<PAGE>
UNITED STATES
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): October 27, 2000
STRATUS SERVICES GROUP, INC.
--------------------------------------------------------------------------------
(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
--------------------------------------------------------------------------------
(Registrant's telephone number including area code)
The undersigned Registrant hereby amends and restates its current report
on Form 8-K filed with the Securities and Exchange Commission on October 30,
2000, which excluded certain financial statements and pro forma financial
information not available at the time of filing.
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
a) On October 27, 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 seven offices of Tandem, a
division of OutSource International, Inc. ("Outsource"), a Florida corporation,
pursuant to the terms of an Asset Purchase Agreement dated October 13, 2000. The
initial purchase price for the assets was $125,000, of which $50,000 was paid in
cash at the closing and the remaining $75,000 was represented by a promissory
note. The note is payable in twenty-four (24) equal monthly installments of
principal and interest at a variable rate of prime plus two percent (2%)
beginning December 1, 2000. In addition, Stratus will be required for a two (2)
year period to make quarterly payments of thirty percent (30%) of the quarterly
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") of the
Acquired Assets (the "Earn-out"). Stratus has the option, during the first
twelve (12) months, to pay Outsource $275,000 less any amounts previously paid
under the Earn-out, in full satisfaction of the Earn-out. After the twelfth
month Stratus has the option to pay Outsource, in full satisfaction of the
Earn-out, $175,000 less any amount previously paid under the Earn-out for the
periods after the twelfth month. 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 Lawrence, MA; Leominster, MA; Lowell, MA;
Athol, MA; Worchester, MA; Manchester, NH; and Nashua, NH; with estimated annual
revenues of $8.9 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 to the Form 8-K filed on November 3, 2000 being amended
by this Form 8-K/A.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The financial statements of the New England Region of Outsource
International, Inc. and the notes thereto are located on pages 3 through 10
of this Form 8-K/A.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Outsource International, Inc.
Delray Beach, Florida:
We have audited the accompanying statements of net assets sold of the New
England Region of Outsource International, Inc. ("New England") as of December
31, 1999 and 1998, and the statements of net revenues, cost of revenues, and
direct operating expenses for each of the two years in the period ended December
31, 1999. These statements are the responsibility of Outsource International,
Inc.'s management. Our responsibility is to express an opinion on these
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 statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the statements.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying statements were prepared to present the net assets of New
England 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 New England, and are not intended to be a complete
presentation of New England's financial position and results of operations.
In our opinion, such statements present fairly, in all material respects, the
net assets sold of New England as of December 31, 1999 and 1998, and the net
revenues, cost of revenues, and direct operating expenses for each of the two
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
December 15, 2000
3
<PAGE>
THE NEW ENGLAND REGION OF OUTSOURCE INTERNATIONAL, INC.
STATEMENTS OF NET ASSETS SOLD (IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OCTOBER 1, DECEMBER 31, DECEMBER 31,
2000 1999 1998
--------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Property and equipment, net $ 161 $ 161 $ 193
Goodwill and other intangible assets, net 19 165 1,810
----- ----- ------
180 326 2,003
LIABILITIES
Commitments and contingencies (Note 5) - - -
----- ----- ------
Total net assets sold $ 180 $ 326 $2,003
===== ===== ======
</TABLE>
See accompanying notes to statements.
4
<PAGE>
THE NEW ENGLAND 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,
------------------------- -----------------------
OCTOBER 1, SEPTEMBER 30,
2000 1999 1999 1998
---------- ------------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues $ 6,430 $ 6,243 $ 8,887 $ 11,733
Cost of revenues 5,554 5,200 7,361 9,590
------- ------- ------- --------
Gross profit 876 1,043 1,526 2,143
Direct operating expenses 1,012 1,354 1,922 2,077
------- ------- ------- --------
Gross profit in excess of (less than)
direct operating expenses $ (136) $ (311) $ (396) $ 66
======= ======= ======= ========
</TABLE>
See accompanying notes to statements.
THE NEW ENGLAND REGION OF OUTSOURCE INTERNATIONAL, INC.
