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): January 2, 2002
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 January
2, 2002, 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 December 28, 2001, Stratus Services Group, Inc., a Delaware
corporation ("Stratus" or the "Registrant"), purchased substantially all of the
tangible and intangible assets, excluding accounts receivable, of seven offices
of Provisional Employment Solutions, Inc. ("PES"), a Georgia corporation,
pursuant to the terms of an Asset Purchase Agreement dated December 27, 2001.
The purchase price for the assets was $1,480,000, represented by a $1.1 million
promissory note and 400,000 shares of Stratus Service Group, Inc. restricted
common stock. In addition to the purchase price, PES is entitled to a ten-year
earn out at the rate of 15% of pre-tax profit payable quarterly up to
$1,250,000. The note bears interest at 6% per annum and is payable over a
ten-year period in equal quarterly payments beginning 90 days after the closing
of the Asset Purchase Agreement. In connection with the transaction, PES and
three senior management members entered into a Non-competition and
Non-Solicitation Agreement pursuant to which they agreed not to compete with the
Registrant in the territories of the acquired business for a period of two 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 PES branches provide temporary light industrial and clerical
staffing in seven business locations in the California cities of Chino, Ontario,
Orange, Rancho, Riverside, Santa Fe Springs and Walnut with estimated 2001
revenues of $23 million.
The Registrant currently intends to continue to operate the business
formerly conducted by PES 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 PES's current business and others. Should
these assumptions change, or prove to be inaccurate, the Registrant's actual
future conduct of PES 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 January 2, 2002 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 Provisional Employment Solutions, Inc. and the notes
thereto are located on pages 4 through 9 of this Form 8-K/A.
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Independent Auditors' Report
To the Board of Directors
Provisional Employment Solutions, Inc.
We have audited the accompanying statements of net assets sold of Provisional
Employment Solutions, Inc. (the "Company") as of September 30, 2001 and 2000,
and the statements of net revenues, cost of revenues, and direct operating
expenses for the twelve months ended September 30, 2001 and 2000, pursuant to
the Asset Purchase Agreement dated December 27, 2001, between Provisional
Employment Solutions, Inc. and Stratus Services Group, Inc., as described in
Note 1 to the financial statements. These financial statements are the
responsibility of Provisional Employment Solutions, Inc. 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
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 relating to the assets sold, and are not intended to be a
complete presentation of the Company's financial position, and results of
operations.
In our opinion, such financial statements present fairly, in all material
respects, the net assets sold pursuant to the Asset Purchase Agreement referred
to in Note 1 as of September 30, 2001 and 2000, and the net revenues, cost of
revenues, and direct operating expenses for the twelve months ended September
30, 2001 and 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 three months ended December 31, 2001 and 2000, were
not audited by us and, accordingly, we do not express an opinion on it.
AMPER, POLITZINER & MATTIA P.A.
February 28, 2002
Edison, New Jersey
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PROVISIONAL EMPLOYMENT SOLUTIONS, INC.
Statements of Net Assets Sold (in thousands)
September 30,
2001 2000
---- ----
Assets
Property and equipment, net $ 38 $ 35
Liabilities
Commitments and contingencies (Note 3) - -
--------- ---------
Total net assets sold $ 38 $ 35
========= =========
See accompanying notes to financial statements.
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PROVISIONAL EMPLOYMENT SOLUTIONS, INC.
Statements of Net Revenues, Cost of Revenues, and Direct
Operating Expenses (in thousands)
Three Months Ended Twelve Months Ended
December 31, September 30,
2001 2000 2001 2000
---- ---- ---- ----
(Unaudited) (Unaudited)
Net revenues $ 5,158 $ 5,149 $ 23,925 $ 13,245
Cost of revenue 4,430 4,622 20,581 10,984
--------- --------- --------- ----------
Gross profit 728 527 3,344 2,261
Direct operating expenses 482 571 2,377 1,556
--------- --------- --------- ----------
Excess of gross profit over
direct operating expenses
(direct operating expenses over
gross profit) $ 246 $ (44) $ 967 $ 705
========= ========= ========= ==========
See accompanying notes to financial statements
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PROVISIONAL EMPLOYMENT SOLUTIONS. INC.
