<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended JUNE 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to
Commission file number 001-15789
STRATUS SERVICES GROUP, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 22-3499261
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(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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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(Issuer's telephone number)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
As of August 9, 2000, 5,725,849 shares of the Registrant's common stock were
outstanding.
Traditional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
STRATUS SERVICES GROUP, INC.
Condensed Balance Sheet
As at June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets
Cash and cash equivalents $ 1,157,270
Due from factor - less allowance for recourse
obligation of $77,500 470,272
Accounts receivable - less allowance for doubtful
accounts of $106,000 761,272
Unbilled receivables 1,425,139
Loans to related parties 230,500
Prepaid insurance 753,913
Prepaid expenses and other current assets 276,557
------------
5,074,923
Property and equipment, net of accumulated depreciation 695,973
Goodwill - net 3,720,417
Investment in marketable securities --
Other assets 46,658
------------
$ 9,537,971
============
Liabilities and Stockholders' Equity
Current liabilities
Loans payable $ 65,000
Notes payable - acquisition 450,000
Insurance obligation payable 605,414
Accounts payable and accrued expenses 499,365
Accrued payroll and taxes 1,209,811
Payroll taxes payable 291,801
------------
3,121,391
Notes payable - acquisition (net of current portion) 50,000
------------
3,171,391
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value, 10,000,000 shares
authorized, 5,725,849
shares issued and outstanding 57,259
Additional paid-in capital 10,683,953
Deferred compensation (79,600)
Accumulated deficit (4,295,032)
------------
Total stockholders' equity 6,366,580
------------
$ 9,537,971
============
</TABLE>
See notes to condensed financial statements.
1
<PAGE>
STRATUS SERVICES GROUP, INC.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues (including $ -0-,
$733,000, $399,000 and $1,490,000
from related parties) $ 8,859,979 $ 8,343,592 $ 25,785,217 $ 21,263,817
Cost of revenue (including $ -0-,
$662,000, $358,000 and $1,345,000
from related parties) 6,776,188 6,535,616 19,679,510 16,843,326
----------- ----------- ------------ ------------
Gross Profit 2,083,791 1,807,976 6,105,707 4,420,491
Operating expenses
Selling, general and administrative expenses 1,746,464 1,481,153 4,949,547 4,773,309
Provision for recourse obligation 7,500 -- 37,500 595,000
----------- ----------- ------------ ------------
1,753,964 1,481,153 4,987,047 5,368,309
----------- ----------- ------------ ------------
Earnings (loss) from operations 329,827 326,823 1,118,660 (947,818)
----------- ----------- ------------ ------------
Other income (expenses)
Finance charges (93,565) (170,156) (373,356) (539,463)
Interest expense (82,162) (88,390) (278,849) (209,679)
Other income 23,796 6,772 28,980 18,155
----------- ----------- ------------ ------------
(151,931) (251,774) (623,225) (730,987)
----------- ----------- ------------ ------------
Net earnings (loss) $ 177,896 $ 75,049 $ 495,435 $ (1,678,805)
=========== =========== ============ ============
Net earnings (loss) per common share -
Basic $ .03 $ .02 $ .11 $ (.45)
Diluted .03 .02 .10 (.45)
Weighted average shares, outstanding per common share
Basic 5,345,400 3,784,749 4,666,244 3,753,303
Diluted 5,670,833 3,957,149 4,900,908 3,753,303
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
STRATUS SERVICES GROUP, INC.