NOTES TO STATEMENTS
(INFORMATION RELATED TO THE THIRTY-NINE WEEKS ENDED
OCTOBER 1, 2000 AND THE NINE MONTHS ENDED SEPTEMBER 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 statements have been prepared for
the purpose of presenting the net assets sold of the New England Region of the
Company ("New England") as of October 1, 2000, December 31, 1999 and 1998
pursuant to the Asset Purchase Agreement (the "Asset Purchase Agreement") dated
October 13, 2000 (the "Closing Date") between Outsource International of
America, Inc., a wholly-owned subsidiary of the Company, and Stratus Services
Group, Inc. (the "Buyer") and New England's net revenues, cost of revenues and
direct operating expenses for the thirty-nine weeks ended October 1, 2000 ("YTD
2000") and the nine-month period ended September 30, 1999 (YTD 1999) and for
each of the two years in the period ended December 31, 1999.
Pursuant to the Asset Purchase 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 New England in exchange for
consideration totaling approximately $125,000, consisting of $50,000 in cash and
$75,000 in notes receivable. The Asset Purchase Agreement also provides for an
addition to the purchase price if certain profitability levels are achieved over
a two-year period following the Closing Date. The Buyer has agreed to assume all
liabilities arising after the Closing Date relating to New England's Contracts,
as defined, and on lease agreements related to the operations of New England.
Historically, the Company did not prepare financial statements for New
England. The accompanying statements are derived from the historical accounting
records of the Company, and present the net assets sold of New England, in
accordance with the Asset Purchase Agreement, as of October 1, 2000 and December
31, 1999 and
5
<PAGE>
1998, and the statements of net revenues, cost of revenues, and direct operating
expenses for the thirty-nine weeks ended October 1, 2000 and the nine months
ended September 30, 1999 and for each of the two years in the period ended
December 31, 1999, and are not intended to be a complete presentation of New
England's financial position and results of operations. 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 New England,
which consisted of five flexible industrial staffing branch offices located in
the states of Massachusetts and New Hampshire and two "vendor-on-premise"
locations in the State of Massachusetts. 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
New England 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 New England.
The interim unaudited condensed financial statements and the related
information in these notes as of October 1, 2000 and for the thirty-nine
weeks ended October 1, 2000 and the nine-month period ended September 30, 1999
have been prepared on the same basis as the audited financial statements and,
in the opinion of management, reflect all adjustments (including normal
accruals) necessary for a fair presentation of the net assets sold, net
revenues, costs of revenues and direct operating expenses for the interim
periods presented. The results of operations for the interim periods
presented are not necessarily indicative of the results to be expected
for the full year.
USE OF ESTIMATES - The preparation of statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the 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 New England's staffing employees plus a corresponding fee. New
England's fee structure is based upon the estimated costs of employment-related
taxes, health benefits, workers' compensation benefits, insurance and other
services offered by New England 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 8 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 25 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
6
<PAGE>
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 October 1, 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.
Workers' compensation expense is included in the accompanying statements
of net revenues, costs of revenues and direct operating expenses, and amount to
$390,000, $326,000, $443,000, and $551,000 for YTD 2000 and YTD 1999 and for the
years ended December 31, 1999 and 1998, respectively.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
OCTOBER 1, DECEMBER 31, DECEMBER 31,
2000 1999 1998
--------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment $ 123 $ 123 $ 123
Computer software 7 7 0
Leasehold improvements 160 160 150
Vehicles 17 17 17
Furniture and fixtures 76 76 75
----- ----- -----
Property and equipment 383 383 365
Less accumulated depreciation 222 222 172
----- ----- -----
Property and equipment, net $ 161 $ 161 $ 193
===== ===== =====
</TABLE>
Property and equipment of New England has been pledged as collateral under
the Company's borrowing facilities as of October 1, 2000 and December 31, 1999
and 1998.
Depreciation and amortization expense for property and equipment for YTD
2000 and YTD 1999 and for the years ended December 31, 1999 and 1998 was $0,
$40,000, $50,000 and $83,000, 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"). The Company
removed one such office from the assets held for disposition classification in
September 2000 and subsequently two additional offices were abandoned in October
2000. Of the 48 branch offices classified as assets held for disposition, 26 had
been sold, franchised, closed, or consolidated as of December 31, 1999. The
remaining 22 offices were sold, franchised, closed, or consolidated prior to
October 31,
7
<PAGE>
2000. These offices, which included New England, were not expected to be
adequately profitable in the near future or were inconsistent with the Company's
operating strategy of clustering offices within specific geographic regions.
In conjunction with a branch office being classified as held for
disposition, the Company classified the related tangible and intangible assets,
excluding cash, accounts receivable and deferred income taxes, as assets held
for disposition, and 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.
