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 MARCH 31, 1998
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
STRATEGIC SOLUTIONS GROUP, INC.
-------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 11-2964894
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
326 First Street, Suite 100
Annapolis, Maryland 21403
- --------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (410) 263-7761
--------------
Not applicable
--------------------------------------------------------------------
(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
--- ---
1,768,839 Common Shares, $.0001 par value were issued and outstanding
at March 31, 1998.
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC.
TABLE OF CONTENTS
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets, March 31, 1998 (unaudited)
and December 31, 1997 3
Consolidated Statements of Operations for the three
months ended March 31, 1998 and 1997 (unaudited) 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Introduction to Unaudited Pro Forma Consolidated Financial
Information 7
Unaudited Proforma Condensed Consolidated Balance Sheets,
March 31, 1998 8
Unaudited Proforma Condensed Consolidated Statements of
Operations for the three months ended March 31, 1998 9
Unaudited Proforma Condensed Consolidated Statements of
Operations for the three months ended March 31, 1997 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION
Items 1-6 14
Signature 15
2
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------------- -------------------
(UNAUDITED)
<S><C>
ASSETS
Current assets
Cash and cash equivalents $ 433,986 $ 1,149,372
Accounts receivable, net of allowance for doubtful
accounts of $75,000 for both periods 794,333 666,841
Prepaid expenses and other current assets 105,583 137,618
------------------- -------------------
Total current assets 1,333,902 1,953,831
------------------- -------------------
Property and equipment, at cost
Computers, furniture and equipment 1,066,008 1,058,313
Less accumulated depreciation 750,000 701,390
------------------- -------------------
Net property and equipment 316,008 356,923
------------------- -------------------
Other assets 1,398,920 1,446,066
------------------- -------------------
$ 3,048,830 $ 3,756,820
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 1,069,663 $ 1,027,935
Deferred revenue 72,811 66,558
Note payable to bank 10,334 40,334
Other current liabilities 185,217 168,700
------------------- -------------------
Total current liabilities 1,338,025 1,303,527
Convertible subordinated debenture 1,511,226 1,487,864
------------------- -------------------
Total liabilities 2,849,251 2,791,391
------------------- -------------------
Commitments and contingencies
Stockholders' equity
Common stock, $.0001 par value. Authorized 5,000,000
shares; issued and outstanding 1,768,839 shares as of
March 31, 1998 and December 31, 1997 177 177
Additional paid-in capital 14,647,910 14,647,910
Accumulated deficit (14,341,860) (13,566,315)
Deferred compensation (106,648) (116,343)
------------------- -------------------
Total stockholders' equity 199,579 965,429
------------------- -------------------
$ 3,048,830 $ 3,756,820
=================== ===================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
1998 1997
----------------- ------------------
<S><C>
Revenue
Service fees $ 646,913 $ 673,379
Product sales 73,328 1,055,003
Royalties 15,064 9,347
----------------- ------------------
Total revenue 735,305 1,737,729
----------------- ------------------
Expenses
Cost of service fees 368,803 412,423
Cost of product sales 44,493 942,885
Research and development 44,716 72,444
Selling, general and administrative 977,326 814,808
----------------- ------------------
Total operating expenses 1,435,338 2,242,560
----------------- ------------------
Loss from operations (700,033) (504,831)
Other (expense) income, net (75,512) 15,821
----------------- ------------------
Net loss $ (775,545) $ (489,010)
================= ==================
Net loss per common share - basic and diluted $ (0.44) $ (0.31)
================= ==================
Weighted average number of common shares outstanding 1,768,839 1,584,465
================= ==================
</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 THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------------
1998 1997
------------------- -------------------
<S><C>
Cash flows from operating activities
Net loss $ (775,545) $ (489,010)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 121,954 69,333
Loss on disposal of assets 5,743 --
Noncash expense for services 70,000 10,000
Increase (decrease) in cash from changes in assets and liabilities
Accounts receivable (127,492) (1,043,958)
Prepaid expenses and other current assets 32,035 (13,798)
Other assets (39,120) 1,639
Accounts payable and accrued liabilities 41,728 504,488
Other liabilities 12,771 51,215
------------------- -------------------
Net cash used in operating activities (657,926) (910,091)
------------------- -------------------
Cash flows from investing activities
Capital expenditures (19,960) (17,799)
------------------- -------------------
Net cash used in investing activities (19,960) (17,799)
------------------- -------------------
Cash flows from financing activities
Net proceeds from exercise of options and warrants -- 975,044
Payment for fee related to convertible subordinated debenture (7,500) --
Payments on line of credit -- (17,500)
Payments on note payable to a bank (30,000) (8,331)
------------------- -------------------
Net cash provided by financing activities (37,500) 949,213
------------------- -------------------
Net (decrease) increase in cash and cash equivalents (715,386) 21,323
Cash and cash equivalents, beginning of period 1,149,372 939,281
=================== ===================
Cash and cash equivalents, end of period $ 433,986 $ 960,604
=================== ===================
</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 March
31, 1998 and for the three month periods ended March 31, 1998 and 1997 are
unaudited; however, 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, 1997
included in the Company's Annual Report on Form 10-KSB previously filed with the
Securities and Exchange Commission.
