UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 9, 2001
STRATUS SERVICES GROUP, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 001-15789 22-3499261
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(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation or organization) Identification No.)
500 Craig Road, Suite 201, Manalapan, New Jersey 07726
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(Address of principal executive offices)
(732) 866-0300
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(Registrant's telephone number including area code)
The undersigned Registrant hereby amends and restates its current
report on Form 8-K filed with the Securities and Exchange Commission on August
9, 2001, which excluded certain financial statements and pro forma financial
information not available at the time of filing.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On August 7, 2001, Stratus Services Group, Inc., a Delaware
corporation ("Stratus" or the "Registrant") closed on the purchase of
substantially all of the tangible and intangible assets, excluding accounts
receivable of eight offices of Source One Personnel, Inc. ("Source One"), a New
Jersey corporation, pursuant to the terms of an Asset Purchase Agreement dated
July 27, 2001. The initial purchase price for the assets was $3.4 million, of
which $200,000, in cash, and 400,000 shares of Stratus Service Group, Inc.
restricted common stock, which Source One can sell back to Stratus at $2.00 per
share after twenty-four months from closing, were paid at the closing and the
remaining $2.4 million was represented by promissory notes. The first note,
representing $600,000, is payable in one installment of $600,000 plus accrued
interest at 7% per annum, at 180 days after the closing of the asset purchase
agreement. The second note, representing $1.8 million bears interest at 7% per
annum and payable over a four-year period in equal quarterly payments beginning
120 days after the closing of the Asset Purchase Agreement. In connection with
the transaction, Source One entered into a Non-competition and Non-Solicitation
Agreement pursuant to which it agreed not to compete with the Registrant in the
territories of the acquired business for a period of four years and to not
solicit the employees or customers of the acquired business for a period of four
years.
The purchase price was arrived at through arms-length negotiations
between the parties. The cash portion of the purchase price was funded from
available cash on hand.
The Source One branches provide temporary light industrial and clerical
staffing in eight business locations in the cities of Lawrenceville, NJ, North
Brunswick, NJ, Cherry Hill, NJ, Freehold, NJ, Paulsboro, NJ, Abington, PA,
Fairless Hills, PA and Newark, DE, with estimated 2000 revenues of $14 million.
The Registrant currently intends to continue to operate the business
formerly conducted by Source One at the purchased locations with the purchased
assets for the foreseeable future. The foregoing statement of the Registrant's
intention is a forward looking statement within the meaning of Section 21E of
the Securities Exchange Act of 1934, and is based on certain assumptions,
including among others, general economic conditions, management's expectations
regarding the operating results of the Registrant and the purchased locations,
the capital requirements of continuing Source One's current business and others.
Should these assumptions change, or prove to be inaccurate, the Registrant's
actual future conduct of Source One's business could differ materially from the
intention stated.
The above descriptions of the asset purchase agreement and the
Non-competition and Non-solicitation agreements do not purport to be complete
and are qualified in their entirety by the full text of such documents, which
are attached as exhibits to the Form 8-K filed on August 9, 2001 being amended
by this Form 8-K/A.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The financial statements of the Administrative Division of Source One Personnel,
Inc. and the notes thereto are located on pages 3 through 8 of this Form 8-K/A.
Independent Auditors' Report
To the Board of Directors
Source One Personnel, Inc.
We have audited the accompanying statements of net assets sold of the
Administrative Division of Source One Personnel, Inc. (the "Administrative
Division") as of December 31, 2000 and 1999, and the statements of net revenues,
cost of revenues, and direct operating expenses for each of the three years in
the period ended December 31, 2000, pursuant to the Asset Purchase Agreement
dated July 27, 2001, between Source One Personnel, Inc. and Stratus Services
Group, Inc., as described in Note 1 to the financial statements. These financial
statements are the responsibility of Source One Personnel, Inc's. management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying financial statements were prepared to present the net assets of
the Administrative Division sold to Stratus Services Group, Inc. pursuant to the
Asset Purchase Agreement described in Note 1, and the net revenues, cost of
revenues, and direct operating expenses of the Administrative Division, and are
not intended to be a complete presentation of the Administrative Division's
financial position, results of operations and cash flows.
