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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to ____________
Commission File Number: 1-12536
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STRATEGIC SOLUTIONS GROUP, INC.
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(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.)
1598 Whitehall Road, Ste. E
Annapolis, Maryland 21401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (410) 757-2728
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Securities registered pursuant to Section 12(b) of the Act: Common Stock,
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$.0001 par value
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Securities registered pursuant to Section 12(g) of the Act: None
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(Title of Class)
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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ ]
As of March 27, 2000 the aggregate market value of the voting stock held by
non-affiliates, approximately 5,929,000 shares of Common Stock, $.0001 par
value, was approximately $4,262,000 based on the closing sales price of $0.7188
for one share of Common Stock on the Nasdaq Small Cap Market on such date. The
number of shares outstanding of the Registrant's Common Stock, as of March 27,
2000 was 5,928,924.
Documents incorporated by reference: Portions of the Registrant's
definitive Proxy Statement regarding its 2000 Annual Meeting of Stockholders are
incorporated by reference in Part III of this Report.
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PART I
Item 1. Description of Business.
General
During 1999, Strategic Solutions Group, Inc. ("the Company") provided custom
interactive multimedia software. The Company designs, develops, and markets
custom multimedia software used to deliver computer-based and web-based
training, electronic performance support systems, multimedia manuals, sales and
marketing presentations, and corporate communications.
Custom Multimedia Software
The Company provides technical consulting services that include analysis,
design, and development of technology-based solutions and specializes in
providing training solutions. Technology-based training encompasses a wide
range of emerging technologies in the area of employee training, and can come in
the form of computer-based training, web-based training, electronic performance
support systems, and multimedia manuals. In addition, the Company also designs
and develops software for sales and marketing applications and corporate
communications.
Depending on a customer's needs, the Company can produce multimedia software
that includes interactive computer animation, full motion video, audio, high-end
color graphics, text and hypertext providing vivid and effective instruction and
information. The software developed by the Company can be distributed over
multiple platforms including MSWindows and DOS and can be delivered on diskette,
CD-ROM, or the Internet. The Company has adapted its services using new and
emerging technologies, such as internal corporate intranets or the Internet
using the World Wide Web ("Web"). In addition, the incorporation of Web-Based
training ("WBT") allows users to have access from anywhere in the world. The
Company believes that the Internet and intranets will become increasingly
important delivery methods in the future.
According to a market research firm, International Data Corp. ("IDC"),
companies spent approximately $18 billion worldwide in training for their
workers in 1996 and by the year 2001 that annual bill is expected to grow to
approximately $27.9 billion. In addition, according to IDC, offering employee
training via the Internet and corporate intranets is a business that could grow
at annual rates greater than 100% over the next few years.
Computer-Based Training ("CBT"). The Company designs and develops custom
computer-based training software, which provides an interactive learning
experience to instruct employees how to use complex equipment or to understand
complicated industrial processes by simulating operation and production
procedures. The Company's software typically replaces or supplements technical
manuals and operating documentation and provides interactive self-paced
training. It also often incorporates cut-away views of equipment that would be
difficult or impossible to display in a real-world setting and enables users to
learn complex processes by viewing them in real or lapsed time or in slow
motion. Based on studies conducted and published by the American Society for
Training and Development, management believes that CBT enables users to master
skills and retains information more effectively than traditional instructor-led
training.
Web-Based Training. Recent technological developments and advances in
computer network technology enable the Company to deliver computer-based
training over corporate intranets or the
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Internet via the Web. Web-based materials can be text-based (such as, lecture
notes, case studies, and assignments) or they may be much like sophisticated CBT
courseware. As a result of rapidly advancing Web browsers, high-speed
communications, and innovative instructional design, it is possible that real-
time animation, video, audio, and conferencing could be features included in a
WBT solution. In addition, the incorporation of WBT allows users to have access
from anywhere in the world. The Company believes that the Internet and intranets
will become increasingly important delivery methods in the future.
Electronic Performance Support Systems ("EPSS"). The goal of an EPSS is to
provide whatever information is necessary to accelerate performance and learning
at the moment of need - commonly referred to as Help Systems. The Company
designs and develops custom EPSS software to enable users to perform better at
their jobs. This software provides computer-based support that is integrated
into a workstation or work environment, and acts as a combination
coach/trainer/job aid/reference. The Company believes that EPSS increases
employee productivity by providing needed information and training when and
where it is needed - and in an amount and format that is the most useful to the
user.
Multimedia Manuals. The Company provides turn-key multimedia manual
services, using internally developed and off-the-shelf software tools. These
tools enable the division to convert customer manuals, reference guides, or
other technical materials into interactive multimedia software, including full-
motion video, audio, animation and interaction. The Company believes that these
services enable customers to obtain a technology-based solution in less time and
at a relatively low cost as compared to traditional custom software services.
Sales and Marketing. The Company designs and develops custom sales and
marketing software which enables manufacturers and distributors to demonstrate
their products to potential customers at trade shows or in kiosks. This
software can enhance sales and marketing presentations by encouraging customer
participation through the use of interactive product demonstrations.
Corporate Communications. The Company designs and develops custom multimedia
software for internal and external corporate communications. Examples include
software used to disseminate corporate policies and procedures and information
about a company's products and services. The Company believes that its custom
multimedia development services can be used to create a technology-based
solution, including web-based, that is comprehensive and cost-effective and
delivers lively and compelling messages to large groups of employees in
disparate locations.
Development and Services. The Company's custom multimedia services for the
above technology-based solutions include needs analysis, design specification
and product development. Needs analysis typically takes from three to four
weeks and the charges for such services can range from $10,000 to $20,000. The
design phase lasts from four to six weeks and the charges for such services can
range from $20,000 to $40,000. Depending upon a project's scope and features,
the time required to complete software development can typically range anywhere
from one month to two years and the charges for such services have ranged from
$10,000 to $650,000.
At the outset of each project, the Company provides the customer with a
statement of work that details the services that the Company will provide, sets
forth the amount that the Company will charge, and provides a work and payment
schedule. Any changes to the project that will result in additional charges are
submitted to the customer for approval prior to providing the services. The
payment schedule varies from customer to customer, but usually includes some
form of up-front
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payment and progress payments based upon the completion of phases of the
project. To date, the Company has not experienced any significant difficulties
in delivering its custom software products to customers in accordance with its
schedules. Post-development support services are available and are negotiated
under a separate contract and typically billed on an hourly basis.
Customers and Backlog
The Company's multimedia customers traditionally have been comprised
primarily of large manufacturers who must train employees to use complex
equipment or understand complicated industrial processes. To date, such
customers have represented a broad range of industries, including the
automotive, packaging, electronics, pharmaceutical, beverage bottling, and
fitness and food manufacturing industries, as well as government agencies
located throughout the United States. As part of its strategy to grow revenues,
the Company has identified strategic vertical markets with business-critical
needs that can be addressed by the its technology-based solutions. The Company
has implemented a sales and marketing strategy that targets its efforts on the
manufacturing and transportation industries. The Company intends to leverage
its existing relationships and expand its sales and marketing efforts to
increase market share in these industries.
During fiscal 1999 and 1998, there were two customers, an automotive
manufacturer and a government division, which accounted for at least 10% of the
Company's consolidated revenue. During fiscal 1997, there were no customers
that accounted for at least 10% of the Company's consolidated revenue.
As of December 31, 1999, backlog (i.e., the difference between the fees
payable to the Company set forth in existing contracts and the amount of such
fees that had been recognized as revenue on the Company's financial statements)
of its custom multimedia software services totaled approximately $500,000, all
of which is expected to be earned during 2000. There can be no assurance that
contracts reflected in backlog will not be cancelled or delayed. Accordingly,
the Company believes that backlog is not a reliable measure of future revenue.
Research and Development
For the years ended December 31, 1999 and 1998, costs associated with
research and development activities totaled approximately $67,000 and $55,400,
respectively. Historically, research and development activities included the
development of a library of reusable applications, codes, utilities, and tools
that the Company can utilize in the early stages of development of many of its
software applications. There were no software development costs capitalized for
any periods presented, as the costs incurred between technological feasibility
and general availability were not significant. The Company believes that costs
for research and development will continue in the future at consistent levels as
the Company plans to continue improving its existing reusable applications,
codes, utilities, and tools, as well as the development of new reusable
applications, codes, utilities, and tools. In addition, future research and
development efforts may include the development of products to be sold on a
stand alone basis. However, the Company has not yet developed any products to
be sold on a stand alone basis, and, accordingly, has not generated any revenue
from the sale of software licenses.
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Sales and Marketing
As of December 31, 1999, the Company employed two people involved in sales
who receive a combination of salary and commission. The direct sales force
focuses on large customers and leverages its industry experience to access
target organizations within particular vertical markets. These markets are
characterized by business areas to which the Company's services and technology
are particularly well suited, and by participants who possess the financial
resources and scale of operations necessary to support the types of services
provided the Company. The Company also employs other business development and
marketing techniques to communicate directly with current and prospective
clients.
In order to increase revenues, the Company has recently implemented a more
focused sales and marketing strategy that targets its efforts to providing
technology-based training solutions to the manufacturing and transportation
industries.
Existing clients are also an important component of the Company's marketing
strategy. 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.
Competition
The information technology consulting, software development, and business
solution markets include a large number of participants, are subject to rapid
change, and are highly competitive. The Company competes with and faces
potential competition for clients and experienced personnel from a number of
companies that have substantially greater financial, technical, sales,
marketing, and other resources, and generate greater revenues, as well as have
greater name recognition than the Company. These markets are highly fragmented
and served by numerous firms, many of which serve only their respective local
markets. In addition, clients may elect to use their internal information
systems resources to satisfy their needs for software and application
development and consulting services, rather than using those offered by the
Company.
The Company's custom multimedia software business competes with companies
that produce interactive training software (custom and off-the-shelf) and other
third-party suppliers of training and marketing materials, as well as internal
training and information systems resources of potential customers.
The Company's clients primarily consist of large organizations, including
agencies of the federal government, and there are an increasing number of
professional services firms seeking information technology consulting and
software development engagements from that client base. The Company believes
that the principal competitive factors in the information technology consulting
and software development industry include responsiveness to client needs,
project completion time, quality of service, price, project management
capability, and technical expertise. The Company believes that it presently
competes favorably with respect to each of these factors. However, the
Company's markets are still evolving and there can be no assurance that the
Company will be able to compete successfully against current and future
competitors and the failure to do so successfully will have a material adverse
effect upon the Company's business, operating results, and financial condition.
The Company believes that its ability to compete also depends in part on a
number of competitive factors outside its control, including, the ability of its
competitors to hire, retain and motivate personnel; the development by others of
software that is
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competitive with the Company's services; the price at which others offer
comparable services; and the extent of its competitor's responsiveness to
customer needs.
Intellectual Property
Most of the Company's contracts state that its software is proprietary and
that title to and ownership of its software generally reside with the Company.
The Company grants nonexclusive licenses to customers for software developed by
the Company for such customers. Like many software firms, the Company has no
patents. The Company attempts to protect its rights with a combination of
copyright, trade secret laws, and employee and third-party nondisclosure
agreements. Despite these precautions, it may be possible for unauthorized
third parties to copy certain portions of the Company's products or obtain and
use information that the Company regards as proprietary, such as source codes or
programming techniques.
As the number of software products increases and their functionality further
overlaps, the Company acknowledges that software programs could increasingly
become the subject of infringement claims. Although the Company's products have
never been the subject of an infringement claim, there can be no assurance that
third parties will not assert infringement claims against the Company in the
future or that any such assertion may not require the Company to enter into
royalty arrangements or result in costly litigation.
Product Liability Insurance
The Company does not currently carry product liability insurance and there
can be no assurance that such coverage, if obtainable, would be adequate in
terms and scope to protect the Company against material adverse effects in the
event of a successful product liability claim. Although the Company has not
been subject to any product liability claims, such claims could arise in the
future. There can be no assurance that the Company would have sufficient
resources to satisfy any liability resulting from these claims or would be able
to have its customers indemnify the Company against such claims.
Employees
As of December 31, 1999, the Company had eleven full-time employees, three of
whom were in administration, two of whom were in sales and marketing, and six of
who held professional technical positions. None of the Company's employees are
represented by unions. Management believes the Company's employee relations are
good.
The Company's success will depend upon its ability to attract, retain, and
motivate highly-skilled employees, particularly project managers and other
senior technical personnel. Qualified personnel are in particularly great
demand and are likely to remain a limited resource for the foreseeable future.
However, the Company believes that it has been successful in its efforts to
attract and retain the number and quality of professionals needed to support
present operations and future growth. Although the Company expects to continue
to attract sufficient numbers of highly skilled employees and to retain its
existing technical personnel for the foreseeable future, there can be no
assurance that the Company will be able to do so.
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Item 2. Description of Property.
The Company leases office space in Annapolis, Maryland and Ypsilanti,
Michigan. These leases require the Company to pay monthly rent of approximately
$5,700 and expire between March 17, 2001 and February 1, 2005. Management
believes that its current office facilities are adequate and suitable for the
Company's current operations.
Item 3. Legal Proceedings.
In January 1998, the Company issued a notice of redemption of its
Subordinated Convertible Debenture (the "Debenture") based on management's
interpretation of the contract 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
Debenture, 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. The $106,000 penalty was
expensed in the second quarter and included in other expenses on the statement
of operations. In addition, the Company executed a judgment note payable with
the Debenture holder to pay the $106,000 in monthly payments of $7,500 until
paid in full with interest at 10% per annum and acceleration upon Strategic
Solutions Group, Inc.'s receipt of payments from U.S. Technologies, Inc.
("UST"). Subsequently, the Debenture holder requested payment of an additional
penalty of $160,000, claiming that the Company did not register the common stock
issuable upon conversion of the Debenture under the Securities Act of 1933
within the time required by a registration rights agreement between the Company
and the Debenture holder.
On March 1, 2000, the Company settled all outstanding issues with the holder
of the Debenture. Under the terms of the Settlement Agreement with Releases
(the "Agreement"), the Company paid the holder of the Debenture $200,000 cash,
issued a $100,000 promissory note, agreed to honor conversions under the
original Subordinated Convertible Debenture for up to 1,000,000 shares of the
Company's common stock and transferred to the holder of the Debenture 150,000
shares of common stock that the Company owned in Digital Chainsaw, Inc., a
privately held entity. The promissory note is secured by the 641,045 shares of
common stock in Digital Chainsaw, Inc. that the Company did not transfer to the
holder of the Debenture. The payment terms of the promissory note are $10,000
per month starting March 30, 2000 and each month thereafter until paid in full.
This promissory note is non-interest bearing. In addition, the Company has
agreed to honor conversions of the Debenture into the Company's common stock
under the original Subordinated Convertible Debenture for a sixty (60) day
period commencing March 1, 2000. The Company also paid $15,000 of legal fees on
the behalf of the holder of the Debenture. The Company anticipates that the
fair value of the consideration given to settle this litigation will not exceed
the liabilities recorded by the Company in its balance sheet as of December 31,
1999, which consists of the outstanding balance of the Convertible Subordinated
Debenture, accrued interest and penalties. The Company expects to record the
settlement of this matter during the first half of 2000.
