SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 1-12536
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STRATEGIC SOLUTIONS GROUP, INC.
-------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 11-2964894
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
326 First Street, Suite 100
Annapolis, Maryland 21403
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (410) 263-7761
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Formerly known as Pacific Animated Imaging Corporation
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(Former name, former address and former fiscal year if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
1,733,839 Common Shares, $.0001 par value were issued and outstanding
at September 30, 1997.
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC.
TABLE OF CONTENTS
PAGE NO.
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PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets, September 30, 1997 (unaudited)
and December 31, 1996 3
Consolidated Statements of Operations for the three and nine
months ended September 30, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Items 1-6 12
Signature 13
2
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STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------------- -------------------
(UNAUDITED)
<S><C>
ASSETS
Current assets
Cash and cash equivalents $ 494,164 $ 939,281
Investment in U.S. government securities -- 474,144
Accounts receivable, net 702,705 411,220
Interest receivable 385 19,814
Inventory 13,730 18,838
Prepaid expenses and other current assets 73,475 150,819
------------------- -------------------
Total current assets 1,284,459 2,014,116
------------------- -------------------
Property and equipment, at cost
Computers, furniture and equipment 1,053,778 990,105
Less accumulated depreciation 654,535 490,193
------------------- -------------------
Net property and equipment 399,243 499,912
------------------- -------------------
Other assets 1,203,267 55,681
------------------- -------------------
$ 2,886,969 $ 2,569,709
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 954,612 $ 796,729
Deferred revenue 69,859 66,088
Customer deposit -- 50,000
Line of credit 30,000 320,833
Other current liabilities 58,249 96,063
------------------- -------------------
Total current liabilities 1,112,720 1,329,713
Note payable to bank -- 18,253
Deferred rent and other 133,698 149,125
------------------- -------------------
Total liabilities 1,246,418 1,497,091
------------------- -------------------
Commitments and contingencies
Stockholders' equity
Common stock, $.0001 par value. Authorized 5,000,000
shares; issued and outstanding 1,733,839 and 1,518,880
shares as of September 30, 1997 and December 31, 1996 174 152
Additional paid-in capital 14,065,134 11,893,549
Accumulated deficit (12,298,719) (10,665,959)
Deferred compensation (126,038) (155,124)
------------------- -------------------
Total stockholders' equity 1,640,551 1,072,618
------------------- -------------------
$ 2,886,969 $ 2,569,709
=================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
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STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- ---------------------------------
1997 1996 1997 1996
-------------- -------------- --------------- ---------------
<S><C>
Revenue
Service fees $ 611,947 $ 495,145 $ 2,178,786 $ 847,856
Product sales 94,451 275,410 2,003,456 290,776
Royalties 9,781 13,487 30,068 47,234
-------------- -------------- --------------- ---------------
Total revenue 716,179 784,042 4,212,310 1,185,866
-------------- -------------- --------------- ---------------
Expenses
Cost of service fees 388,573 515,778 1,314,327 995,795
Cost of product sales 91,126 119,346 1,775,339 124,937
Research and development 80,759 51,820 212,478 175,590
Selling, general and administrative 835,037 844,384 2,565,838 1,779,182
Write-off of purchased research and development -- -- -- 289,330
-------------- -------------- --------------- ---------------
Total operating expenses 1,395,495 1,531,328 5,867,982 3,364,834
-------------- -------------- --------------- ---------------
Loss from operations (679,316) (747,286) (1,655,672) (2,178,968)
Other income 1,852 (4,927) 22,912 77,119
============== ============== =============== ===============
Net loss $ (677,464) $ (752,213) $ (1,632,760) $ (2,101,849)
============== ============== =============== ===============
Weighted average number of shares outstanding 1,733,839 1,515,113 1,684,229 1,472,020
============== ============== =============== ===============
Net loss per common share $ (0.39) $ (0.50) $ (0.97) $ (1.43)
