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EX-5.1 - Vicapsys Life Sciences, Inc. | v166988_ex5-1.htm |
EX-23.1 - Vicapsys Life Sciences, Inc. | v166988_ex23-1.htm |
REGISTRATION
NO. ________
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-1/A
(Amendment
No. 3)
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
SSGI,
INC.
(Name of
small business issuer in its charter)
Florida
|
1540
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91-1930691
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||
(State
or jurisdiction of
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(Primary
Standard
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(I.R.S.
Employer
|
||
incorporation
or
|
Industrial
Classification
|
Identification
Number)
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||
organization)
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Code
Number)
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SSGI,
INC.
8120
Belvedere Road, Suite 4
West Palm
Beach, Florida 33411
(561)
333-3600
(Address
and telephone number of principal executive offices)
COPIES
OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT TO
AGENT
FOR SERVICE, SHOULD BE SENT TO:
RYAN
SEDDON
PRESIDENT
8120
Belvedere Road, Suite 4
West Palm
Beach, Florida 33411
(561)
333-3600
(Name,
address and telephone number of agent for service)
WITH
A COPY TO:
WARREN W.
GARDEN
BLOCK
& GARDEN, LLP
5949
SHERRY LANE, SUITE 900
DALLAS,
TEXAS 75225
(214)
866-0993
APPROXIMATE
DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME AFTER
THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of
the securities being registered on his Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering: ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
o Large accelerated
filer
o Accelerated
filer
o Non-accelerated
filer
x Smaller reporting
company
CALCULATION
OF REGISTRATION FEE
Title
of Each
|
Proposed Maximum
|
Proposed
|
||||||||||||||
Class of Securities
|
Amount
|
Offering Price
|
Maximum Aggregate
|
Amount of Registration
|
||||||||||||
To Be Registered
|
To Be Registered
|
Per Share(1)
|
Offering Price
|
Fee(2)
|
||||||||||||
Common
Stock
|
7,096,557
|
$
|
0.50
|
$
|
3,548,279
|
$
|
197.99
|
|||||||||
$0.001
par value per share
|
(1)
|
Based
upon the last sales price as of November 11, 2009 on the Pink Sheets
electronic quotation system pursuant to Rule
457(c).
|
|
(2)
|
Estimated
solely for the purpose of calculating the registration fee in accordance
with Rule 457 of the Securities
Act.
|
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
The
information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not
permitted.
|
SUBJECT
TO COMPLETION, DATED NOVEMBER 20, 2009
PROSPECTUS
7,096,557 SHARES
SSGI,
INC.
COMMON
STOCK
This is
an offering of a total of 7,096,557 shares of our common stock by the
individuals who are named under the caption “Selling
Shareholders”. We will not receive any proceeds from the sale of
shares of common stock by the selling shareholders.
The
selling shareholders will sell their shares at $0.50 per share until the
Company’s shares are quoted on the OTC Bulletin Board, and thereafter at
prevailing market prices or privately negotiated prices. We cannot ensure that
the shares will be quoted on the OTC Bulletin Board.
The
selling shareholders may offer and sell the shares of common stock at the
offering price which will be $0.50 per share until the shares of common stock
are quoted on the over-the-counter market. If the shares of common stock are
quoted on the over-the-counter market, the selling shareholders may offer and
sell the shares of common stock at market prices prevailing at the time of sale
or at privately negotiated prices.
We will
bear all expenses in connection with the registration and sales of the shares of
common stock being offered by the selling shareholders, other than any
underwriting discounts and selling commissions.
Investing
in our common stock involves a high degree of risk. See “Risk Factors” beginning
on Page 7.
There
is no public market for our common stock, therefore the current and potential
market for our common stock is limited and the liquidity of our shares may be
severely limited. Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or passed
on the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
We have
retained no underwriters in connection with this offering.
The
date of this prospectus: November 20, 2009
2
MARKET
FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
PAGE
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||
Prospectus
Summary
|
4
|
|
Forward-Looking
Statements
|
8
|
|
Risk
Factors
|
9
|
|
Use
of Proceeds
|
14
|
|
Dilution
|
14
|
|
Selling
Shareholders
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15
|
|
Plan
of Distribution
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19
|
|
Description
of Securities
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20
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Transfer
Agent
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21
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Interests
of Named Experts and Counsel
|
21
|
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Description
of Business
|
21
|
|
Legal
Proceedings
|
27
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|
Market
for Common Equity and Related Shareholder Matters
|
27
|
|
Management’s
Discussion and Analysis of Financial Condition and Plan of
Operations
|
28
|
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
38
|
|
Directors,
Officers, Promoters and Control Persons
|
39
|
|
Security
Ownership of Beneficial Owners and Management
|
40
|
|
Certain
Relationships and Related Transactions
|
41
|
|
Executive
Compensation
|
42
|
|
Disclosure
of Commission Position of Indemnification for Securities
Act
|
43
|
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Organization
Within Last Five Years
|
44
|
|
Index
to Financial Statements
|
F-1
|
3
PROSPECTUS
SUMMARY
This
Summary highlights selected information contained elsewhere in this prospectus.
This Summary may not contain all of the information that you should consider
before investing in our common stock. You should read the entire prospectus
carefully, including “Risk Factors” and the Financial Statements, before making
a decision to invest in our common stock.
OUR
COMPANY
The
Company was incorporated in the State of Florida in July of 1997 as All Product
Distribution Corp. One year later, All Product Distribution Corp. changed its
name to Phage Therapeutics International, Inc (“Phage”) in anticipation of
entering the medical field. The Company did not commence operations. Phage was a
reporting company under the Securities Exchange Act of 1934 but deregistered in
2005.
On
December 18, 2007, the Company entered into a 2007 Share Exchange Agreement (the
“Agreement”) with Surge Solutions Group, Inc, a Florida corporation originally
incorporated under the name of Surge Restoration, Inc. (“Surge”). Incorporated
in November of 2001, Surge was formed to serve residential, commercial and
industrial customers with their general contracting needs. The Company, through
its relationships with insurance companies, performed extensive restoration work
from hurricane storm damage and other insurance funded contracts. Also, the
Company, through its relationship with a national retail building supply firm,
installed and serviced customer purchases as a preferred vendor. Prior to
execution of the Agreement, the Company changed its name to SSGI,
Inc.
Pursuant
to the Share Exchange Agreement, in January and February of 2008, the Company
affected a 35 to 1 reverse stock split thereby reducing the shares outstanding
from 14,587,370 to 416,782 and the Company issued 33,025,000 shares of common
stock to Surge in a 1 to 1 exchange. Surge became a 100% owned subsidiary of the
Company and its sole operating company.