The Company is not subject to any other legal proceedings other than claims
that arise in the ordinary course of its business.
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Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock has been listed on the Nasdaq Small Cap Market
under the symbol "SSGI" and on the Boston Stock Exchange under the symbol "STG."
Before November 11, 1993, the Company's Common Stock traded in Nasdaq's over-
the-counter market and was quoted in the "Pink Sheets."
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. On September 1, 1998 the
stock was formally delisted. In addition, in July 1998, the Company's stock was
delisted from the Boston Stock Exchange due to its failure to report
stockholder's equity of at least $500,000.
The following table shows the high and low sale prices for the Company's
Common Stock, for the periods indicated, based upon information supplied to the
Company from Nasdaq.
Year High Low
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1999
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1st Quarter $0.13 $0.05
2nd Quarter $0.16 $0.06
3rd Quarter $0.30 $0.08
4th Quarter $0.16 $0.08
1998
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1st Quarter $3.06 $0.81
2nd Quarter $1.50 $0.31
3rd Quarter $0.75 $0.16
4th Quarter $0.17 $0.02
The closing bid price for the Company's Common Stock on December 31, 1999,
was $0.0938.
The Company had approximately 173 holders of record of Common Stock as of
December 31, 1999. Management believes that the number of beneficial holders of
the Company's Common Stock as of December 31, 1999, was approximately 2,500.
No cash dividends have been paid by the Company on its Common Stock and no
such payment is anticipated in the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following paragraphs contain certain forward looking statements, which are
within the meaning of and made pursuant to the Safe Harbor provisions of the
Private Securities
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Litigation Reform Act of 1995. The forward looking statements include, without
limitation, those regarding the prospects for and factors affecting future
revenues and profitability, likelihood of additional financing, marketing, and
cash requirements for future operations. Readers are cautioned that forward
looking statements involve risks, uncertainties, and factors that may affect the
Company's business and prospects, including without limitation those described
below as well as the risks associated with: the nature of competition;
technological developments; and effective marketing; all as discussed in the
Company's filings with the U.S. Securities and Exchange Commission.
Overview
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The Company's revenues are comprised of service fees, product sales, and
royalties. Service fees are generated from the development of custom multimedia
software and from systems integration services provided by UST, the Company's
subsidiary acquired in July 1996 and divested in April 1998. Product sales are
for third-party software and hardware products sold generally by UST as part of
their system integration services. In April 1998, UST was divested into a
separate operating entity and, accordingly, its revenues and results of
operations have not been included in the Company's results of operations after
that date. See Note 2 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.
Fiscal 1999 Compared to Fiscal 1998
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Total revenues for the year ended December 31, 1999 were $992,331 as compared
to $1,658,596 for the same period of 1998, a decrease of approximately $666,000.
The decrease is primarily attributed to the inclusion of UST revenues of
approximately $435,000 in 1998 and timing of completion of the Company's
contracts with customers.
During the year ended December 31, 1999, revenue from custom multimedia
software development services was $952,050, as compared to $1,171,648, for the
prior year, a decrease of approximately $220,000 or 18%. The decrease was
primarily a result of the timing of completion of the Company's contracts with
customers. The Company's strategy to increase revenues prospectively from
custom multimedia software development services includes targeting its sales and
marketing efforts of technology-based training solutions to the manufacturing
and transportation industries.
During the year ended December 31, 1999, revenue from sales of products was
$18,238, as compared to $73,328, in the prior year, a decrease of approximately
$55,000. In 1999, this represents sales of computer hardware products by the
Company, as compared to sales of computer hardware and software products by UST
as part of their systems integration services in 1998. The Company does not
anticipate a significant volume of computer hardware sales in the future.
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 $22,043 during the year ended December 31, 1999 as
compared to $51,916 for the prior year, a decrease of approximately $30,000 or
58%. The decrease is due primarily to a decrease in the number of marketing and
development partners during 1999. The Company continually explores additional
marketing and development partners to increase revenues generated from royalty
arrangements.
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During the year ended December 31, 1999, the cost of service fees for custom
multimedia software services was $505,532 as compared to $562,137 in the prior
year, resulting in gross margins of approximately 48% and 52%, respectively. We
anticipate margins to remain consistent with this level.
Cost of product sales was $17,850 for the year ended December 31, 1999, as
compared to $44,493 in the prior year, resulting in gross margins of
approximately 2% and 39%, respectively. As discussed above, the Company does
not expect significant growth in revenue and costs from the sale of third party
products during 2000.
During the year ended December 31, 1999, total operating expenses were
$884,128 as compared to $3,327,090 in the prior year, a decrease of
approximately $2,443,000 or 73%. This decrease is primarily due to the inclusion
of UST operating expenses of approximately $811,000, for the first three months
of 1998, the write-off of the carrying amount of an asset related to a
consulting services contract entered during 1997 and the Company's general cost
cutting efforts. See Note 14 to the Company's financial statements herein for
more information on the consulting services contract written off during 1998.
During the year ended December 31, 1999, research and development expenses
were $66,815 as compared to $55,455 for the prior year. The variability in the
amount of research and development expenses is directly related to the timing of
the Company's product development initiatives. Research and development expenses
included improvements on existing tools and the development of software tools
and applications to be sold.
During the year ended December 31, 1999, selling, general and administrative
expenses were $817,313 as compared to $2,361,634 in the prior year, a decrease
of approximately $1,544,000, or 65%. For the year ended December 31, 1999,
approximately $484,000 of the decrease is the direct result of the divestiture
of UST in April 1998. The remaining decrease is primarily the result of
professional fees incurred during 1998 related to the debenture litigation and
the divestiture of UST as well as the Company's general cost cutting efforts in
1999.
During the year ended December 31, 1999, other income increased by
approximately $829,000. The increase is the result of the recovery of $600,000
in payments made by UST that had previously been reserved ($100,000 in May 1999
and $500,000 in August 1999) and the recognition of $229,000 of deferred gain
from the divestiture of UST in the third quarter of 1999 (see Note 2). Interest
expense and other decreased by $180,000 related primarily to a decrease in
interest expense and a penalty of $105,800 related to the Convertible
Subordinated Debenture which was recorded during 1998.
Fiscal 1998 Compared to Fiscal 1997
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Total revenues for the year ended December 31, 1998 were $1,658,596 as
compared to $4,791,823 for the same period of 1997, a decrease of approximately
$3.1 million. The decrease is primarily attributed to the inclusion of only
three months of UST revenues (approximately $435,000), in 1998 as compared to
the inclusion of twelve months of UST revenues (approximately $3.9 million), in
the prior year. Revenue from the Company's custom software services increased
by approximately $330,000 from the prior year.
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During the year ended December 31, 1998, revenue from custom multimedia
software development services was $1,171,648, as compared to $855,766, for the
prior year, an increase of approximately $315,900 or 37%. The increase was
primarily due to an increase in the size of new contracts the Company was able
to secure.
During the year ended December 31, 1998, revenue from services fees for
systems integration and software development services provided by UST was
$361,704 as compared to $1,802,643 in the prior year, a decrease of
approximately $1.4 million. The decrease is due to the inclusion of only three
months of UST revenues in 1998 as compared to twelve months in the prior year.
During the year ended December 31, 1998, revenue from sales of products was
$73,328, as compared to $2,095,218 in the prior year, a decrease of
approximately $2 million. This revenue represents sales of computer hardware
and software products by UST as part of their systems integration services. The
decrease is due to the inclusion of only three months of UST revenues in 1998 as
compared to twelve months in the prior year.
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 $51,916 during the year ended December 31, 1998 as
compared to $38,196 for the prior year, an increase of approximately $13,700 or
36%. The increase is due primarily to an increase in the number of marketing
and development partners during 1998.
During the year ended December 31, 1998, the cost of service fees for custom
multimedia software services was $562,137 as compared to $623,879 in the prior
year, resulting in gross margins of approximately 52% and 27%, respectively.
The improvement in gross margins is primarily due to the consolidation of the
multimedia related operations into one location, as well as an increase in
revenue.
During the year ended December 31, 1998, the cost of service fees for systems
integration services provided by UST was $239,031 as compared to $1,054,825 in
the prior year, resulting in gross margins of approximately 34% and 41%,
respectively. The decline in gross margin for 1998 is due to the inclusion of
only three months of UST operating expenses in 1998 as compared to twelve months
in the prior year.
Cost of product sales was $44,493 for the year ended December 31, 1998, as
compared to $1,848,385 in the prior year, resulting in gross margins of
approximately 39% and 12%, respectively. The higher gross margin for 1998 is
due to UST's discontinuance of the sale of certain less profitable computers
during 1997. As such, UST focused its sales efforts on more profitable products
during the first three months of 1998.
During the year ended December 31, 1998, total operating expenses were
$3,327,090 as compared to $3,815,156 in the prior year, a decrease of
approximately $488,000 or 13%. This decrease is primarily due to the inclusion
of only three months of UST operating expenses in 1998 as compared to twelve
months in the prior year, and is offset by the write-off of the carrying amount
of an asset related to a consulting services contract as of December 31, 1998
(see Note 14).
10
<PAGE>
During the year ended December 31, 1998, research and development expenses
were $55,455 as compared to $323,002 for the prior year. Research and
development expenses included improvements on existing tools and the development
of software tools and applications to be sold. The decrease of approximately
$268,000 in 1998 is primarily attributed to the divestiture of UST.
During the year ended December 31, 1998, selling, general and administrative
expenses were $2,361,634 as compared to $3,492,154 in the prior year, a decrease
of approximately $1,125,000, or 32%. The decrease is primarily due to the
inclusion of only three months of UST operations in 1998 as compared to twelve
months in the prior year.
During the year ended December 31, 1998, total interest expense and other
increased by approximately $13,000 from the prior year primarily due to an
increase in amortization of deferred costs as well as a penalty of $105,800 paid
pursuant to a settlement relating to the Company's convertible subordinated
debenture.
Cash Flow, Liquidity and Capital Resources
The Report of Independent Accountants on the 1999 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 had net income of $216,195 for the year ended December 31, 1999, but
had a loss from operations of $415,179 and net cash used in operations of
$366,254. In addition, as of December 31, 1999 had an accumulated deficit of
$16,241,480. As discussed in Note 1 to the Notes to the Consolidated Financial
Statements and under Strategy to Achieve Profitable Operations below, the
Company plans to implement certain actions to address the losses and liquidity
matters. However, there can be no assurance that such actions will generate
sufficient cash flow to ensure the continued existence of the Company; or that
additional financing will be available from any sources at terms and conditions
suitable to the Company. In February and March 2000, the Company received an
additional $250,000 in debenture financing and an additional $250,000 related to
a purchase of the Company's common stock.
Included in net income of approximately $216,000 is the receipt of $600,000
as payment on the Company's promissory note with UST. In addition, the Company
experienced decreases in accounts receivable and increases in other assets,
accounts payable and accrued liabilities. Net cash of approximately $600,000
was provided by the receipt of payment from UST. Net cash of $150,000 was used
to make a principal payment on the outstanding convertible subordinated
debenture.
For the year ended December 31, 1998, the Company used cash of approximately
$1,027,000 in operations. In addition to the net loss of approximately $2.9
million, the Company experienced increases in accounts receivable and other
assets. Net cash of approximately $17,000 was used for the purchase of
equipment. Net cash of approximately $30,000 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.
Existing cash and cash equivalent balances, together with funds to be
generated from investment income and future revenues are not expected to provide
sufficient liquidity to meet
11
<PAGE>
anticipated cash needs on either a short-term or long-term basis. 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. The unavailability or timing of any financing, could prevent or
delay the continued development and marketing of the products of the Company and
could require substantial curtailment of operations of the Company.
In addition, 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. Although the Company formally
requested a temporary exemption, Nasdaq effected delisting on September 1, 1998,
after which SSGI's shares have traded on the Nasdaq "bulletin board".
Other Factors Affecting Future Results
Continued operating losses and accumulated deficit. The Company incurred a
net operating loss of approximately $415,000, before net income of approximately
$216,000 for the year ended December 31, 1999, and had an accumulated deficit of
approximately $16,241,000 as of December 31, 1999. In addition, net cash used
in operations was $366,254 for the year ended December 31, 1999. There can be
no assurance that the Company will not incur significant additional operating
losses for a longer period, will generate positive cash flow from its
operations, or that the Company will attain or thereafter sustain profitability
in any future period. To the extent the Company continues to incur operating
losses or grows in the future, its operating and investing activities may use
cash and, consequently, such losses or growth will require the Company to obtain
additional sources of financing in the future or to reduce operating expenses.
In February and March 2000, the Company received an additional $250,000 in
debenture financing and an additional $250,000 related to a purchase of the
Company's common stock.
Going concern assumptions; future capital needs; no assurance of future
financing. The Company's independent accountants' report on its financial
statements as of and for the years ended December 31, 1999 and 1998 contains an
explanatory paragraph indicating that the Company's historical operating losses
and limited capital resources raise substantial doubt about its ability to
continue as a going concern. The Company may require substantial additional
funds in the future, and there can be no assurance that any independent
accountants' report on the Company's future financial statements will not
include a similar explanatory paragraph if the Company is unable to raise
sufficient funds or generate sufficient cash from operations to cover the cost
of its operations.
Strategy to Achieve Profitable Operations
During 1998, management laid out its Strategy to Achieve Profitable
Operations, which included intensified development of its technology-based
training software, greater penetration of the needs of existing, major
customers, and initial exploitation of the internet applications for Strategic
Solutions Group's expertise. Coupled with careful management, the Company
believes it has begun to stabilize its business during 1999. There are no
assurances that the Company will achieve its strategy.
12
<PAGE>
Strategic Solutions Group has entered year 2000 with backlog for its
multimedia products, and with indications that market demand is increasing.
Without the financial impediment formally imposed by an outstanding convertible
debenture issue, and with a modest amount of new operating funding in hand,
management can address this growing market appropriately.
During year 2000, Strategic Solutions Group expects to achieve higher
revenues and positive financial results in part through its expending presence
in the fast-growing field of web-based training. We were an early entrant in
this specialty, and our experience and reputation are advantages. The Company
has also taken initial steps to participate in the joint-venture development of
a related product line, working closely with one of Strategic Solutions Group's
principal investors. We believe that this joint effort will create expanded
future sales opportunities.
Strategic Solutions Group's Profit Strategy For 2000 has refocused from
attaining to maintaining profitability. The current condition of the Company
and a realistic assessment of opportunities available to us lead to the
conclusion that the Company will improve upon 1999's results in 2000, and that
the upward trend-line can be maintained for the foreseeable future.
Impact of Inflation
Inflation has not had any significant effect of the Company's operations.