Condensed Statements of Cash flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 495,435 $(1,678,805)
----------- -----------
Adjustments to reconcile net earnings (loss)
to net cash used by operating activities
Depreciation 111,984 50,992
Amortization 125,371 80,725
Imputed interest 57,652 13,803
Accrued interest 41,522 62,746
Compensation - stock options 35,100 35,100
Changes in operating assets and liabilities
Due to/from factor (1,154,196) 492,880
Accounts receivable (1,075,987) (337,093)
Prepaid insurance (496,700) (246,343)
Prepaid expenses and other current assets (260,649) (21,177)
Other assets 11,098 (11,264)
Insurance obligation payable 352,528 238,838
Accrued payroll and taxes 275,476 36,739
Payroll taxes payable 65,569 91,071
Litigation fees payable (133,299) (122,372)
Accounts payable and accrued expenses (608,953) 268,055
----------- -----------
Total adjustments (2,653,484) 632,700
----------- -----------
$(2,158,049) $(1,046,105)
=========== ===========
Cash flows (used in) investing activities
Purchase of property and equipment (458,724) (217,260)
Payments for business acquisitions (1,002,408) (169,931)
Loans to related parties (230,500) --
----------- -----------
(1,691,632) (387,191)
----------- -----------
Cash flows from financing activities
Proceeds from initial public offering 6,063,479 --
Proceeds from sale of common stock -- 708,750
Proceeds from loans payable 1,125,000 800,000
Payments of loans payable (2,354,600) (284,000)
Purchase of treasury stock (250,000) --
----------- -----------
4,583,879 1,224,750
----------- -----------
Net change in cash and cash equivalents 734,198 (208,546)
Cash and cash equivalents - beginning 423,072 249,987
----------- -----------
Cash and cash equivalents - ending $ 1,157,270 $ 41,441
=========== ===========
Supplemental disclosure of cash paid
Interest $ 388,285 $ 143,702
Schedule of Noncash Investing and Financing Activities
Fair value of assets acquired $ 1,502,408 $ 2,421,903
Less: cash paid (1,002,408) (57,430)
Less: common stock and put options issued -- (520,000)
----------- -----------
Liabilities assumed $ 500,000 $ 1,844,473
=========== ===========
Issuance of common stock in exchange for notes payable $ 1,000,000 492,762
=========== ===========
Accrued and imputed interest $ 99,174 $ 76,549
=========== ===========
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
STRATUS SERVICES GROUP, INC.
Notes to Condensed Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. The financial statement information was derived from unaudited
financial statements unless indicated otherwise. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included in the
accompanying condensed financial statements. Operating results for the three and
nine month periods ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending September 30, 2000.
The accompanying unaudited condensed financial statements for the nine months
ended June 30, 2000 should be read in conjunction with the Company's audited
financial statements for the year ended September 30, 1999, included in the
Company's Registration Statement on Form (File No. 333-83255), as amended.
NOTE 2 - EARNINGS/LOSS PER SHARE
Basic "Earnings Per Share" ("EPS) excludes dilution and is computed by dividing
earnings available to common stockholders by the weighted-average number of
common shares outstanding during the period. Diluted EPS assumes conversion of
dilutive options and warrants, and the issuance of common stock for all other
potentially dilutive equivalent shares outstanding. Dilutive shares were 325,433
and 234,664 for the three and nine months ended June 30, 2000 and 172,400 and
-0- for the three and nine months ended June 30, 1999.
NOTE 3 - INITIAL PUBLIC OFFERING
On May 5, 2000, the Company completed its initial public offering ("IPO") of
1,300,000 shares of common stock at a price of $6.00 per share, generating net
cash proceeds of approximately $6.0 million after deducting underwriters
discounts and offering costs to date of approximately $1.8 million.
NOTE 4 - ACQUISITION
On June 26, 2000, the Company purchased substantially all of the tangible and
intangible assets, excluding accounts receivable, of eight offices of Tandem, a
division of OutSource International, Inc. ("OutSource"). The purchase price was
$1,300,000, of which $800,000 was paid in cash at the closing and the remaining
$500,000 was represented by two promissory notes. The first note, representing
$400,000 is payable in two installments of $200,000 plus accrued interest at
8.5% a year, at 90 days and 180 days after the closing. The second note,
representing $100,000 bears interest at 8.5% a year and is payable in twelve
equal monthly installments beginning January 1, 2001.