============== ============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
<S><C>
Cash flows from operating activities
Net loss $ (1,632,760) $ (2,101,849)
Adjustments to reconcile net loss to net cash
used in operating activities, net of effects
from purchase of Forsight
Depreciation and amortization 205,790 195,625
Provision for bad debt expense 59,481 --
Loss on disposal of assets -- 21,916
Write-off of purchased research and development -- 289,330
Increase (decrease) in cash from changes in assets and liabilities
Accounts receivable (350,966) 1,194
Interest receivable 19,429 (10,079)
Inventory 5,108 7,264
Prepaid expenses and other current assets 77,344 25,998
Other assets 2,414 (3,199)
Accounts payable and accrued liabilities 157,883 (85,017)
Other liabilities (54,786) (98,116)
------------------ -------------------
Net cash used in operating activities (1,511,063) (1,756,933)
------------------- -------------------
Cash flows from investing activities
Purchase of U.S. government securities -- (474,144)
Proceeds from maturity of U.S. government securities 474,144 --
Capital expenditures (76,036) (93,848)
Proceeds from sale of property and equipment -- 2,700
Payment for purchase of Forsight, net of cash acquired -- (180,562)
Cash acquired from purchase of U.S. Technologies -- 12,771
------------------ -------------------
Net cash provided by (used in) investing activities 398,108 (733,083)
------------------ -------------------
Cash flows from financing activities
Net proceeds from exercise of options and warrants 981,608 199,997
Payments on line of credit (290,833) (9,386)
Payments on note payable to a bank (22,937) (8,063)
------------------ -------------------
Net cash provided by financing activities 667,838 182,548
------------------ -------------------
Net decrease in cash and cash equivalents (445,117) (2,307,468)
Cash and cash equivalents, beginning of period 939,281 4,177,534
================== ===================
Cash and cash equivalents, end of period $ 494,164 $ 1,870,066
================== ===================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The consolidated financial statements of Strategic Solutions Group,
Inc., formerly Pacific Animated Imaging Corporation, (the "Company") as of and
for the nine month periods ended September 30, 1997 and 1996 are unaudited; and,
in the opinion of management, include all adjustments, consisting of normal
recurring adjustments necessary for fair presentation of such financial
information. These financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the consolidated
financial statements for the year ended December 31, 1996 included in the
Company's Annual Report on Form 10-KSB previously filed with the Securities and
Exchange Commission.
2. STOCK SPLIT
On January 30, 1997, the Board of Directors of the Company voted a
three-for-two split of the Company's common stock. The split was approved by the
shareholders at the annual meeting of shareholders held on May 22, 1997.
However, the Board of Directors exercised its discretionary authority and voted
affirmatively with respect to a shareholder proposal to postpone the effective
date of the three-for-two stock split until such time deemed appropriate by the
Board of Directors. Neither the par value of the stock nor the number of
authorized shares will be affected by the split. Had the additional shares
resulting from the proposed stock split been outstanding during the nine month
periods ended September 30, 1997 and 1996, net loss per share would have been as
follows: 1997, $0.65 and 1996, $0.95. Financial information contained elsewhere
in this report has not been adjusted to reflect the impact of the proposed
common stock split.
3. NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Statements of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), which specifies the computation,
presentation, and disclosure requirements for earnings per share. SFAS 128 is
effective for financial statements for periods ending after December 15, 1997.
The Company believes that the adoption of SFAS 128 will not have a material
effect on earnings per share.
4. LINE OF CREDIT AND NOTE PAYABLE TO BANK
The Company's subsidiary, UST, had a short-term debt outstanding under
a line of credit with a bank. In August 1997, UST paid $250,000 toward the
unpaid balance of approximately $280,000. Effective October 23, 1997, the
remaining balance on the line of credit of approximately $30,000 is being
consolidated with the outstanding balance of a note payable of approximately
$30,000. The combined debt is to be paid in monthly installments of $10,000 plus
interest at the bank's prime rate plus 2% through April, 1998.
