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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 28, 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)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 28, 2002, Stratus Services Group, Inc. (the "Company") completed
the sale of the assets of its Engineering Services Division (the "Division") to
SEA Consulting Services Corporation (the "Purchaser") pursuant to the Asset
Purchase Agreement dated as of January 24, 2002 among the Company, SEP, LLC
("SEP"), Charles Sahyoun, Sahyoun Holdings LLC and the Purchaser. The
transaction was approved by a vote of the Company's stockholders at the
Company's annual meeting of stockholders held on March 28, 2002.
The assets of the Division had been transferred to SEP, a limited
liability company in which the Company owns a 70% interest, at the time of the
execution of the Asset Purchase Agreement. Sahyoun Holdings, LLC, a company
wholly owned by Charles Sahyoun, the President of the Division and a
newly-elected director of the Company, owns the remaining 30% interest in SEP.
Under the terms of the Asset Purchase Agreement, the Company received an
initial cash payment of $1,560,000, which represented 80% of the initial
$2,200,000 installment of the purchase price payable to SEP after the
satisfaction of certain liabilities and expenses of SEP. Sahyoun Holdings, LLC
received the other 20% of the initial net installment of the purchase price, or
$440,000.
The Asset Purchase Agreement requires the Purchaser to make the following
additional payments to SEP:
(a) A payment of $1 million, plus or minus the amount by which the Purchaser's
profit for the six months ending June 30, 2002, as determined pursuant to
the Asset Purchase Agreement, is greater or less than $600,000 (the
"Second Payment");
(b) A payment of $1 million, plus or minus the amount by which the Purchaser's
profit for the six months ending December 31, 2002, as determined pursuant
to the Asset Purchase Agreement, is greater or less than $600,000 (the
"Third Payment");
(c) Five subsequent annual payments (the "Subsequent Payments") which will be
based upon a multiple of the annual successive increases, if any, in the
Purchaser's profit during the five year period beginning on January 1,
2003 and ending December 31, 2007.
Pursuant to an allocation and indemnity agreement entered into by the
Company, Sahyoun Holdings, LLC and Mr. Sahyoun (the "Allocation and Indemnity
Agreement"), the Company is entitled to $250,000 of each of the Second Payment
and Third Payment. Sahyoun Holdings LLC and Mr. Sahyoun have guaranteed the
$250,000 payments to be made to the Company from each of the Second Payment and
Third Payment, regardless of the operating results of the Purchaser. Upon its
receipt of the payments required under the Allocation and Indemnity Agreement,
the Company's interest in SEP will terminate and the Company will not be
entitled to any additional payments under the Asset Purchase Agreement,
including the Subsequent Payments. Sahyoun Holdings LLC will be entitled to all
amounts paid to SEP under the Asset Purchase Agreement other than $500,000 of
payments payable to the Company pursuant to the Allocation and Indemnity
Agreement and guaranteed by Charles Sahyoun and Sahyoun Holdings, LLC as
described above. Under the terms of the Asset Purchase Agreement, Sahyoun
Holdings LLC will not be entitled to any Subsequent Payments or its allocable
share of the Second and Third Payments if Mr. Sahyoun's employment with
Purchaser ceases for any reason other than death or permanent disability prior
to December 31, 2003.
Mr. Sahyoun and Sahyoun Holdings LLC have jointly and severally agreed to
indemnify the Company from and against all losses, damages, costs and expenses
arising out of or relating to (i) breaches of any covenants or agreements
required to be performed or complied with by Mr. Sahyoun or Sahyoun Holdings LLC
prior to the closing of the sale of the Division (the "Closing"); (ii) breaches
of any agreements, certificates, documents or instruments executed by Mr.
Sahyoun or Sahyoun Holdings LLC delivered pursuant to or in connection with the
2
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Asset Purchase Agreement prior to or at Closing; (iii) the breach or fulfillment
of certain representations and warranties set forth in the Asset Purchase
Agreement; (iv) the negligence of the Company or the Division in conducting the
business of the Division, to the extent that any such losses related to a claim
of a party other than the Company; (v) illegal conduct or willful misconduct on
the part of the employees of the Division; and (vi) breaches prior to the
Closing of any contracts pertaining to the provision of engineering services by
the Division to a party other than the Company. The obligations of Mr. Sahyoun
and Sahyoun Holdings LLC to provide indemnity apply only to the extent that the
Company's losses are not covered by insurance.