At
inception, Surge’s primary focus was the insurance restoration
industry. At that time, management saw an industry trend towards
vendor contractor programs as a means to reduce potential exposure for insurance
companies by providing the insured with a pre-approved contractor using
wholesale pricing in exchange for volume work. Through good customer
service and an aggressive marketing plan, we experienced significant business
growth in this market through 2005 and 2006.
In order
to maintain a diversified revenue stream and increase growth,
management has streamlined its current business profile to include the
following market segments:
· Insurance
restoration
· Petroleum
contracting
· Commercial
construction
4
The
Company’s headquarters are located at 8120 Belvedere Road, Suite 4, West Palm
Beach, Florida 33411 with its warehouse located at 8080 Belvedere
Road, Suite 9 & 10, West Palm Beach, Florida 33411.
Summary
Financial Information
The
Company’s financial statements as of September 30, 2009 are
unaudited. Financial statements as of December 31, 2008 and 2007 are
audited and include a paragraph in the report of independent registered public
accounting firm that raises substantial doubt about the Company’s ability to
continue as a going concern.
For
the nine months ended September 30, 2009, we incurred a net loss of
$882,066 from revenues of $5,512,077. Although we incurred a net loss of
$2,437,530 and $1,633,530 for the years ended December 31, 2008 and 2007,
respectively, our revenues increased from $1,821,735 for the year ended December
31, 2007 to $6,802,107 for the year ended December 31, 2008. The
following table summarizes these results:
Nine
|
||||||||||||
Months Ended
|
Year Ended
|
Year Ended
|
||||||||||
September 30,
|
December 31,
|
December 31,
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||||||||||
2009
|
2008
|
2007
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||||||||||
(Unaudited)
|
(restated)
|
(restated)
|
||||||||||
Revenues
|
$
|
5,512,077
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$
|
6,802,107
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$
|
1,821,735
|
||||||
Cost
of Revenues & General & Administrative
Expenses
|
$
|
6,112,784
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$
|
9,161,595
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$
|
3,408,308
|
||||||
Other
Income (Expenses)
|
$
|
(281,359
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)
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$
|
(78,042
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)
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$
|
(46,957
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)
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|||
Net
Loss
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$
|
(882,066
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)
|
$
|
(2,437,530
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)
|
$
|
(1,633,530
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)
|
|||
Net
Loss Per Common Share, Basic and Diluted
|
$
|
(0.025
|
)
|
$
|
(0.072
|
)
|
$
|
(0.067
|
)
|
|||
September 30,
|
December
31,
|
|||||||||||
2009
|
2008
|
2007
|
||||||||||
(restated)
|
(restated)
|
|||||||||||
Total
Assets
|
$
|
3,214,706
|
$
|
1,069,126
|
$
|
429,309
|
||||||
Total
Stockholders’ Deficiency
|
$
|
(1,978,842
|
)
|
$
|
(1,482,143
|
)
|
$
|
(392,180
|
)
|
|||
Retained
Earnings (Accumulated Deficit)
|
$
|
(5,119,376
|
)
|
$
|
(4,237,310
|
)
|
$
|
(1,799,780
|
)
|
CORPORATE
INFORMATION
The
Company
SSGI,
Inc. was incorporated in Florida on July 7, 1997, under the name All Product
Distribution Corp. On July 29, 1998, the company changed its name to
Phage Therapeutics International, Inc. (“Phage”). On November 16,
2007, the Company changed its name from Phage to SSGI, Inc (“SSGI” or the
“Company”). SSGI is a holding company for our sole operating entity
and wholly owned subsidiary, Surge Solutions Group, Inc.
(“Surge”). Surge was incorporated in Florida on November 26,
2001. On March 30, 2007, Surge changed its name from Surge
Restoration, Inc. to Surge Solutions Group, Inc.
5
On
December 18, 2007, the Company, Surge, Ryan Seddon, Michael Yurkowsky and Peter
Wilson entered into the 2007 Share Exchange Agreement pursuant to
which the Company purchased all of the shares of Surge’s common stock in a one
share for one share exchange (the “Agreement”). The 2007 Share
Exchange Agreement was authorized by a written consent of the board of directors
of the Company and the majority of shareholders of the
Company. Pursuant to the terms of the 2007 Share Exchange Agreement,
on or around January 15, 2008, the Company affected a 35 to 1 reverse stock
split with the Company’s outstanding shares being reduced from 14,587,370 to
416,782. Also pursuant to the 2007 Share Exchange Agreement, the
Company changed its name on November 16, 2007 from Phage Therapeutics
International, Inc. to SSGI, Inc. Additionally, pursuant to the 2007
Share Exchange Agreement and the closing of the transactions contemplated
thereby, on or around February 22, 2008, the Company issued 33,025,000 shares of
its common stock to the shareholders of Surge in exchange for 33,025,000 shares
of Surge representing 100% of Surge’s outstanding shares of common
stock. As a result of the closing of the transactions contemplated by
the 2007 Share Exchange Agreement, Surge became a 100% subsidiary of the Company
and its sole operating company.
Markets
The
Company has focused on three main markets. The percentage of the Company’s
revenues for each market is in parenthesis.
Insurance
Restoration (5%)
Surge has
been in the insurance restoration business since its inception in 2001, which
was initially the core of the Surge business model. Surge is a contractor for
insurance companies and is qualified for residential, commercial and
industrial projects. Surge has been successful in the insurance
restoration arena due to its ability to offer the insured, adjuster and carrier
one single source for mold remediation, flood mitigation, fire restoration,
emergency services, contents cleaning and inventory compilation
services. Instead of using sub-contractors, Surge utilizes its
own crews to perform specialized remediation and restoration services which
can give Surge’s clients a more competitive price and better quality
control of their work. Surge, through its infrastructure and
business diversity, has the ability to cover most of the State of Florida. This
is a key factor for insurance companies looking for contractors in the Florida
market. Currently, the Company works only in the state of Florida.
Surge has
a preferred contractor agreement with PURE Insurance Company. This
agreement outlines the standard of work required and regulates the profit margin
Surge can charge the insurance company on contracted jobs. As a
“preferred contractor” of the insurance company, Surge is able to begin work
immediately on a job without having to obtain the prior approval of the
insurance company, thereby streamlining the claims process for the
insured. This expedites the completion of the job, thereby
saving time and money for the insurance company during the claims process. The
designation of Surge as a “preferred contractor” for one insurance company does
make Surge a preferred contractor for other insurance companies. At
present, Surge is a preferred contractor of only PURE Insurance
Company.
We are
certified as a CIEC (certified indoor environmental consultant). A
CIEC is a professional that identifies the causes of poor indoor air quality. A
CIEC is trained to analyze a building’s interrelated systems in order to
diagnose the air quality issues properly. The CIEC must be able to gather and
interpret data from the various operating systems operating in a
building. This designation allows the CIEC to identify the problem,
design the remedial plan and execute the remediation.