In our opinion, such financial statements present fairly, in all material
respects, the net assets sold of the Administrative Division pursuant to the
Asset Purchase Agreement referred to in Note 1 as of December 31, 2000 and 1999,
and the net revenues, cost of revenues, and direct operating expenses for each
of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying statements of net revenues, cost of revenues and direct
operating expenses for the six months ended June 30, 2001 and 2000, was not
audited by us and, accordingly, we do not express an opinion on it.
/s/ AMPER, POLITZINER & MATTIA P.A.
AMPER, POLITZINER & MATTIA P.A.
September 17, 2001
Edison, New Jersey
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THE ADMINISTRATIVE DIVISION OF SOURCE ONE PERSONNEL, INC.
Statements of Net Assets Sold (in thousands)
December 31,
2000 1999
---- ----
Assets
Property and equipment, net $ 25 $ 23
Liabilities
Commitments and contingencies (Note 3) -- --
------------- -------------
Total net assets sold $ 25 $ 23
============= =============
See accompanying notes to financial statements.
4
THE ADMINISTRATIVE DIVISION OF SOURCE ONE PERSONNEL, INC.
Statements of Net Revenues, Cost of Revenues, and
Direct Operating Expenses (in thousands)
Six Months Ended
June 30, Years Ended December 31,
2001 2000 2000 1999 1998
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
Net revenues $ 6,229 $ 6,337 $ 13,954 $ 9,978 $ 4,645
Cost of revenue 4,805 4,954 10,833 7,771 3,503
------------- ------------- ------------- ------------- --------------
Gross profit 1,424 1,383 3,121 2,207 1,142
Direct operating expenses 1,040 813 1,907 1,312 938
------------- ------------- ------------- ------------- --------------
Excess of gross profit over
direct operating expenses $ 384 $ 570 $ 1,214 $ 895 $ 204
============= ============= ============= ============= ==============
See accompanying notes to financial statements.
5
THE ADMINISTRATIVE DIVISION OF SOURCE ONE PERSONNEL, INC.
Notes to Financial Statements
(Information for the Six Months Ended June 30, 2001 and 2000 is unaudited)
Note 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Source One Personnel, Inc. (the "Company") is a provider of light
industrial and clerical temporary services in New Jersey,
Delaware and Pennsylvania.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared for the
purpose of presenting the net assets sold of the Administrative
Division of the Company (the "Administrative Division") as of
December 31, 2000 and 1999 pursuant to the Asset Purchase
Agreement (the "Agreement") dated July 27, 2001 (the "Closing
Date") between Source One Personnel, Inc. and Stratus Services
Group, Inc. (the "Buyer") and the Administrative Division's net
revenues, cost of revenues and direct operating expenses for the
period from January 1, 2001 to June 30, 2001, the approximate date
the transaction was consummated and for each of the three years in
the period ended December 31, 2000.
Pursuant to the Agreement, the Company sold to the Buyer all of
the tangible and intangible assets owned or used by the Company
exclusively in connection with the operation of the Administrative
Division, excluding accounts receivable, in exchange for
consideration totaling approximately $3.4 million, consisting of
$200,000 in cash, $2,400,000 in notes receivable in various
installments over a four year period plus interest at 7% per annum
and 400,000 shares of common stock of the Buyer in which the
seller can sell back to the Buyer at $2 per share after 24 months
from closing. The Buyer has agreed to assume all liabilities
arising after the Closing Date relating to the Administrative
Division Contracts, as defined, and on lease agreements related to
the operations of the Administrative Division.
Historically, the Company did not prepare financial statements for
the Administrative Division. The accompanying financial statements
are derived from the historical accounting records of the Company,
and present the net assets sold of the Administrative Division, in
accordance with the Agreement, as of December 31, 2000 and 1999,
and the statements of net revenues, cost of revenues and direct
operating expenses for the six months ended June 30, 2001 and 2000
and for each of the three years in the period ended December 31,
2000 and are not intended to be a complete presentation of the
Administrative Division's financial position, results of
operations and cash flows. The historical operating results may
not be indicative of the results after acquisition by the Buyer.