4
<PAGE>
The excess of cost paid over net assets acquired resulted in goodwill of
$1,500,000, computed as follows:
<TABLE>
<S> <C>
Net assets acquired
Furniture and equipment $ 38,175
Accrued holiday and vacation pay (36,000)
-----------
Amounts paid 2,175
Cash 800,000
Notes payable 500,000
Finder's fees and other costs 202,408
-----------
1,502,408
-----------
Excess of amounts paid over net assets acquired - goodwill $ 1,500,233
===========
</TABLE>
On January 4, 1999, the Company entered into an asset purchase agreement with
B&R Employment, Inc. ("B&R"). The Company purchased certain assets including
office equipment, furniture and fixtures, sales and operating records, customer
contracts and agreements, vendor lists, and seller's licenses and certificates.
The purchase price was $2,400,000, consisting of notes for $1,880,000 and the
issuance of 34,667 shares of the Company's common stock. B&R had a put option to
sell these shares back to the Company at $15 per share, provided that the
Company did not conduct an initial public offering within twenty-four months. In
February 2000, the Company entered into a debt-equity conversion agreement with
B&R whereby, B&R agreed to convert, except for $666,000, the amounts due under
the notes payable-acquisition, including accrued interest, into shares of the
Company's common stock upon the Company's initial public offering of securities.
The number of shares to be issued was based on the offering price in the initial
public offering. In April 2000, the agreement was amended to provide that B&R
would convert $500,000 into shares of the Company's common stock. Accordingly,
upon the completion of the IPO, B&R was issued 83,333 shares of the Company's
common stock. The excess of net assets acquired, of approximately $2.4 million
was recorded as goodwill and is being amortized on a straight-line basis over
fifteen years.
The above acquisitions have been accounted for as purchases. The results of
operations are included in the Company's statements of operations from the
effective date of acquisition.
The following unaudited pro forma results of operations for the three and nine
months ended June 30, 2000 and June 30, 1999, assume that the purchase of
OutSource and B&R occurred at the beginning of each period.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Unaudited pro forma:
Revenues $ 14,509,826 $ 14,395,608 $ 43,673,383 $ 41,648,479
Net earnings (loss) 572,411 511,920 1,279,974 (748,715)
Basic net earnings (loss) per share .11 .14 .27 (.20)
Diluted net earnings (loss) per share .10 .13 .26 (.20)
</TABLE>
NOTE 5 - FACTORING AGREEMENT
The Company has a factoring agreement under which it may sell up to $3,000,000
of qualified trade accounts receivable, with limited recourse provisions. The
agreement which was scheduled to expire August 10, 2000 has been renewed on a
month to month basis. The Company is required to repurchase or replace any
receivable remaining uncollected for more than 90 days.
5
<PAGE>
NOTE 6 - INCOME TAXES
There were no provisions for income taxes for the nine and three months ended
June 30, 2000 and 1999, because the Company has net operating loss carryforwards
with a corresponding valuation against them.
The utilization of net operating loss carryforwards may be limited due to
possible changes in control from private placements and the IPO.
NOTE 7 - TEMPORARY EQUITY - COMMON STOCK
Certain stockholders of the Company may have had a right to pursue claims
against the Company as a result of possible technical violations of the laws and
regulations governing the private placement and issuance of securities.
Accordingly, the Company had recorded the original total proceeds of the sale of
the shares to these certain stockholders in the amount of $1,618,000 as
temporary equity - common shares in the balance sheet. The Company made a
recission offer to stockholders holding approximately 2.8 million shares,
pursuant to which the Company offered to repurchase the shares at their original
purchase price (plus applicable interest) which ranged from $.075 to $3.75 per
share. As a result of no one accepting the recission offer during the recission
period and the expiration, in certain cases of applicable statutes of
limitation, the $1,618,060 of temporary equity common shares was transferred to
additional paid-in capital during the three months ended June 30, 2000.