2. LITIGATION
In January 1998, the Company issued a notice of redemption of its
Subordinated Convertible Debenture (the "Debenture") and issued 1,052,624 shares
of its common stock in payment of the redemption amount. The holder of the
Debenture refused to accept the shares tendered, delivered a notice of partial
conversion of the Debetnure, and filed suit against the Company in the Delaware
Chancery Court alleging that the terms of the Debenture permitted cash
redemption only, that the redemption was therefore invalid, and that the Company
was required to honor the holder's conversion notice. On April 23, 1998, the
Court ruled in favor of the Debenture holder, declaring the redemption invalid
and imposing a penalty of $106,000 against the Company for delay in delivering
the shares issuable in accordance with the holder's conversion notice.
Subsequently, the Debenture holder requested payment of an additional penalty of
$160,000, claiming that the Company did not register under the Securities Act of
1933 the common stock issuable upon conversion of the Debenture within the time
required by a registration rights agreement between the Company and the
Debenture holder. The Company believes that it fully complied with its
obligations under the registration rights agreement and intends to vigorously
defend any action seeking to collect such penalty.
3. SUBSEQUENT EVENTS
On April 8, 1998, the Company merged UST into SSGI-UST Acquisition
Corp., a Florida corporation formed on March 5, 1998 and owned by the President
of UST and other third parties. UST continued as the surviving corporation;
accordingly, SSGI-UST Acquisition Corp ceased to exist. Consideration payable to
the Company for the merger consists of (i) 100,000 shares of UST's Common Stock
valued at $500,000, or $5.00 per share; (ii) a promissory note from USTin the
principal amount of $600,000 with 6% interest due the earlier of the closing of
a $2,000,000 private placement of UST's equity securities or 60 days after the
closing of the merger; and (iii) a 6% subordinated convertible debenture in the
principal amount of $927,000 (which will be increased for additional funding,
not expected to exceed $100,000, provided by the Company to UST) due the earlier
of a public offering of UST's common stock or the 545th day after the closing of
the merger. The promissory note is secured by all of the assets of UST and the
pledge of all of the outstanding stock of UST. The Company has the option to
convert the $927,000 debenture upon the occurrence of the first public offering
into shares of Common Stock of UST at a conversion price for each share of
Common Stock equal to the public offering price of the Common Stock less twenty
(20%) percent. As a result of this transaction, the Company's direct ownership
in UST was reduced from 100% to approximately 14%.
6
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Consolidated Financial Statements
illustrate the effect of the merger of UST. The Unaudited Pro Forma Condensed
Consolidated Balance Sheets as of March 31, 1998 gives effect to the merger as
if it occurred on that date. The Unaudited Pro Forma Condensed Consolidated
Statements of Operations are prepared for the three months ended March 31, 1998
and 1997 and give effect to the merger as if it occurred on January 1, 1997. The
pro forma adjustments included in the following pro forma financial statements
reflect the Company's investment in UST as of the date of the respective
financial statements and are based on assumptions that management deems
appropriate, but the results are not necessarily indicative of those that might
have occurred had the merger taken place on January 1, 1997.
7
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
ASSETS AND
HISTORICAL LIABILITIES DISPOSED: DISPOSITION PRO FORMA
CONSOLIDATED U.S. TECHNOLOGIES ADJUSTMENTS CONSOLIDATED
------------ --------------------- ----------- ------------
<S><C>
Cash and cash equivalents $ 433,986 $ (7,188) $ -- $ 426,798
Accounts receivable, net 794,333 (319,452) -- 474,881
Prepaid expenses and other current assets 105,583 (24,871) -- 80,712
Net property and equipment 316,008 (189,681) -- 126,327
Other assets 1,398,920 (79,921) 2,027,000 (1) 3,345,999
------------------- ----------------
$ 3,048,830 $ 4,454,717
=================== ================
Accounts payable and accrued expenses $ 1,069,663 $ (680,022) $ -- $ 389,641
Deferred revenue 72,811 (71,571) -- 1,240
Note payable to bank 10,334 (10,334) -- 0
Other current liabilities 185,218 (120,579) -- 64,639
Long-term liabilities 1,511,226 -- 2,288,393 (2) 3,799,619
Total stockholders' equity 199,578 -- -- 199,578
------------------- ----------------
$ 3,048,830 $ 4,454,717
=================== ================
</TABLE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED):
(1) Consideration received by the Company included (i) 100,000 shares of
common stock of UST valued at $500,000 or $5.00 per share; (ii) a
promissory note from UST in the principal amount of $600,000 with 6%
interest due the earlier of the closing of a private placement or 60 days
from the closing of the Merger; and (iii) a 6% subordinated convertible
debenture in the principal amount of $927,000 due the earlier of a public
offering of UST's stock or 18 months from the date of the Merger.