The statements of net revenues, cost of revenues and direct
operating expenses include all revenues and expenses directly
attributable to Administrative Division, which consisted of eight
staffing branch offices located in the states of New Jersey,
Delaware, and Pennsylvania. Direct operating expenses consist
primarily of in-house payroll and selling, general and
administrative expenses. The statements do not include allocations
of corporate service center costs, such as interest on Company
debt or corporate service center employees' salaries. The Company
did not maintain the Administrative Division as a separate
business unit and had never allocated indirect costs to the
division. Accordingly, it is not practical to isolate or allocate
indirect operating costs applicable to the Administrative
Division.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
All staffing revenues are based upon the gross payroll of the
Administrative Division's staffing employees plus a corresponding
fee. The Administrative Division's fee structure is based upon the
estimated costs of employment-related taxes, health benefits,
workers' compensation benefits, insurance and other services
offered by the Administrative Division plus a negotiated mark-up.
All staffing customers are invoiced on a weekly basis. The
staffing revenues, and related costs of wages,
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THE ADMINISTRATIVE DIVISION OF SOURCE ONE PERSONNEL, INC.
Notes to Financial Statements
(Information for the Six Months Ended June 30, 2001 and 2000 is unaudited)
Note 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -
(continued)
salaries, employment taxes and benefits related to worksite
employees, are recognized in the period in which those employees
perform the staffing services.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, less accumulated
depreciation. Depreciation is provided over the estimated useful
lives of the assets as follows:
Estimated
METHOD USEFUL LIFE
Computer equipment Straight-line 3-5 years
Computer software Straight-line 3 years
Office equipment Straight-line 7 years
Furniture and fixtures Straight-line 7 years
ADVERTISING COSTS
Advertising costs are expensed as incurred. Such expense for the
six months ended June 30, 2001 and 2000 and the years ended
December 31, 2000, 1999 and 1998 was $45,300, $51,000, $112,000,
$69,000 and $45,000, respectively.
INCOME TAXES
The Company has elected to be taxed as a S Corporation for federal
and state tax purposes. Under this election, substantially all of
the profits, losses, credits and deductions of the Company are
passed through to the individual stockholders.
Note 2 - PROPERTY AND EQUIPMENT
December 31,
2000 1999
---- ----
Computer equipment $ 21,968 $ 13,046
Computer software 11,815 9,852
Office equipment 5,867 5,676
Furniture and fixtures 11,960 10,000
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51,610 38,574
Less accumulated depreciation 26,576 15,956
------------ ------------
Property and equipment, net $ 25,034 $ 22,618
============ ============
Property and equipment of the Administrative Division has been
pledged as collateral under the Company's borrowing facilities as
of December 31, 2000 and 1999.
Depreciation and amortization expense for property and equipment
for the six months ended June 30, 2001 and 2000 and for the years
ended December 31, 2000, 1999 and 1998 was $5,500, $5,300,
$10,620, $5,933 and $8,023, respectively.
The Company's assets held for disposition as of December 31, 2000
and included in the Agreement were stated at the lower of original
cost (net of accumulated depreciation or amortization) or fair
value (net of selling and disposition costs).
Note 3 - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Administrative Division conducts its operations in various
leased facilities under leases that are classified as operating
leases for financial reporting purposes. The leases provide for
the Company to pay real estate taxes, common area maintenance and
certain other expenses. Lease terms, excluding
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THE ADMINISTRATIVE DIVISION OF SOURCE ONE PERSONNEL, INC.
Notes to Financial Statements
(Information for the Six Months Ended June 30, 2001 and 2000 is unaudited)
Note 3 - COMMITMENTS AND CONTINGENCIES (Con't)
renewal option periods exercisable by the Company at escalated
rents, expire between 2001 and 2003. Aggregate monthly payments
are approximately $8,000 which include approximately $2,500
relating to month-to-month arrangements.
The following is a summary of fixed minimum lease commitments
required under all noncancellable operating leases for the years
ended after December 31, 2000:
2001 $ 69,000
2002 38,000
2003 13,000
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Total $ 120,000
==========
Rent expense, including equipment rental, was $63,000 and $43,000
for the six months ended June 30, 2001 and 2000, and $96,000,
$77,000 and $61,000 for the years ended December 31, 2000, 1999
and 1998, respectively.