We are
also certified as a CMRS (certified mold remediation supervisor). This process
involves the removal of microbial contamination from a building and is required
to be performed by a microbial re-mediator. This person is trained to conduct a
thorough remediation process safely according to project specifications and in
compliance with relevant government regulations and industry standards.
Microbial re-mediators are trained in containment engineering, safety and
emergency procedures, remediation equipment operation, cleaning, removal and
restoration procedures, and project documentation.
We also
hold an IICRC certified technician designation. The IICRC is an
independent certification body that sets and promotes high standards and ethics
and advances communication and technical proficiency within the inspection,
cleaning and restoration service industries, including mold remediation,
structural drying, and fire restoration.
Petroleum
Contracting (80%)
Petroleum
contracting involves the removal and replacement of obsolete single walled
tanks, piping and the related clean-up on any petroleum dispensing and/or
storage sites. These sites can be gas stations, factories, citrus farms or multi
faceted industrial facilities.
Currently,
the Florida legislature has imposed a December 31, 2009, deadline for the
replacement of obsolete or non-compliant tanks. According to
information obtained from the state of Florida Department of Environmental
Protection (“DEP”),
this leaves thousands of sites in the state of Florida needing some level of
compliance upgrade in the near future in order to comply with the
mandate.
Florida
has granted an extension for all tank owners through March 31, 2010, provided
that the owner has executed a contract with a licensed petroleum contractor in
the State of Florida, which contract must state that the work will be completed
by March 31, 2010. If the owner is still out of compliance after the
extended deadline has passed, the tanks must be emptied, cleaned and no
longer used. Once a tank is taken out of service, the owner has up to two
years to either remove the tank or complete the compliance upgrade to a double
walled tank by either replacing or relining the tank.
6
Although
the Florida mandate specifies a deadline of December 31, 2009, the Company
believes that it will continue to be active in the petroleum contracting
business during 2010 and well beyond. As discussed above, tank owners
unable to comply by December 31, 2009, will have at least until March 31, 2010,
to comply. In addition, non-compliant tank owners will have an
additional two years beyond the extended deadline to either remove their tanks
or complete the compliance upgrades to double walled tanks by either replacing
or relining the tanks. This means that the Company’s petroleum
contracting business, at least in the State of Florida, will continue to be
active from the Florida mandate at least through 2012. In addition,
the Company believes that it will be active in servicing existing tank owners
with upgrades relating to fuel dispensers, petroleum product spills and
construction related to service stations and state and local municipalities
fueling depots. These services would be unrelated to the Florida
mandate.
The
Company expects its petroleum contracting business to be active in other states
that have yet to impose mandates similar to the Florida mandate, as discussed
below.
The
Company is already planning its geographic expansion into other states that have
yet to impose their own mandates. The Company expects most, if not all,
states to eventually impose their own mandates. As part of this
expansion effort, the Company has identified several southeastern states that
are currently working on their environmental cleanup of petroleum sites.
We intend to expand into those states as they announce their state mandates. The
Company is currently in the process of becoming a licensed petroleum and
general contractor in the State of Georgia.
Regulation
of underground petroleum storage tanks began in the early 1980s with the
recognition that Florida’s groundwater, which provides 90% of the state’s needs,
was at risk of becoming contaminated. In 1982, petroleum contamination from a
leaking underground petroleum storage tank was documented in a well field for
the City of Bellevue, Florida drinking water. The legislative response to the
problem was the passage of the Water Quality Assurance Act of
1983. Generally, the act provided for:
•
Prohibition against petroleum discharges;
•
Required cleanup of petroleum discharges;
• State
mandated cleanup if not done expeditiously;
• Strict
liability for petroleum contamination; and
•
Required tank inspections and monitoring.
Due
to a shortage of new in-ground petroleum tanks, there is currently a
significant lead time for the delivery of new 2009 compliant
tanks. All indications are that this lead time will increase as
the deadline gets closer. This creates incentive for the petroleum
tank owners to commit to an upgrade today.
The
Company offers an alternative to full tank replacement
by utilizing the Xerxes secondary containment system. This system
provides an alternative to full tank replacement. By utilizing the
existing tank, we can save significant time and money in comparison to a
traditional tank replacement.
The
Xerxes system allows an owner to leave the existing tank in the ground and
create a tank inside the existing tank that meets the compliance requirements.
The existing tank is cleaned fully and checked for leaks. If leaks are found,
they are repaired with new welds. A coating of porcelain-like fiberglass coating
is sprayed on the inside of the tank. Two new corrosion resistant walls are then
applied using Parabeam®, a special 3 dimensional glass fabric. The Parabeam® is
then cured creating a space to which a second coat is then added. The space
between the new inner and outer walls provides continuous leak detection by
attaching a float like device in the bottom of the tank to detect a leak before
it can penetrate the second wall and contaminate the surrounding
area.
We
have entered into an agreement with Tank Tech, Inc., (“Tank
Tech”)
under which we have the right to use its proprietary method of relining existing
underground storage tanks. This method is licensed to Tank Tech by ZCL/Xerxes
Composites, Inc. and is specific only to Florida government petroleum storage
facilities that are contracted to be relined instead of replaced. Our agreement
with Tank Tech, which expires on May 31, 2010, requires us to prepare the
construction site in advance of Tank Tech’s crews beginning the
relining process in accordance with a schedule agreed upon by Tank Tech and
the Company. We are required to collect funds and pay Tank Tech in accordance
with each contract as well as provide insurance for job site
liabilities. We are the primary obligor of each contract and the revenues
are accounted for as follows: the gross amount of the contract is
collected by the Company and posted to the Company’s financial statements as
contract revenues, while payment is made to Tank Tech and posted in cost of
goods sold under that job specific contract.
The
Company has been awarded government contracts relating to fueling compliance
upgrades in accordance with the State of Florida mandate of existing tanks both
underground or above ground. These contracts included replacement and relining
of tanks, new construction of municipalities fueling operations or construction
of municipal buildings. We obtain a package that outlines the detailed
specification of the contract in a request for proposal (“RFP”). This RFP
contains performance standards, scope of work, schedule of values and bonding
requirements. We are required to post a completion bond typically in the range
of 30% of the contract value and are required by a third party bonding company
to purchase an insurance policy for the remaining 70%. This premium is typically
2% of the contract value.
7
Each of
these contracts requires a competitive bidding process. After we
estimate our costs and receive bids from unrelated subcontractors, we submit our
bid. The contract is awarded to the lowest bidder. When we are successful, we
are required to show proof of bonding to the municipality.
Upon
successful completion of the contract, the completion bond is returned to us
with interest.