6
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10-QSB contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements relate to future
economic performance, plans and objectives of management for future operations
and projections of revenue and other financial items that are based on the
beliefs of our management, as well as assumptions made by, and information
currently available to, our management. The words "expect", "estimate",
"anticipate", "believe", "intend", and similar expressions are intended to
identify forward-looking statements. Such statements involve assumptions,
uncertainties and risks. If one or more of these risks or uncertainties
materialize or underlying assumptions prove incorrect, actual outcomes may vary
materially from those anticipated, estimated or expected. Among the key factors
that may have a direct bearing on our expected operating results, performance or
financial condition are economic conditions facing the staffing industry
generally; uncertainties related to the job market and our ability to attract
qualified candidates; uncertainties associated with our brief operating history;
our ability to achieve and manage growth; our ability to successfully identify
suitable acquisition candidates, complete acquisitions or integrate the acquired
business into our operations; our ability to attract and retain qualified
personnel; our ability to develop new services; our ability to cross-sell our
services to existing clients; our ability to enhance and expand existing
offices; our ability to open new offices; general economic conditions; and other
factors discussed from time to time in our filings with the Securities and
Exchange Commission. These factors are not intended to represent a complete list
of all risks and uncertainties inherent in our business. The following
discussion and analysis should be read in conjunction with the Condensed
Financial Statements and notes appearing elsewhere in this report.
INTRODUCTION
We provide a wide range of staffing and engineering services nationally through
a network of offices located throughout the United States.
We recognize revenues based on hours worked by assigned personnel. Generally, we
bill our customers a pre-negotiated fixed rate per hour for the hours worked by
our temporary employees. We are responsible for workers' compensation,
unemployment compensation insurance, Medicare and Social Security taxes and
other general payroll related expenses for all of the temporary employees we
place. These expenses are included in the cost of revenue. Because we pay our
temporary employees only for the hours they actually work, wages for our
temporary personnel are a variable cost that increases or decreases in
proportion to revenues. Gross profit margin varies depending on the type of
services offered. Our Engineering Services typically generate higher margins
while Staffing Services typically generates lower margins. In some instances,
temporary employees placed by us may decide to accept an offer of permanent
employment from the customer and thereby "convert" the temporary position to a
permanent position. Fees received from such conversions are included in our
revenues. Selling, general and administrative expenses include payroll for
management and administrative employees, office occupancy costs, sales and
marketing expenses and other general and administrative costs.
RECENT DEVELOPMENTS
On May 5, 2000, we completed our initial public offering ("IPO") of 1,300,000
shares of common stock at a price of $6.00 per share, realizing net cash
proceeds of approximately $6,000,000 after deducting underwriting discounts and
offering costs.
7
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain selected operating results for the three
months and nine months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
-----------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 8,859,979 100.0% $ 8,343,592 100.0% $ 25,785,217 100.0% $ 21,263,817 100.0%
Cost of Revenues 6,776,188 76.5 6,535,616 78.3 19,679,510 76.3 16,843,326 79.2
Gross Profit 2,083,791 23.5 1,807,976 21.7 6,105,707 23.7 4,420,491 20.8
Selling, general
and administrative
expenses (1,654,861) -18.7 (1,418,556) -17.0 (4,712,192) -18.3 (4,641,592) -21.8
Depreciation and
amortization (91,603) -1.0 (62,597) -0.8 (237,355) -0.9 (131,717) -0.6
Provision for recourse
obligation (7,500) -0.1 -- -- (37,500) -0.2 (595,000) -2.8
Earnings (loss) from
operations 329,827 3.7 326,823 3.9 1,118,660 4.3 (947,818) -4.4
Other income (expenses):
Finance charges (93,565) -1.1 (170,156) -2.0 (373,356) -1.4 (539,463) -2.6
Interest expense (82,162) -0.9 (88,390) -1.1 (278,849) -1.1 (209,679) -1.0
Other income 23,796 0.3 6,772 0.1 28,980 0.1 18,155 0.1
-----------------------------------------------------------------------------------------------
Net earnings (loss) $ 177,896 2.0% $ 75,049 0.9% 495,435 1.9% $ (1,678,805) -7.9%
===============================================================================================
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
REVENUES. Revenues increased 6.2% to $8,859,979 for the three months ended June
30, 2000 from $8,343,592 for the three months ended June 30, 1999. Revenues
increased primarily as a result of the growth of our SMARTSolutions(TM) and
Engineering divisions.