5. TITLELINK JOINT VENTURE
In December 1996, the Company's subsidiary, UST, entered into an
agreement with Interliant to form a joint venture, TitleLink, L.L.C. Under the
terms of the agreement, the joint venture will be owned
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equally and managed by both members, UST and Interliant. Interliant has been
appointed as the Administrative Member which has the right, power, and authority
to do on behalf of the joint venture all things necessary to carry out the
business of the joint venture. The joint venture owns and markets Titlelink, an
on-line software application designed to streamline the real estate closing
process. The Company will account for UST's investment on the equity basis. The
initial investment in the joint venture totaled $26,000 and is included in other
assets on the Company's consolidated balance sheet. UST's proportionate share of
the joint venture's operating results are reflected in the Company's
consolidated results of operations, which for the nine month period ended
September 30, 1997 total a loss of approximately $158,000.
6. COMMITMENTS
The Company had a subcontract with the Data Technologies Division of
TRW, Inc. ("TRW") to provide training services to TRW in support of its contract
with the State of California for the development and implementation of a
management information system for the state's correctional facilities. Through
1996, the Company had completed the design phase and had begun the development
of the training program. However, effective February 21, 1997, TRW's prime
contract with the State of California was terminated. Accordingly, no more work
will be performed by the Company with respect to this subcontract. During the
years 1996 and 1995, the Company had recognized revenue of approximately
$134,000 and $118,000, respectively.
On March 20, 1997, the Company entered into a financial consulting
agreement ("consulting agreement") with First Cambridge Securities Corporation
("First Cambridge"). First Cambridge is required to review materials provided by
the Company, perform financial consulting services, and advise the Company and
provide at least 50 hours of service per month on a yearly average. The terms of
the agreement included that First Cambridge received 100,000 stock options at an
exercise price of $2.00 per share. First Cambridge vested immediately in the
100,000 options and exercised their options on March 28, 1997. The consulting
agreement is for the five year period January 1, 1998 - December 31, 2002.
Accordingly, the Company will be recognizing an expense of approximately $1.1
million, using the straight-line method over the term of the consulting
agreement, or approximately $22,000 per month, beginning January 1, 1998. As of
September 30, 1997, the Company had a deferred asset of approximately $1.1
million arising from this transaction. The consulting agreement permits the
assignment by First Cambridge of its obligation thereunder. First Cambridge has
proposed to assign its obligation to another party (the "assignee") and the
Company has accepted the assignment. If the services by the assignee are not
deemed satisfactory or the assignee is unable to perform the services, the
Company may be required to immediately expense the $1.1 million deferred asset.
In September 1997, the Company's Board of Directors announced its
tentative plans to distribute all or a portion of the shares of stock of its
wholly owned subsidiary, UST, to the Company's shareholders. It is anticipated
that UST will become an independent, stand-alone company which will endeavor to
become a NASDAQ qualified company. This plan is dependent upon completion of
final negotiations with management of UST and formal approvals by the Boards of
Directors of both companies and, where appropriate, shareholder approval.
7. SUBSEQUENT EVENT - FINANCING
On October 31, 1997, the Company issued a $1,600,000 6% Convertible
Subordinated Debenture. In connection with the issuance of the debenture, the
Company also issued 40,000 warrants exercisable at a price per share of $4.67.
The debenture accrues interest from the date of issuance and is due and payable
on October 31, 1999; or, at the option of the Company, the principal of, and
interest on, the Debenture are payable in shares of the Company's common stock.
The holder of the Debenture is
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<PAGE>
entitled, at its option, to convert, in $50,000 increments, at any time
commencing the earlier of (a) December 30, 1997 or (b) the effective date of a
Registration Statement filed with the Securities and Exchange Commission. The
Company is required to file the appropriate Form required to register the
securities so that the registration is effective no later than January 29, 1998.