The Company has agreed to indemnify Mr. Sahyoun and Sahyoun Holdings LLC
from and against all losses, damages, costs and expenses arising out of or
related to (i) breaches of any covenants or agreements required to be performed
or complied with by the Company prior to the Closing, (ii) breaches of any
agreements, certificates, documents or instruments executed by the Company prior
to or at the Closing, and (iii) the breach or nonfulfillment of certain
representations and warranties set forth in the Asset Purchase Agreement.
The Asset Purchase Agreement provides that Mr. Sahyoun will be entitled to
an annual salary of $175,000 from the Purchaser and, provided that the Purchaser
meets certain earnings tests, a bonus of $25,000 on each June 30 and December 31
during the term of his employment.
ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE
In March 2002, the Company entered into an agreement with the holder (the
"Debenture Holder") of its outstanding 6% Convertible Debentures (the
"Debentures") pursuant to which it issued to the Debenture Holder 231,300 shares
of Series B Convertible Preferred Stock (the "Series B Preferred Stock") in
exchange for (i) $456,499 aggregate principal amount of Debentures, (ii) the
cancellation of a $400,000 promissory note previously issued by the Company to
the Debenture Holder and (iii) $300,000 in cash. In addition, the Debenture
Holder converted, between January 2002 and March 2002, $643,501 principal amount
of Debentures into 1,736,979 shares of Common Stock. As a result of these
transactions, there are no Debentures currently outstanding.
The shares of Series B Preferred Stock have a stated value of $5 per
share. Holders of the Series B Preferred Stock are entitled to cumulative
dividends at a rate of 6% of the stated value per annum, payable when and as
declared by the Board of Directors. Dividends may be paid in cash or, at the
option of the Company, in shares of Common Stock, under certain circumstances.
Holders of Series B Preferred Stock are entitled to a liquidation preference of
$5.00 per share plus accrued dividends. The Series B Preferred Stock is
convertible into shares of Common Stock at the option of the holder at any time.
The number of shares of Common Stock into which each share of Series B
Convertible Preferred Stock is convertible is determined by dividing the
aggregate liquidation preference of the shares being converted by the lesser of
(i) $4.65 or (ii) 75% of the average closing price of the Common Stock during
the five (5) days preceding the date of conversion. If the Company's Common
Stock is reinstated for trading on the Nasdaq Stock Market, the Company will be
required to seek approval from its stockholders of a proposal to approve the
issuance of shares of Common Stock upon conversion of the Series B Preferred
Stock in excess of the limits imposed by the rules of the Nasdaq Stock Market.
In addition to the transactions described above, in March 2002, the holder
of a $160,000 promissory note previously issued by the Company exchanged the
note for 32,000 shares of Series B Preferred Stock. Further, the Company and the
holders of the Company's Series A Preferred Stock agreed to an amendment of the
Certificate of Designation which will permit the Company to pay the redemption
price of the Series A Preferred Stock through the issuance of shares of the
Company's Common Stock. For purposes of determining the number of shares which
the Company will be required to issue if it chooses to pay the redemption price
in shares of Common Stock, the Common Stock will have a value equal to the
average closing price of the Common Stock during the five trading days
immediately preceding the date of redemption.
3
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Not applicable.
(b) PRO FORMA FINANCIAL INFORMATION
PAGE
(1) Unaudited Pro Forma Condensed Balance Sheet as of
December 31, 2001 F-1
(2) Unaudited Prof Forma Statement of Operations for the
Three Months Ended December 31, 2001 F-2
(3) Unaudited Pro Forma Statement of Operations for the
Year Ended September 30, 2001 F-3
(4) Unaudited Pro Forma Condensed Balance Sheet as of
February 28, 2002 F-4
(5) Notes to Unaudited Pro Forma Financial Statements F-5
(c) EXHIBITS.
Exhibit 2.8 Asset Purchase Agreement dated as of January 24,
2002 among Stratus Services Group, Inc., Charles
Sahyoun, Sayhoun Holdings LLC and SEA Consulting
Services Corporation (incorporated by reference to
similarly numbered exhibit filed with the
Registrant's Form 10-K/A for the fiscal year ended
September 30, 2002).
Exhibit 3.1.2 Certificate of Amendment to Certificate of
Designation.