GROSS PROFIT. Gross profit increased 15.3% to $2,083,791 for the three months
ended June 30, 2000 from $1,807,976 for the three months ended June 30, 1999.
Gross profit as a percentage of revenues increased to 23.5% for the three months
ended June 30, 2000 from 21.7% for the three months ended June 30, 1999. This
increase was due to successfully implementing our plan to seek higher gross
margin business and the higher margins generated by our SMARTSolutions(TM) and
Engineering divisions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, not including depreciation and amortization, increased
16.7% to $1,654,861 for the three months ended June 30, 2000 from $1,418,556 for
the three months ended June 30, 1999. Selling, general and administrative
expenses as a percentage of revenues increased to 18.7% for the three months
ended June 30, 2000 from 17.0% for the three months ended June 30, 1999. The
increase is attributable to implementation costs associated with new and future
SMARTSolutions(TM) accounts and increased payroll in anticipation of future
growth and acquisitions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased
46.3% to $91,603 for the three months ended June 30, 2000 from $62,597 for the
three months ended June 30, 1999. Depreciation as a percentage of revenues
increased to 1.0% for the three months ended June 30, 2000 from 0.8% for the
three months ended June 30, 1999. The increase was primarily due to the impact
of increased capital expenditures.
8
<PAGE>
FINANCE CHARGES. Finance charges decreased 45.0% to $93,565 for the three months
ended June 30, 2000 from $170,156 for the three months ended June 30, 1999. As a
percentage of revenues, finance charges decreased to 1.1% for the three months
ended June 30, 2000, from 2.0% for the three months ended June 30, 1999. This
decrease was due to improved collections, which reduced the average days
outstanding of the accounts receivable sold.
INTEREST EXPENSE. Interest expense decreased 7.0% to $82,162 for the three
months ended June 30, 2000 from $88,390 for the three months ended June 30,
1999. This decrease was due to the repayment of substantially all notes and
loans payable during the three months ended June 30, 2000, with proceeds from
the initial public offering.
NET EARNINGS. As a result of the foregoing, we had net earnings of $177,896 for
the three months ended June 30, 2000 compared to net earnings of $75,049 for the
three months ended June 30, 1999. Net earnings as a percentage of revenues was
2.0% for the three months ended June 30, 2000 and 0.9% for the three months
ended June 30, 1999.
NINE MONTHS ENDED JUNE 30, 2000 COMPARED TO NINE MONTHS ENDED JUNE 30, 1999
REVENUES. Revenues increased 21.3% to $25,785,217 for the nine months ended June
30, 2000 from $21,263,817 for the nine months ended June 30, 1999. Revenues
increased primarily as a result of the growth of our SMARTSolutions(TM) and
Engineering divisions.
GROSS PROFIT. Gross profit increased 38.1% to $6,105,707 for the nine months
ended June 30, 2000 from $4,420,491 for the nine months ended June 30, 1999.