The conversion price for each share of common stock is equal to the lesser of
(a) $4.24 (the "Maximum Price") and (b) 80% of the average market price on the
five trading days immediately preceding the conversion date provided that in no
event shall the conversion price be less than a percentage of the Maximum Price
which ranges from 30% to 0% depending upon the whether the conversion date is
before the 90th day after issuance in 30-day increments through subsequent to
the 240th day after issuance. The Company expects to recognize interest expense
of approximately $285,000 at the time of issuance for the resulting beneficial
conversion feature.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's revenue is comprised of service fees, product sales, and
royalties. Service fees are for systems integration and application development
services provided by U.S. Technologies, Inc. ("UST"), the Company's subsidiary
acquired in July 1996, and for the development of custom multimedia software.
Product sales are for software and hardware products primarily sold by UST.
Royalties are paid to the Company by customers who resell copies of software
developed by the Company for such customers.
Total revenues for the three month period ended September 30, 1997 were
$716,179 as compared to $784,042 for the same period of 1996, a decrease of
approximately $68,000 This decrease consisted of a decrease in UST revenues of
approximately $51,000 and a decrease in sales of the Company's custom software
products of approximately $13,000. The net loss and net loss per share were
$677,464 and $0.39 per share, respectively, for the three month period ended
September 30, 1997, as compared to a net loss and net loss per share of $752,213
and $0.50 per share, respectively, for the same period of the prior year.
Total revenues for the nine month period ended September 30, 1997 were
$4,212,310 as compared to $1,185,866 for the same period of 1996, an increase of
approximately $3 million. This increase was primarily attributable to the
inclusion of UST revenues of approximately $3.5 million, as well as an increase
in sales of the Company's custom software products of approximately $215,000.
The net loss and net loss per share were $1,632,760 and $0.97 per share,
respectively, for the nine month period ended September 30, 1997, as compared to
a net loss and net loss per share of $2,101,849 and $1.43 per share,
respectively, for the same period of the prior year.
During the three and nine month periods ended September 30, 1997,
revenues from services fees for systems integration and software development
services provided by UST were $528,114 and $1,513,649, respectively, as compared
to $398,092 in the same periods of the prior year. UST was acquired by the
Company in July 1996. The increase in the service fees revenue for the 1997
period is due to improved sales focus and represents expected sales levels for
this business.
During the three and nine month periods ended September 30, 1997,
revenues from custom multimedia software development services were $83,833 and
$665,137, respectively, as compared to $97,053 and $449,764, respectively, for
the same periods of the prior year, a decrease of approximately $13,000 for the
three month period ended September 30, 1997 and an increase of approximately
$215,000 for the nine month period ended September 30, 1997. The decrease in the
three month period ended September 30, 1997 as compared to the prior year is due
to fewer active contracts. The increase in the nine month period ended September
30, 1997 as compared to the prior year was due to new contracts which started
during the first quarter of 1997.
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During the three and nine month periods ended September 30, 1997, revenue
from sales of products was $94,451 and $2,003,456, respectively, as compared to
$275,410 and $290,776, respectively, in the same periods of the prior year, a
decrease of approximately $181,000 for the three month period ended September
30, 1997 and an increase of approximately $1.7 million for the nine month period
ended September 30, 1997. All of the revenue from sales of products for the
three and nine month periods ended September 30, 1997 represents sales of
computer hardware and software products by UST sold as part of their systems
integration services. Revenue through June 30, 1997 included the sale of IBM
AS/400 and RS/6000 midrange computers under UST's Industry Remarketer Agreement
with IBM. However, effective June 30, 1997, UST chose to no longer sell the IBM
AS/400 and RS/6000 midrange computers due to gross margins being lower than
anticipated. Accordingly, revenues from product sales decreased in the quarter
ended September 30, 1997 and is not expected to increase in future periods.