New Accounting Standards
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for internal
use, determining whether computer software is for internal use, and when costs
incurred for internal-use computer software are and are not capitalized.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101 which summarizes certain of the SEC staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. In March 2000, the SEC issued SAB 101A,
which defers the effective date of SAB 101 from January 1, 2000 to April 1,2000.
The Company is currently evaluating SAB 101 and has not yet determined whether
applying the accounting guidance of SAB 101 will have a material effect on its
financial position or results of operations.
Impact of Year 2000 Issue
To date, the Company has experienced no significant adverse effects related
to the Year 2000 computer issue. All important internal information technology
systems made a seamless transition into the Year 2000 and there were no notable
problems with equipment or systems that may have been affected by Year 2000
problems. The Company is not aware of any significant Year 2000 problems at any
of its customers nor has the Company noted any disruption in its supply chain
related to Year 2000 issues.
The Company implemented a comprehensive project plan to identify internal and
external information technology and non-information technology systems that
required modification to be Year 2000 compliant. An inventory and assessment of
these systems was completed prior to year-end. Remediation and testing of non-
Year 2000 compliant systems was completed prior to year-end. As
13
<PAGE>
part of this project, the Company developed and tested contingency plans that
identified workarounds in the event of a malfunction of a system designated as a
priority system at the inventory stage. In addition, the Company identified
suppliers of key goods and services to all business areas and requested
information about their Year 2000 readiness.
"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 and marketing
strategies; the continued existence of agreements with customers; 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.
Item 7. Financial Statements
The information required by Item 7 begins at page F-1 that appears after this
page.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
14
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Report of Independent Accountants F-2
Consolidated Balance Sheets, December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the years
ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Deficit for the years
ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7 - F-19
F-1
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors and Stockholders of
Strategic Solutions Group, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' deficit and cash
flows present fairly, in all material respects, the financial position of
Strategic Solutions Group, Inc. and its subsidiaries at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has incurred recurring losses from operations, has a
significant accumulated deficit, and its existing cash resources are
insufficient to fund its planned operations. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans to address these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ PricewaterhouseCoopers LLP
______________________________
McLean, Virginia
March 17, 2000
F-2
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
-----------------------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 146,107 $ 67,991
Accounts receivable, net of allowance for doubtful accounts
of $35,000 and $45,000, respectively 190,653 189,630
Prepaid expenses and other current assets 22,085 24,497
-----------------------------
Total current assets 358,845 282,118
-----------------------------
Property and equipment, at cost:
Computers, furniture and equipment 416,602 410,972
Less accumulated depreciation 365,622 325,656
-----------------------------
Net property and equipment 50,980 85,316
-----------------------------
Other assets 13,591 112,543
-----------------------------
$ 423,416 $ 479,977
=============================
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities
Accounts payable and accrued liabilities $ 369,643 $ 365,388
Convertible subordinated debenture 779,650 1,007,277
Other current liabilities 183,000 411,966
-----------------------------
Total current liabilities 1,332,293 1,784,631
-----------------------------
Total liabilities 1,332,293 1,784,631
-----------------------------
Commitments and contingencies
Stockholders' deficit
Common stock, $.0001 par value. Authorized 25,000,000
and 10,000,000 shares; issued and outstanding 5,356,690
and 3,399,670 shares as of December 31, 1999 and 1998 536 340
Additional paid-in capital 15,370,848 15,230,243
Accumulated deficit (16,241,480) (16,457,675)
Deferred compensation (38,781) (77,562)
-----------------------------
Total stockholders' deficit (908,877) (1,304,654)
-----------------------------
$ 423,416 $ 479,977
=============================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Revenues
Service $ 952,050 $ 1,533,352 $ 2,658,409
Product 18,238 73,328 2,095,218
Royalty 22,043 51,916 38,196
-----------------------------------------
Total revenue 992,331 1,658,596 4,791,823
------------------------------------------
Cost of revenues
Cost of service 505,532 801,168 1,678,704
Cost of product 17,850 44,493 1,848,385
------------------------------------------
Total cost of revenue 523,382 845,661 3,527,089
------------------------------------------
Gross profit 468,949 812,935 1,264,734
------------------------------------------
Operating expenses
Research and development 66,815 55,456 323,002
Selling, general and administrative 817,313 2,361,634 3,492,154
Write-off of impaired asset -- 910,000 --
------------------------------------------
Total operating expenses 884,128 3,327,090 3,815,156
------------------------------------------
Loss from operations (415,179) (2,514,155) 2,550,422)
------------------------------------------
Other income (see Note 2) 828,967 -- --
Interest expense and other, net (197,593) (377,205) (349,934)
------------------------------------------
631,374 (377,205) (349,934)
------------------------------------------
Net income (loss) $ 216,195 $(2,891,360) $ 2,900,356)
==========================================
Net income (loss) per common share (basic) $ 0.05 $ (1.15) $ (1.70)
==========================================
Weighted average number of common shares outstanding (basic) 4,300,048 2,512,748 1,705,228
==========================================
Net income (loss) per common share (diluted) $ 0.05 $ (1.15) $ (1.70)
==========================================
Weighted average number of common shares outstanding (diluted) 5,459,730 2,512,748 1,705,228
==========================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional
------------------ Paid-in Accumulated Deferred
Shares Amount Capital Deficit Compensation Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 1,518,880 $152 $11,893,549 $(10,665,959) $(155,124) $ 1,072,618
Exercise of stock options and warrants 111,071 11 792,606 -- -- 792,617
Grant of stock options in connection with
financial consulting agreement -- -- 1,150,000 -- -- 1,150,000
Exercise of stock options in connection with
financial consulting agreement 100,000 10 188,979 -- -- 188,989
Stock issued for services 38,888 4 171,246 -- -- 171,250
Warrants issued in connection with
convertible subordinated debenture -- -- 112,136 -- -- 112,136
Value of beneficial conversion feature on
convertible subordinated debenture -- -- 339,394 -- -- 339,394
Amortization of deferred compensation -- -- -- -- 38,781 38,781
Net loss -- -- -- (2,900,356) -- (2,900,356)
-----------------------------------------------------------------------------------
Balance, December 31, 1997 1,768,839 177 14,647,910 (13,566,315) (116,343) 965,429
Shares issued upon conversion of
subordinated debenture 1,630,831 163 548,018 -- -- 548,181
Stock options granted to nonemployee for
consulting services -- -- 34,315 -- -- 34,315
Amortization of deferred compensation -- -- -- -- 38,781 38,781
Net loss -- -- -- (2,891,360) -- (2,891,360)
-----------------------------------------------------------------------------------
Balance, December 31, 1998 3,399,670 340 15,230,243 (16,457,675) (77,562) (1,304,654)
Shares issued upon conversion of
subordinated debenture 1,957,020 196 140,605 -- -- 140,801
Amortization of deferred compensation -- -- -- -- 38,781 38,781
Net income -- -- -- 216,195 -- 216,195
-----------------------------------------------------------------------------------
Balance, December 31, 1999 5,356,690 $536 $15,370,848 $(16,241,480) $ (38,781) $ (908,877)
===================================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 216,195 $(2,891,360) $(2,900,356)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 90,790 161,968 224,132
Amortization of deferred financing costs 110,015 132,785 22,004
Recovery of promissory note related to divestiture of UST (600,000) -- --
Realization of deferred gain on divestiture of UST (228,967) -- --
Loss on disposal of assets -- 5,743 4,666
Provision (reduction) for bad debt expense (10,000) -- 119,096
Conversion of interest expense into common shares 12,351 -- --
Interest expense associated with beneficial conversion
feature on convertible subordinated debentures -- -- 339,394
Noncash expense for services -- 240,000 171,250
Compensation expense on equity securities 38,781 73,096 38,781
Write-off of impaired asset -- 910,000 --
Increase (decrease) in cash from changes in assets and liabilities:
Accounts receivable 8,977 157,759 (374,717)
Prepaid expenses and other current assets 2,412 88,250 51,853
Other assets (11,063) (31,183) 2,415
Accounts payable and accrued liabilities 4,255 (13,770) 231,206
Other liabilities -- 139,892 (91,029)
----------------------------------------
Net cash used in operating activities (366,254) (1,026,820) (2,161,305)
----------------------------------------
Cash flows from investing activities
Cash received related to promissory note from divestiture of UST 600,000 -- --
Proceeds from maturity of U.S. government securities -- -- 474,144
Capital expenditures (5,630) (17,372) (86,570)
Cash balance of divested subsidiary -- (7,189) --
----------------------------------------
Net cash provided by (used in) investing activities 594,370 (24,561) 387,574
----------------------------------------
Cash flows from financing activities
Net proceeds from issuance of convertible subordinated debenture -- -- 1,335,957
Net proceeds from exercise of stock options and warrants -- -- 981,606
Principal payment on debenture (150,000) -- --
Payments on line of credit -- -- (290,833)
Payments on notes payable to bank -- (30,000) (42,908)
----------------------------------------
Net cash (used in) provided by financing activities (150,000) (30,000) 1,983,822
----------------------------------------
Net increase (decrease) in cash and cash equivalents 78,116 (1,081,381) 210,091
Cash and cash equivalents, beginning of year 67,991 1,149,372 939,281
----------------------------------------
Cash and cash equivalents, end of year $ 146,107 $ 67,991 $ 1,149,372
========================================
Supplemental disclosures of cash paid:
Interest $ 195 $ 5,524 $ 33,901
Supplemental schedule of noncash investing and financing activities:
Stock issued as payment for unearned professional fees $ -- $ -- $ 1,150,000
Discount on convertible subordinated debenture -- -- 112,136
Stock issued upon conversion of convertible debentures and
accrued interest 140,800 548,181 --
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business. During 1997 and through March 1998, Strategic
Solutions Group, Inc. (formerly, Pacific Animated Imaging Corporation) and its
subsidiaries (the "Company") were full-service providers of technology based
software solutions and computer systems integration (including the sale of
hardware and software products) and support services. In April 1998, the
Company divested itself of its systems integration subsidiary U.S. Technologies,
Inc. ("UST"). See Note 2 for further discussion. The Company's ongoing
operations specialize in the development of custom interactive multimedia
software for use in the areas of process enhancement, technical documentation,
training, and performance support for a variety of commercial and industrial
end-users.
Going Concern. The Company's consolidated financial statements for the year
ended December 31, 1999 have been prepared on a going concern basis which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. The Company had an operating loss
of $415,179, before net income of $216,195, for the year ended December 31,
1999, and as of December 31, 1999 had an accumulated deficit of $16,241,480. In
addition, net cash used in operations was $366,254 for the year ended December
31, 1999. During 1998, the Company was notified by Nasdaq that it was not in
compliance with Nasdaq's new net tangible assets. Subsequently, in 1998 the
Company's securities were delisted. Management recognizes that in order to
develop and market its services effectively, the Company will require additional
financing until such time that service fees are of sufficient volume to generate
positive cash flows from operations. Although the Company may seek financing
from placements of its equity securities or placements of debt, there can be no
assurances that such financing will be available or, if available, will be under
terms and conditions suitable to the Company. Management's plans to address the
losses and liquidity matters include (i) growing the multimedia operations by
implementing a more focused marketing and sales program; and (ii) pursuing an
acquisition program of related businesses. However, no assurances can be given
that these measures, even if successful, will ensure the continued existence of
the Company. The Company's consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty. See Note 17
for financing received subsequent to year end.
Principles of Consolidation. The consolidated financial statements include
the accounts of Strategic Solutions Group, Inc. and its wholly owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
Revenue Recognition. Revenues generated from the sale of software licenses
are recognized in accordance with the Statement of Position ("SOP") 97-2,
"Software Revenue Recognition", as amended. Revenues from software licenses are
recorded when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed and determinable and collectibility is probable. To
date the Company has not generated any revenue from the sale of software
licenses. Revenues from software development, consulting and training services
are recognized as services are performed. Revenues from custom multimedia
software products are recognized using the percentage of completion method due
to the significant customization involved in their development. Provisions for
anticipated contract losses are recognized in the period that they become
evident. Revenues from the sale of third party hardware and software products
is recognized when products are shipped. Revenues from royalties are recognized
in the period for which the royalties are earned. Software products generally
are delivered without post sale vendor obligations and without a significant
obligation to the customer. Deferred revenue represents amounts advanced by
customers and is recognized as revenue upon delivery of the products or services
and is adjusted on a quarterly basis to reflect the status of projects.
Use of Estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and contingent
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
F-7
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
Cash and Cash Equivalents. The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Property and Equipment. Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. The Company has estimated the useful lives
of computer hardware and software to be three years and furniture and fixtures
to be seven years. Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the estimated useful life of the
improvements or the remaining lease term. When assets are retired or disposed,
the cost and the related accumulated depreciation are removed from the accounts,
and any resulting gain or loss is recognized in operations for the period.
Per Share Data. Basic earnings (loss) per share is computed using the
weighted-average number of shares of common stock outstanding during the year.
Diluted earnings per share is computed using the weighted-average number of
shares of common stock and the effect of potential common shares. Potential
common shares include stock options, warrants, and other convertible securities
that could be exercised or converted into common stock and are not included in
the computation of dilutive earnings per share if they are anti-dilutive.
Common shares relating to stock options and warrants are calculated using the
treasury stock method and common shares relating to convertible securities are
calculated using the if converted method.
Research and Development Expenses and Software Development Costs. Statement
of Financial Accounting Standards No. 86, "Accounting for the Cost of Computer
Software to be Sold, Leased or Otherwise Marketed" requires the capitalization
of certain software development costs once technological feasibility is
established, which the Company generally defines as the completion of a working
model. Capitalization ceases when the products are available for general
release to customers, at which time amortization of the capitalized costs begins
on a straight-line basis over the estimated product life, or on the ratio of
current revenues to total projected product revenues, whichever is greater.
There were no software development costs capitalized for any periods presented
as the costs incurred between technological feasibility and general availability
were not significant. In addition, research and development costs including
software development costs prior to technological feasibility are expensed in
the period in which they are incurred.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash
and cash equivalents. The Company provides hardware and software products,
develops software, and performs services for its customers located throughout
the United States. The Company provides credit in the normal course of business
and, to date, has not experienced significant losses related to receivables from
individual customers or groups of customers in a particular industry or
geographic area. In addition, for certain orders for custom multimedia software
development projects, the Company requires advances or deposits of at least one-
third of the price of the custom software with additional amounts due at certain
milestones during the custom software development process. Due to these
factors, management believes no additional credit risk beyond amounts provided
for in the doubtful account allowance is inherent in the Company's accounts
receivable.
For the year ended December 31, 1999, two customers, an automotive
manufacturer and a government division, accounted for 83% and 10%, respectively,
of the Company's revenue. For the year ended December 31, 1998, two customers,
a truck manufacturer and a government division, accounted for 35% and 25%,
respectively, of the Company's revenue. For the year ended December 31, 1997,
no one customer accounted for 10% of the Company's revenue. At December 31,
1999, three customers accounted for 58%, 31% and 10%, respectively, of accounts
receivable. At December 31, 1998, four customers accounted for 25%, 22%, 15%
and 13%, respectively, of accounts receivable
Recoverability of Long-Lived Assets. The Company evaluates the
recoverability of the carrying value of property and equipment and intangible
assets in accordance with the provisions of Statement of
F-8
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of". The Company considers historical performance and
anticipated future results in its evaluation of potential impairment.