Gross profit as a percentage of revenues increased to 23.7% for the nine months
ended June 30, 2000 from 20.8% for the nine months ended June 30, 1999. This
increase was due to successfully implementing our plan to seek higher gross
margin business and the higher margins generated by our SMARTSolutions(TM) and
Engineering divisions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses not including depreciation and amortization increased
1.5% to $4,712,192 for the nine months ended June 30, 2000 from $4,641,592 for
the nine months ended June 30, 1999. Selling, general and administrative
expenses as a percentage of revenues decreased to 18.3% for the nine months
ended June 30, 2000 from 21.8% for the nine months ended June 30, 1999. The
increased amount is due to increased payroll costs to support the increase in
revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased
80.2% to $237,355 for the nine months ended June 30, 2000 from $131,717 for the
nine months ended June 30, 1999. Depreciation and amortization expenses as a
percentage of revenues increased to 0.9% for the nine months ended June 30, 2000
from 0.6% for the nine months ended June 30, 1999. This increase was primarily
due to the amortization of goodwill associated with the acquisition of certain
assets of B&R Employment, Inc. in January 1999 and the impact of increased
capital expenditures.
PROVISION FOR RECOURSE OBLIGATION. Provision for recourse obligation is the
estimated amount of uncollectible accounts receivable sold to a factor, which
the factor may obligate us to repurchase. This amount decreased 93.7% to $37,500
for the nine months ended June 30, 2000 from $595,000 for the nine months ended
June 30, 1999. Provision for recourse obligation as a percentage of revenues
decreased to 0.2% for the nine months ended June 30, 2000 from 2.8% for the nine
months ended June 30, 1999. Almost the entire amount for the nine months ended
June 30, 1999 was due to the uncertainty of recoverability of accounts with
which we ceased doing business during that same time period. We believe that the
$37,500 provision for recourse obligation for the nine months ended June 30,
2000 is sufficient.
9
<PAGE>
FINANCE CHARGES. Finance charges decreased 30.8% to $373,356 for the nine months
ended June 30, 2000 from $539,463 for the nine months ended June 30, 1999. As a
percentage of revenues, finance charges decreased to 1.4% for the nine months
ended June 30, 2000 from 2.6% for the nine months ended June 30, 1999. This
decrease was due to improved collections, which reduced the average days
outstanding of the accounts receivable sold.
INTEREST EXPENSE. Interest expense increased 33.0% to $278,849 for the nine
months ended June 30, 2000 from $209,679 for the nine months ended June 30,
1999. As a percentage of revenues, interest expense increased to 1.1% for the
nine months ended June 30, 2000 from 1.0% for the nine months ended June 30,
1999. This increase was due to increased borrowings necessary to fund a working
capital shortfall until the initial public offering proceeds were received in
May 2000.
NET EARNINGS (LOSS). As a result of the foregoing, we had net earnings of
$495,435 for the nine months ended June 30, 2000 compared to a net loss of
($1,678,805) for the nine months ended June 30, 1999. The net earnings as a
percentage of revenues was 1.9% for the nine months ended June 30, 2000. The net
loss for the nine months ended June 30, 1999 as a percentage of revenues was
(7.9)%.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through private sales of
securities, borrowings and sales of accounts receivable to a factor. In
addition, on May 5, 2000 we completed our IPO of 1,300,000 shares of common
stock at a price of $6.00 per share, realizing net cash proceeds of
approximately $6,000,000 after deducting underwriting discounts and offering
expenses.
Net cash used in operating activities was $2,158,049 and $1,046,105 in the nine
months ended June 30, 2000 and 1999, respectively. Approximately $1,200,000 of
the net proceeds from the IPO was used to reduce trade and other payables in the
nine months ended June 30, 2000.
Net cash used in investing activities was $1,691,632 and $387,191 in the nine
months ended June 30, 2000 and 1999, respectively. Cash used for acquisitions
for the nine months ended June 30, 2000 and 1999 was $1,002,408 and $169,311,
respectively. The balance in both periods was for capital expenditures.
Net cash provided by financing activities was $4,583,879 and $1,224,750 in the
nine months ended June 30, 2000 and 1999, respectively. Net proceeds of the IPO
in the nine months ended June 30, 2000 were $6,063,479, of which $1,225,000 was
used to repay notes and loans payable and $250,000 was used to purchase 39,954
shares of our common stock which has been retired. The sources of cash provided
by financing activities in the nine months ended June 30, 1999 were from the net
proceeds of borrowings and private placements of our common stock and debt.