The Company's assets held for disposition as of October 1, 2000 and
December 31, 1999, and included in the Asset Purchase 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
ASSETS HELD FOR DISPOSITION EQUIPMENT INTANGIBLE ASSETS TOTAL FAIR VALUE
---------------- ---------------------- ---------- --------------
<S> <C> <C> <C> <C>
October 1, 2000 (Unaudited) $ 161 $ 1,000 $ 1,161 $ 180
December 31, 1999 161 1,000 1,161 326
</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 October 1, 2000 and
December 31, 1999 balances, are after the effect of the impairment reduction
discussed earlier:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OCTOBER 1, DECEMBER 31, DECEMBER 31, AMORTIZATION
2000 1999 1998 PERIODS
---------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Goodwill $ 266 $ 412 $1,819 22.4 years
Customer lists 168 168 401 1.6 years
Covenants not to compete 39 39 64 1.8 years
Employee lists 10 10 19
----- ------ ------
Goodwill and other intangible assets 483 629 2,303 15.2 years
Less accumulated amortization 464 464 493
----- ------ ------
Goodwill and other intangible
assets, net $ 19 $ 165 $1,810 15.2 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 - New England 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 2003. Also, certain equipment used in New England's operations
is leased under operating leases.
8
<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>
YEAR ENDING (IN THOUSANDS)
<S> <C>
2000 $ 177
2001 91
2002 53
2003 2
2004 -
Thereafter -
-----
Total $ 323
=====
</TABLE>
Rent expense, including equipment rental, was $152,000 and $113,000 for
YTD 2000 and YTD 1999, respectively, and $157,000 and $157,000 for the years
ended December 31, 1999 and 1998, respectively.
UNEMPLOYMENT TAXES - Federal and state unemployment taxes represent a
significant component of New England'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 New England'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 YTD 2000 and YTD 1999, and for the years ended December 31, 1999 and
1998, approximately 28%, 26%, 27% and 22%, respectively, of New England's
revenues were from the provision of services to five customers.
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.
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 New
England region employees was $3,300, $2,000, $2,400 and $7,800 which is recorded
in the accompanying statements of net revenues, cost of revenues, and direct
operating expenses for YTD 2000 and YTD 1999, and for the years ended December
31, 1999 and 1998, respectively. Effective April 8, 2000, the active 413(c)
9
<PAGE>
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 New England'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
New England.
(b) PRO FORMA FINANCIAL INFORMATION.
Effective June 26, 2000, Stratus Services Group, Inc. (the "Company")
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 Mid-Atlantic Region Tandem offices
was $1.3 million, consisting of $800,000 in cash and $500,000 in notes.
Effective October 27, 2000 the Company purchased substantially all of the
tangible and intangible assets, excluding accounts receivable of the New England
region of Outsource comprising seven offices of Tandem. These offices provide
temporary industrial staffing in locations in Massachusetts and New Hampshire
and had 1999 revenues of approximately $8.9 million. The initial purchase price
was $125,000, consisting of $50,000 in cash and $75,000 in notes. In addition,
there is an earn-out provision (the "Earn-out") whereby the Company is required
to make quarterly payments of thirty percent (30%) of the quarterly earnings
before interest, taxes, depreciation and amortization of the acquired business
for the first two years subsequent to the acquisition. The Company has the
option, during the first twelve months, to pay Outsource $275,0000, less any
amount previously paid under the Earn-out, in full satisfaction of the Earn-out.
After the twelfth month, the Company has the option to pay Outsource, in full
satisfaction of the Earn-out, $175,000 less any amounts previously paid under
the Earn-out for the periods after the twelfth month.
10
<PAGE>
STRATUS SERVICES GROUP, INC.
Unaudited Pro Forma Condensed Balance Sheet
As of September 30, 2000
<TABLE>
<CAPTION>
Pro Forma
Stratus Adjustments Pro Forma
------------ ------------ ------------
<S> <C> <C> <C>
Current Assets:
Cash $ 1,030,722 $ (476,000)(a) $ 554,722
Other current assets 4,414,233 (148,000)(b) 4,266,233
------------ ------------ ------------
5,444,955 (624,000) 4,820,955
Goodwill 3,716,538 699,000(c) 4,415,538
Other assets 1,156,788 -- 1,156,788
------------ ------------ ------------
$ 10,318,281 $ 75,000 $ 10,393,281
============ ============ ============
Current liabilities $ 3,359,136 $ 75,000(d) $ 3,434,136
Other liabilities 159,700 -- 159,700
------------ ------------ ------------
3,518,836 75,000 3,593,836
Stockholders' equity 6,799,445 6,799,445
------------ ------------ ------------
$ 10,318,281 $ 75,000 $ 10,393,281
============ ============ ============
</TABLE>
See accompanying notes to unaudited condensed financial statements.