Exhibit 3.3 Certificate of Designations, Rights and
Preferences of Series B Preferred Stock.
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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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STRATUS SERVICES GROUP, INC.
Unaudited Pro Forma Condensed Balance Sheet
As of December 31, 2001
<Table>
<Caption>
Pro Forma Adjustments
-------------------------------
Less:
Stratus Engineering
Services Services Division Sale Proceeds Pro Forma
Group, Inc. (a) (b) Total
----------- ----------------- ------------- -----------
Current Assets
Cash and cash equivalents $ 42,332 $ -- $ 1,460,000 $ 1,502,332
Accounts receivable 9,888,085 -- -- 9,888,085
Unbilled receivables 303,947 -- -- 303,947
Prepaid insurance 1,390,661 -- -- 1,390,661
Investment 1,256,756 -- -- 1,256,756
Prepaid expenses and other
current assets 116,331 -- 500,000 616,331
Net assets of discontinued
Engineering Division 199,610 199,610 -- --
----------- ----------- ----------- -----------
13,197,722 199,610 1,960,000 14,958,112
Property and equipment, net of
accumulated depreciation 1,397,640 -- -- 1,397,640
Intangible assets, net of accumulated
amortization 6,939,865 -- -- 6,939,865
Deferred financing costs, net of
accumulated amortization 341,046 -- -- 341,046
Other assets 273,114 -- -- 273,114
----------- ----------- ----------- -----------
$22,149,387 $ 199,610 $ 1,960,000 $23,909,777
=========== =========== =========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Loans payable (current portion) $ 368,304 $ -- $ -- $ 368,304
Notes payable - acquisitions (current
portion) 1,123,343 -- -- 1,123,343
Line of credit 7,454,127 -- -- 7,454,127
Cash overdraft 286,584 -- -- 286,584
Insurance obligation payable 296,416 -- -- 296,416
Accounts payable and accrued expenses 3,437,307 -- -- 3,437,307
Accrued payroll and taxes 1,237,015 -- -- 1,237,015
Payroll taxes payable 319,020 -- -- 319,020
----------- ----------- ----------- -----------
14,522,116 -- -- 14,522,116
Loans payable (net of current portion) 216,944 -- -- 216,944
Notes payable - acquisitions (net of
current portion) 1,286,230 -- -- 1,286,230
Convertible debt 1,056,588 -- -- 1,056,588
----------- ----------- ----------- -----------
17,081,878 -- -- 17,081,878
Series A voting redeemable convertible
preferred stock 2,916,000 -- -- 2,916,000
Temporary equity - put options 869,000 -- -- 869,000
Stockholders' equity 1,282,509 199,610 1,960,000 3,042,899
----------- ----------- ----------- -----------
$22,149,387 $ 199,610 $ 1,960,000 $23,909,777
=========== =========== =========== ===========
</Table>
See accompanying notes to unaudited pro forma financial statements.
F-1
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STRATUS SERVICES GROUP, INC.
Unaudited Pro Forma Statement of Operations
For the Three Months Ended December 31, 2001
<Table>
<Caption>
Less:
Stratus Engineering
Services Services Pro Forma
Group, Inc. Division (a) Total
------------ ------------ ------------
Revenues $ 14,793,224 $ -- $ 14,793,224
Cost of revenues 12,119,322 -- 12,119,322
------------ ------------ ------------
Gross Profit 2,673,902 -- 2,673,902
Selling, general and administrative expenses 2,901,487 -- 2,901,487
------------ ------------ ------------
(Loss) from continuing operations (227,585) -- (227,585)
------------ ------------ ------------
Other income (expenses)
Interest and financing costs (512,043) -- (512,043)
Other income 5,685 -- 5,685
------------ ------------ ------------
(506,358) -- (506,358)
------------ ------------ ------------
(Loss) from continuing operations (733,943) -- (733,943)
Discontinued operations - earnings from discontinued
Engineering Division 73,266 73,266 --
------------ ------------ ------------
Net earnings (loss) (660,677) 73,266 (733,943)
Dividends and accretion on preferred stock (124,000) -- (124,000)
------------ ------------ ------------
Net earnings (loss) attributable to common stockholders $ (784,677) $ 73,266 $ (857,943)
============ ============ ============
Net earnings (loss) per share attributable to common
stockholders (basic and diluted) $ (.09) $ (.10)
============ ============
Weighted average shares, outstanding per common share
(basic and diluted) 8,802,821 8,802,821
</Table>
See accompanying notes to unaudited pro forma financial statements.
