<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 1-12536
--------------------------------
STRATEGIC SOLUTIONS GROUP, INC.
-------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 11-2964894
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1598 Whitehall Road, Suite E
Annapolis, Maryland 21401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (410) 757-2728
</TABLE>
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 __
---
8,056,690 Common Shares, $.0001 par value were issued and outstanding at
September 30, 2000.
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information
Consolidated Balance Sheets, September 30, 2000 and
December 31, 1999 (unaudited) 3
Consolidated Statements of Operations for the three and nine
months ended September 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II - Other Information
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 57,326 $ 146,107
Accounts receivable, net of allowance for doubtful
accounts of $25,125 and $35,000, respectively 307,972 190,653
Prepaid expenses and other assets 45,687 22,085
------------- ------------
Total current assets 410,985 358,845
------------- ------------
Property and equipment, at cost
Computers, furniture and equipment 453,482 416,602
Less accumulated depreciation 400,176 365,622
------------- ------------
Net property and equipment 53,306 50,980
------------- ------------
Restricted Investments 236,329 --
Other assets 55,795 13,591
------------- ------------
Total other assets 292,124 13,591
------------- ------------
$ 756,415 $ 423,416
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 236,752 $ 369,643
Notes payable 38,846 --
Convertible subordinated debenture -- 779,650
Other current liabilities 55,734 183,000
------------ ------------
Total current liabilities 331,332 1,332,293
------------ ------------
Convertible subordinated debenture 200,989 --
------------ ------------
Total liabilities 532,321 1,332,293
------------ ------------
Commitments and contingencies
Stockholders' Equity
Common stock, $.0001 par value. Authorized 25,000,000
and 10,000,000 shares; issued and outstanding
8,056,690 and 5,356,690 shares as of September 30, 2000
and December 31, 1999 806 536
Additional paid-in capital 15,980,834 15,370,848
Accumulated deficit (15,984,180) (16,241,480)
Accumulated other comprehensive income 236,329 --
Deferred compensation (9,695) (38,781)
------------ ------------
Total stockholders' equity 224,094 (908,877)
------------ ------------
$ 756,415 $ 423,416
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Service revenues $ 401,255 $ 252,339 $1,066,422 $ 796,928
Royalty revenues 3,325 5,359 10,350 19,948
---------- ---------- ---------- ----------
Total revenue 404,580 257,698 1,076,772 816,876
---------- ---------- ---------- ----------
Expenses
Cost of service revenues 192,801 118,821 446,234 385,869
Research and development 68 23,373 3,426 62,101
Selling, general and administrative 288,496 301,153 827,747 615,887
---------- ---------- ---------- ----------
Total operating expenses 481,365 443,347 1,277,407 1,063,857
---------- ---------- ---------- ----------
Income (loss) from operations (76,785) (185,649) (200,635) (246,981)
Other income (expense), net (4,917) 672,801 49,680 650,802
---------- ---------- ---------- ----------
Income (loss) before extraordinary item (81,702) 487,152 (150,955) 403,821
Extinguishment of Debt -- -- 408,255 --
---------- ---------- ---------- ----------
Net income (loss) $ (81,702) $ 487,152 $ 257,300 $ 403,821
========== ========== ========== ==========
Earnings per share - Basic
Income (loss) before extraordinary item $ (0.01) $ 0.11 $ (0.02) $ 0.10
Extraordinary item $ 0.00 $ 0.00 $ 0.06 $ 0.00
---------- ---------- ---------- ----------
Net income (loss) per common share $ (0.01) $ 0.11 $ 0.04 $ 0.10
========== ========== ========== ==========
Weighted average number of common
shares outstanding - basic 7,916,473 4,575,161 7,159,082 4,058,562
========== ========== ========== ==========
Earnings per common share - diluted
Income (loss) before extraordinary income $ (0.01) $ 0.10 $ (0.02) $ 0.10
Extraordinary item $ 0.00 $ 0.00 $ 0.05 $ 0.00
---------- ---------- ---------- ----------
Net income (loss) per common share $ (0.01) $ 0.10 $ 0.03 $ 0.10
========== ========== ========== ==========
Weighted average number of common
shares outstanding - diluted 8,166,473 4,775,798 8,132,904 4,185,910
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income $ 257,300 $ 403,821