Sales of the IBM midrange computers accounted for approximately 70% of the
revenue from product sales through June 30, 1997. However, UST will continue to
sell miscellaneous computer hardware and software items as part of their systems
integration business.
The Company has entered into agreements that allow certain customers to
resell copies of the Company's software products in exchange for royalty
payments. Royalties were $9,781 and $30,068, respectively, during the three and
nine month periods ended September 30, 1997, as compared to $13,487 and $47,234,
respectively, for the same periods of the prior year, decreases of approximately
$3,700 and $17,000, respectively. The Company generally expects royalty revenue
to decrease due to the aging shelf life of products for which the Company
currently receives royalties. However, the Company continually explores
additional marketing and development partners to increase revenues generated
from royalty arrangements.
During the three and nine month periods ended September 30, 1997, total
operating expenses were $1,395,495 and $5,867,982, respectively, as compared to
$1,531,328 and $3,364,834, respectively, in the same periods of the prior year,
a decrease of approximately $136,000 for the three month period and an increase
of approximately $2.5 million for the nine month period. In addition to
including UST operating expenses for the nine month period ended September 30,
1997 as compared to only the three months ended September 30, 1996 due to the
acquisition of UST in July 1996, the cost of product sales, which included the
cost for IBM midrange hardware sold by UST during the first six months of 1997,
primarily accounted for the increase in the nine month period ended September
30, 1997.
For the three and nine month periods ended September 30, 1997, the cost
of service fees for systems integration services provided by UST was
approximately $275,000 and $821,000, respectively, resulting in gross margins of
approximately 48% and 46%, respectively. For the three and nine month periods
ended September 30, 1996, cost of service fees for system integration services
provided by UST, acquired in July 1996, was approximately $329,000, resulting in
a gross margin of approximately 17%. The increase in the gross margins as
compared to the prior year is due to improvements in UST's project bidding and
tracking procedures and is expected to represent approximate gross margins in
future periods.
For the three and nine month periods ended September 30, 1997, the cost
of service fees for custom multimedia software were approximately $114,000 and
$493,000, respectively, as compared to approximately $187,000 and $667,000,
respectively, for the same periods of the prior year. The gross margins for the
three and nine month periods ended September 30, 1997 were approximately (36%)
and 26%, respectively, as compared to gross margins of (93%) and (48%),
respectively, for the same periods of 1996. The improvement in year-to-date
gross margin is primarily due to the consolidation of the multimedia related
operations into one location. The consolidation of the Redmond, Washington
office was completed by December 31, 1996. The negative gross margin for the
three month period September 30, 1997 is primarily due to the decrease in
revenues for the same period. Gross margins are expected to be positive in
future periods when there are increases in revenues.
For the three and nine month periods ended September 30, 1997, the cost
of product sales was approximately $91,000 and $1.8 million, respectively, as
compared to approximately $119,000 and
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$125,000 respectively, for the same periods of the prior year. The gross margins
for the three and nine month periods ended September 30, 1997 were approximately
3.5% and 11%, respectively. The gross margins for the three and nine month
periods ended September 30, 1996 were approximately 57% and 57%, respectively,
due to an unusual one-time transaction recognized in the three month period
ended September 30, 1996 that resulted in an unusually high gross margin. The
decline in gross margins for the 1997 periods is due to UST's attempt to enter
the IBM AS/400 and RS/6000 midrange computers market in 1997 by making sales at
low gross margins. Total cost of product sales is expected to decrease in future
periods due to the discontinuance by UST of sales of IBM AS/400 and RS/6000
midrange computers effective June 30, 1997 as discussed above. Although UST will
continue to sell miscellaneous computer hardware and software items as part of
their systems integration business, gross margins are not expected to be
significant in future periods.
During the three and nine month periods ended September 30, 1997,
research and development expenses were approximately $81,000 and $212,000,
respectively. For the same periods of the prior year, these expenses were
approximately $52,000 and $176,000, respectively, increases of approximately
$29,000 and $36,000, respectively. Research and development expenses include
improvement on existing tools and applications and development of software tools
and applications to be sold.