Accordingly, when indicators of impairment are present, the Company evaluates
the carrying value of these assets in relation to the operating performance of
the business and future and undiscounted cash flows expected to result from the
use of these assets. Impairment losses are recognized when the sum of expected
future cash flows are less than the assets' carrying value. During 1998, the
Company recognized an impairment loss of $910,000 related to the write-off of a
deferred asset relating to future consulting services, as the recoverability of
the carrying value of the asset was uncertain.
Income Taxes. Deferred income taxes are recognized for the tax consequences
in future years of differences between the tax basis of assets and liabilities
and their financial reporting amounts at each year end based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Fair Value of Financial Instruments. The Company believes that for all
financial instruments the carrying amount, as reported in the balance sheet,
approximates fair value.
Comprehensive Income. The Company does not have any components of
comprehensive income other than net income or net loss.
New Accounting Pronouncements. In 1998, the American Institute of Certified
Public Accountants issued Statement of Position ("SOP") 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-1
provides guidance on accounting for the costs of computer software developed or
obtained for internal use, determining whether computer software is for internal
use, and when costs incurred for internal-use computer software are and are not
capitalized. The adoption of SOP 98-1 did not have a material effect on the
Company's consolidated financial statements.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101 which summarizes certain of the SEC staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. In March 2000, the SEC issued SAB
101A,which defers the effective date of SAB 101 from January 1, 2000 to April
1,2000. The Company is currently evaluating SAB 101 and has not yet determined
whether applying the accounting guidance of SAB 101 will have a material effect
on its financial position or results of operations.
Reclassifications. Certain prior year amounts have been reclassified to
correspond to the current year presentation.
2. AGREEMENT WITH U.S. TECHNOLOGIES, INC.
During the first quarter 1998, the Company made a strategic decision to
focus its business on its multimedia technology based software solutions and as
such divested itself of its computer systems integration division.
On April 8, 1998, the Company merged UST into SSGI-UST Acquisition Corp., an
existing 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 UST in
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 $1,027,808 due the earlier of a public offering of UST's
common stock or the 545th
F-9
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
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 $1,027,808 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.
In accordance with Staff Accounting Bulletin 5-E "Accounting for Divestiture
of a Subsidiary or Other Business Operation" ("SAB 5-E"), the transaction was
accounted for as a divestiture. Accordingly, the consideration received was
recorded as assets in the Company's consolidated balance sheet and the related
gain was deferred until the Company ultimately collects the cash as prescribed
under SAB 5-U, "Gain Recognition on the Sale of a Business or Operating Assets
to a Highly Leveraged Entity."
At December 31, 1998, the promissory note from UST in the principal amount of
$600,000 had not been paid. In addition, the Company was in the process of
renegotiating all the terms of its agreement with UST, but no agreement had been
reached. Due to the uncertainty of the ongoing negotiations with UST and the
inability of UST to meet its obligations due to the Company, management believed
that the assets recorded at the time of the divestiture had been impaired.
Accordingly, the Company provided an allowance against the entire promissory
note receivable balance and wrote down its investment of 100,000 shares in UST
to zero at December 31, 1998. In addition, the related deferred gain was
written down to its net realizable value at December 31, 1998.
Pursuant to the ongoing negotiations with UST, in May 1999, the Company
entered into a revised agreement with UST which amended all of the original
terms. The terms of the revised agreement are as follows: (1) UST will make an
immediate payment of $100,000 on the outstanding promissory note and delivery of
the 100,000 shares of UST stock which was to be issued to the Company under the
Original Agreement, (2) on or before August 15, 1999, or the closing date of
UST's initial public offering if sooner, UST will pay the Company $500,000 in
satisfaction of all obligations under the Original Agreements, (3) if UST does
not tender the $500,000 on or before August 15, 1999, UST will be obligated to
pay on or before October 8, 1999, or the date of the closing of its initial
public offering if sooner, the remaining face amount of the promissory note and
debenture of $1,525,808 reduced by $62,000 of administrative costs covered by
the Company, (4) delivery of 200,000 additional shares of UST stock to the
Company, (5) if at any time while owning UST stock, the conversion price of said
stock falls below $2.50 per share, the Company shall be issued a number of
shares that would equate to a purchase price of $2.50 per share, (6) UST shall
have the right to purchase all UST shares owned by the Company at $5.00 per
share. This call right shall expire upon the closing of the initial public
offering of UST's stock or April 30, 2000, and (7) if UST does not comply with
(2) above but with (3) above, the additional 200,000 shares shall be returned to
UST.
In accordance with the revised agreement, the Company received the partial
payment against the fully reserved promissory note of $100,000 along with
100,000 shares from UST in May 1999 and the final payment of $500,000 along with
200,000 shares in August 1999. The Company recorded the receipt of the payments
as other income in the accompanying consolidated statements of operations. As a
result of UST's compliance with the revised agreement and settlement of its
debts to the Company, in September 1999, the Company recognized the deferred
gain recorded upon the divestiture of UST, of $228,967 in other income in the
accompanying consolidated statements of operations.
In September 1999, UST merged into a subsidiary of Digital Chainsaw, Inc.
("Digital"), a Florida Corporation. As part of this transaction, all 400,000 of
the Company's shares of stock in UST were exchanged for 810,821 shares of
Digital stock. As a result of the uncertainty of the fair market value of the
Company's holdings of Digital stock, management believes the assets recorded
remain impaired and as such are fully reserved for at December 31, 1999.
F-10
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
3. ACCOUNTS RECEIVABLE
Accounts receivable as of December 31, 1999 and 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Accounts receivable, billed $117,121 $ 95,187
Accounts receivable, unbilled 108,532 139,443
-------- --------
225,653 234,630
Less allowance for doubtful accounts (35,000) (45,000)
-------- --------
Accounts receivable, net $190,653 $189,630
======== ========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1999 and 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Computer equipment and software $ 221,824 $ 217,244
Office equipment 58,565 57,515
Furniture and fixtures 136,213 136,213
--------- ---------
416,602 410,972
Less accumulated depreciation (365,622) (325,656)
--------- ---------
Property and equipment, net $ 50,980 $ 85,316
========= =========
</TABLE>
For the years ended December 31, 1999,1998 and 1997, depreciation expense of
$39,967, $375,734 and $224,892 was charged to operations.
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES AND OTHER CURRENT LIABILITIES
Accounts payable and accrued liabilities as of December 31, 1999 and 1998
consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Accounts payable $144,448 $140,876
Accrued interest expense 112,592 75,682
Payroll and related expenses 35,295 52,981
Other 77,308 95,849
-------- --------
$369,643 $365,388
======== ========
</TABLE>
Other current liabilities as of December 31, 1999 and 1998 consist
of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Penalties on Debentures $ 81,013 $ 81,013
Deferred gain on divestiture of UST -- 228,967
Other 101,987 101,986
-------- --------
$183,000 $411,966
======== ========
</TABLE>
F-11
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
6. NOTE PAYABLE TO BANK
As of December 31, 1997, UST had a note payable to a bank with a balance
of $40,334 due in April 1998. The note was payable in monthly installments of
$10,000, bearing interest at 10.5% and was collateralized by equipment and
accounts receivable. The Company paid $30,000 of the balance during 1998 and
the remaining amount was part of the divested entity in April 1998.
7. LONG-TERM DEBT
On October 31, 1997, the Company issued a $1,600,000 6% Convertible
Subordinated Debenture (the "Debenture"). The Debenture accrues interest from
the date of issuance and is due and payable on October 31, 1999. The Debenture
is subordinated to all indebtedness and obligations of the Company for borrowed
money, under financing leases, for all obligations issued or assumed as full or
partial payment for property, and any trade obligation entered into in the
ordinary course of business. The holder of the Debenture was 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 filed a Form S-3
with the Securities and Exchange Commission which was declared effective January
29, 1998. Pursuant to an agreement dated March 19, 1999, the holder of the
debenture had the right to convert monthly, beginning in March 1999, up to 4.99%
of the Company's outstanding common stock. This right expired in October 1999.
The conversion price for each share of common stock is equal to the lesser of
(a) $4.24 (the "Maximum Price") or (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 defined percentage of the
Maximum Price. During 1999, the holder converted $124,350 of the debentures to
shares of the Company's common stock. The Company recognized approximately
$96,000, $80,000 and $16,000, respectively, of interest expense during 1999,
1998 and 1997. The Company recognized interest expense of approximately
$339,000 in 1997 resulting from the beneficial conversion feature. Debt
issuance costs were approximately $264,000 and are being expensed over the term
of the debt using the straight-line method. The Company recognized
approximately $110,000, $132,000 and $22,000 of the debt issuance costs during
the years ended December 31, 1999, 1998 and 1997, respectively. See Note 15 for
a discussion regarding litigation involving the Debenture and the related
settlement of the litigation in March 2000.
In connection with the issuance of the Debenture, the Company also issued
40,000 Warrants (the "Warrants") exercisable at a price of $4.5375. The Company
ascribed a fair value of $112,136 to the Warrants at the time of issuance. The
debt was written up to its face value of $1,600,000, adjusted for conversions,
and the corresponding discount will be expensed using the straight-line method,
which approximates the interest method, over the term of the debt.
8. COMMON STOCK
In September 1999 the Board of Directors and the Company's Stockholders
approved an amendment to the certificate of incorporation to increase the number
of authorized shares of the Company's common stock from 10,000,000 to
25,000,000. During 1999, the Company issued 1,957,020 shares of common stock
upon the conversion of convertible debenture by the debenture holder.
9. STOCK OPTION PLANS
Stock Option Repricing
Effective June 16, 1998, the Company's Board of Directors approved a
repricing of all active employees, directors and consultant's stock options.
Accordingly, options with respect to 116,157 shares
F-12
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
of the Company's common stock were cancelled and new options with respect to the
same number of shares were granted with an exercise price of $0.375. Other terms
and conditions of the options remained the same.
Incentive Stock Option Plans
In 1992, the shareholders approved the Company's Incentive Stock Option Plan
("ISO Plan No. 1") for its employees to purchase up to a total of 39,222
registered shares of the Company's common stock. In 1994, the shareholders
approved the Company's Incentive Stock Option Plan No. 2 ("ISO Plan No. 2") for
its employees to purchase up to a total of 28,571 registered shares of the
Company's common stock. In 1997, the shareholders approved the Company's
Incentive Stock Option Plan No. 3 ("ISO Plan No. 3") for its employees to
purchase up to a total of 80,000 registered shares of the Company's common
stock. In 1998, the shareholders approved the Company's Incentive Stock Option
Plan No. 4 ("ISO Plan No. 4") for its employees to purchase up to a total of
85,000 registered shares of the Company's common stock. In 1999, the
shareholders approved the Company's Incentive Stock Option Plan No. 5 ("ISO Plan
No. 5") for its employees to purchase up to a total of 150,000 registered shares
of the Company's common stock. For the Incentive Stock Option Plans, the option
price per share may not be less than the fair market value of the stock on the
date of the grant, the terms of the options are ten years from the date of
grant, and options vest over a five-year period beginning on the date of grant.
If immediately before a grant an employee owns more than 10% of the total
combined voting stock of the Company, the exercise price shall be at least 110%
of the fair market value of the stock on the date of the grant and the options
expire five years from the date of grant.
A summary of option activity since December 31, 1996 under ISO Plans No. 1,
No. 2, No. 3, No.4 and No. 5 is as follows:
<TABLE>
<CAPTION>
Number Weighted Average
of Options Option Prices
---------- ----------------
<S> <C> <C>
Options Outstanding at December 31, 1996 47,139 $10.00
Granted 57,426 $ 6.34
Exercised --- ---
Expired (57,139) $10.95
--------
Options Outstanding at December 31, 1997 47,426 $ 4.44
Granted 145,300 $ 0.85
Exercised --- ---
Expired (112,900) $ 2.26
--------
Options Outstanding at December 31, 1998 79,826 $ 1.02
Granted 26,000 $ 0.12
Excerised --- ---
Expired (22,755) $ 0.67
--------
Options Outstanding at December 31, 1999 83,071 $ 0.30
========
</TABLE>
Nonqualified Stock Option Plans
In 1992, the shareholders approved the Company's Nonqualified Stock Option
Plan ("Nonqualified Plan") for its directors to purchase up to a total of 8,571
registered shares of the Company's common stock. Effective in 1994, the Company
adopted Nonqualified Stock Option Plan No. 2, under which the Company authorized
the issuance of options to consultants for the purchase of up to a total of
71,428 registered shares of its common stock. Effective in 1995, the Company
adopted Nonqualified Stock Option Plan No. 3, under which the Company authorized
the issuance of options to consultants for the purchase of up to a total of
13,571 shares of its common stock. Effective in 1996, the Company adopted
Nonqualified Stock Option Plan Nos. 4, 5, and 6 under which the Company
authorized the issuance of options to employees and consultants for the purchase
of up to a total of 32,500, 100,000, and 150,000 shares, respectively, of its
common stock.
F-13
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
Effective in 1997, the Company adopted Nonqualified Stock Option Plan No. 7
under which the Company authorized the issuance of options to consultants for
the purchase of up to a total of 100,000 registered shares of its common stock.
Effective in 1998, the Company adopted Nonqualified Stock Option Plan Nos. 8 and
9 under which the Company authorized the issuance of options to directors and
consultants for the purchase of up to a total of 25,000 registered shares of its
common stock under each of the new plans. Effective in 1999, the Company
adopted Nonqualified Stock Option Plan Nos. 10 and 11 under which the Company
authorized the issuance of options to employees, directors and consultants for
the purchase of up to a total of 410,000 and 750,000 shares, respectively, of
its common stock. Options granted under the Nonqualified Stock Option Plans are
accounted for based upon their fair value at the date of their issuance. The
option price per share under these plans may be greater than or less than the
fair market value of the stock on the date of the grant. Both the option price
and the terms of the options are determined by the Board of Directors or a
committee of the Board as of the date of the grant. Generally, the terms of the
options are ten years from the date of grant, and options vest 100% on the date
of grant.