Adjustments to reconcile net income to net cash used
in operating activities
Depreciation and amortization 43,199 173,293
Allowance for Doubtful Accounts (9,875) (10,000)
Deferred compensation 29,086 29,086
Gain on debt extinguishment (408,255) --
Other (60,000) --
Changes in assets and liabilities:
Accounts receivable (107,444) 96,594
Prepaid expenses and other current assets 53,998 3,479
Other assets (42,204) (530)
Accounts payable and accrued liabilities 42,801 44,778
Other liabilities 3,748 (228,967)
--------- ---------
Net cash (used in) provided by operating activities (197,646) 511,554
--------- ---------
Cash flows from investing activities
Capital expenditures (36,880) (5,630)
--------- ---------
Net cash used in investing activities (36,880) (5,630)
--------- ---------
Cash flows from financing activities
Proceeds from convertible debentures 250,000 --
Proceeds from sale of common stock 250,000 --
Proceeds from exercise of options 18,760 --
Payments on financing debt and promissory note (158,015) (150,000)
Redemption of convertible debt (215,000) --
--------- ---------
Net cash (used in) provided by financing activities 145,745 (150,000)
--------- ---------
Net increase (decrease) in cash and cash equivalents (88,781) 355,924
Cash and cash equivalents, beginning of period 146,107 67,991
--------- ---------
Cash and cash equivalents, end of period $ 57,326 $ 423,915
========= =========
Supplemental disclosures of cash paid:
Interest $ 2,570 $ --
Supplemental schedule of non-cash investing and financing activities:
Options issued as payment for professional fees $ 53,101 $ --
Discount on convertible subordinated debentures 22,500 --
Stock issued upon conversion of convertible debentures 250,000 101,168
Stock issued in connection with the sale of
convertible subordinated debenture 35,156 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
STRATEGIC SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. FINANCIAL STATEMENT PRESENTATION
Strategic Solutions Group, Inc. (the "Company") has prepared the accompanying
unaudited condensed consolidated financial statements pursuant to the rules
and regulations of the Securities and Exchange Commission (the "Commission").
These financial statements should be read together with the financial
statements and notes in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1999 (the "1999 Form 10-KSB"). Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying condensed
consolidated financial statements reflect all adjustments and disclosures
which, in our opinion, are necessary for fair presentation. All such
adjustments are of a normal recurring nature. The results of operations for
the interim periods are not necessarily indicative of the results of the
entire year.
The Company currently operates in only one segment.
2. RESTRICTED INVESTMENTS
As a result of the Company's divestiture of U.S. Technologies, Inc. ("UST")
and the subsequent merger of UST with and into a subsidiary of Digital
Chainsaw, Inc. ("Digital Chainsaw") in 1999, the Company held 641,045 shares
of Digital Chainsaw common stock. At December 31, 1999, the Company had
established a reserve for the full value of the Digital Chainsaw common stock
it held.
In August 2000, Digital Chainsaw was acquired by High Speed Access
Corporation ("High Speed Access"), (Nasdaq: HSAC), in a share exchange where
each share of Digital Chainsaw was exchanged for 0.1017 shares of High Speed
Access. The Company received 65,194 shares of restricted common stock of High
Speed Access in exchange for the shares of Digital Chainsaw it held.
The Company has recorded the shares of High Speed Access it holds at their
fair value, which is based on the quoted market price at September 30, 2000
as a restricted investment and accumulated other comprehensive income. Any
future adjustments to fair value of the restricted investment, which has been
classified as available-for-sale, will be recorded as an increase or decrease
in accumulated comprehensive income, a stockholders' equity account.
The Company's investment in High Speed Access is contractually restricted,
with fifty percent of the shares held by the Company transferable beginning
180 days after the closing date of the acquision, with the remaining fifty
percent transferable in six equal installments beginning on the last day of
the month of each of the six months immediately following May 2001. This
investment is also pledged to secure an outstanding promissory note as more
fully described in Note 4 herein.