During the three and nine month periods ended September 30, 1997,
selling, general and administrative expenses were approximately $835,000 and
$2.6 million, respectively, as compared to approximately $844,000 and
$1,779,000, respectively, in the same periods of the prior year, a decrease of
approximately $9,000 for the three month period ended September 30, 1997 and an
increase of $787,000 for the nine month period ended September 30, 1997. The
increase for the nine month period ended September 30, 1997 is primarily due to
the inclusion of UST's operations, acquired by the Company in July 1996, for
nine months in 1997 as compared to only three months in 1996. The nine month
period ended September 30, 1997 also includes UST's share of the losses in a
joint venture that UST entered into in December 1996. These losses approximate
$158,000 through September 30, 1997.
During the three month period ended September 30, 1997, total other
income increased by approximately $7,000, from the same period of the prior year
due to a decrease in the interest expense incurred on UST's line-of-credit.
During the nine month period ended September 30, 1997, total other income
(expense) decreased by approximately $54,000 from the same period of the prior
year, primarily due to a decrease in funds available for investment.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
The Report of Independent Accountants on the 1996 consolidated financial
statements of the Company includes an explanatory paragraph stating that the
recurring losses from operations and the existing cash resources may be
insufficient to fund planned operations and that these conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The Company incurred a net loss of $3,823,621 for the year ended December 31,
1996, and as of December 31, 1996 had an accumulated deficit of $10,665,959. For
the nine month period ended September 30, 1997, the Company incurred a net loss
of $1,632,760, an improvement from the net loss of $2,101,849 for the same
period of the prior year. In November 1997, the Company received net proceeds of
approximately $1,350,000 from the issuance of a $1,600,000 6% Convertible
Subordinated Debenture on October 31, 1997. Additionally, as discussed under
Strategy to Achieve Profitable Operations below, the Company has plans to
implement certain actions to address these matters.
Working capital of approximately $172,000 at September 30 1997, together
with the proceeds received from the convertible debenture issuance and funds to
be generated from investment income and future sales of services and products
are expected to provide sufficient liquidity to meet anticipated short-term cash
needs. However, there can be no assurance that the proceeds received from the
convertible debenture issued and other funds generated will provide sufficient
cash flow to ensure the continued existence of the Company. Management
recognizes that the Company may require additional financing until such time
that service
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fees and product sales are of sufficient volume to generate positive cash flows
from operations. Although the Company may seek financing from additional
placements of equity or debt securities, there can be no assurances that such
financing will be available, or if available, will be under terms and conditions
suitable to the Company.
For the nine month period ended September 30, 1997, the Company used cash
of approximately $1.5 million in operations primarily due to the net loss. The
Company also experienced increases in accounts receivable and accounts payable
and accrued liabilities. Net cash of approximately $474,000 was provided by
investing activities primarily from proceeds received at maturity of U.S.
government securities, offset by approximately $76,000 used for the purchase of
equipment. Net cash of approximately $982,000 was provided by the exercise of
common stock options and warrants, offset by approximately $314,000 used to make
payments on UST's obligations to a bank.
For the nine month period ended September 30, 1996, the Company used cash
of approximately $1.8 million in operations, primarily due to the net loss of
approximately $2.1 million, net of the write-off of purchased research and
development, which totaled approximately $289,000, in connection with the
acquisition of Forsight. During the nine month period ended September 30, 1996,
net cash of approximately $733,000 was used for investing activities for the
purchase of Forsight and UST, U.S. government securities, and equipment. Net
cash of approximately $200,000 was provided by the exercise of common stock
options and warrants, offset by approximately $17,000 used to make payments on
UST's obligations to a bank.