A summary of option activity since December 31, 1996 under the Nonqualified
Plans is as follows:
<TABLE>
<CAPTION>
Number Weighted Average
of Options Option Prices
---------- ----------------
<S> <C> <C>
Options Outstanding at December 31, 1996 204,712 $11.04
Granted 443,284 $ 4.69
Exercised (131,071) 3.44
Expired (244,284) $10.48
---------
Options Outstanding at December 31, 1997 272,641 $ 4.80
Granted 122,862 $ 0.80
Exercised --- ---
Expired (37,857) $ 3.03
---------
Options Outstanding at December 31, 1998 357,656 $ 4.20
Granted 1,160,000 $ 0.09
Excerised --- ---
Expired (21,882) $ 4.44
---------
Options Outstanding at December 31, 1999 1,495,774 $ 0.17
=========
</TABLE>
The weighted average fair value per share of options granted during 1999 and
1998 was $0.09 and $0.83, respectively. The following table summarizes
additional information about the stock options outstanding under the Company's
stock option plans at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
Actual Range of Options Weighted-Average Remaining Weighted Options Weighted Average
Exercise Prices Outstanding at Contractual Life (years) Average Exercisable Exercise Price
12/31/99 Exercise Price at 12/31/99
<S> <C> <C> <C> <C> <C>
$0.05 - 0.05 2,000 9.1 $0.05 400 $0.05
$0.08 - 0.11 1,162,400 9.5 $0.09 560,800 $0.09
$0.12 - 0.14 22,000 9.8 $0.12 10,400 $0.12
$0.38 - 0.53 389,945 8.2 $0.38 383,945 $0.38
$7.88 - 7.88 2,500 3.2 $7.88 2,500 $7.88
--------- -------
$0.05 - 7.88 1,578,845 9.2 $0.18 958,045 $0.23
========= =======
</TABLE>
F-14
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
Pro Forma Information in Accordance with SFAS 123
The Company applies Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for its equity participation programs. Accordingly, no compensation
cost has been recognized for its incentive and nonqualified stock option plans
related to stock options granted to employees as the exercise price of the stock
options was the same as the fair market value of the underlying common stock on
the date of the grant. However, the Company has adopted the disclosure-only
provisions of Statements of Financial Accounting Standards No. 123, "Accounting
for Stock-based Compensation" ("SFAS 123") as they pertain to the recognition of
compensation expense attributable to option grants. If the Company had elected
to recognize compensation cost for the Company's incentive and nonqualified
stock option plans consistent with the method of accounting under SFAS 123, the
Company's net income (loss) and net income (loss) per share on a pro forma basis
would be:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net income (loss) - as reported $216,195 $(2,891,360)
Net income (loss) - pro forma $168,562 $(2,998,995)
Net income (loss) per share (basic) - as reported $0.05 $(1.15)
Net income (loss) per share (basic) - pro forma $0.04 $(1.19)
Net income (loss) per share (diluted) - as reported $0.05 $(1.15)
Net income (loss) per share (diluted) - pro forma $0.03 $(1.19)
</TABLE>
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions for each year:
1999 1998
----- -----
Risk-free interest rate 5.71% 5.50%
Expected life of options - years 5.0 5.0
Expected stock price volatility 125% 100%
Expected dividend yield 0% 0%
10. INCOME TAXES
The tax effects of the primary temporary differences and carryforwards which
give rise to net deferred tax assets are as follows as of December 31, 1999 and
1998:
1999 1998
---- ----
Net operating loss carryforwards $ 4,815,000 $ 4,907,000
Impairment of deferred services 351,000 --
Other 84,000 159,000
----------- -----------
5,250,000 5,066,000
Valuation allowance $(5,250,000) $(5,066,000)
----------- -----------
$ -- $ --
=========== ===========
Realization of deferred tax assets at the balance sheet date are dependent on
the Company's ability to generate future taxable income which is uncertain.
Accordingly, management has provided a full valuation allowance against the
Company's deferred tax assets as of December 31, 1999 and 1998.
The Company has not recorded a provision or benefit for income taxes for the
years ended December 31, 1999, 1998 and 1997. The change in the deferred tax
asset valuation allowance is primarily attributable to the losses from prior
year operations. As of December 31, 1999, net operating
F-15
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
loss carryforwards total approximately $12,400,000 which begin to expire in
2008. As a result of certain changes in ownership, the use of these
carryforwards to offset future taxable income may be limited.
A reconciliation between the statutory federal income tax rate and the effective
rate of income tax expense follows:
Year Ended December 31,
1999 1998
---- ----
Statutory federal income tax rate 34% 34%
State income taxes (10%) 5%
Change in valuation allowance 80% 6%
Dissolution of UST (107%) (47%)
Other 3% 2%
---- ----
0% 0%
==== ====
11. EARNINGS PER SHARE
The following is a reconciliation of the numerator and demoninator of the
diluted EPS computation for the year ended December 31, 1999. No reconciliation
of the numerator and denominator is necessary for 1998 and 1997, as a net loss
was reported and inclusion of potential common shares would be antidilutive.
Numerator:
Net earnings $ 216,195
Effect of dilutive securities:
Interest on 6% convertible debenture 36,910
----------
Numerator for diluted EPS $ 253,105
==========
Denominator:
Weighted average shares outstanding $4,300,048
Effect of dilutive securities:
Stock options 209,833
6% convertible debenture 949,849
----------
Denominator for diluted EPS $5,459,730
==========
The following shows the number of shares and related price ranges of those
shares that were excluded from the EPS computations above. Those options and
warrants to purchase shares of common stock were outstanding in the period
reported, but were not included in the computation of diluted earnings per share
as the excerise prices for these options and warrants were greater than the
average market price of the common stock during the period reported, and
therefore would be antidilutive.
Year ended
December 31, 1999
-----------------
Price range of stock options:
$0.12 - $7.88 414,445
Price of warrants:
$4.54 40,000
F-16
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
12. LEASES
The Company leases office space under separate noncancelable operating
leases, which expire at various dates through 2005. The future annual minimum
rental payments, under these leases at December 31, 1999 are as follows:
2000 $62,730
2001 65,405
2002 67,232
2003 70,593
2004 74,112
Rental expense for the years ended December 31, 1999, 1998, and 1997, was
approximately $47,700, $54,000, and $211,000, respectively.
13. RETIREMENT AND OTHER BENEFIT PLANS
Effective January 1, 1994, the Company established a defined contribution
retirement plan covering eligible full-time employees. Under this plan,
participants can contribute up to the lesser of 15% of their compensation or the
maximum allowable by IRS regulations, currently $10,500. Employees may direct
the investment of their contributions among several mutual fund options. The
Company may make discretionary contributions out of current or accumulated net
profit. No contributions for the years ended December 31, 1999, 1998 and 1997
were made.
During 1994, the Company entered into split dollar agreements with two
officers whereby the Company pays the premiums on split dollar life insurance
policies held by these individuals. Under the agreements, the Company has an
interest in the policy equal to the cumulative value of all premiums paid by the
Company and will be reimbursed for these premiums upon death, termination of the
agreement, or termination of employment. However, since it is possible that
the Company at its discretion may waive this requirement, no asset for the
premium has been recorded. Through the value of the agreements the Company paid
approximately $12,000, $12,000 and $15,000, respectively, in premiums for the
years ended December 31, 1999, 1998 and 1997. Effective June 14, 1995, this
plan was terminated with respect to one officer in connection with his
resignation from the Company.
14. COMMITMENTS
On March 20, 1997, the Company entered into a financial consulting agreement
("consulting agreement") with First Cambridge Securities Corporation ("First
Cambridge"). The terms of the agreement included that First Cambridge receive
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 permitted the assignment by First Cambridge
of its obligation to perform financial consulting services thereunder. First
Cambridge has assigned its obligation to another party (the "assignee") and the
Company has accepted the assignment. The assignee 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 consulting agreement is for the five year period January 1,
1998 - December 31, 2002. Accordingly, the Company will be recognizing an
expense of $1,150,000, using the straight-line method over the term of the
consulting agreement, or approximately $20,000 per month, beginning January 1,
1998. As of December 31, 1997, the Company had a deferred asset of $1,150,000
arising from this transaction. At December 31, 1998, the Company reviewed the
asset for impairment and determined the services performed by the assignee were
not deemed satisfactory. Further, there was uncertainty as to the extent of
services to be performed in the future. As a result, in 1998 the Company
expensed the remaining deferred asset balance of $910,000 in operating expenses
in the accompanying statements of operations.
F-17
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
15. LITIGATION
In January 1998, the Company issued a notice of redemption of its
Subordinated Convertible Debenture (the "Debenture") based on management's
interpretation of the contract 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
Debenture, 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.
The $106,000 penalty was expensed in the second quarter of 1998 and
included in interest expense and other in the accompanying consolidated
statements of operations. In addition, the Company executed a judgment note
payable with the Debenture holder to pay the $106,000 in monthly payments of
$7,500 until paid in full with interest at 10% per annum and acceleration upon
Strategic Solutions Group's receipt of payments from UST. The Company received
final payment from UST in August 1999 and at December 31, 1999 was in default on
its payment of the penalty. Subsequently, the Debenture holder requested
payment of an additional penalty of $160,000, claiming that the Company did not
register the common stock issuable upon conversion of the Debenture under the
Securities Act of 1933 within the time required by a registration rights
agreement between the Company and the Debenture holder.
On March 1, 2000, the Company settled all outstanding issues with the holder
of the Debenture. Under the terms of the Settlement Agreement with Releases
(the "Agreement"), the Company paid the holder of the Debenture $200,000 cash,
issued a $100,000 promissory note, agreed to honor conversions under the
original Subordinated Convertible Debenture for up to 1,000,000 shares of the
Company's common stock and transferred to the holder of the Debenture 150,000
shares of common stock that the Company owned in Digital Chainsaw, Inc., a
privately held entity. The promissory note is secured by the 641,045 shares of
common stock in Digital Chainsaw, Inc. that the Company did not transfer to the
holder of the Debenture. The payment terms of the promissory note are $10,000
per month starting March 30, 2000 and each month thereafter until paid in full.
This promissory note is non-interest bearing. In addition, the Company has
agreed to honor conversions of the Debenture into the Company's common stock
under the original Subordinated Convertible Debenture for a sixty (60) day
period commencing March 1, 2000. The Company also paid $15,000 of legal fees on
the behalf of the holder of the Debenture. The Company anticipates that the
fair value of the consideration given to settle this litigation will not exceed
the liabilities recorded by the Company in its balance sheet as of December 31,
1999, which consists of the outstanding balance of the Convertible Subordinated
Debenture, accrued interest and penalties. The Company expects to record the
settlement of this matter during the first half of 2000.
16. SEGMENT INFORMATION
From July 1996 through March 1998, the Company was a full service provider of
technology based software solutions and computer systems integration and support
services. To achieve these objectives, the Company had two reportable segments
during that timeframe: a systems integration division and a multimedia division.
In April 1998 the Company divested itself of its systems integrations division.
Accordingly, during 1999 the Company is operating under only one segment, the
multimedia division. For a description of the segments see Note 1.
F-18
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
Segment information for 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Systems
Integration Multimedia
Segment Segment Total
----------- ---------- -----------
<S> <C> <C> <C>
Revenues:
1999 $ -- $ 992,331 $ 992,331
1998 $ 435,000 $ 1,223,596 $ 1,658,596
1997 $ 3,897,861 $ 893,962 $ 4,791,823
Loss from Operations:
1999 $ -- $ (415,179) $ (415,179)
1998 $ (377,051) $(2,137,104) $(2,514,155)
1997 $(1,340,857) $(1,209,565) $(2,550,422)
Total Assets:
1999 $ -- $ 423,416 $ 423,416
1998 $ -- $ 479,977 $ 479,977
1997 $ 752,580 $ 3,004,240 $ 3,756,820
</TABLE>
17. SUBSEQUENT EVENTS
In February 2000, the Company issued convertible subordinated
debentures for $250,000. The debentures are due February 2004 and accrue
interest at 10%. In March 2000, the Company sold 1,250,000 shares of common
stock at $0.20 per share for total proceeds to the Company of $250,000.
F-19
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant; Compliance With
Section 16(a) of the Exchange Act.
The following table sets forth certain information concerning the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John J. Cadigan 69 Chairman of the Board, Chief Executive Officer, Secretary,
and Treasurer
Ernest A. Wagner 39 President, Chief Operating Officer, and Director
A. David Rossin, Ph.D. 68 Director
Nagesh S. Mhatre, Ph.D. 67 Director
John Morgenstern 66 Director
</TABLE>
John J. Cadigan has been Chairman, Chief Executive Officer, Secretary,
Treasurer, and a director of the Company since February 1991. He was President
form in July 1995 to January 2000. Prior to joining the Company, Mr. Cadigan
served as Chairman of PAI from its inception in 1989 until it was merged into
the Company in February 1991.
Ernest A. Wagner was named President, Chief Operating Officer, and a director
of the Company in January 2000. He has been with the Company since February
1994. In 1998, Mr. Wagner was promoted to President of the Company's Multimedia
Division. From 1985 to February 1994, Mr. Wagner served in various engineering
and management positions with SuperFlow Corporation, a manufacturer of
computerized engine and vehicle testing equipment.
Dr. A. David Rossin has been a director of the Company since February 1991.
Dr. Rossin is currently the Center Affiliated Scholar at the Center for
International Security of Arms Control at Stanford University. He has been
employed since August 1987 as President of Rossin and Associates, a California
consulting firm that specializes in nuclear energy matters. Dr. Rossin served
as Assistant Secretary of the U.S. Energy Department from 1986 to 1987.
Dr. Nagesh S. Mhatre currently serves on the Boards of three small business
ventures. Dr. Mhatre served as President and a Director of the Becton-Dickinson
Co., a multi-billion dollar international company in the medical and hospital
equipment field from 1979 to 1984. Dr. Mhatre has held senior management, CEO,
and corporate officer positions in the biomedical and biotechnology fields and
has worked with numerous startup companies during the period from 1975 to 1979.
John Morgenstern is a specialist in Command, Control, Communications and
Intelligence Systems. Mr. Morgenstern is the former Director for Strategic and
Theater Command and Control Systems, Office of the Secretary of Defense. Mr.
Morgenstern is a business development
15
<PAGE>
strategist with extensive experience in proposal preparation and evaluation,
fiscal and program management, and tradeoff studies for large scale and small
scale system design.
Board of Directors
The Company's Certificate of Incorporation and Bylaws, as amended, divide the
Company's directors into three classes designated as Class I, Class II and Class
III, that serve staggered three-year terms that expire at the annual meeting of
the Stockholders in the final year of the term. Each class consists, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors. Directors serve for their term and until their
successors are duly elected, or until their earlier resignation, removal from
office, or death. The remaining directors may fill any vacancy in the Board of
Directors for an unexpired term.
There are presently five directors serving on the Board. A. David Rossin has
been designated as a Class I director and his term expires in 2002. Nagesh
Mhatre and Ernest Wagner have been designated as Class II directors and their
terms expire in 2000 and 2003, respectively. John J. Cadigan and John
Morgenstern are designated as Class III directors and with terms expiring in
2001.
The Company has two standing committees, the Executive Compensation and Stock
Option Committee and the Audit Committee. The following directors are members
are appointed to the Executive Compensation and Stock Option Committee until the
next annual election and until their successors are duly elected and shall
qualify until their earlier death resignation or removal: A. David Rossin, John
J. Cadigan, Chairman, John C. Morgenstern. The following directors are appointed
to the Audit Committee until the next annual election and until their successors
are duly elected and shall qualify or until their earlier death, resignation or
removal: A. David Rossin, Chairman, Nagesh Mhatre. The Executive Compensation
and Stock Option Committee has the power and authority to designate, recommend
and/or review compensation of the Company's executive officers and other
employees, including salaries, bonuses, fringe benefits and the grant of stock
options. The Audit Committee has the power and authority to recommend the
engagement of independent accountants, review external and internal auditing
procedures and policies, review compensation paid to auditors and make
recommendations and/or implement changes with respect to the foregoing.