Valuation of the common stock and collectibility of the promissory note
and the convertible debenture are dependent upon UST's ability to obtain
financing.
(2) Represents the deferral of the gain on disposition calculated as the
excess of UST's total liabilities over its total assets plus consideration
received. Due to the consideration being dependent upon UST's ability to
obtain financing, the Company has deferred the gain on disposition.
8
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
HISTORICAL DISPOSITION PRO FORMA
CONSOLIDATED DISPOSITION ADJUSTMENTS CONSOLIDATED
------------ ----------- ----------- ------------
<S><C>
Revenues $ 735,305 $ (435,032) $ -- $ 300,273
---------------- -------------- -------------- --------------
Operating expenses
Cost of revenues 413,296 (283,524) -- 129,772
Research and development 44,716 (43,798) -- 918
Selling, general and administrative 977,326 (483,831) -- 493,495
---------------- ------------- ------------- --------------
Total operating expenses 1,435,338 (811,153) -- 624,185
---------------- ------------- ------------- --------------
Loss from operations (700,033) 376,121 -- (323,912)
Other income (expense) (75,512) 930 17,800 (1) (56,782)
================ ============== ============== ==============
Net loss $ (775,545) $ 377,051 $ 17,800 $ (380,694)
================ ============== ============== ==============
Net loss per common share - basic and diluted ($0.44) ($0.22)
================ ==============
Weighted average number of common shares outstanding 1,768,839 1,768,839
================ ==============
</TABLE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATION (UNAUDITED):
(1) Represents interest income from the promissory note and the convertible
debenture.
9
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
HISTORICAL DISPOSITION PRO FORMA
CONSOLIDATED DISPOSITION ADJUSTMENTS CONSOLIDATED
------------ ----------- ----------- ------------
<S><C>
Revenues $ 1,737,729 $ (1,462,493) $ -- $ 275,236
---------------- -------------- -------------- --------------
Operating expenses
Cost of revenues 1,355,308 (1,144,572) -- 210,736
Research and development 72,444 (67,813) -- 4,631
Selling, general and administrative 814,808 (506,167) -- 308,641
---------------- -------------- -------------- --------------
Total operating expenses 2,242,560 (1,718,552) -- 524,008
---------------- -------------- -------------- --------------
Loss from operations (504,831) 256,059 -- (248,772)
Other income (expense) 15,821 1,800 9,500 (1) 27,121
================ ============== ============== ==============
Net loss $ (489,010) $ 257,859 $ 9,500 $ (221,651)
================ ============== ============== ==============
Net loss per common share - basic and diluted ($0.31) ($0.14)
================ ==============
Weighted average number of common shares outstanding 1,584,465 1,584,465
================ ==============
</TABLE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATION (UNAUDITED):
(1) Represents interest income from the promissory note and the convertible
debenture.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues are comprised of service fees, product sales, and
royalties. Service fees are for systems integration services provided by 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
sold by UST as part of their systems integration services. In April 1998, UST
was merged into a separate operating entity and accordingly, its revenues and
results of operations will not be included in the Company's results of
operations after that date. See Note 3 to the Notes to Consolidated Financial
Statements. Royalties are paid to the Company by customers who resell copies of
software developed by the Company for such customers.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Total revenues for the three month period ended March 31, 1998 were
$735,305 as compared to $1,737,729 for the same period of 1997, a decrease of
approximately $1,002,000. This decrease was primarily attributable to the
discontinuance by UST of sales of IBM AS/400 and RS/6000 midrange computers
effective June 30, 1997. The net loss and net loss per share were $775,545 and
$0.44 per share, respectively, for the three month period ended March 31, 1998,
as compared to a net loss and net loss per share of $489,010 and $0.31 per
share, respectively, for the same period of the prior year.
During the three month period ended March 31, 1998, revenue from services
fees for systems integration and software development services provided by UST
was $361,704, as compared to $407,490 in the prior year, a decrease of
approximately $46,000, or 11%.