STRATEGY TO ACHIEVE PROFITABLE OPERATIONS
In September 1997, the Company's Board of Directors announced its
tentative plans to distribute all or a portion of the shares of stock of its
wholly owned subsidiary, UST, to the Company's shareholders. It is anticipated
that UST will become an independent, stand-alone company which will endeavor to
become a NASDAQ qualified company. This plan is dependent upon completion of
final negotiations with management of UST and formal approvals by the Boards of
Directors of both companies and, where appropriate, shareholder and SEC
approval.
If the above plans are approved, it is anticipated that the distribution
of the shares of stock of UST will take place in early 1998. Accordingly, the
Company's operations will include UST's operations through the end of 1997; and
subsequent to the distribution, the Company expects total revenues to decrease
due to the Company no longer including UST in its consolidated results of
operations. The Company's strategy to increase the revenues of its remaining
custom multimedia software business includes focusing its sales efforts on
technology-based training solutions to industries where the Company has had
successes in the past, particularly transportation related industries. The
Company has also begun implementation of a marketing campaign that focuses on
these industries. The Company will also pursue acquisitions of small related
businesses that would enhance its focus of technology-based training solutions,
as well as other strategic alliances and joint ventures that can provide the
Company with additional complementary capabilities or further broaden its base
of customers requiring the services currently provided. During the fourth
quarter of 1997, the Company was awarded a $499,000 12-month contract under the
U.S. Department of Transportation's ongoing Small Business Innovation Research
Program to develop computer-based training software to train users of CORSIM, a
traffic simulation model.
The Company's long-term strategy includes the utilization of the
Company's wide range of software development capabilities to provide
high-performance value-added integrated computer services to mid- to large-sized
service organizations, manufacturers and other companies located in the United
States. Custom multimedia software that focuses on training applications using
leading edge delivery methods, such as, intranet and Internet, is expected to be
an important component of the services provided by the Company. Management
believes that the Company's ability to provide all of the services required in
connection with design, development, installation and support of its custom
software will enhance its
11
<PAGE>
ability to effectively market its custom software development services to
customers that prefer to purchase an integrated set of software development and
computer-based training services from a single vendor. In addition, the Company
believes that it can increase revenue by using its proprietary products and
software development skills to produce generic versions of its custom software
products for sale to companies that do not require or cannot afford complete
customized services.
No assurance can be given that these measures, even if successful, will
result in the Company achieving profitable operations or ensure the continued
existence of the Company. Management's plans and estimates are based upon
information currently available and may not necessarily prove accurate.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: THE STATEMENTS CONTAINED IN THIS DOCUMENT AND OTHER STATEMENTS WHICH ARE
NOT HISTORICAL FACTS ARE FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, INCLUDING, THE SUCCESS OF NEWLY IMPLEMENTED SALES STRATEGIES; THE
CONTINUED EXISTENCE OF AGREEMENTS WITH PRODUCT PROVIDERS; MARKET ACCEPTANCE OF
THE COMPANY'S PRODUCTS AND SERVICES; THE ABILITY TO OBTAIN A LARGER NUMBER AND
SIZE OF CONTRACTS; THE TIMING OF CONTRACT AWARDS; WORK PERFORMANCE AND CUSTOMER
RESPONSE; THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING; TECHNOLOGICAL
DEVELOPMENTS BY THE COMPANY'S COMPETITORS OR DIFFICULTIES IN THE COMPANY'S
RESEARCH AND DEVELOPMENT EFFORTS; AND OTHER RISKS AS DETAILED IN THE COMPANY'S
SECURITIES AND EXCHANGE COMMISSION FILINGS.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits: None
(b) No reports on Form 8-K were required to be filed for the
three months ended September 30, 1997.
12
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC.
SIGNATURE
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.
STRATEGIC SOLUTIONS GROUP, INC.
-------------------------------
(Registrant)
Dated: November 14, 1997
BY: /s/ Suzanne C. Brown
--------------------
Suzanne C. Brown
Chief Financial and Accounting Officer
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