Officers are elected by the Board of Directors at the annual meeting of
directors following the annual shareholders meeting and serve until their
successors are duly elected, subject to earlier removal by the Board of
Directors.
Item 10. Executive Compensation
This information will be contained in the definitive proxy statement of the
Company for the 2000 Annual Meeting of Stockholders under the captions
"Directors' Compensation", "Executive Compensation", "Employment Agreements",
and "Executive and Other Employee Benefit Plans" and is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
This information will be contained in the definitive proxy statement of the
Company for the 2000 Annual Meeting of Stockholders under the caption "Security
Ownership of Certain Beneficial Owners and Management" and is incorporated
herein by reference.
16
<PAGE>
Item 12. Certain Relationships and Related Transactions
This information will be contained in the definitive proxy statement of the
Company for the 2000 Annual Meeting of Stockholders under the caption
"Transactions Involving Directors and Officers" and is incorporated herein by
reference.
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a)(1)(2) Financial Statements
--------------------
A list of the Financial Statements filed as a part of this Report is set
forth in Item 7 and appears at Page F-1 of this Report; which list is
incorporated herein by reference.
(a)(3) Exhibits
--------
1(A) Stock Purchase Agreement with Forsight, Inc. (6)
1(B) Asset Purchase Agreement with Forsight, Inc. (6)
2 Plan of Merger between U.S. Technologies, Inc. Acquisition Corporation
and U.S. Technologies, Inc (7)
2(A) Articles of Merger of U.S. Technologies, Inc and U.S. Technologies,
Inc. Acquisition Corporation (7)
2(B) Agreement and Plan of Merger Among Strategic Solutions Group and U.S.
Technologies, Inc. (11)
2(B)(i) State of Florida Articles of Merger (11)
2(C) Promissory Note (11)
2(D) Pledge Agreement (11)
2(E) General Security Agreement for Promissory Note (11)
2(F) Secured Subordinated Debenture (11)
2(G) General Security Agreement for Debenture (11)
2(H) Registration Rights Agreement (11)
3 Certificate of Incorporation and Amendment thereto (1)
3(B) By-Laws (1)
3(C) Form of Amendments to Certificate of Incorporation and Bylaws dated
October 20, 1995 (5)
10 Form of Indemnification Agreement executed in favor of each officer
and director of the Company (1)
10(A) Form of Indemnification Agreement Amendment executed in favor of
certain officers and directors of the Company (6)
10(B) Form of Indemnification Agreement executed in favor of each officer
and director of the Company (6)
10(C) Securities Purchase Agreement, for 6% Convertible Subordinated
Debentures (10)
10(D) Form of Debenture (10)
10(E) Registration Rights Agreement (10)
10(F) Form of Common Stock Purchase Warrant (10)
10(H) Employment Agreement with John J. Cadigan dated September 1, 1995 (5)
10(I) Amendment to Employment Agreement with John J. Cadigan (11)
10(U) Employment Agreement (7/15/96) - Peter S. Steele (9)
10(V) Loan Renewal and Modification Agreement (9)
17
<PAGE>
21 Subsidiaries of Registrant (2)
23 Consent of PricewaterhouseCoopers LLP (11)
99 Incentive Stock Option Plan No. 1 (4)
99(A) Nonqualified Stock Option Plan No. 1(4)
99(B) Incentive Stock Option Plan No. 2 (5)
99(D) Phantom Stock Performance Stock Plan (3)
99(E) Nonqualified Stock Option Plan No. 2 (5)
99(F) Nonqualified Stock Option Plan No. 3 (5)
99(H) Split Dollar Plan Agreement (11/21/94) - John J. Cadigan (3)
99(I) Nonqualified Stock Option Plan No. 4 (6)
99(J) Nonqualified Stock Option Plan No. 5 (9)
99(K) Nonqualified Stock Option Plan No. 6 (9)
99(L) Nonqualified Stock Option Plan No. 7 (8)
99(M) Incentive Stock Option Plan No. 3 (11)
99(N) Incentive Stock Option Plan No. 4 (12)
99(O) Nonqualified Stock Option Plan No. 8 (13)
99(P) Nonqualified Stock Option Plan No. 9 (14)
99(Q) Incentive Stock Option Plan No. 5 (15)
99(R) Nonqualified Stock Option Plan No. 10 (16)
99(S) Nonqualified Stock Option Plan No. 11 (17)
___________________
(1) Incorporated by reference to Form S-1 Registration Statement,
File No. 33-68826
(2) JMC Company, Inc. and Forsight, Inc., are wholly owned subsidiaries of the
Company incorporated under the laws of the State of Maryland.
(3) Incorporated by reference to December 31, 1994 Form 10-K.
(4) Incorporated by reference to Form S-8 Registration Statement,
File No. 33-53536.
(5) Incorporated by reference to Original Form SB-2, File No. 33-97776.
(6) Incorporated by reference to December 31, 1995 Form 10-K.
(7) Incorporated by reference to Form 8-K, dated July 19, 1996.
(8) Incorporated by reference to Form S-8 Registration Statement,
File No. 333-23777.
(9) Incorporated by reference to December 31, 1996 Form 10-KSB.
(10) Incorporated by reference to Form 8-K, dated October 31, 1997
(11) Incorporated by reference to December 31, 1997 Form 10-KSB.
(12) Incorporated by reference to December 31, 1998 Form 10-KSB.
(13) Incorporated by reference to December 31, 1998 Form 10-KSB.
(14) Incorporated by reference to December 31, 1998 Form 10-KSB.
(15) Filed herewith.
(16) Filed herewith.
(17) Filed herewith
(b) Reports on Form 8-K
-------------------
The following report on Form 8-K was filed during the three months ended
December 31, 1997:
October 31, 1997 - Other Events - Issuance of $1,600,000 6% Convertible
Subordinated Debentures.
18
<PAGE>
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
STRATEGIC SOLUTIONS GROUP, INC.
BY: /s/ John J. Cadigan Dated: April 3, 2000
---------------------
John J. Cadigan, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ John J. Cadigan Chairman of the Board, April 3, 2000
- ------------------- Chief Executive Officer,
John J. Cadigan Secretary and Treasurer
/s/ Dr. A. David Rossin Director April 3, 2000
- -----------------------
Dr. A. David Rossin
/s/ Dr. Nagesh S. Mhatre Director April 3, 2000
- ------------------------
Dr. Nagesh S. Mhatre
/s/ John Morgenstern Director April 3, 2000
- --------------------
/s/ Ernest A. Wagner President, Chief Operating April 3, 2000
- -------------------- Officer, Director
Ernest A. Wagner
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 146,107
<SECURITIES> 0
<RECEIVABLES> 225,653
<ALLOWANCES> 35,000
<INVENTORY> 0
<CURRENT-ASSETS> 358,845
<PP&E> 416,602
<DEPRECIATION> 365,622
<TOTAL-ASSETS> 423,416
<CURRENT-LIABILITIES> 1,332,293
<BONDS> 0
0
0
<COMMON> 536
<OTHER-SE> (909,413)
<TOTAL-LIABILITY-AND-EQUITY> 423,416
<SALES> 992,331
<TOTAL-REVENUES> 1,821,298
<CGS> 523,382
<TOTAL-COSTS> 884,128
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 206,195
<INCOME-PRETAX> 216,195
<INCOME-TAX> 0
<INCOME-CONTINUING> 216,195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 216,195
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.05
</TABLE>
<PAGE>
EXHIBIT 99(Q)
STRATEGIC SOLUTIONS GROUP, INC.
INCENTIVE STOCK OPTION PLAN NO. 5
Effective September 24, 1999
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
1. Definitions................................................................... 1
-----------
2. Purpose....................................................................... 1
-------
3. Administration................................................................ 1
--------------
4. Shares Subject to Plan........................................................ 2
----------------------
5. Eligible Employees............................................................ 2
------------------
6. Restrictions on Eligibility................................................... 2
---------------------------
7. Allotment of Shares........................................................... 2
-------------------
8. Grant of Option............................................................... 2
---------------
9. Option Price.................................................................. 2
------------
10. Option Period................................................................. 2
-------------
11. Termination of Option......................................................... 3
---------------------
12. Rights in Event of Termination of Service, Retirement, Disability or Death.... 3
--------------------------------------------------------------------------
13. Payment and Notice of Exercise................................................ 3
------------------------------
14. Exercise of Option............................................................ 3
------------------
15. Changes in Capital Structures................................................. 4
-----------------------------
16. Nontransferability............................................................ 5
------------------
17. Transfers of Stock Received Upon Exercise..................................... 5
-----------------------------------------
18. Re-Issuance of Shares......................................................... 5
---------------------
19. Interpretation................................................................ 5
--------------
20. Term of Plan, Amendment, Discontinuance....................................... 5
---------------------------------------
21. Effect of the Plan, etc....................................................... 6
------------------------
22. Governing Law................................................................. 6
-------------
</TABLE>
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC.
-------------------------------
INCENTIVE STOCK OPTION PLAN NO. 5
---------------------------------
1. Definitions As used herein, the following terms shall have the
-----------
following meanings:
(a) "Board" shall mean the Board of Directors of Strategic Solutions
Group, Inc.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
Reference herein to specific sections of the Code shall include references to
any successor provisions to such sections.
(c) "Committee" shall mean the committee appointed by the Board
pursuant to Section 3. of this Plan to administer this Plan.
(d) "Company" shall mean Strategic Solutions Group, Inc. and its
subsidiaries, if any.
(e) "Effective Date" shall mean the date this Plan is approved by the
stockholders of Strategic Solutions Group, Inc., as provided in Section 19.
hereof.
(f) "Option Period" shall mean the period during which an option
granted under this Plan shall be exercisable, as set forth in Section 10.
hereof.
(g) "Subsidiary", for purposes of this Plan, shall mean any
corporation (or similar organization) of which the Company owns, directly or
indirectly, more than 50% of the total voting power of all classes of stock
entitled to vote therein.
2. Purpose The purpose of this Plan is to increase the interest in the
-------
welfare of the Company of those employees of the Company who have made valuable
contributions to the business of the Company, to furnish such employees with an
incentive to continue their services to the Company, and to attract able
personnel to the employ of the Company through the grant to such employees of
options to purchase shares of the Company's Common Stock. The Company intends
that options granted pursuant to the provisions of this Plan will qualify as
"incentive stock options" within the meaning of Section 422 of the Code.
3. Administration This Plan shall be administered by the Board or a
--------------
committee (the "Committee") of not less than two (2) members of the Board.
Members of the Committee shall be appointed, and vacancies shall be filled, by
the Board. No member of the Board or Committee shall participate in any action
by the Board or Committee which allots or grants options to him/her personally.
4. Shares Subject to Plan. Options may be granted from time to time under
----------------------
this Plan providing for the purchase of not more than one hundred fifty thousand
(150,000) shares of the common stock, par value $.0001 per share, of the Company
("Common Stock"), as constituted on the Effective Date (subject to adjustment
pursuant to Section 15.), plus such number of such shares as may become
available for reissuance pursuant to Section 17. Shares of authorized and
unissued Common Stock reacquired by the Company and held in its Treasury, as
from time to time determined by the Board, may be issued upon exercise of
options granted under this Plan.
1
<PAGE>
5. Eligible Employees. Except as provided in Section 6. hereof, employees
------------------
of the Company who are designated by the Board or the Committee shall be
eligible to be granted options under this Plan. Said designated employee shall
hereinafter be referred to as "Participant".
6. Restrictions on Eligibility. No option shall be granted under this
---------------------------
Plan to any employee who, immediately before the option is granted, owns stock
possessing more than ten (10%) percent of the total combined voting power of all
classes of stock of (i) the Company or (ii) any of the Company's subsidiaries
(within the meaning of Section 422(b)(6) of the Code and the Treasury
Regulations thereunder), unless (a) at the time of such grant the option price
is at least one hundred ten (110%) percent of the fair market value of the
shares represented by such option on that date, and (b) such option is not
exercisable after the expiration of five (5) years from the date of grant.
7. Allotment of Shares The grant of an option to an eligible employee
-------------------
under this Plan shall not be deemed either to entitle such employee to, or to
disqualify such employee from, participation in any other grant of options under
this Plan.
8. Grant of Option Except as otherwise provided in Section 6., options
---------------
may be granted under this Plan from time to time prior to the expiration of ten
(10) year period commencing with the Effective Date. The aggregate fair market
value (determined as of the date such options are granted) of the stock with
respect to which incentive stock options are exercisable for the first time by
such Participant in any calendar year under all stock option plans of the
Company and its subsidiaries shall not exceed one hundred thousand ($100,000)
dollars, or such other amount as may be specified from time to time in Section
422(b)(7) of the Code. Grants under this Plan shall be made only by resolution
adopted by Board or the Committee. The grant of an option under this Plan shall
commence to have legal force and effect at the time of adoption by the Board or
the Committee of the resolutions making the grant, and the employee to whom such
option is granted shall become a Participant in this Plan at such time.
9. Option Price. Except as otherwise provided in Section 6., the price at
------------
which the Common Stock may be purchased upon the exercise of an option granted
under this Plan shall be fixed by the Board or the Committee but shall be not
less than the fair market value of such shares on the date on which the option
is granted. The fair market value of such shares shall be determined in
accordance with the provisions of the Code and Treasury Regulations promulgated
thereunder.
10. Option Period Subject to the provisions of Section 14. below, an
-------------
option granted under this Plan may be exercised during the period (the "Option
Period") which begins on the date the option is granted (or such other time as
may be determined by the Committee as set forth in the resolutions evidencing
the grant of the option) and which ends
(a) on the earlier of
(i) the expiration of 10 years (5 years in the case of an
employee described in Section 6.) after the date the option is granted; or
(ii) the termination of the Participant's employment with the
Company (within the meaning of Section 422(a)(2) of the Code) for any reason
except as provided in Section 12. of this Plan; or
(b) such shorter period of time as may be determined by the Board or
the Committee, as set forth in the resolution evidencing the grant of the
option.
2
<PAGE>
11. Termination of Option All rights to exercise an option granted under
---------------------
this Plan shall terminate at the end of the Option Period, as described in
Section 10. above.