Note 4 - SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
For the six months ended June 30, 2001 and 2000 two customers and
one customer accounted for approximately 21% and 12% of
administrative revenues, respectively. For the years ended
December 31, 2000, 1999 and 1998, approximately 12%, 13% and 7%,
respectively, of the Administrative Division's revenues were from
the provision of services to a single customer.
Note 5 - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) retirement plan administered by the
Company, covering all employees of the Company, except for (a)
employees under the age of 21, (b) employees with less than one
year of service, (c) all highly compensated employees as defined
by the Internal Revenue Code for the 401(k) plan. Eligible
employees who participate elect to contribute to the plan an
amount up to 15% of their salary.
8
STRATUS SERVICES GROUP, INC.
Unaudited Pro Forma Condensed Balance Sheet
As of June 30, 2001
Pro Forma
Stratus Adjustments Pro Forma
--------------- -------------- ---------------
Current Assets:
Cash $ 83,853 $ -- $ 83,853
Other current assets 10,480,105 -- 10,480,105
--------------- -------------- ---------------
10,563,958 -- 10,563,958
Goodwill 4,552,982 3,330,000 (c) 7,882,982
Other assets 2,545,579 105,000 (c) 2,650,579
--------------- -------------- ---------------
$ 17,662,519 $ 3,435,000 $ 21,097,519
=============== ============== ===============
Current liabilities $ 11,532,074 $ 208,000 (a) $ 12,704,574
$ 27,000 (b)
938,000 (d)
Other liabilities 2,253,079 1,462,000 (d) 3,715,579
--------------- -------------- ---------------
13,785,153 2,635,000 16,420,153
Temporary equity 69,000 800,000 (e) 869,000
Stockholders' equity 3,808,366 3,808,366
--------------- -------------- ---------------
$ 17,662,519 $ 3,435,000 $ 21,097,519
=============== ============== ===============
See accompanying notes to unaudited condensed pro forma financial statements.
9
STRATUS SERVICES GROUP, INC.
Unaudited Pro Forma Condensed Statement of Operations
For the Nine Months Ended June 30, 2001
Pro Forma
Stratus Source One. Adjustments Pro Forma
------------- --------------- ------------ ------------
Revenues $ 47,717,198 $ 10,531,000 $ -- $ 58,248,198
Cost of revenue 37,646,484 8,138,000 -- 45,784,484
------------- --------------- ------------ ------------
Gross profit 10,070,714 2,393,000 -- 12,463,714
Operating expenses 11,684,952 1,569,000 -- 13,253,952
------------- --------------- ------------ ------------
Earnings (loss) from operations (1,614,238) 824,000 -- (790,238)
Other income (expenses):
Finance charges (100,934) -- (32,000)(a) (132,934)
Interest expense (1,627,844) (77,000)(b) (1,770,844)
(66,000)(c)
Other income (20,641) -- -- (20,641)
------------- --------------- ------------ ------------
(1,749,419) -- (175,000) (1,924,419)
------------- --------------- ------------ ------------
Net earnings (loss) $ (3,363,657) $ 824,000 $ (175,000) $ (2,714,657)
============= =============== ============ ============
Earnings (loss) per common share
Basic $ (.59) $ (.48)
Diluted $ (.59) (.47)
Weighted average shares outstanding
Basic 5,674,781 5,674,781
Diluted 5,724,889 5,724,889
See accompanying notes to unaudited condensed pro forma financial statements.
10
STRATUS SERVICES GROUP, INC.