3. LINE OF CREDIT
On August 30, 2000 the Company secured a bank line of credit allowing for
borrowings up to $100,000 for working capital. The line is secured by the
assets of the Company. Interest on the outstanding principal balance is the
Prime Rate plus 1.0%. Accrued interest is payable monthly with any
outstanding principal and accrued interest due August 30, 2001. At September
30, 2000 there have been no borrowings on the line of credit.
6
<PAGE>
4. CONVERTIBLE DEBT
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. In addition,
the Company executed a judgement 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 SSGI'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 this Debenture. Under the terms of the Settlement Agreement with Releases,
the Company paid the holder of the Debenture $200,000 cash, issued a $100,000
non-interest bearing promissory note secured by certain assets of the
Company, payable in installments of $10,000 per month beginning in March
2000, issued 1,000,000 shares of the Company's common stock, and transferred
to the holder certain other assets owned by the Company which had a
negligible book value. The Company also incurred legal fees totaling $15,000
related to this transaction.
The Company recognized a gain on the cancellation and extinguishments of this
debt and the related accrued interest and penalties as an extraordinary item
in the operating statement of $408,255.
On February 24, 2000 ("Issuance Date"), the Company issued a convertible
subordinated debenture for $250,000. This debenture bears interest at 10%,
matures February 24, 2004 and is convertible into common stock, beginning the
earlier of 180 days after the Issuance Date or the effective date of the
Registration Statement filed pursuant to a Registration Rights Agreement, at
a conversion price of $0.28 (the "Conversion Price").
The Company has the right to redeem this debenture at redemption prices
increasing from 125% of the principal amount of the debenture, if redeemed
before the first anniversary of the Issuance Date, to 200% of the principal
amount of the debenture after the third anniversary date of the Issuance
Date. Upon notice of redemption, the holder of the debenture has the right to
convert the redemption proceeds into common stock at the above Conversion
Price.
The Company granted the holder of this debenture a security interest in
641,045 shares of common stock that the Company owned in Digital Chainsaw,
which shares have since been exchanged for 65,194 shares of High Speed Access
as previously described in Note 2.
In connection with the issuance of this debenture, the Company issued a stock
purchase warrant for the purchase of up to 250,000 shares of the Company's
common stock at $0.75 per share. This stock purchase warrant expires on
February 24, 2004. Based on the relative fair value of the debenture and
stock purchase warrant, the stock purchase warrant has been assigned a value
of
7
<PAGE>
$22,500, which represents a debenture discount and will be amortized to
interest expense over the life of the debenture.
As part of the debenture, the Company was obligated to issue 250,000 shares
of its common stock to the investor. In the quarter ended June 30, 2000, the
Company recorded the market value of these shares as a reduction in the
recorded amount of the debenture and as common stock and additional paid in
capital.
In connection with these investments, the Company entered into a registration
rights agreement with this investor that required the Company to file a
registration statement with the SEC by June 26, 2000 or cause the shares of
common stock related to these investments to be registered by February 24,
2001, or otherwise incur a penalty. The Company has decided not to pursue
registration of these shares and is negotiating with the investor to waive
the penalty provisions of the registration rights agreements entered into as
part of these investments and has not accrued any amounts for such. The
Company incurred approximately $19,000 during the three months ended June 30,
2000 in connection with the preparation of registration statements, which has
been netted against the investment proceeds received.
5. STOCKHOLDERS' EQUITY
During the nine months ended September 30, 2000, the Company sold 1,250,000
shares of common stock in a private placement of $250,000. In connection with
this investment, the Company entered into a registration rights agreement
with this investor that required the Company to file a registration statement
with the SEC to register the shares of common stock related to this
investment by May 5, 2000 or incur a penalty based on the amount of time the
filing is delayed and calculated using a percentage of the investment amount.
The Company has decided not to pursue registration of these shares and is
negotiating with the investor to waive the penalty provisions of the
registration rights agreements entered into as part of these investments and
has not accrued any amounts for such. A debenture holder was granted 250,000
shares of common stock in connection with the debenture agreement.
On February 23, 2000 the Board of Directors authorized the adoption of a
Stock Option Plan, for the issuance of stock options to purchase up to
1,600,000 shares of the Company's common stock.
6. EARNINGS PER SHARE
Basic earnings per share for each period presented is computed by dividing
net income by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share reflects the
dilutive effect of additional shares of common stock that could be issued
upon the exercise of outstanding stock options and the conversion of the
convertible subordinated debenture.