Currently,
the Company is licensed to work only in the state of Florida for petroleum
contracts.
Commercial/Retail
Construction (15%)
Surge, as
a full service general contractor, provides design/build and construction
services for commercial, industrial and retail customers throughout
Florida. Surge provides construction management services for all types of
customers who require new construction as well as tenant improvements. Surge
oversees the actual construction process and provides the
following:
|
·
|
Managing the sub-contractor
bidding process and subsequent
contracting
|
|
·
|
Constructions permit processing
and buildings code
compliance
|
|
·
|
Design structure and
plans
|
|
·
|
Erection of building, landscaping
and final inspection with local
authorities
|
In
addition, for Surge’s new construction customers, Surge’s services allow the
customer to contract with Surge to complete the entire project utilizing both
its petroleum and general contracting license where needed. Many
competitors sub-contract the petroleum portion of their project to
third parties whereas Surge can replace or reline tanks and also assist in
renovations to existing retail or government support facilities such as
convenience store renovation, municipal maintenance facilities or full service
marines where fuel services are available. Our construction model has provided a
dynamic synergy with our petroleum markets by providing our clients with this
turnkey (single source) solution for retail and wholesale petroleum storage
facilities. The Company is currently licensed to work only in the state of
Florida.
The
Company’s subsidiary, Surge Solutions Group, Inc., maintains a Website at
http:// www.surgesolutionsgroup.com.
Our
principal executive offices are located at 8120 Belvedere Road, Suite 4, West
Palm Beach, Florida 33411. Our telephone number is (561)
333-3600. The information contained on our website is not part of
this prospectus.
THE
OFFERING
The
selling shareholders are registering for resale 7,096,557 shares of our
common stock, which they currently own.
Price
per share offered
|
$
|
0.50
|
||
Securities
offered by selling shareholders
|
7,096,557
shares
|
|||
Common
stock outstanding before the offering
|
34,687,630
shares
|
|||
Common
stock to be outstanding after the offering
|
34,687,630
shares
|
FORWARD-LOOKING
STATEMENTS
In this
prospectus, we include some forward-looking statements that involve substantial
risks and uncertainties and other factors which may cause our operational and
financial activity and results to differ from those expressed or implied by
these forward-looking statements. In many cases, you can identify these
statements by forward-looking words such as “may,” “expect,” “anticipate,”
“believe,” “estimate,” “plan,” “intend” and “continue,” or similar words. You
should read statements that contain these words carefully because they discuss
our future expectations, contain projections of our future results of operations
or of our financial condition, or state other “forward-looking”
information.
You
should not place undue reliance on these forward-looking statements. The
sections captioned “Risk Factors” and “Management’s Discussion and Analysis of
Financial Condition and Plan of Operations”, as well as any cautionary language
in this prospectus, provide examples of risks, uncertainties and events that may
cause our actual results to differ materially from the
expectations.
8
Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance,
or achievements.
RISK
FACTORS
An
investment in our common stock involves risks. You should carefully consider the
following risks, as well as the other information contained in this prospectus.
If any of the following risks actually occur, our business could be materially
harmed.
Investment
Risks
o
Our results of operations have
not been consistent, and we may not be able to achieve
profitability.
For
the nine months ended September 30, 2009, we incurred a net loss of
$882,066 as well as net losses of $2,437,530 and $1,633,530 for the years ended
December 31, 2008 and 2007, respectively. We have continued to incur substantial
losses and there are no assurances that we will become profitable in the future.
Our ability to generate a profit may be difficult due to the fact that we are a
young company in a highly competitive industry.
The
Company’s independent auditors have included an explanatory paragraph in our
financial statements for the years ended December 31, 2008 and 2007 stating
that the financial statements have been prepared on the assumption that the
Company will continue as a going concern and that financing uncertainties raise
substantial doubt about the Company’s ability to continue as a going
concern.
Our
business plan is speculative and unproven and there can be no assurance that we
will be successful in executing our business plan or, even if we successfully
implement our business plan, that we will achieve profitability now or in the
future. If we incur significant operating losses, our stock price may decline,
perhaps significantly.
We cannot
be sure that we will achieve profitability in fiscal 2009 or thereafter.
Continuing losses may exhaust our capital resources and force us to discontinue
operations or seek additional financing that will have a dilutive effect on our
current shareholders.
o
Our Chief Executive Officer
and principal shareholder has significant influence over our Company which could
make it impossible for the public shareholders to influence the affairs of the
Company.
Approximately
50% of our outstanding voting capital stock is beneficially held by Ryan Seddon,
our President, Chief Executive Officer and Chairman of the Board. Although he
does not hold a majority of the shares of common stock, he will effectively be
able to control substantially all matters requiring approval by the shareholders
of the Company, including the election of all directors and approval of
significant corporate transactions. This could make it difficult for the public
shareholders to influence the affairs of the Company.
o
We are dependent on key
executive and management personnel, and the loss of their services would
have a material impact on our business.
Our
performance and success is substantially dependent on the continued services and
on the performance of our executive officers and other key employees, some of
whom have worked together for a limited period of time. We are
dependent on attracting, retaining and motivating certain highly qualified
personnel. We currently have employment agreements with our Chief
Executive Officer and Chief Financial Officer. Our Chief Executive
Officer possesses comprehensive knowledge of our industry. While we
believe our executive officers have no present plans to leave the Company or to
retire in the near future, the loss of the services of their services or any of
our other key executives could have a material adverse effect on our business,
results of operations or financial condition. The Company currently carries
a 5 million dollar key man life insurance policy on our Chief Executive
Office but does not have key man insurance with respect to any other executive
of the Company.
o
We are reliant on loans
provided by our key executives and employees. If we are unable to
repay the loans or secure additional loans, we may have to seek debt or equity
financing which may result in dilution of the shareholders’
equity interests and adversely affect the Company’s future cash
commitments.
As of
September 30, 2009, we were indebted to Ryan Seddon, our Chairman of the
Board, Chief Executive Officer and President, for approximately
$874,000. Of this amount, $73,000 was loaned during the 12 month
period ending December 31, 2008. Subsequent to September 30, 2009, Mr.
Seddon loaned us an additional $125,000 of which we have repaid him $95,000.
We currently owe Mr. Seddon approximately $904,000. As of
September 30, 2009, we were indebted to Ricardo Sabha, a former officer and
director and current employee of the Company, for approximately
$338,000. Of this amount, approximately $81,000 was loaned to
us during the 12 month period ending December 31, 2008. Subsequent to
September 30, 2009, Mr. Sabha was repaid $15,000. We currently owe
Mr. Sabha approximately $319,000. There were no loans made prior to January 1,
2008 by Mr. Seddon and Mr. Sabha. From time to time Mr. Seddon and Mr.