Our principal uses of cash are to fund temporary employee payroll expense and
employer related payroll taxes; investment in capital equipment; start-up
expenses of new offices; expansion of services offered; and costs relating to
other transactions such as acquisitions and legal expenses. Temporary employees
are paid weekly. Although we sell substantially all of our accounts receivable
to a factor, the factor initially only remits to us 90% of the face amount of
the accounts receivable purchased. The net balance after the purchase fee and
other costs of the factor are remitted to us after the factor receives the
customer remittance, which is generally 45 days from the time work was performed
by the temporary employees.
We anticipate that the proceeds of our IPO and cash generated from operations
will be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for at least the next 12 months.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 5, 2000, the Company completed an initial public offering of its
common stock, $0.01 par value. The managing underwriter of the offering was
Hornblower & Weeks, Inc. The shares of common stock sold in the offering
were registered under the Securities Act of 1933, as amended, on a
Registration Statement on Form SB-2 that was declared effective by the SEC
on April 11, 2000. The offering commenced on April 26, 2000 and was
consummated on May 5, 2000, on which date 1,300,000 shares of common stock
registered under the Registration Statement were sold at a price of $6.00
per share. The underwriters were granted an over allotment option of
195,000 additional shares which was not exercised and which expired on May
26, 2000. The aggregate price of the offering amount registered and sold
was $7,800,000. In connection with the offering, the Company incurred an
aggregate of approximately $780,000 in underwriting discounts and
approximately $1,060,000 in other related expenses. The net proceeds of the
offering were approximately $5,940,000.
The Company has used the net proceeds from the initial public offering as
follows:
$1,225,000 to repay outstanding indebtedness.
$583,000 to reduce outstanding trade payables.
$964,000 to repay acquisition debt.
$448,000 to pay indebtedness to attorneys incurred in
connection with various litigation.
$144,000 to pay accrued compensation to officers of the
Company.
$1,002,000 for acquisitions.
$250,000 to purchase treasury stock.
The Company plans to use the remaining proceeds to (i) recruit, hire and
train qualified management-level personnel, (ii) purchase computers and
other equipment, (iii) for marketing and promotion, (iv) to develop its
website and expand its internet presence and (v) for working capital and
general corporate purposes. The Company may also use a portion of the net
proceeds to acquire additional businesses that it believes will complement
its current or future business. Although the Company has no present
commitments or agreements with respect to such acquisitions, management
will have significant discretion in applying the net proceeds of this
offering. The Company's expenditures for general corporate purposes will
vary significantly depending on a number of factors, including future
revenue growth, if any, and the amount of cash generated from operations.
The Company has invested the remaining net proceeds from its initial public
offering of common stock in short term, interest bearing, investment grade
instruments.
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NUMBER DESCRIPTION
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 amount 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.
27 Financial Data Schedule for the 9 months ended June 30, 2000.
(b) Reports on Form 8-K
On June 30, 2000, the Company filed Form 8-K with the
Securities and Exchange Commission reflecting the June 16,
2000 purchase of certain assets of the Tandem division of
OutSource International of America, Inc.(1)
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Footnote 1 Incorporated by reference to similarly numbered Exhibits
filed on Form 8-K (Commission File No. 001-15789) as filed
with the Securities and Exchange Commission on June 30, 2000.
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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.
Date: August 9, 2000 By: /s/ Joseph J. Raymond
---------------------------------------
Joseph J. Raymond
Chairman of the Board of Directors,
President and Chief Executive Officer
Date: August 9, 2000 By: /s/ Michael A. Maltzman
---------------------------------------
Michael A. Maltzman
Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit
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27 Financial Data Schedule for the 9 months ended June 30, 2000