Notes to Financial Statements
(Information for the Three Months Ended December 31, 2001
and 2000 is unaudited)
Note 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
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NATURE OF BUSINESS
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Provisional Employment Solutions, Inc. (the "Company") is a
provider of light industrial and clerical temporary services
in California which commenced business in August 1999.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared for the
purpose of presenting the net assets sold of certain offices of
the Company (the "Division") as of September 30, 2001 and 2000
pursuant to the Asset Purchase Agreement (the "Agreement") dated
December 27, 2001 (the "Closing Date"), effective January 1, 2002
between Provisional Employment Solutions, Inc. and Stratus
Services Group, Inc. (the "Buyer") and the Division's net
revenues, cost of revenues and direct operating expenses for the
period from October 1, 2001 to December 31, 2001, the approximate
date the transaction was consummated and for twelve months ended
September 30, 2001 and 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 certain offices,
excluding accounts receivable, in exchange for consideration
totaling approximately $1,480,000, consisting of $1,100,000 in
notes receivable in installments over a ten year period plus
interest at 6% per annum and 400,000 shares of common stock of the
Buyer. The Company is also entitled to receive $1,250,000 in a ten
year earn out at the rate of 15% of pre-tax profit payable
quarterly. The Buyer has agreed to assume all liabilities arising
after the Closing Date relating to the Division contracts, as
defined, and on lease agreements related to the operations of the
Division.
Historically, the Company did not prepare financial statements for
the sold Division. The accompanying financial statements are
derived from the historical accounting records of the Company, and
present the net assets sold of the Division, in accordance with
the Agreement, as of September 30, 2001 and 2000, and the
statements of net revenues, cost of revenues and direct operating
expenses for the three months ended December 31, 2001 and 2000 and
for the twelve months ended September 30, 2001 and 2000 and are
not intended to be a complete presentation of the 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 the Division, which consisted of seven staffing
branch offices located in California. 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 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 Division. Information about the Division's cash
flows is not available.
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
Division's staffing employees plus a corresponding fee. The
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 Division
plus a negotiated mark-up. All staffing customers are invoiced on
a weekly basis. The staffing revenues, and related costs of wages,
salaries, employment taxes and benefits related to worksite
employees, are recognized in the period in which those employees
perform the staffing services.
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PROVISIONAL EMPLOYMENT SOLUTIONS. INC.
Notes to Financial Statements
(Information for the Three Months Ended December 31, 2001
and 2000 is unaudited)
Note 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES-(continued)
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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
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Computer and office equipment Straight-line 5 years
Furniture and fixtures Straight-line 5-7 years
ADVERTISING COSTS
Advertising costs are expensed as incurred. Such expense for the
three months ended December 31, 2001 and 2000 and the twelve
months ended September 30, 2001 and 2000 was $60,000 and $66,000
and $285,000 and $160,000, 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
September 30,
2001 2000
---- ----
Office and computer equipment $ 39,385 $ 32,683
Furniture and fixtures 11,504 10,707
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50,889 43,390
Less accumulated depreciation (13,328) (8,326)
----------- -----------
Property and equipment, net $ 37,561 $ 35,064
=========== ===========
Depreciation expense for property and equipment for the three
months ended December 31, 2001 and 2000 and for the twelve months
ended September 30, 2001 and 2000 was $2,011 and $1,250, and
$5,002 and $7,265, respectively.
The Company's assets held for disposition as of September 30, 2001
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 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 expire between 2002 and 2003. Aggregate monthly
payments are approximately $9,000.
