRO FORMA
STRATUS B&R TANDEM ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues $30,042,751 $1,333,791 $24,705,000 $ -- $56,081,542
Cost of revenue 23,677,093 1,007,407 20,549,000 -- 45,233,500
------------ ------------ ------------ ------------ ----------
Gross profit 6,365,658 326,384 4,156,000 -- 10,848,042
Operating expenses 6,883,610 302,216 2,754,000 140,444 (a) 10,080,270
------------ ------------ ------------ ------------ ----------
Earnings (loss) from operations (517,952) 24,168 1,402,000 (140,444) 767,772
Other income (expenses):
Finance charges (722,020) (39,297) -- (271,755) (b) (1,033,072)
Interest expense (309,257) (5,748) -- (59,577) (c) (374,582)
Other income 22,186 -- -- -- 22,186
------------ ------------ ------------ ------------ -----------
(1,009,091) (45,045) -- (331,332) (1,385,468)
Net earnings (loss) $(1,527,043) $ (20,877) $ 1,402,000 $ (471,776) $ (617,696)
============ ============ ============ ============ ===========
Pro forma (loss) per common share -
Basic and diluted $ (.40) $ (.16)
Weighted average shares
outstanding -
Basic and diluted 3,828,530 3,828,530
No provision for income taxes has been made due to net operating loss carryforwards.
</TABLE>
See accompanying notes to unaudited pro forma condensed statements of
operations
15
<PAGE>
STRATUS SERVICES GROUP, INC.
Notes to Unaudited Pro Forma Statement of Operations
For The Year Ended September 30, 1999
(a) Adjustment to reflect the amortization expense relating to the goodwill
recorded in conjunction with the acquisition of B&R and the Tandem offices
for fiscal year 1999. Goodwill recorded in conjunction with these
acquisitions approximated $3.9 million and is being amortized over fifteen
years.
(b) Adjustment to reflect the increase in finance charges relating to the
accounts receivable of the Tandem offices, which would have been financed
under Stratus' agreement with a factor.
(c) Records the interest on the notes payable to B&R and Outsource
International, Inc. in connection with the acquisition of B&R and Tandem.
16
<PAGE>
(c) EXHIBITS.
2.1 Asset Purchase Agreement, dated June 16, 2000, by and between
Stratus Services Group, Inc. and OutSource International of
America, Inc.*
10.1 Non-Competition Agreement, dated June 19, 2000, between Stratus
Services Group, Inc. and OutSource International of America, Inc.*
10.2 Promissory Note and Security Agreement in the amounnt of $400,000,
dated as of June 19, 2000, issued by Stratus Services Group, Inc. to
OutSource International of America, Inc.*
10.3 Promissory Note in the amount of $100,000, dated as of June 19,
2000, issued by Stratus Services Group, Inc. to OutSource
International of America, Inc.*
* Incorporated by reference to the Company's Form 8-K, filed with the
Securities and Exchange Commission on June 30, 2000.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STRATUS SERVICES GROUP, INC.
By: /s/ Joseph J. Raymond
-------------------------
Joseph J. Raymond
President & CEO