Unaudited Pro Forma Condensed Statement of Operations
For the Year Ended September 30, 2000
For the Year Ended For the Nine Months
September 30, 2000 Ended
June 30, 2000
Stratus Tandem - New Source One Tandem-
England Region Mid-Atlantic Region
------------- ------------------ --------------- --------------------
Revenues $ 41,676,587 $ 9,074,000 $ 13,954,000 $ 17,888,000
Cost of revenue 31,182,678 7,715,000 10,833,000 14,720,000
------------- --------------- --------------- --------------
Gross profit 10,493,909 1,359,000 3,121,000 3,168,000
Operating expenses 8,914,917 1,580,000 1,907,000 2,057,000
-------------- --------------- --------------- --------------
Earnings (loss) from operations 1,578,992 (221,000) 1,214,000 1,111,000
Other income (expenses):
Finance charges (618,134) -- -- --
Interest expense (300,892) -- -- --
Other income 45,944 -- -- --
-------------- --------------- --------------- --------------
(873,082) -- -- --
Earnings (loss) before income tax
(benefit) 705,910 (221,000) 1,214,000 1,111,000
Income tax (benefit) (340,000) -- --
-------------- --------------- --------------- --------------
Net earnings (loss) $ 1,045,910 $ (221,000) $ 1,214,000 1,111,000
============== =============== =============== ==============
Earnings per common share
Basic $ 21
Diluted .02
Weighted average shares outstanding
Basic 4,931,914
Diluted 5,223,508
Pro Forma
Adjustments Pro Forma
----------- --------------
Revenues $ -- $ 82,592,587
Cost of revenue -- 64,450,678
----------- --------------
Gross profit -- 18,141,909
Operating expenses 134,000 (a) 14,592,917
----------- --------------
Earnings (loss) from operations (134,000) 3,548,992
Other income (expenses):
Finance charges (450,000)(b) (1,068,134)
Interest expense (158,000)(c) (458,892)
Other income -- 45,944
----------- ---------------
(608,000) (1,481,082)
Earnings (loss) before income tax
(benefit) (742,000) 2,067,910
Income tax (benefit) -- (340,000)
------------ --------------
Net earnings (loss) $ (742,000) $ 2,407,910
=========== ==============
Earnings per common share
Basic .49
Diluted .46
Weighted average shares outstanding
Basic 4,931,914
Diluted 5,223,508
See accompanying notes to unaudited condensed pro forma financial statements.
11
STRATUS SERVICES GROUP, INC.
Notes to Unaudited Pro Forma Condensed Financial Statements
(1) Basis of Presentation
The accompanying pro forma condensed balance sheet and statement of
operations are presented to give effect to the acquisitions of
substantially all of the tangible and intangible assets, excluding
accounts receivable, of the Tandem-Mid-Atlantic Region of Outsource
International, Inc. ("Outsource"), the Tandem-New England Region of
Outsource, and the Administrative Division of Source One Personnel,
Inc. ("Source One") which occurred in June 2000, October 2000, and July
2001, respectively. The pro forma condensed balance sheet assumes that
the acquisition of Source One occurred as of June 30, 2001. The pro
forma condensed statement of operations assumes that all the
acquisitions occurred October 1, 1999. Such information does not
purport to be indicative of the results which would have actually been
obtained if the acquisitions had been effected on the dates indicated
nor is it indicative of actual or future operating results or financial
position.
(2) Pro Forma Adjustments - Condensed Balance Sheet
(a) The cash portion paid for Source One of $200,000 plus
acquisition costs of $8,000.
(b) Accrued vacation liability assumed in connection with the
acquisition of Source One.
(c) Adjustment to record the goodwill and other assets in
connection with the acquisition of Source One.
(d) Adjustment to record the $600,000 and $1,800,000 acquisition
notes incurred in connection with the acquisition of Source
One.
(e) Adjustment to record the 400,000 shares of the Company's
common stock with a put option of $2.00 per share issued in
connection with the acquisition of Source One.
(3) Pro Forma Adjustments - Condensed Statement of Operations for the Nine
Months Ended June 30, 2001
(a) Adjustment to reflect the increase in finance charges relating
to the accounts receivable of the acquisition, which would
have been financed under the Company's agreement with a factor
through December 12, 2000.
(b) Adjustment to reflect the increase in interest expense
relating to the accounts receivable of the acquisition, which
would have been financed under the Company's line of credit
subsequent to December 12, 2000.
(c) Records the interest on acquisition notes.
Pro Forma Adjustments - Condensed Statement of Operations for the Year Ended
September 30, 2000
(a) Adjustment to reflect the amortization expense relating to the
goodwill recorded in conjunction with the acquisitions, not
already reflected in the Company's historical condensed
statement of operations.
(b) Adjustment to reflect the increase in finance charges relating
to the accounts receivable of the acquisitions, which would
have been financed under the Company's agreement with a
factor.
(c) Records the interest on acquisition notes.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STRATUS SERVICES GROUP, INC.
By: /s/ JOSEPH J. RAYMOND
-----------------------------
Joseph J. Raymond
President & CEO
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