12. Rights in Event of Termination of Service, Retirement, Disability or
--------------------------------------------------------------------
Death If a Participant terminates service with the Company, retires from the
- -----
Company on or after attainment of age 65, has his/her employment by the Company
terminated due to disability (within the meaning of Section 22(e)(3) of the
Code, as determined by the Board or the Committee) or dies without having fully
exercised an option granted under this Plan, the Participant, his/her
representative or custodian (in the event of his/her incompetency), or the
executors, administrators, legatees or distributees of his/her estate (in the
event of his/her death) shall have the right, for a period of three (3) months
after the date of his/her termination of service, retirement or death or for a
period of one (1) year after the date of his/her termination of employment due
to disability, to exercise the unexercised and unexpired portion, if any, of
such option, in whole or in part, to the same extent that the Participant could
have exercised such option before the expiration of such three-month or one-year
period had the Participant continued to be an employee of the Company.
13. Payment and Notice of Exercise. Full payment of the purchase price
------------------------------
for shares purchased upon the exercise, in whole or in part, of an option
granted under this Plan shall be made at the time of such exercise. The purchase
price may be paid for with cash, stock in the Company, or a combination thereof.
No such shares shall be issued or transferred to a Participant until full
payment therefor has been made and the Participant has delivered his/her written
Notice of Exercise of the respective options to the Company at its principal
office, and a Participant who is not already a stockholder at the time of the
issue shall have none of the rights of a stockholder until shares are issued or
transferred to him/her.
14. Exercise of Option No option under this Plan shall be exercisable at
------------------
any time by a Participant to whom an "incentive stock option" (as such term is
defined in Section 422 of the Code) has previously been granted prior to
December 31, 1986 while such previously granted incentive stock option is
"outstanding" (within the meaning of Section 422 of the Code), in whole or in
part. Unless the Board or Committee otherwise directs, options granted hereunder
shall be exercisable by a Participant pursuant to the Vesting Formula defined
below, provided the Participant is employed by Company on the Allocation Dates
as defined below. On the original date of grant the Participant shall have the
right to purchase as much as twenty (20%) percent of the shares of Common Stock
which are the subject of his/her option. On the first anniversary of the
original date of grant and on the second, third and fourth anniversary of the
original date of grant thereafter, Participant shall have the right to purchase
as much as an additional twenty (20%) percent of the shares of Common Stock
which are the subject of his/her option. As of the fourth anniversary of the
original date of grant, Participant shall have the right to purchase one hundred
(100%) percent of the shares of Common Stock which are the subject of his/her
option. The Allocation Dates are the above mentioned four (4) anniversary dates
of the original date of grant. Options granted under this Plan shall otherwise
be exercisable during the Option Period at such times, in such amounts, in
accordance with such terms and conditions, and subject to such restrictions as
may be determined by the Board or Committee, and as are set forth in the
resolutions and the Notice of Grant evidencing a Participant's exercise of such
options. In no event shall an option be exercised or shares be issued pursuant
to an option if any applicable laws shall not have been conformed with or if
requisite approval or consent of any governmental authority having jurisdiction
over the exercise of the options or the issue and sale of the Common Stock shall
not have been secured, unless in the opinion of counsel for the Company, the
exercise or issuance is exempt from the obligation to obtain such approval or
consent. Each Participant shall agree not to offer, sell, pledge, hypothecate or
otherwise transfer any shares of Common Stock purchased pursuant to the exercise
of an option granted under this Plan unless the shares have been registered
under applicable federal and state securities laws or unless the proposed
transaction is exempt from such registration in the opinion of counsel for the
Company. Each Participant shall, at the time of purchase of shares of Common
Stock upon the exercise of an option, if requested by the Company upon advice of
its counsel that the same is necessary or desirable, deliver
3
<PAGE>
to the Company his/her written representation that he/she is purchasing the
shares for his/her own account for investment and not with a view to public
distribution or with any present intention of reselling any of such shares, and
deliver such other written representations as may be reasonably requested by the
Company to assure compliance with applicable laws. If a Participant so requests,
shares purchased upon the exercise of any option may be issued in or transferred
into the name of the Participant and another person jointly with right of
survivorship.
15. Changes in Capital Structures. In the event of the payment of any
-----------------------------
dividend payable in, or the making of any distribution of, Common Stock of the
Company to holders of record of Common Stock of the Company, which increases the
outstanding Common Stock of the Company by more than twenty-five (25%) percent
during the period any option granted under this Plan is outstanding or in the
event of any stock split, combination of shares, recapitalization or other
similar change in the authorized capital stock of the Company during such period
or in the event of the merger or consolidation of the Company into or with any
other corporation or the reorganization, dissolution, liquidation or winding up
of the Company during such period, Participants shall be entitled, upon the
exercise of any unexercised option held by them, to receive such new, additional
or other shares of stock of any class, or other property (including cash), as
they would have been entitled to receive as a matter of law in connection with
such payment, distribution, stock split, combination, recapitalization, as the
case may be, had they held the shares of the Common Stock being purchased upon
exercise of such option on the record date set for such payment or distribution
or on the date of such stock split, combination, recapitalization, change,
merger, consolidation, reorganization, dissolution or liquidation, and the
option price under any such option shall be appropriately adjusted. In case any
such event shall occur during the term of this Plan, the number of shares that
may be optioned and sold under this Plan as provided in Section 4. shall be
appropriately adjusted. The decision of the Board or the Committee, with respect
to all such adjustments shall be conclusive.
16. Nontransferability Options granted under this Plan shall not be
------------------
transferable other than by will or by the laws of descent and distribution, and
shall be exercisable only by the Participant or by Participant's heirs or
personal representatives in accordance with Section 12. of this Plan.
17. Transfers of Stock Received Upon Exercise. Pursuant to 423(a) of
-----------------------------------------
the Code, there shall be no income tax consequences incurred upon the grant of
an option or upon the exercise of an option, provided, a Participant who has
received stock pursuant to exercise of an option to purchase Common Stock, does
not dispose of such shares of stock for a period of 2 years from the date of the
grant of the option or for a period of 1 year from the date of transfer of such
stock to Participant, whichever is later.
18. Re-Issuance of Shares Any shares of Common Stock which, by reason of
---------------------
the expiration of an option or otherwise, are no longer subject to purchase
pursuant to an option granted under this Plan shall be available for re-issuance
under this Plan.
19. Interpretation. The Board or the Committee shall interpret this Plan
--------------
and prescribe, amend or rescind rules and regulations relating to it and make
any and all other determinations necessary or advisable for its administration.
20. Term of Plan, Amendment, Discontinuance This Plan shall be or has
---------------------------------------
been submitted for approval by the holders of at least a majority of the shares
called for that purpose within twelve months before or after adoption of the
Plan by the Board. Upon stockholder approval, the Plan shall be deemed effective
and adopted as of such date. This Plan, unless sooner terminated or discontinued
by the Board pursuant to this Section 19., shall expire on the tenth anniversary
of the Effective Date (except to the extent necessary for administration
4
<PAGE>
of options exercisable but unexercised on that date), and no options shall be
granted under this Plan after that date. The Board may terminate or discontinue
this Plan at any time and may suspend this Plan or amend or modify this Plan in
any respect at any time or from time to time, without the approval of the
stockholders, except that the number of shares of Common Stock that may be
optioned and sold under this Plan, as provided in Section 4., above, may not be
changed (except pursuant to Section 15., above) and the class of eligible
employees to whom options may be granted, as provided in Sections 5. and 6.
above, may not be modified without the approval of the stockholders of the
Company and the Board or the Committee. No action of the Board, the Committee or
stockholders may alter or impair the rights of a Participant under any option
theretofore granted to him/her without his/her consent to such action.
21. Effect of the Plan, etc Neither the adoption of this Plan nor any
-----------------------
action of the Board or Committee, shall be deemed to give any employee any right
to be granted an option to purchase Common Stock of the Company or any other
rights hereunder unless and until the Board or Committee shall have adopted a
resolution granting such employee an option, and then only to the extent and on
such terms and conditions as may be set forth in such resolution; the terms and
conditions of options granted under this Plan may differ from one another as the
Board or Committee shall at its discretion determine, as long as all options
granted under the Plan satisfy the requirements in this Plan.
Date Adopted by Board: June 15, 1999
Date Approved by Stockholders: September 24, 1999
Effective Date: September 24, 1999
22. Governing Law. The validity, construction, interpretation and effect
-------------
of this instrument shall exclusively be governed by and determined in accordance
with the laws of the State of Delaware, except to the extent preempted by
federal law, which shall to such extent govern.
5
<PAGE>
EXHIBIT 99(R)
STRATEGIC SOLUTIONS GROUP, INC.
NONQUALIFIED STOCK OPTION PLAN NO. 10
Effective July 1, 1999
<PAGE>
1. Definitions................................ 1
-----------
2. Purpose.................................... 1
-------
3. Administration............................. 1
--------------
4. Shares Subject to Plan..................... 2
----------------------
5. Eligibility................................ 2
-----------
6. Allotment of Shares........................ 2
-------------------
7. Option Price............................... 2
------------
8. Option Period.............................. 2
-------------
9. Termination of Option...................... 2
---------------------
10. Rights in Event of Death................... 2
------------------------
11. Payment and Notice of Exercise............. 3
------------------------------
12. Exercise of Option......................... 3
------------------
13. Changes in Capital Structures, etc......... 3
-----------------------------------
14. Nontransferability......................... 4
------------------
15. Other Provisions........................... 4
----------------
16. Re-Issuance of Shares...................... 4
---------------------
17. Interpretation............................. 4
--------------
18. Term of Plan, Amendment, Discontinuance.... 4
---------------------------------------
19. Effect of the Plan, etc.................... 5
------------------------
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC.
-------------------------------
NONQUALIFIED STOCK OPTION PLAN NO. 10
-------------------------------------
1. Definitions As used herein, the following terms shall have the following
-----------
meanings:
(a) "Board" shall mean the Board of Directors of Strategic Solutions
Group, Inc.
(b) "Committee" shall mean the Committee appointed by the Board
pursuant to Section 3. of this Plan to administer this Plan, if
appointed.
(c) "Company" shall mean Strategic Solutions Group, Inc.
(d) "Effective Date" shall mean the date this Plan is approved by the
Board of Directors of Strategic Solutions Group, Inc., as
provided in Section 18. hereof.
(e) "Option Period" shall mean the period during which an option
granted under this Plan shall be exercisable, as set forth in
Section 8. hereof.
(f) "Subsidiary", for purposes of this Plan, shall mean any
corporation (or similar organization) of which the Company owns,
directly or indirectly, more than 50% of the total voting power
of all classes of stock entitled to vote therein.
2. Purpose The purpose of this Plan is to increase the interest in the
-------
welfare of the Company of those directors of the Company who have made valuable
contributions to the business of the Company, to furnish such directors with an
incentive to continue their services to and for the Company, by enabling such
directors to acquire an interest in the Company through a grant to them of
options to purchase shares of the Company's Common Stock.
3. Administration. This Plan shall be administered by the Board or a
--------------
Committee (the "Committee"), if appointed by the Board, which shall consist of
not less than two (2) members of the Board. No member of the Board or Committee
shall participate in any action by the Board or Committee which allots or grants
options to him personally.
1
<PAGE>
4. Shares Subject to Plan. Options may be granted from time to time under
----------------------
this Plan providing for the purchase of not more than four hundred ten thousand
(410,000) shares of the common stock, par value $.0001 per share, of the Company
("Common Stock"), as constituted on the Effective Date (subject to adjustment
pursuant to Section 13.), plus such number of such shares as may become
available for reissuance pursuant to Section 16. Shares of authorized and
unissued Common Stock reacquired by the Company and held in its Treasury, as
from time to time determined by the Board, may be issued upon exercise of
options granted under this Plan.
5. Eligibility. Except as otherwise provided herein, those directors who
-----------
have performed or who are about to perform services for the Company and who are
designated by the Board or the Committee shall be eligible to be granted options
under this Plan. Said designated person shall hereinafter be referred to as
"Participant".
6. Allotment of Shares. The grant of an option to an eligible person under
-------------------
this Plan shall not be deemed either to entitle such person to, or to disqualify
such person from, participation in any other grant of options under this Plan or
under any other plan of the Company.
7. Option Price. The price at which shares of Common Stock may be purchased
------------
upon the exercise of an option granted under this Plan shall be fixed by the
Board or the Committee, and may be greater than or less than the fair market
value of such shares at the time of grant.
8. Option Period. An option granted under this Plan may be exercised
-------------
during the period (the "Option Period") which begins upon the date the option is
granted (or at such other time as may be determined by the Board or Committee,
as set forth in the resolutions evidencing the grant of the option) and which
ends no later than ten (10) years after the date the option is granted or such
lesser time as may be determined by the Board or the Committee as set forth in
the resolutions evidencing the grant of the option.
9. Termination of Option. All rights to exercise an option granted under
---------------------
this Plan shall terminate at the end of the Option Period, as described in
Section 8. above.
10. Rights in Event of Death. If a Participant dies without having fully
------------------------
exercised an option granted under this Plan, the executors, administrators,
legatees or distributees of his estate shall have the right, for a period of one
(1) year after the date of his death to exercise the unexercised and unexpired
portion, if any, of such option, in whole or in part, to the same extent that
the Participant could have exercised such option at the expiration of such one
(1) year period had the Participant lived.
2
<PAGE>
11. Payment and Notice of Exercise. Full payment of the purchase price
------------------------------
for shares purchased upon the exercise, in whole or in part, of an option
granted under this Plan shall be made at the time of such exercise. The
purchase price must be paid for with cash. No such shares shall be issued or
transferred to a Participant until full payment therefor has been made and the
Participant has delivered his written Notice of Exercise of the respective
options to the Company at its principal office, and a Participant who is not
already a stockholder at the time of the issue shall have none of the rights of
a stockholder until shares are issued or transferred to him.
12. Exercise of Option. As directed by the Board or Committee, options
------------------
granted hereunder may be exercisable by a Participant pursuant to a vesting
formula which will set forth the dates and the number of options which are then
available to the Participant. Options granted under this Plan shall be
exercisable during the Option Period at such times, in such amounts, in
accordance with such terms and conditions, and subject to such restrictions as
may be determined by the Board or Committee, and as are set forth in the
resolutions and the Notice of Grant evidencing the grant of such options as well
as the Notice of Exercise evidencing a Participant's exercise of such options.
In no event shall an option be exercised or shares be issued pursuant to an
option if any applicable laws shall not have been conformed with or if any
requisite approval or consent of any governmental authority having jurisdiction
over the exercise of the options or the issue and sale of the Common Stock shall
not have been secured, unless in the opinion of counsel for the Company the
exercise or issuance is exempt from the obligation to obtain approval or
consent. Each Participant shall agree not to offer, sell, pledge, hypothecate
or otherwise transfer any shares of Common Stock purchased pursuant to the
exercise of an option granted under this Plan unless the shares have been
registered under applicable federal and state securities laws or unless the
proposed transaction is exempt from such registration in the opinion of Counsel
for the Company. Each Participant shall, at the time of purchase of shares of
Common Stock upon the exercise of an option, if requested by the Company upon
advice of its counsel that the same is necessary or desirable, deliver to the
Company his written representation that he is purchasing the shares for his own
account for investment and not with a view to public distribution or with any
present intention of reselling any of such shares, and deliver such other
written representations as may be reasonably requested by the Company to assure
compliance with applicable laws. If a Participant so requests, shares purchased
upon the exercise of an option may be issued in or transferred into the name of
the Participant and other person jointly with the right of survivorship.