F-2
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STRATUS SERVICES GROUP, INC.
Unaudited Pro Forma Statement of Operations
For the Year Ended September 30, 2001
<Table>
<Caption>
Less:
Stratus Engineering
Services Services Pro Forma
Group, Inc. Division (a) Total
------------ ------------ ------------
Revenues $ 64,271,705 $ 7,245,367 $ 57,026,338
Cost of revenues 51,021,613 4,947,328 46,074,285
------------ ------------ ------------
Gross profit 13,250,092 2,298,039 10,952,053
------------ ------------ ------------
Selling, general administrative expenses 15,211,887 1,790,253 13,421,634
Loss on impairment of goodwill 700,000 -- 700,000
Other charges 519,801 144,495 375,306
------------ ------------ ------------
16,431,688 1,934,748 14,496,940
------------ ------------ ------------
Earnings (loss) from operations (3,181,596) 363,291 (3,544,887)
------------ ------------ ------------
Other income (expenses)
Finance charges, interest and financing costs (2,277,898) (217,361) (2,060,537)
Other income (expense) (47,963) -- (47,963)
------------ ------------ ------------
(2,325,861) (217,361) (2,108,500)
------------ ------------ ------------
Earnings (loss) before income taxes (5,507,457) 145,930 (5,653,387)
Income taxes 340,000 -- 340,000
------------ ------------ ------------
Net earnings (loss) (5,847,457) 145,930 (5,993,387)
Dividends and accretion on preferred stock (63,000) -- (63,000)
------------ ------------ ------------
Net earnings (loss) attributable to common stockholders $ (5,910,457) $ 145,930 $ (6,056,387)
============ ============ ============
Net earnings (loss) per share attributable to common
stockholders (basic and diluted) $ (.99) $ (1.01)
============ ============
Weighted average shares, outstanding per common
share (basic and diluted) 5,996,134 5,996,134
</Table>
See accompanying notes to unaudited pro forma financial statements.
F-3
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STRATUS SERVICES GROUP, INC.
Unaudited Pro Forma Condensed Balance Sheet
As of February 28, 2002
<Table>
<Caption>
Pro Forma Adjustments
----------------------------------------------------
Less:
Stratus Engineering
Services Services Sale Proceeds Other Pro Forma
Group, Inc. Division (a) (b) Transactions Total
---------------- --------------- --------------- --------------- -----------
Current Assets
Cash and cash equivalents $ 516,926 $ -- $ 1,460,000 $ 282,500 (e) $ 2,259,426
Accounts receivable 10,303,038 -- -- -- 10,303,038
Unbilled receivables 1,212,800 -- -- -- 1,212,800
Prepaid insurance 1,249,595 -- -- -- 1,249,595
Investment 1,256,756 -- -- -- 1,256,756
Prepaid expenses and other
current assets 200,459 -- 500,000 -- 700,459
Net assets of discontinued
Engineering Division 199,610 199,610 -- -- --
------------ ------------ ------------ ------------ ------------
14,939,184 199,610 1,960,000 282,500 16,982,074
Property and equipment, net of
accumulated depreciation 1,382,812 -- -- -- 1,382,812
Intangible assets, net of
accumulated amortization 8,504,490 -- -- -- 8,504,490
Deferred financing costs, net of
accumulated amortization 191,224 -- -- (167,690) (c) 23,534
Other assets 142,742 -- -- -- 142,742
------------ ------------ ------------ ------------ ------------
$ 25,160,452 $ 199,610 $ 1,960,000 $ 114,810 $ 27,035,652
============ ============ ============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities
Loans payable (current portion) $ 769,970 $ -- $ -- $ (560,000) (d) $ 209,970
Notes payable - acquisitions
(current portion) 1,186,266 -- -- -- 1,186,266
Line of credit 8,017,362 -- -- -- 8,017,362
Insurance obligation payable 148,208 -- -- -- 148,208
Accounts payable and accrued
expenses 2,512,517 -- -- -- 2,512,517
Accrued payroll and taxes 2,522,813 -- -- -- 2,522,813
Payroll taxes payable 1,612,135 -- -- -- 1,612,135
------------ ------------ ------------ ------------ ------------
16,769,271 -- -- (560,000) 16,209,271
Loans payable (net of current
portion) 200,125 -- -- -- 200,125
Notes payable - acquisitions (net of
current portion) 2,313,307 -- -- -- 2,313,307
Convertible debt 827,802 -- -- (787,802) (c) 40,000
------------ ------------ ------------ ------------ ------------
20,110,505 -- -- (1,347,802) 18,762,703
Series A voting redeemable
convertible preferred stock 2,999,000 -- -- (2,999,000) (f) --
Temporary equity - put options 869,000 -- -- (46,000) (d) 823,000
Stockholders' equity 1,181,947 199,610 1,960,000 620,112 (c) 7,449,949
-- -- -- 606,000 (d)
-- -- -- 282,500 (e)
-- -- -- 2,999,000 (f)
------------ ------------ ------------ ------------ ------------
$ 25,160,452 $ 199,610 $ 1,960,000 $ 114,810 $ 27,035,652
============ ============ ============ ============ ============
</Table>
See accompanying notes to unaudited pro forma financial statements.