Sabha loan funds to us for working capital purposes. These loans are
repaid periodically with interest. If Mr. Seddon, Mr. Sabha or other individuals
or any financial institution are unable to make loans to the Company,
we may have to seek debt and/or equity funding from third parties. Assuming such
loans are available to the Company, we may have to accept terms and conditions
that are not advantageous to the Company or its stockholders and could result in
a significant/substantial dilution in the equity interests of the Company’s
current stockholders and/or increase the Company’s liabilities and future cash
commitments.
9
o
The credit and securities
markets have exhibited extreme volatility and disruption throughout 2008 and
2009. In light of this continuing volatility, the Company’s reliance on its line
of credit for a significant portion of its cash requirements could adversely
affect the Company’s liquidity and cash flow.
In
November of 2007, a financial institution extended the Company a line of credit
in the amount of $750,000. In November of 2008, with a balance due of $745,000,
the Company converted the line of credit to a term loan that required monthly
interest payments at the Prime Rate plus 1.5% until December 3,
2008. Thereafter, the Company was required to make monthly principal
and interest payments of $35,000 with the first payment due on January 3,
2009.
On June
3, 2009, the financial institution extended the maturity date of the loan to
December 3, 2009 at the Prime Rate plus 2% (but not less than
5%). The loan extension continues to require the Company to make
monthly principal and interest payments of $35,000. As of September 30, 2009,
the outstanding principal balance was approximately $453,000, The current
outstanding balance is approximately $387,000. The inability of the
Company to negotiate an additional extension of the loan or, continue to make
monthly principal and payments on the loan, or the unwillingness of another
financial institution to offer the Company a replacement credit facility, could
have a material adverse affect on the Company’s liquidity position and cash
flow. This credit line is collateralized with a blanket lien on the business
assets of the Company and a personal guarantee of one shareholder.
o
Our operating results may
fluctuate.
We may
experience fluctuations in our operating results. Fluctuations in our
operating results may be caused by many factors including, but not limited to,
the following:
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our ability to successfully
market our services;
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the timing of entry into new
business areas;
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competition and pricing in our
industry;
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reduction in demand for our
services;
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our ability to attract and retain
strategic partners;
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the degree and rate of growth of
the markets in which we compete and the accompanying demand for our
services;
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our ability to expand our
internal and external sales
forces;
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our ability to attract and retain
key personnel;
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general economic conditions;
and
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change in government
regulations
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as a result, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on past results as an indication of our future performance. |
o
We must effectively manage the
growth of our operations, or our results of operations will
suffer.
Our
ability to successfully implement our business plan requires an effective
planning and management process. If funding is available, we may increase the
scope of our operations by expanding into new geographic markets. Implementing
our business plan will require significant additional funding and resources. If
we are successful in growing our operations, we will need to hire additional
employees and make significant capital investments. As we continue to grow our
operations, it may place a significant strain on our management and our
resources. As a result of our recent growth and any continued growth, we will
need to improve our financial and managerial controls and reporting systems and
procedures, and we will need to expand, train and manage our workforce. Any
failure to manage any of the foregoing areas efficiently and effectively could
cause our results of operations to suffer.
o
We are highly leveraged, which
could result in the need for refinancing or new capital.
Mr.
Seddon and Mr. Sabha have provided loans to the Company pursuant to various
promissory notes, currently in the total approximate amount of
$1,223,000. We also have a promissory note payable to
a financial institution in the approximate amount of $387,000, and a term note
payable to an affiliated third party in the approximate amount of
$1,239,000. We also owe approximately $214,000 in amortizing notes to
various lenders for the purchase of the Company’s vehicles. Our ability
to make payments on our indebtedness and to fund planned capital expenditures
will depend on our ability to generate cash in the future. Our ability to
generate cash in the future will be subject to general economic, financial,
competitive, legislative, regulatory and other factors beyond our
control.
In the
event our business does not generate sufficient cash flows from operations or
that we will have future borrowings available under our current credit
facilities in amounts sufficient to enable us to pay our indebtedness or to fund
other liquidity needs we may need to raise additional funds. This may be through
the sale of additional equity securities, the refinancing of all or part of our
indebtedness on or before the maturity thereof, or the sale of assets. Each of
these alternatives is dependent upon financial, business and other general
economic factors affecting the equity and credit markets generally or our
business in particular, many of which are beyond our control. Such alternatives
may not be available to us, and if available may not be on satisfactory terms.
While we believe that consolidated cash flow generated by our operations will
provide adequate sources of long-term liquidity, a significant drop in operating
cash flow resulting from economic conditions, competition or other uncertainties
beyond our control could increase the need for refinancing or new
capital.
10
o
Economic downturns in general
would have a material adverse effect on the Company’s business, operating
results and financial condition.
The
Company’s operations may in the future experience substantial fluctuations from
period to period as a consequence of general economic conditions affecting
consumer spending. The Company has customers engaged in various
industries. These industries may be affected by economic factors,
which may impact their ability to obtain financing for projects. If
customers have difficulty obtaining financing for projects, this may impact the
Company’s ability to meet revenue and profitability goals. Thus, any
economic downturn in general would have a material adverse effect on the
Company’s business, operating results and financial condition.
o
The Company’s success is
dependent on market acceptance of its services.
Demand
for our services is primarily driven by the underlying consumer market demand
for our services. Should the growth in demand be inhibited, our
business, results of operations, and/or financial condition would be adversely
affected.
o
We face competition from
numerous sources and competition may increase, leading to a decline in
revenues.
We
compete primarily with well-established companies, many of which have greater
resources than us. We believe that barriers to entry in our service segments are
not significant and start-up costs are relatively low, so our competition may
increase in the future. New competitors may be able to launch new businesses
similar to ours, and current competitors may replicate our business model, at a
relatively low cost. If competitors with significantly greater resources than
ours decide to replicate our business model, they may be able to quickly gain
recognition and acceptance of their business methods and products through
marketing and promotion. We may not have the resources to compete effectively
with current or future competitors. If we are unable to effectively compete, we
will lose sales to our competitors and our revenues will decline and investors
could lose all or part of their investment.
o
Compliance with environmental
regulations can be expensive and noncompliance with federal and state
environmental laws and regulations could result in fines or injunctions, which
may result in adverse publicity and potentially significant monetary damages and
fines.