During the three month period ended March 31, 1998, revenue from custom
multimedia software development services was $285,209 as compared to $265,889
for the same period of the prior year, an increase of approximately $19,000 or
7%. This increase is due to an increase in the size of existing contracts as
compared to the prior year. The Company's strategy to increase revenues includes
targeting its sales and marketing efforts of technology-based training solutions
to the manufacturing and transportation industries.
During the three month period ended March 31, 1998, revenue from sales of
products was $73,328, as compared to $1,055,003 in the same period of the prior
year, a decrease of approximately $982,000. This revenue represents sales of
software and hardware products by UST as part of their systems integration
services. During 1997, revenue from product sales included sales of IBM AS/400
and RS/6000 midrange computers under UST's Industry Remarketer Agreement with
IBM. 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.
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 $15,064 during the three month period ended March 31,
1998, as compared to $9,347 for the same period of the prior year, an increase
of approximately $6,000. 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.
11
<PAGE>
During the three month period ended March 31, 1998, total operating
expenses were $1,435,338 as compared to $2,242,560 in the same period of the
prior year, a decrease of approximately $807,000. This decrease was primarily
attributable to the discontinuance by UST of sales of IBM AS/400 and RS/6000
midrange computers effective June 30, 1997.
For the three month period ended March 31, 1998, the cost of service fees
for systems integration services provided by UST was $239,031, as compared to
$201,688, for the same period of the prior year, resulting in gross margins of
approximately 34% and 51%, respectively. The decreased gross margin for 1998 is
due to the decrease in revenue from the prior year and an increase in costs
associated with the provision of services.
For the three month period ended March 31, 1998, the cost of service fees
for custom multimedia software was $129,772, as compared to $210,735, for the
same period of the prior year, resulting in gross margins of approximately 54%
and 21%, respectively. The improvement in gross margin is primarily due to the
consolidation of the multimedia related operations into one location, as well as
an increase in revenue. Management expects gross margins to be consistent in
future periods when revenues are consistent.
Cost of product sales was $44,493 for the three month period ended March
31, 1998, as compared to $942,885 in the prior year. Cost of product sales are
from the sale of products by UST and resulted in gross margins of approximately
39% and 11%, respectively. The lower gross margin for the 1997 period is due to
UST's attempt to enter the IBM AS/400 and RS/6000 midrange computer market by
making sales at low gross margins. As discussed above, UST discontinued the sale
of these computers effective June 30, 1997.
During the three month period ended March 31, 1998, research and
development expenses were $44,716 as compared to $72,444 for the same period of
the prior year. Research and development expenses include improvements on
existing tools and development of software tools and applications to be sold.
During the three month period ended March 31, 1998, selling, general and
administrative expenses were $977,326 as compared to $814,808 in the same period
of the prior year, an increase of approximately $163,000, or 20%. The increase
is due to increased professional fees related to the debenture litigation, the
merger of UST, and the amortization of the deferred asset in connection with the
Company's five year financial consulting agreement.
During the three month period ended March 31, 1998, total other income
(expense) increased by approximately $91,000 from the same period of the prior
year primarily due to interest expense and amortization of deferred costs in
connection with the Company's convertible subordinated debenture.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
The Report of Independent Accountants on the 1997 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 $2,900,356 for the year ended December 31,
1997, and as of December 31, 1997 had an accumulated deficit of $13,566,315. For
the three month period ended March 31, 1998, the Company incurred a net loss of
$775,545. In addition, in April 1998, the Company's litigation with the holder
of its convertible subordinated debenture was finalized which resulted in the
debenture being reinstated. See Note 2 to the Notes to Consolidated Financial
Statements. See STRATEGY TO ACHIEVE PROFITABLE OPERATIONS below for a discussion
regarding the Company's plans to address the losses and liquidity matters.
12
<PAGE>
For the three month period ended March 31, 1998, the Company used cash of
approximately $658,000 in operations. In addition to the net loss, the Company
experienced increases in accounts receivable and other assets. Net cash of
approximately $20,000 was used for investing activities for the purchase of
equipment. Net cash of approximately $37,500 was used to make payments on UST's
obligations to a bank and pay a fee in connection with the Company's convertible
subordinated debenture.
For the three month period ended March 31, 1997, the Company used cash of
approximately $910,000 in operations. In addition to the net loss, the Company
experienced increases in accounts receivable and inventory. Net cash of
approximately $18,000 was used for investing activities for the purchase of
equipment. Net cash of approximately $950,000 was provided by the exercise of
common stock options and warrants, offset by approximately $26,000 used to make
payments on UST's obligations to a bank.