The following shows the determination of income for the purpose of the
earnings (loss) per share computions:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------ ---------------------------------
2000 1999 2000 1999
------------------------------ ---------------------------------
<S> <C> <C> <C> <C>
Net income (loss) before extraordinary item $ (81,702) $487,152 $ (150,955) $403,821
Extraordinary item -- -- 408,255 --
------------------------------ ---------------------------------
Income (loss) available for common stockholders,
for basic earnings (loss) per share (81,702) 487,152 257,300 403,821
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Plus interest on convertible subordinated
debentures, net of income taxes --- -- 8,189 --
------------------------------ ---------------------------------
Income (loss) available for common stockholders,
used for diluted earnings (loss) per share $ (81,702) $487,152 $ 265,489 $403,821
============================== =================================
</TABLE>
The following shows the determination of the number of shares used in the
earnings per share computions:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------ -------------------------------
2000 1999 2000 1999
------------------------------ -------------------------------
<S> <C> <C> <C> <C>
Weighted average number of shares outstanding 7,916,473 4,575,161 7,159,082 4,058,562
Net number of shares issued on the assumed exercise
of stock options -- 200,637 723,822 127,348
Shares issued on the assumed conversion of
convertible subordinated debenture 250,000 -- 250,000 --
------------------------------ -------------------------------
Number of shares used in the computation of dituted
earnings per share 8,166,473 4,775,798 8,132,904 4,185,910
============================== ===============================
</TABLE>
The diluted share base for the three months ended September 30, 2000 excludes
incremental shares of 1,027,116 related to stock options. These shares are
excluded due to their antidilutive effect as a result of the Company's net
loss.
7. OTHER INCOME
Other income for the nine months ended September 30, 2000 consists primarily
of the partial satisfaction ($10,000) of an amount payable the Company
exchanged for 10,000 shares of Digital Chainsaw, an investment the Company
received in connection with its divestiture of UST, and the reversal
($50,000) of an amount previously recorded as a payable to a consultant in
1998 for which the Company has no obligation to satisfy.
8. RELATED PARTY TRANSACTION
During the nine months ended September 30, 2000, the Company converted
approximately $54,000 of amounts due to its non-employee directors into
options to purchase approximately 385,000 shares of the Company's common
stock at $0.14 per share, which represented the market price per share on the
date of grant, and the fair value of the accrued liability.
9. COMPREHENSIVE INCOME
The components of comprehensive income for the nine months ended September 30,
2000 and 1999 are as follows:
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
---- ----
<S> <C> <C>
Net income $257,300 $403,821
Unrealized gain on marketable securities 236,329 ---
-------- --------
Comprehensive income $401,461 $403,821
======== ========
</TABLE>
9
<PAGE>
The components of accumulated other comprehensive income, net of related tax,
at September 30, 2000 and December 31, 1999 are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Unrealized gain on marketable securities $236,329 $ --
======== ========
</TABLE>
10
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
--------
The Company's revenues are comprised primarily of service fees and royalties.
Service fees are generated from the development of custom multimedia software,
and royalties are paid to the Company by customers who resell copies of software
developed by the Company for such customers.
Results of Operations
---------------------
Three and Nine Months Ended September 30, 2000 Compared to Three and Nine Months
Ended September 30, 1999
Total revenue for the three months ended September 30, 2000 was $404,580 as
compared to $257,698 for the same period of 1999, an increase of approximately
$147,000 or 57%. Total revenue for the nine months ended September 30, 2000 was
$1,076,772 as compared to $816,876 for the same period of 1999, an increase of
approximately $260,000 or 32%. The increase in revenue for these periods is due
primarily to an increase in both the size and volume of new contracts and the
timing of completion of existing contracts with our customers.
During the three and nine month periods ended September 30, 2000, revenue from
custom multimedia software development services was $401,255 and $1,066,422,
respectively, as compared to $252,339 and $796,928, respectively, for the same
periods of the prior year, increases of approximately $149,000 (59%) and
$269,000 (34%), respectively. The increases are primarily a result of an
increase in both the size and volume of new contracts and the timing of
completion of the Company's contracts with customers. The Company's strategy to
increase revenues prospectively includes targeting its sales and marketing
efforts of technology-based training solutions to the manufacturing and
transportation industries.