Portions
of our business are heavily regulated by federal, state and local environmental
laws and regulations, including those promulgated by the U.S. Environmental
Protection Agency. These federal, state and local environmental laws and
regulations govern the discharge of hazardous materials into the air and water,
as well as the handling, storage, and disposal of hazardous materials and the
remediation of contaminated sites. Our businesses involve working around and
with volatile, toxic and hazardous substances and other regulated substances. We
may become liable under these federal, state and local laws and regulations for
the improper characterization, handling or disposal of hazardous or other
regulated substances. It is possible that some of our operations could become
subject to an injunction which would impede or even prevent us from operating
that portion of our business. Any significant environmental claim or injunction
could have a material adverse effect on our financial condition. Additionally,
environmental regulations and laws are constantly changing, and changes in those
laws and regulations could significantly increase our compliance costs and
divert our human and other resources from revenue-generating
activities.
o
The failure to obtain and
maintain required governmental licenses, permits and approvals could have a
substantial adverse effect on our operations.
Portions
of our operations, particularly our restoration, petroleum contracting, and
construction services business segments, are highly regulated and subject to a
variety of federal and state laws, including environmental laws which require
that we obtain various licenses, permits and approvals. We must obtain and
maintain various federal, state and local governmental licenses, permits and
approvals in order to provide our services. We may not be successful in
obtaining or maintaining any necessary license, permit or approval. Further, as
we seek to expand our operations into new markets, regulatory and licensing
requirements may delay our entry into new markets, or make entry into new
markets cost-prohibitive. Our activities in states where necessary licenses or
registrations are not available could be curtailed pending processing of an
application, and we may be required to cease operating in states where we do not
have valid licenses or registrations. We could also become subject to civil or
criminal penalties for operating without required licenses or registrations.
These costs may be substantial and may materially impair our prospects,
business, financial condition and results of operations.
11
o
Environmental remediation
operations may expose our employees and others to dangerous and potentially
toxic quantities of hazardous products.
Toxic
quantities of hazardous products can cause cancer and other debilitating
diseases. Although we take extensive precautions to minimize worker exposure and
we have not experienced any such claims from workers or other persons, there can
be no assurance that, in the future, we will avoid liability to persons who
contract diseases that may be related to such exposure. Such persons potentially
include employees, persons occupying or visiting facilities in which
contaminants are being, or have been, removed or stored, persons in surrounding
areas, and persons engaged in the transportation and disposal of waste material.
In addition, we are subject to general risks inherent in the construction
industry. We may also be exposed to liability from the acts of our
subcontractors or other contractors on a work site. Any such claims could
subject us to potentially significant monetary damages. Regardless of merit or
eventual outcome, liability claims may result in:
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decreased demand for our products
and services;
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injury to our
reputation;
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costs to defend the related
litigation;
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substantial monetary awards;
and
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loss of
revenue.
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o
A substantial portion of our
revenues are generated as a result of requirements arising under federal and
state laws, regulations and programs related to protection of the
environment. If these programs were modified this could affect demand
for our services.
Environmental
laws and regulations are, and will continue to be, a principal factor affecting
demand for our services, particularly our insurance restoration and petroleum
contracting businesses. The level of enforcement activities by federal, state
and local environmental protection agencies and changes in such laws and
regulations also affect the demand for such services. If the requirements of
compliance with environmental laws and regulations were to be modified in the
future, the demand for our services, and our business, financial condition and
results of operations, could be materially adversely affected. In
addition, if federal or state compliance mandates (such as the Florida December
31, 2009 mandate) expire, then our petroleum contracting business could be
adversely affected because non-compliant tank owners could go out of business,
thereby reducing potential new contracts and revenue for the company, and
non-compliant customers of the company could get fined by the federal or state
compliance agencies (for failing to comply with the mandates), thereby adversely
affecting their ability to pay us for compliance upgrades. In
general, the expiration of compliance mandates would in all likelihood decrease
the revenues that we expect to receive from our petroleum contracting
business.
o
If the Company fails to
maintain adequate insurance, our financial results could be negatively
impacted.
We carry
standard general liability insurance in amounts determined to be reasonable by
our management. Although we believe we are adequately insured, if we fail to
adequately assess our insurance needs or if a significant amount of claims are
made by workers or others, the amount of such insurance may not be adequate to
cover all liabilities that we may incur. We intend to expand our insurance
coverage as our sales grow. Insurance coverage is, however, increasingly
expensive. We may not be able to maintain insurance coverage at a reasonable
cost and we may not be able to obtain insurance coverage that will be adequate
to satisfy any liability that may arise.
o
We are partially dependent on
a national tank reline firm in connection with our in service tank upgrade
business.
The
Company has a working relationship with a national petroleum tank remediation
firm (“Tank Tech”) which provides the Company with access to a significant
number of potential tank reline/upgrade opportunities in the State of Florida.
This relationship could also provide the Company opportunities to expand outside
of Florida into other states. If Tank Tech should cease supplying us with access
to potential tank reline/upgrade opportunities, if the relationship
deteriorated, or if TankTech should encounter technical, operating or financial
difficulties of its own, it could delay shipment of products and harm
customer relations.
Risks
Related to This Offering
o
We have a history of
losses and may not be able to achieve or sustain
profitability.
The
Company has not been profitable since the year ended December 31, 2006 and has
incurred losses of $2,437,530 and $1,633,530 for the years ended December 31,
2008 and 2007, respectively as well as losses for the nine months
ended September 30, 2009 of $882,066. The Company does not currently have
the financial resources to continue to incur losses and may need additional
funds in the future. If we are unable to obtain additional funds or financing
and key executives are unable to make advances to the Company, the Company
could face economic conditions that will cause it to cease operations. If this
were to occur, investors in the Company’s common stock could lose their entire
investment.
12
o
If we raise additional funds
by selling additional shares of our capital stock, the ownership interests of
our shareholders will be diluted.
Our
Amended and Restated Articles of Incorporation authorize the issuance of
100,000,000 shares of common stock, par value $0.001 per share, of which
34,687,630 shares are issued and outstanding. The future issuance of additional
shares of common stock may result in substantial dilution in the percentage of
our common stock held by our then existing shareholders. We may value any common
stock issued in the future on an arbitrary basis. The issuance of common stock
and/or warrants to purchase our stock for future services or other corporate
actions may have the effect of diluting the value of the shares held by our
shareholders, and might have an adverse effect on any trading market for our
common stock.
o
Our common stock trades on the
Pink Sheets electronic quotation system and an active trading market may never
develop or if developed may not be sustained, and you may not be able
to resell your shares at or above the initial public offering
price.