13. Changes in Capital Structures, etc. In the event of the payment of any
----------------------------------
dividend payable in, or the making of any distribution of, Common Stock of the
Company to holders of record of Common Stock of the Company, which increases the
outstanding Common Stock of the Company by more than twenty-five (25%) percent
during the period any option granted under this Plan is outstanding or in the
event of any stock split, combination of shares, recapitalization or other
similar change in the authorized capital stock of the Company during such period
or in the event of the merger or consolidation of the Company into or with any
other corporation or the reorganization, dissolution, liquidation or winding up
of the Company during such period, Participants shall be entitled, upon the
exercise of any unexercised option held by them, to receive such new, additional
or other shares of stock of any class, or other property (including cash), as
3
<PAGE>
they would have been entitled to receive as a matter of law in connection with
such payment, distribution, stock split, combination, recapitalization, change,
merger, consolidation, reorganization, dissolution or liquidation, as the case
may be, had they held the shares of the Common Stock being purchased upon
exercise of such option on the record date set for the such payment or
distribution or on the date of such stock split, combination, recapitalization,
change, merger, consolidation, reorganization, dissolution or liquidation, and
the option price under any such option shall be appropriately adjusted. In case
any such event shall occur during the term of this Plan, the number of shares
that my be optioned and sold under this Plan as provided in Section 4. shall be
appropriately adjusted. The decision of the Board or the Committee, with
respect to all such adjustments shall be conclusive.
14. Nontransferability. Options granted under this Plan shall not be
------------------
transferable other than by will or by the laws of descent and distribution, and
shall be exercisable only by the Participant or by Participant's heirs or
personal representatives as provided in Section 10. of this Plan.
15. Other Provisions. Options granted under this Plan shall contain such
----------------
other provisions, including, without limitation, restrictions upon the exercise
of the option, as the Board or Committee shall deem advisable by written notice
to Participant.
16. Re-Issuance of Shares. Any shares of Common Stock which, by reason of
---------------------
the expiration of an option or otherwise, are no longer subject to purchase
pursuant to an option granted under this Plan shall be available for re-issuance
under this Plan.
17. Interpretation. The Board shall interpret this Plan and prescribe,
--------------
amend or rescind rules and regulations relating to it and make any and all other
determinations necessary or advisable for its administration.
18. Term of Plan, Amendment, Discontinuance. Upon approval by the Board
---------------------------------------
of Directors, the Plan shall be deemed effective and adopted as of such date.
This Plan, unless sooner terminated or discontinued by the Board pursuant to
this Section 18, shall expire on the tenth anniversary of the Effective Date
(except to the extent necessary for administration of options exercisable but
unexercised on that date), and no options shall be granted under this Plan after
that date. The Board may terminate or discontinue this Plan at any time and may
suspend this Plan or amend or modify this Plan in any respect at any time or
from time to time, without the approval of the stockholders, except that the
number of shares of Common Stock that may be optioned and sold under this Plan,
as provided in Section 4., above, may not be changed (except pursuant to Section
13., above) and the class of eligible persons to whom options may be granted, as
provided in Section 5., above, may not be modified without the approval of the
4
<PAGE>
Board or the Committee. No action of the Board, the Committee or stockholders
may alter or impair the rights of a Participant under any option theretofore
granted to him without his consent to such action.
19. Effect of the Plan, etc. Neither the adoption of this Plan, nor any
-----------------------
action of the Board or Committee, shall be deemed to give any person any right
to be granted an option to purchase Common Stock of the Company or any other
rights hereunder unless and until the Board or Committee shall have adopted a
resolution granting such person an option, and then only to the extent and on
such terms and conditions as may be set forth in such resolution; the terms and
conditions of options granted under this Plan may differ from one another as the
Board or Committee shall at its discretion determine, as long as all options
granted under the Plan satisfy the requirements in this Plan.
Date Adopted by Board: July 1, 1999
Effective Date: July 1, 1999
5
<PAGE>
EXHIBIT 99(S)
STRATEGIC SOLUTIONS GROUP, INC.
NONQUALIFIED STOCK OPTION PLAN NO. 11
Effective July 15, 1999
<PAGE>
1. Definitions................................ 1
-----------
2. Purpose.................................... 1
-------
3. Administration............................. 1
--------------
4. Shares Subject to Plan..................... 2
----------------------
5. Eligibility................................ 2
-----------
6. Allotment of Shares........................ 2
-------------------
7. Option Price............................... 2
------------
8. Option Period.............................. 2
-------------
9. Termination of Option...................... 2
---------------------
10. Rights in Event of Death................... 2
------------------------
11. Payment and Notice of Exercise............. 3
------------------------------
12. Exercise of Option......................... 3
------------------
13. Changes in Capital Structures, etc......... 3
-----------------------------------
14. Nontransferability......................... 4
------------------
15. Other Provisions........................... 4
----------------
16. Re-Issuance of Shares...................... 4
---------------------
17. Interpretation............................. 4
--------------
18. Term of Plan, Amendment, Discontinuance... 4
---------------------------------------
19. Effect of the Plan, etc.................... 5
------------------------
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC.
------------------------------
NONQUALIFIED STOCK OPTION PLAN NO. 11
------------------------------------
1. Definitions As used herein, the following terms shall have the following
-----------
meanings:
(a) "Board" shall mean the Board of Directors of Strategic Solutions
Group, Inc.
(b) "Committee" shall mean the Committee appointed by the Board
pursuant to Section 3. of this Plan to administer this Plan, if
appointed.
(c) "Company" shall mean Strategic Solutions Group, Inc.
(d) "Effective Date" shall mean the date this Plan is approved by the
Board of Directors of Strategic Solutions Group, Inc., as
provided in Section 18. hereof.
(e) "Option Period" shall mean the period during which an option
granted under this Plan shall be exercisable, as set forth in
Section 8. hereof.
(f) "Subsidiary", for purposes of this Plan, shall mean any
corporation (or similar organization) of which the Company owns,
directly or indirectly, more than 50% of the total voting power
of all classes of stock entitled to vote therein.
2. Purpose The purpose of this Plan is to increase the interest in the
-------
welfare of the Company of those officers, directors and employees of the Company
who have made valuable contributions to the business of the Company, to furnish
such directors, officers and employees, with an incentive to continue their
services to and for the Company, by enabling such directors, officers and
employees, to acquire an interest in the Company through a grant to them of
options to purchase shares of the Company's Common Stock.
3. Administration. This Plan shall be administered by the Board or a
--------------
Committee (the "Committee"), if appointed by the Board, which shall consist of
not less than two (2) members of the Board. No member of the Board or Committee
shall participate in any action by the Board or Committee which allots or grants
options to him personally.
4. Shares Subject to Plan. Options may be granted from time to time under
----------------------
this Plan providing for the purchase of not more than seven hundred fifty
thousand (750,000) shares of the common stock, par value $.0001 per share, of
the Company ("Common Stock"), as constituted on the Effective Date (subject to
adjustment pursuant to Section 13.), plus such number of such shares as may
become available for reissuance pursuant to Section 16. Shares of authorized
and unissued Common Stock reacquired by the Company and held in its Treasury, as
from time to time determined by the Board, may be issued upon exercise of
options granted under this Plan.
1
<PAGE>
5. Eligibility. Except as otherwise provided herein, those directors,
-----------
officers and employees who have performed or who are about to perform services
for the Company and who are designated by the Board or the Committee shall be
eligible to be granted options under this Plan. Said designated person shall
hereinafter be referred to as "Participant".
6. Allotment of Shares. The grant of an option to an eligible person under
-------------------
this Plan shall not be deemed either to entitle such person to, or to disqualify
such person from, participation in any other grant of options under this Plan or
under any other plan of the Company.
7. Option Price. The price at which shares of Common Stock may be purchased
------------
upon the exercise of an option granted under this Plan shall be fixed by the
Board or the Committee, and may be greater than or less than the fair market
value of such shares at the time of grant.
8. Option Period. An option granted under this Plan may be exercised during
-------------
the period (the "Option Period") which begins upon the date the option is
granted (or at such other time as may be determined by the Board or Committee,
as set forth in the resolutions evidencing the grant of the option) and which
ends no later than ten (10) years after the date the option is granted or such
lesser time as may be determined by the Board or the Committee as set forth in
the resolutions evidencing the grant of the option.
9. Termination of Option. All rights to exercise an option granted under
---------------------
this Plan shall terminate at the end of the Option Period, as described in
Section 8. above.
10. Rights in Event of Death. If a Participant dies without having fully
------------------------
exercised an option granted under this Plan, the executors, administrators,
legatees or distributees of his estate shall have the right, for a period of one
(1) year after the date of his death to exercise the unexercised and unexpired
portion, if any, of such option, in whole or in part, to the same extent that
the Participant could have exercised such option at the expiration of such one
(1) year period had the Participant lived.
11. Payment and Notice of Exercise. Full payment of the purchase price for
------------------------------
shares purchased upon the exercise, in whole or in part, of an option granted
under this Plan shall be made at the time of such exercise. The purchase price
must be paid for with cash. No such shares shall be issued or transferred to a
Participant until full payment therefore has been made and the Participant has
delivered his written Notice of Exercise of the respective options to the
Company at its principal office, and a Participant who is not already a
stockholder at the time of the issue shall have none of the rights of a
stockholder until shares are issued or transferred to him.
12. Exercise of Option. As directed by the Board or Committee, options
------------------
granted hereunder may be exercisable by a Participant pursuant to a vesting
formula which will set forth the dates and the number of options which are then
available to the Participant. Options granted under this Plan shall be
exercisable during the Option Period at such times, in such amounts, in
accordance with such terms and conditions, and subject to such restrictions as
may be determined by the Board or Committee, and as are set forth in the
resolutions and the Notice of Grant evidencing the grant of such options as well
as the Notice of Exercise evidencing a Participant's exercise of such options.
In no event shall an option be exercised or shares be issued pursuant to an
option if any applicable laws shall not have been conformed with or if any
requisite approval or consent of any governmental authority having jurisdiction
over the exercise of the options or the issue and sale of the Common Stock shall
not have been secured, unless in the opinion of counsel for the Company the
exercise or issuance is exempt from the
2
<PAGE>
obligation to obtain approval or consent. Each Participant shall agree not to
offer, sell, pledge, hypothecate or otherwise transfer any shares of Common
Stock purchased pursuant to the exercise of an option granted under this Plan
unless the shares have been registered under applicable federal and state
securities laws or unless the proposed transaction is exempt from such
registration in the opinion of Counsel for the Company. Each Participant shall,
at the time of purchase of shares of Common Stock upon the exercise of an
option, if requested by the Company upon advice of its counsel that the same is
necessary or desirable, deliver to the Company his written representation that
he is purchasing the shares for his own account for investment and not with a
view to public distribution or with any present intention of reselling any of
such shares, and deliver such other written representations as may be reasonably
requested by the Company to assure compliance with applicable laws. If a
Participant so requests, shares purchased upon the exercise of an option may be
issued in or transferred into the name of the Participant and other person
jointly with the right of survivorship.
13. Changes in Capital Structures, etc. In the event of the payment of any
----------------------------------
dividend payable in, or the making of any distribution of, Common Stock of the
Company to holders of record of Common Stock of the Company, which increases the
outstanding Common Stock of the Company by more than twenty-five (25%) percent
during the period any option granted under this Plan is outstanding or in the
event of any stock split, combination of shares, recapitalization or other
similar change in the authorized capital stock of the Company during such period
or in the event of the merger or consolidation of the Company into or with any
other corporation or the reorganization, dissolution, liquidation or winding up
of the Company during such period, Participants shall be entitled, upon the
exercise of any unexercised option held by them, to receive such new, additional
or other shares of stock of any class, or other property (including cash), as
they would have been entitled to receive as a matter of law in connection with
such payment, distribution, stock split, combination, recapitalization, change,
merger, consolidation, reorganization, dissolution or liquidation, as the case
may be, had they held the shares of the Common Stock being purchased upon
exercise of such option on the record date set for the such payment or
distribution or on the date of such stock split, combination, recapitalization,
change, merger, consolidation, reorganization, dissolution or liquidation, and
the option price under any such option shall be appropriately adjusted. In case
any such event shall occur during the term of this Plan, the number of shares
that my be optioned and sold under this Plan as provided in Section 4. shall be
appropriately adjusted. The decision of the Board or the Committee, with
respect to all such adjustments shall be conclusive.
14. Nontransferability. Options granted under this Plan shall not be
------------------
transferable other than by will or by the laws of descent and distribution, and
shall be exercisable only by the Participant or by Participant's heirs or
personal representatives as provided in Section 10. of this Plan.
15. Other Provisions. Options granted under this Plan shall contain such
----------------
other provisions, including, without limitation, restrictions upon the exercise
of the option, as the Board or Committee shall deem advisable by written notice
to Participant.
16. Re-Issuance of Shares. Any shares of Common Stock which, by reason of
---------------------
the expiration of an option or otherwise, are no longer subject to purchase
pursuant to an option granted under this Plan shall be available for re-issuance
under this Plan.
17. Interpretation. The Board shall interpret this Plan and prescribe,
--------------
amend or rescind rules and regulations relating to it and make any and all other
determinations necessary or advisable for its administration.
18. Term of Plan, Amendment, Discontinuance. Upon approval by the Board of
---------------------------------------
3
<PAGE>
Directors, the Plan shall be deemed effective and adopted as of such date. This
Plan, unless sooner terminated or discontinued by the Board pursuant to
this Section 18, shall expire on the tenth anniversary of the Effective Date
(except to the extent necessary for administration of options exercisable but
unexercised on that date), and no options shall be granted under this Plan after
that date. The Board may terminate or discontinue this Plan at any time and may
suspend this Plan or amend or modify this Plan in any respect at any time or
from time to time, without the approval of the stockholders, except that the
number of shares of Common Stock that may be optioned and sold under this Plan,
as provided in Section 4., above, may not be changed (except pursuant to Section
13., above) and the class of eligible persons to whom options may be granted, as
provided in Section 5., above, may not be modified without the approval of the
Board or the Committee. No action of the Board, the Committee or stockholders
may alter or impair the rights of a Participant under any option theretofore
granted to him without his consent to such action.
19. Effect of the Plan, etc. Neither the adoption of this Plan, nor any
-----------------------
action of the Board or Committee, shall be deemed to give any person any right
to be granted an option to purchase Common Stock of the Company or any other
rights hereunder unless and until the Board or Committee shall have adopted a
resolution granting such person an option, and then only to the extent and on
such terms and conditions as may be set forth in such resolution; the terms and
conditions of options granted under this Plan may differ from one another as the
Board or Committee shall at its discretion determine, as long as all options
granted under the Plan satisfy the requirements in this Plan.
Date Adopted by Board: July 15, 1999
Effective Date: July 15, 1999
4