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 $3,325 and $10,350, respectively, during the three and nine month
periods ended September 30, 2000, as compared to $5,359 and $19,948,
respectively, for the same periods of the prior year, a decrease of
approximately $2,000 (37%) and $9,600 (48%), respectively. The Company
generally expects royalty revenue to remain constant with current levels due to
the aging shelf life of products for which the Company currently receives
royalties. However, the Company continually explores additional marketing and
development partners to increase revenues generated from royalty arrangements.
The net income (loss) and earnings (loss) per share were $(81,702) and ($0.01),
respectively, for the three month period ended September 30, 2000, as compared
to $487,152 and $0.11, respectively, for the same period in 1999. The decrease
in net income of approximately $569,000 is primarily due to the recovery of
amounts owed by UST in the third quarter of 1999 that had been previously
written-off . The net income and earnings per share were $257,300 and $0.04,
respectively, for the nine month period ended September 30, 2000, as compared to
a net income and net income per share of $403,821 and $0.10, respectively, for
the same period of the prior year. The decrease in net income of approximately
$146,000 is primarily due to the recovery of $600,000 owed by UST in the third
quarter of 1999 that had been previously written-off, offset by an extraordinary
gain of $408,255 from the conversion and cancellation of debt in 2000 (see Note
4 to the Financial Statements).
The net income and net income per share - diluted were $257,300 and $0.03 per
share, respectively, for the nine months ended September 30, 2000, as compared
to $403,821 and $0.10 per share, respectively, for the same period of the prior
year. The net income for the nine months ended September 30, 2000 is due to
extraordinary gain of $408,255 from the conversion and cancellation of debt (see
Note 4 to the Financial Statements).
11
<PAGE>
For the three and nine month periods ended September 30, 2000, the cost of
service revenues for custom multimedia software was $192,801 and $446,234,
respectively, as compared to $118,821 and $385,859, respectively, for the same
periods of the prior year, resulting in gross margins of 52.0% and 58.2%,
respectively, as compared to gross margins of 54.5% and 51.7%, respectively, for
the same periods of 1999. Management expects gross margins to stay consistent
with this level.
During the three and nine month periods ended September 30, 2000, total
operating expenses were $481,365 and $1,277,407, respectively, as compared to
$443,347 and $1,063,857, respectively, for the same periods of the prior year,
increases of approximately $38,000, or 8.6% and $214,000, or 20.1%,
respectively. These increases were primarily attributable to the inclusion of
professional fees associated with the investment stock exchange and conversion
and cancellation of debt.
During the three month period ended September 30, 2000, we incurred research and
development expenses of $68 compared to $23,373 for the same period in 1999.
During the nine month period ended September 30, 2000, research and development
expenses were $3,426 as compared to $62,101 for the same period of the prior
year. Research and development expenses include improvements on existing tools
and the development of software tools and applications to be sold. The decrease
is primarily attributed to less time devoted to research and development as
compared to contract work.
During the three and nine month periods ended September 30, 2000, selling,
general and administrative expenses were $288,496 and $827,747, respectively, as
compared to $301,153 and 615,887, respectively, for the same periods of the
prior year, a decrease of approximately $12,700, or 4% and an increase of
approximately $212,000, or 34%, respectively. The increase is primarily the
result of professional fees associated with the conversion and cancellation of
debt.
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.
For the year ended December 31, 1999 the Company had net income of $216,195, but
had a loss from operation of $415,179. In addition, as of December 31, 1999,
the Company had an accumulated deficit of $16,241,480. For the three and nine
month periods ended September 30, 2000, the Company had net (loss) income of
$(81,702) and $257,300. As discussed in Strategy to Achieve Profitable
Operations below, the Company's 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 or at all. In February and March
2000, the Company received $500,000 from the sale of convertible debentures and
common stock.
At September 30, 2000, the Company had available to it $100,000 under its line
of credit agreement put in place during the third quarter of 2000.