The
Company’s common stock currently trades on the Pink Sheets electronic quotation
system under the symbol “SSGI.PK”. The Pink Sheets is a decentralized market
regulated by the Financial Industry Regulatory Authority (FINRA) in which
securities are traded via an electronic quotation system. An active
trading market depends upon the existence of willing buyers and sellers at any
given time, the presence of which is dependent upon the individual decisions of
buyers and sellers over which the Company does not have control. Accordingly if
an active and liquid trading market for our common stock does not develop or
that, if developed, does not continue it will adversely affect the market price
of the Company’s common stock. The market price of the shares of common stock is
likely to be highly volatile and may be significantly affected by factors such
as actual or anticipated fluctuations in the Company’s operating results,
announcements of technological innovations, new products or new contracts by the
Company or its competitors, developments with respect to proprietary rights,
adoption of new government regulations, general market conditions and other
factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations. These types of broad market
fluctuations may adversely affect the market price of the Company’s common
stock. See Risk Factor
“Our stock price may be highly volatile” below.
o
Our shares of common stock are
thinly traded, so shareholders may be unable to sell at or near ask prices or at
all if they need to sell shares to raise money or otherwise desire to liquidate
their shares.
Our
common stock has from time to time been “thinly-traded”, meaning that the number
of persons interested in purchasing our common stock at or near ask prices at
any given time may be relatively small or non-existent. This situation is
attributable to a number of factors, including the fact that we are a small
company that is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven company such as ours, or purchase or recommend the purchase of our
shares until such time as we become more seasoned and viable. As a consequence,
there may be periods of several days or more when trading activity in our shares
is minimal or non-existent, as compared to a seasoned issuer which has a large
and steady volume of trading activity that will generally support continuous
sales without an adverse effect on share price. A broader or more active
public trading market for our common stock may never develop and if developed
may not be sustained. The failure of an active and liquid trading market to
develop would likely have a material adverse effect on the value of our common
stock.
o
Our common stock will be
subject to “penny stock” rules which may be detrimental to
investors.
The
Securities and Exchange Commission has adopted regulations which generally
define “penny stock” to be any equity security that has a market price (as
defined) of less than $5.00 per share or an exercise price of less than $5.00
per share. The securities will become subject to rules that impose additional
sales practice requirements on broker-dealers who sell such securities. For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchaser of such securities and have received
the purchaser’s written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
prepared by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer’s presumed control over the
market. Finally, among other requirements, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the “penny
stock” rules may restrict the ability of purchasers in this offering to sell the
common stock offered hereby in the secondary market.
o Shares eligible
for future sale may adversely affect the market price of our common stock, as
the future sale of a substantial amount of outstanding stock in the public
marketplace could reduce the price of our common stock.
Sales of
a substantial number of shares of common stock in the public market after this
offering could materially adversely affect the market price of the common stock.
Such sales also might make it more difficult for the Company to sell equity
securities or equity-related securities in the future at a time and price that
the Company deems appropriate.
o
We do not anticipate paying
any dividends.
No
dividends have been paid on the common stock of the Company. The Company does
not intend to pay dividends (cash or otherwise) on its common stock in the
foreseeable future, and anticipates that profits, if any, received from
operations will be devoted to the Company’s future operations. Any decision to
pay dividends in the future will depend upon the Company’s profitability at the
time, cash available and other relevant factors. Consequently, you should not
rely on dividends in order to receive a return on your
investment.
13
o Our stock price may be highly
volatile.
The
market price of our common stock, like that of many other solutions companies,
has been highly volatile and may continue to be so in the future due to a wide
variety of factors, including:
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our quarterly operating results
and performance;
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litigation and government
proceedings;
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adverse
legislation;
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changes in government
regulations;
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economic and other external
factors; and
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general market
conditions.
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o
We may not be successful
having our common stock quoted on the OTC Bulletin Board and even if we are
successful a trading market may not develop making it difficult for an investor
to sell our common stock.
In order
to have our common stock quoted on the OTCBB, we will need to first have this
Registration Statement declared effective; then engage a market maker, who will
file a Form 15c2-11 with the Financial Industry Regulatory Authority (“FINRA”);
and clear FINRA comments to obtain a trading symbol on the OTCBB. Assuming we
clear SEC comments and assuming we clear FINRA comments, we anticipate receiving
a trading symbol and having our shares of common stock quoted on the OTCBB in
approximately one (1) to two (2) months after the effectiveness of this
Registration Statement. We may not be successful in having our common stock
quoted the OTC Bulletin Board. Even if we are successful
and a quotation is obtained, the OTC Bulletin Board are often
characterized by low
trading volumes, and price volatility, which
may make it difficult for an investor to sell our common
stock on acceptable terms. If trades in our common stock
are not quoted on the OTC Bulletin Board, it may be very difficult for an
investor to find a buyer for their shares in our Company. It will also be
difficult for us to raise capital and we could be forced to curtail or abandon
our business operations, and as a result, the value of our common stock could
become worthless.
USE
OF PROCEEDS
The
shares of common stock being offered hereby are for the account of the selling
shareholders. Accordingly, we will not receive any of the proceeds
from the resale of shares of common stock by the selling
shareholders.
DETERMINATION
OF OFFERING PRICE
Our
common stock has been publically traded on the Pink Sheets electronic quotation
system under the symbol “SSGI” since February 2008. Before then, there was no
public market for our common stock. The following table sets forth, for the
periods indicated, the high and low sales prices of our common stock as reported
by Pink Sheets:
High
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Low
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1
st
Quarter 2008
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$ | 1.87 | $ | 0.53 | ||||
2
nd
Quarter 2008
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$ | 1.55 | $ | 1.05 | ||||
3
rd
Quarter 2008
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$ | 1.40 | $ | 1.05 | ||||
4
th
Quarter 2008
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$ | 1.20 | $ | 0.37 | ||||
1
st
Quarter 2009
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$ | 0.80 | $ | 0.35 | ||||
2
nd
Quarter 2009
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$ | 0.80 | $ | 0.25 | ||||
3rd
Quarter 2009
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$ | 0.51 | $ | 0.43 |
As of
November 18, 2009, the closing price of our common stock as reported by Pink
Sheets was $0.50 per share.
DILUTION
Since
this offering is being made solely by the selling shareholders and none of the
proceeds will be paid to us, our net tangible book value will be unaffected by
this offering.
14
SELLING
SHAREHOLDERS
The
following table sets forth the names of the selling shareholders and for each
selling shareholder the number of shares of common stock beneficially currently
owned and the number of shares being registered. The selling shareholders have
furnished all information with respect to share ownership. The shares being
offered are being registered to permit public secondary trading of the shares
and each selling shareholder may offer all or part of the shares owned for
resale from time to time. A selling shareholder is under no obligation, however,
to sell any shares immediately pursuant to this prospectus, nor is a selling
shareholder obligated to sell all or any portion of the shares at any time.
Therefore, no estimate can be given as to the number of shares of common stock
that will be sold pursuant to this prospectus or the number of shares that will
be owned by the selling shareholders upon termination of the offering made
hereby.