F-4
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STRATUS SERVICES GROUP, INC.
Notes to Unaudited Pro Forma Financial Statements
(1) Basis of Presentation
The accompanying pro forma condensed balance sheet as of December 31,
2001 and statement of operations for the year ended September 30, 2001
and three months ended December 31, 2001 are presented to give effect
to the sale of the assets of the Engineering Services Division ("SED")
which occurred on March 28, 2002. The pro forma condensed balance sheet
as of December 31, 2001 assumes that the sale occurred as of December
31, 2001. The pro forma condensed statements of operations assume that
the sale occurred October 1, 2000.
The accompanying pro forma condensed balance sheet as of February 28,
2002 is presented at the request of The Nasdaq Stock Market, Inc.
("Nasdaq") in connection with its consideration of the Company's appeal
to reverse Nasdaq's previous determination to delist the Company's
common stock from The Nasdaq SmallCap Market. This pro forma condensed
balance sheet gives effect to the sale of the assets of SED which
occurred on March 28, 2002 and certain other transactions that occurred
in March 2002.
(2) Pro Forma Adjustments - Condensed Balance Sheet as of December 31, 2001
(a) Adjustment to reflect the balance sheet of SED sold as part of
the transaction.
(b) Adjustments to record the Company's 80% share of the cash
proceeds of $2,200,000, net of the 20% ($440,000) paid to
Sahyoun Holdings, LLC and an estimated $330,00 of professional
fees and other costs related to the transaction, and the
additional proceeds to the Company of $500,000 to be received,
$250,000 on June 30, 2002 and $250,00 on December 31, 2002,
net of $199,610 of assets sold, resulting in a gain of
$1,760,390, which is shown as an increase to stockholders'
equity.
(3) Pro Forma Adjustments - Condensed Statement of Operations for the Three
Months Ended December 31, 2001
(a) Adjustment to eliminate the results of operations of SED.
(4) Pro Forma Adjustments - Condensed Statement of Operations for the Year
Ended September 30, 2001
(a) Adjustment to eliminate the results of operations of SED.
(5) Pro Forma Adjustments - Condensed Balance Sheet as of February 28, 2002
(a) Adjustment to reflect the balance sheet of SED sold as part of
the transaction.
(b) Adjustments to record the Company's 80% share of the cash
proceeds of $2,200,000, net of the 20% ($440,000) paid to
Sahyoun Holdings, LLC and an estimated $330,00 of professional
fees and other costs related to the transaction, and the
additional proceeds to the Company of $500,000 to be received,
$250,000 on June 30, 2002 and $250,00 on December 31, 2002,
net of $199,610 of assets sold, resulting in a gain of
$1,760,390, which is shown as an increase to stockholders'
equity.
(c) Conversion of convertible debt into Common Stock and exchange
of convertible debt for Series B Preferred Stock.
(d) Exchange of loans payable for Series B Preferred Stock and
cancellation of put option.
(e) Net proceeds of $282,500 in connection with issuance of Series
B Preferred Stock.
(f) Reclassification of Series A Preferred Stock to permanent
equity as a result of an amendment of the terms of Series A
Preferred Stock and shareholders' approval to provide for the
issuance of the full number of shares of Common Stock to which
holders of the Series A Preferred Stock are entitled upon
conversion of the Series A Preferred Stock.
F-5