The following is a summary of fixed minimum lease commitments
required under all noncancellable operating leases for the years
ended after September 30, 2001:
2002 $ 109,000
2003 53,000
-----------
Total $ 162,000
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PROVISIONAL EMPLOYMENT SOLUTIONS. INC.
Notes to Financial Statements
(Information for the Three Months Ended December 31, 2001
and 2000 is unaudited)
Note 3 - COMMITMENTS AND CONTINGENCIES - (continued)
-----------------------------
LEASE COMMITMENTS
Rent expense, including equipment rental, was approximately
$38,000 for the three months ended December 31, 2001 and 2000, and
$165,000 and $101,000 for the twelve months ended September 30,
2001 and 2000, respectively.
Note 4 - SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
------------------------------------------------------
For the three months ended December 31, 2001 and 2000 one customer
accounted for approximately 25% and 24% of revenues, respectively.
For the twelve months ended September 30, 2001 and 2000, one
customer and two customers accounted for approximately 29% and 28%
of revenues, respectively.
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.
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STRATUS SERVICES GROUP, INC.
Unaudited Pro Forma Condensed Balance Sheet
As of December 31, 2001
Pro Forma
Stratus Adjustments Pro Forma
------- ----------- ---------
Current Assets:
Cash $ 42,332 $ -- $ 42,332
Other current assets 13,155,390 -- 13,155,390
------------ ----------- ------------
$ 13,197,722 $ -- $ 13,197,722
Intangible assets 6,939,865 1,620,000 (c) 8,559,865
Other assets 2,011,800 (126,000) (a) 1,927,800
42,000 (c)
------------ ----------- ------------
$ 22,149,387 $ 1,536,000 $ 23,685,387
============ =========== ============
Current liabilities $ 14,522,116 $ 14,000 (a) $ 14,661,116
42,000 (b)
83,000 (d)
Other liabilities 2,559,762 1,017,000 (d) 3,576,762
------------ ----------- ------------
17,081,878 1,156,000 18,237,878
Redeemable convertible preferred stock 2,916,000 -- 2,916,000
Temporary equity 869,000 -- 869,000
Stockholders' equity 1,282,509 380,000 (e) 1,662,509
------------ ----------- ------------
$ 22,149,387 $ 1,536,000 $ 23,685,387
============ =========== ============
See accompanying notes to unaudited condensed pro forma
financial statements.
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STRATUS SERVICES GROUP, INC.
Unaudited Pro Forma Condensed Statement of Operations
For the Three Months Ended December 31, 2001
Provisional
Employment Pro Forma
Stratus Services Adjustments Pro Forma
-------------- ---------------- ---------------- --------------
Revenues $ 14,793,224 $ 5,158,000 $ -- $ 19,951,224
Cost of revenues 12,119,322 4,430,000 -- 16,549,322
------------ ------------ ------------ ------------
Gross profit 2,673,902 728,000 -- 3,401,902
Operating expenses 2,901,487 482,000 17,000(a) 3,400,487
------------ ------------ ------------ ------------
Earnings (loss) from continuing operations
before other income (expenses) (227,585) 246,000 (17,000) 1,415
------------ ------------ ------------ ------------
Other income (expenses):
Interest and financing costs (512,043) -- (46,000)(b) (580,043)
(22,000)(c)
Other income (expense) 5,685 -- -- 5,685
------------ ------------ ------------ ------------
(506,358) -- (68,000) (574,358)
------------ ------------ ------------ ------------
Earnings (loss) from continuing operations (733,943) 246,000 (85,000) (572,943)
Dividends and accretion on preferred stock (124,000) -- -- (124,000)
------------ ------------ ------------ ------------
Net earnings (loss) from continuing operations
attributable to common stockholders $ (857,943) $ 246,000 $ (85,000) $ (696,943)
============ ============ ============ ============
Net earnings (loss) per share from
continuing operations attributable
to common stockholders (basic and diluted) $ (.09) $ (.08)
Weighted average shares outstanding
Basic 8,802,821 9,202,821
Diluted 8,802,821 9,202,821
See accompanying notes to unaudited condensed pro
forma financial statements.