11
<PAGE>
STRATUS SERVICES GROUP, INC.
Unaudited Pro Forma Condensed Statement of Operations
For the Year Ended September 30, 2000
<TABLE>
<CAPTION>
For the Nine
For the Year Ended Months Ended
September 30, 2000 June 30, 2000
Stratus Tandem- Tandem- Pro Forma
New England Region Mid-Atlantic Region Adjustments
---------------- ------------------ ------------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 41,676,587 $ 9,074,000 $ 17,888,000 $ --
Cost of revenue 31,182,678 7,715,000 14,720,000 --
---------------- ------------------ ------------------- ---------------
Gross profit 10,493,909 1,359,000 3,168,000 --
Operating expenses 8,914,917 1,580,000 2,057,000 123,000(a)
---------------- ------------------ ------------------- ---------------
Earnings (loss) from operations 1,578,992 (221,000) 1,111,000 (123,000)
Other income (expenses):
Finance charges (618,134) -- -- (297,000)(b)
Interest expense (300,892) -- -- (25,000)(c)
Other income 45,944 -- -- --
---------------- ------------------ ------------------- ---------------
(873,082) -- -- (322,000)
Earnings (loss) before benefit from income
taxes 705,910 (221,000) 1,111,000 (445,000)
Income tax benefit 340,000 -- -- 200,000(d)
---------------- ------------------ ------------------- ---------------
Net earnings (loss) $ 1,045,910 $ (221,000) 1,111,000 $ (245,000)
================ ================== =================== ===============
Earnings per common share
Basic $ .21
Diluted $ .20
Weighted average shares outstanding
Basic 4,931,914
Diluted 5,223,508
<CAPTION>
Pro Forma
----------------
<S> <C>
Revenues $ 68,638,587
Cost of revenue 53,617,678
----------------
Gross profit 15,020,909
Operating expenses 12,674,917
----------------
Earnings (loss) from operations 2,345,992
Other income (expenses):
Finance charges (915,134)
Interest expense (325,892)
Other income 45,944
----------------
(1,195,082)
Earnings (loss) before benefit from income
taxes 1,150,910
Income tax benefit 540,000
----------------
Net earnings (loss) $ 1,690,910
================
Earnings per common share
Basic $ .34
Diluted .32
Weighted average shares outstanding
Basic 4,931,914
Diluted 5,223,508
</TABLE>
See accompanying notes to unaudited condensed financial statements.
12
<PAGE>
STRATUS SERVICES GROUP, INC.
Notes to Unaudited Pro Forma Condensed Financial Statements
(1) Basis of Presentation
The accompanying pro forma condensed balance sheet and statement of
operations are presented to give effect to the acquisitions of
substantially all of the tangible and intangible assets, excluding
accounts receivable, of the Tandem-Mid-Atlantic Region of Outsource
International, Inc. ("Outsource") and the Tandem-New England Region of
Outsource which occurred in June and October 2000, respectively. The pro
forma condensed balance sheet assumes that the acquisition of the
Tandem-New England Region occurred as of September 30, 2000. The pro forma
condensed statement of operations assumes that both acquisitions occurred
October 1, 1999. Such information does not purport to be indicative of the
results which would have actually been obtained if the acquisitions had
been effected on the dates indicated nor is it indicative of actual or
future operating results or financial position.
(2) Pro Forma Adjustments - Condensed Balance Sheet
(a) The cash portion paid for the Tandem-New England Region, including
acquisition costs of $426,000.
(b) Costs incurred as at September 30, 2000 in connection with the
acquisition of the Tandem-New England Region.
(c) Adjustment to record the goodwill in connection with the
acquisition of the Tandem-New England Region.
(d) Adjustment to record the $75,000 acquisition note incurred in
connection with the acquisition of the Tandem-New England Region.
(3) Pro Forma Adjustments - Condensed Statement of Operations
(a) Adjustment to reflect the amortization expense relating to the
goodwill recorded in conjunction with the acquisition, not already
reflected in the Company's historical condensed statement of
operations.
(b) Adjustment to reflect the increase in finance charges relating to
the accounts receivable of the acquisitions, which would have been
financed under the Company's agreement with a factor.
(c) Records the interest on acquisition notes.
(d) Adjustment to reflect the additional utilization of a portion of
net operating loss carryforwards.
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
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