Current funds are not expected to provide sufficient liquidity to meet
anticipated cash needs on either a short-term or long-term basis. On April 8,
1998, the Company completed the divestiture of its wholly owned subsidiary, UST,
as described in Note 3 to the Notes to Consolidated Financial Statements.
Consideration received by the Company includes (i) 100,000 shares of common
stock of UST valued at $500,000 or $5.00 per share; (ii) a $600,000 promissory
note due the earlier of the closing of a $2,000,000 private placement or sixty
days of the closing of the merger; and (iii) a convertible debenture for
$927,000 due the earlier of 18 months from the closing of the merger or at the
time of a public offering by UST. Management recognizes that the Company will
require additional financing until such time that revenues are of sufficient
volume to generate positive cash flows from operations. Although the Company
will be seeking financing from 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.
In February 1998, the Company was notified by Nasdaq that it was not in
compliance with Nasdaq's new net tangible assets requirement and that the
Company's securities were scheduled for delisting. However, the Company has
requested a temporary exemption to the new requirements by its submission of a
proposed compliance plan. The Company is awaiting the decision of Nasdaq
regarding its request and until a decision is reached by Nasdaq the delisting
action has been stayed. In addition, in April 1998, the Company was notified by
the Boston Stock Exchange that the failure to report shareholder's equity of at
least $500,000 may result in the delisting of the Company's stock.
STRATEGY TO ACHIEVE PROFITABLE OPERATIONS
Subsequent to the merger and resulting divestiture of UST in April 1998,
the Company's strategy to increase revenue, which solely comprises the
multimedia division, includes the implementation of an operating plan built
around the division's mission statement - "We optimize human performance using
leading edge technology-based training solutions to eliminate the barriers of
time and space."
The plan also includes the implementation of a more focused sales and
marketing strategy which targets the division's sales and marketing efforts of
technology-based training solutions to the manufacturing and transportation
industries. Existing clients are also an important component of the Company's
marketing strategy. The Company believes that follow-on projects leverage sales
and marketing resources and strengthen the Company's client relationships. The
Company believes that it has good relationships with its existing customer base
and expects that these contacts will enable it to successfully pursue this
strategy.
In addition, the division will endeavor to become a Microsoft Solutions
Provider which requires that the Company maintain two certified Microsoft
professionals on staff. The Company believes that it can acquire this
certification during 1998 and that this affiliation will provide sales leads for
its services.
13
<PAGE>
In the normal course of business, the Company evaluates the acquisition
of businesses, products and technologies that complement the Company's business.
In addition, the Company may also evaluate other strategic alliances and joint
ventures that can provide the Company with additional complementary capabilities
or further broaden its base of customers requiring the products and services
currently provided. The Company has no present commitments or agreements with
respect to any such transaction. However, the Company may acquire businesses,
products, or technologies in the future.
There can be no assurance that the strategies addressed above and
elsewhere herein will generate sufficient revenues and cash flow for the Company
to reach profitability or to ensure the continued existence of the Company.
"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:
In January 1998, the Company issued a notice of redemption of its
Subordinated Convertible Debenture (the "Debenture") and issued 1,052,624 shares
of its common stock in payment of the redemption amount. The holder of the
Debenture refused to accept the shares tendered, delivered a notice of partial
conversion of the Debetnure, and filed suit against the Company in the Delaware
Chancery Court alleging that the terms of the Debenture permitted cash
redemption only, that the redemption was therefore invalid, and that the Company
was required to honor the holder's conversion notice. On April 23, 1998, the
Court ruled in favor of the Debenture holder, declaring the redemption invalid
and imposing a penalty of $106,000 against the Company for delay in delivering
the shares issuable in accordance with the holder's conversion notice.
Subsequently, the Debenture holder requested payment of an additional penalty of
$160,000, claiming that the Company did not register under the Securities Act of
1933 the common stock issuable upon conversion of the Debenture within the time
required by a registration rights agreement between the Company and the
Debenture holder. The Company believes that it fully complied with its
obligations under the registration rights agreement and intends to vigorously
defend any action seeking to collect such penalty.
The Company is not subject to any other legal proceedings other than
claims that arise in the ordinary course of its business.
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
14
<PAGE>
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 March 31, 1998.
The following report on Form 8-K was filed subsequent to March
31, 1998:
April 8, 1998 - Disposition of U.S. Technologies
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: May 15, 1998
BY: /s/ Suzanne C. Brown
_________________________________
Suzanne C. Brown
Chief Financial and Accounting Officer
15
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
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<INCOME-PRETAX> (775,545)
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