Additionally, even though not currently salable, the Company is holding
approximately 65,000 shares of common stock of High Speed Access Corporation, a
company listed on the Nasdaq stock market under the symbol HSAC. The market
value of these shares of common stock as of October 25, 2000 was approximately
$225,000. The Company currently intends to liquidate these shares of common
stock as soon as the contractual lock-up period described in Note 2 to the
financial statements allows.
For the nine months ended September 30, 2000, the Company used cash of $197,646
from operations. In addition to the net income, the Company experienced a net
increase in the extinquishment of debt and accounts receivable and deferred
costs. The Company used cash of $36,880 for investing activities. The Company
received net cash of $145,745 from financing activities.
12
<PAGE>
For the nine month period ended September 30, 1999, the Company's operations
provided cash of approximately $512,000. Included in net income for the nine
month period ended September 30, 1999 is the receipt of $600,000 as payment on
the Company's promissory note with UST. In addition, the Company experienced a
net increase in accounts payable and accrued liabilities during the period and a
decrease in accounts receivable. Net cash of approximately $5,600 was used for
investing activities for the purchase of equipment. The Company made a
principal payment of $150,000 on the outstanding convertible subordinated
debenture during the third quarter of 1999.
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
began to stabilize its business during 1999. There are no assurances that the
Company can achieve its strategy.
Strategic Solutions Group entered year 2000 with backlog for its multimedia
products, and with indications that the market demand is increasing. Without
the financial impediment formally imposed by an outstanding convertible
debenture issue, and with a modest amount of new operating capital 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 expanding presence in the
fast-growing field of web-based training. The Company was an early entrant in
this specialty, and its 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. The Company believes that this joint effort will create
expanded future sales opportunities.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: The statements contained in this document and other statements which are
not historical facts are forward looking statements that involve risks and
uncertainties, including, the success of newly implemented sales strategies; the
continued existence of agreements with product providers; market acceptance of
the Company's products and services; the ability to obtain a larger number and
size of contracts; the timing of contract awards; work performance and customer
response; the impact of competitive products and pricing; technological
developments by the Company's competitors or difficulties in the Company's
research and development efforts; and other risks as detailed in the Company's
Securities and Exchange Commission filings.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
-----------------
The Company has previously disclosed a prior legal proceeding with the holder of
a Subordinated Convertible Debenture. On March 1, 2000, the Company settled all
outstanding issues with the holder of the Debenture, the terms of which have
been previously disclosed in the Company's Quarterly Report for the quarter
ended March 31, 2000.
The Company is not subject to any other legal proceedings other than claims that
arise in the ordinary course of its business.
13
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Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
The Annual Meeting of the Company's Stockholders was held on August 18, 2000 to
consider and vote upon the following proposals:
(i) Election of Directors. Nagesh Mhatre was nominated and elected as a
director to serve a term that expires at the 2003 Annual Meeting of
Stockholders, with 7,163,599 shares voted for Mr. Mhatre and 352,848 shares
withheld. John Cadigan and John Morgenstern serve terms that expire at the 2001
Annual Meeting of Stockholders and A. David Rossin and Ernest Wagner serve terms
that expire at the 2002 Annual Meeting of Stockholders.
(ii) Approval of the appointment of Grant Thornton LLP as the Company's
independent public accountants for 2000, with 7,427,808 shares voted for such
proposal, 84,934 shares voted against such proposal and 3,705 shares abstaining.
Item 5. Other Information.
-----------------
On October 21, 2000, John Cadigan retired as the Company's Chiarman of the Board
and Chief Executive Officer. He intends to remain on the Company's Board of
Directors until the expiration of his current term at the 2001 Annual Meeting of
Stockholders. The Company has been aware of Mr. Cadigan's planned retirement
and has been actively seeking someone to replace Mr. Cadigan. Ernest Wagner,
the Company's President and Chief Operating Officer, will continue to oversee
the Company's day to day operations.
Item 6. Exhibits and Reports on Form 8-K:
--------------------------------
(a) Exhibits
27.1 Financial data schedule.
(b) Reports on Form 8-K filed during the three months ended September
30, 2000: none
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STRATEGIC SOLUTIONS GROUP, INC.
-------------------------------
(Registrant)
Dated: November 2, 2000
BY: /s/ Ernest A. Wagner
--------------------
Ernest A. Wagner
President and Chief Operating Officer
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