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STRATUS SERVICES GROUP, INC.
Unaudited Pro Forma Condensed Statement of Operations
For the Year Ended September 30, 2001
Provisional
Employment Pro Forma
Stratus Services Source One Adjustments Pro Forma
------- ---------- ---------- ----------- ---------
Revenues $ 57,026,338 $ 23,925,000 $ 10,531,000 $ -- 91,482,338
Cost of revenues 46,074,285 20,581,000 8,138,000 -- 74,793,285
------------ ------------ ------------ ------------ ----------
Gross profit 10,952,053 3,344,000 2,393,000 -- 16,689,053
Operating expenses 14,496,940 2,377,000 1,569,000 202,000(a) 18,644,940
------------ ------------ ------------ ------------ ----------
Earnings (loss) from continuing operations
before other income (expenses)
and income taxes (3,544,887) 967,000 824,000 (202,000) (1,955,887)
------------ ------------ ------------ ------------ ----------
Other income (expenses):
Finance charges, interest and financing costs (2,060,537) -- -- (310,000)(b) (2,560,537)
(190,000)(c)
Other income (expense) (47,963) -- -- -- (47,963)
------------ ------------ ------------ ------------ ----------
----------
(2,108,500) -- -- (500,000) (2,608,500)
------------ ------------ ------------ ------------ ----------
Earnings (loss) from continuing operations
before income taxes (5,653,387) 967,000 824,000 (702,000) (4,564,387)
Income taxes 340,000 -- -- -- 340,000
------------ ------------ ------------ ------------ ----------
Earnings (loss) from continuing operations (5,993,387) 967,000 824,000 (702,000) (4,904,387)
Dividends and accretion on preferred stock (63,000) -- -- -- (63,000)
------------ ------------ ------------ ------------ ----------
Net earnings (loss) from continuing operations
attributable to common stockholders $ (6,056,387) $ 967,000 $ 824,000 $ (702,000) (4,967,387)
============ ============ ============ ============ ==========
Net earnings (loss) per share from continuing
operations attributable to common
stockholders (basic and diluted) $ (.99) $ (.78)
Weighted average shares outstanding
Basic 5,996,134 6,396,134
Diluted 5,996,134 6,396,134
See accompanying notes to unaudited condensed pro
forma financial statements.
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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 Administrative Division of Source One
Personnel, Inc. ("Source One") and Provisional Employment Solutions,
Inc. ("PES") which occurred in July 2001 and January 2002,
respectively. The pro forma condensed balance sheet assumes that the
acquisition of PES occurred as of December 31, 2001. The pro forma
condensed statement of operations assumes that all the acquisitions
occurred October 1, 2000. 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.
The pro forma condensed statements of operations do not include
earnings from discontinued operations.
(2) Pro Forma Adjustments - Condensed Balance Sheet
(a) Acquisition costs in connection with PES of $126,000.
(b) Accrued vacation liability assumed in connection with the
acquisition of PES.
(c) Adjustment to record the intangibles and other assets in
connection with the acquisition of PES.
(d) Adjustment to record the $1,100,000 acquisition note incurred
in connection with the acquisition of PES.
(e) Adjustment to record the 400,000 shares of the Company's
common stock issued in connection with the acquisition of PES.
(3) Pro Forma Adjustments - Condensed Statement of Operations for the Three
Months Ended December 31, 2001
(a) Adjustment to reflect the amortization expense relating to the
intangibles 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 interest expense
relating to the accounts receivable of the acquisition, which
would have been financed under the Company's line of credit.
(c) Records the interest on acquisition note.
Pro Forma Adjustments - Condensed Statement of Operations for the Year Ended
September 30, 2001
(a) Adjustment to reflect the amortization expense relating to the
intangibles 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 interest expense
relating to the accounts receivable of the acquisitions, which
would have been financed under the Company's line of credit.
(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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