The
following table provides, information regarding the current beneficial ownership
of our common stock held by each of the selling shareholders,
including:
1. The
number of shares owned by each shareholder prior to this offering;
2. The
total number of shares that are to be offered by each shareholder;
3. The
total number of shares that will be owned by each selling shareholder upon
completion of this offering;
4. The
percentage owned by each selling shareholder upon completion of this offering;
and
5. The
identity of the beneficial holder of any entity that owns the
shares.
To the
best of our knowledge, the named parties in the table that follows are the
beneficial owners and have the sole voting and investment power over all shares
or rights to the shares reported. In addition, the table assumes that the
selling shareholders do not sell shares of common stock not being offered
through this prospectus and do not purchase additional shares of common
stock.
The
column reporting the percentage owned upon completion assumes that all shares
offered are sold, and is calculated based on 34,687,630 shares currently
outstanding:
Shares
of
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Common
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Percent
of
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Stock
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Common
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Owned
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Stock
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Following
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Owned
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the
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following
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Offering
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the
Offering
|
|||||||||||||||
Assuming
|
assuming
|
|||||||||||||||
Shares
of
|
all
the
|
all
the
|
||||||||||||||
Shares
of
|
Common
|
Shares
|
shares
|
|||||||||||||
Common
|
Stock
to
|
being
|
being
|
|||||||||||||
Stock
|
be
|
Registered
|
Registered
|
|||||||||||||
Owned
|
Registered
|
are
sold
|
are
sold
|
|||||||||||||
Thomas
W. Adams
|
20,000 | 15,000 | 5,000 | 0.014414 | % | |||||||||||
John
Allen
|
658,000 | 493,500 | 164,500 | 0.474232 | % | |||||||||||
William
C. Armor
|
116,000 | 87,000 | 29,000 | 0.083603 | % | |||||||||||
Ryan
D. Aubert
|
50,000 | 37,500 | 12,500 | 0.036036 | % | |||||||||||
Victor
P. Bannon
|
10,000 | 7,500 | 2,500 | 0.007207 | % | |||||||||||
Lee
Palmer Bearsch
|
200,000 | 150,000 | 50,000 | 0.144144 | % | |||||||||||
Cindy
Bell
|
6,000 | 4,500 | 1,500 | 0.004324 | % | |||||||||||
BFS
Services (9)
|
20,000 | 15,000 | 5,000 | 0.014414 | % |
15
Brad
Brooks
|
273,000 | 204,750 | 68,250 | 0.196756 | % | |||||||||||
Agatha
Gabriela Cailide
|
30,000 | 22,500 | 7,500 | 0.021622 | % | |||||||||||
Philip
L. Cook
|
40,000 | 30,000 | 10,000 | 0.028829 | % | |||||||||||
M.
G. Crain
|
12,500 | 9,375 | 3,125 | 0.009009 | % | |||||||||||
H.
Dodd Crutcher
|
100,000 | 75,000 | 25,000 | 0.072072 | % | |||||||||||
Chris
Dollar
|
15,000 | 11,250 | 3,750 | 0.010811 | % | |||||||||||
Daniel
S. Dykes
|
100,000 | 75,000 | 25,000 | 0.072072 | % | |||||||||||
Jack
Edmonds
|
16,000 | 12,000 | 4,000 | 0.011531 | % | |||||||||||
William
Esping (1)
|
1,466,666 | 146,667 | 1,319,999 | 3.805389 | % | |||||||||||
FCC
C/F Sharon Laminack
|
30,000 | 22,500 | 7,500 | 0.021622 | % | |||||||||||
Michael
T. Ferris
|
20,000 | 15,000 | 5,000 | 0.014414 | % | |||||||||||
Brian
Flanagan
|
50,000 | 37,500 | 12,500 | 0.036036 | % | |||||||||||
Gerry
Geddes
|
50,000 | 37,500 | 12,500 | 0.036036 | % | |||||||||||
Telese
Gray
|
20,000 | 15,000 | 5,000 | 0.014414 | % | |||||||||||
Bradley
Hickman
|
733,334 | 550,000 | 183,334 | 0.528528 | % | |||||||||||
IRA
Plus Southwest FBO Ella Oliver (10)
|
18,000 | 13,500 | 4,500 | 0.012973 | % | |||||||||||
IRA
Plus Southwest FBO Walter Parker (10)
|
20,000 | 15,000 | 5,000 | 0.014414 | % | |||||||||||
Harvey
Kaye
|
12,500 | 9,375 | 3,125 | 0.009009 | % | |||||||||||
Helen
Kaye
|
12,500 | 9,375 | 3,125 | 0.009009 | % | |||||||||||
Andrew
Konen
|
50,000 | 37,500 | 12,500 | 0.036036 | % | |||||||||||
Brenda
Kostohryz
|
333,334 | 250,000 | 83,334 | 0.240241 | % | |||||||||||
Joel
Lebovitz
|
83,334 | 62,500 | 20,834 | 0.060062 | % | |||||||||||
Earnest
Kent Lindsey
|
50,000 | 37,500 | 12,500 | 0.036036 | % | |||||||||||
Laurie
Michele Markum
|
10,000 | 7,500 | 2,500 | 0.007207 | % | |||||||||||
Ralph
E. Mayo
|
50,000 | 37,500 | 12,500 | 0.036036 | % | |||||||||||
Mark
McConnell
|
20,000 | 15,000 | 5,000 | 0.014414 | % | |||||||||||
Erik
Menegay
|
10,000 | 7,500 | 2,500 | 0.007207 | % | |||||||||||
John
Miller
|
187,500 | 140,625 | 46,875 | 0.135135 | % | |||||||||||
Robert
Miller
|
18,520 | 13,890 | 4,630 | 0.013348 | % | |||||||||||
Oppenheimer
& Co. Federico Pier IRA (2) (8)
|
80,000 | 60,000 | 20,000 | 0.057657 | % | |||||||||||
H.
Winfield Padgett Jr.
|
280,000 | 210,000 | 70,000 | 0.201801 | % |
16
Charles
Pero
|
200,000 | 150,000 | 50,000 | 0.144144 | % | |||||||||||
Pershing
LLC c/f Camilla M. Bannon IRA (8)
|
4,000 | 3,000 | 1,000 | 0.002883 | % | |||||||||||
Pershing
LLC c/f James E. Kennedy (8)
|
80,000 | 60,000 | 20,000 | 0.057657 | % | |||||||||||
Pershing
LLC c/f James Foitek SEP (8)
|
20,000 | 15,000 | 5,000 | 0.014414 | % | |||||||||||
Pershing
LLC c/f Julie Geddes IRA (8)
|
33,334 | 25,000 | 8,334 | 0.024026 | % | |||||||||||
Pershing
LLC c/f Lee J. Morrison IRA (8)
|
100,000 | 75,000 | 25,000 | 0.072072 | % | |||||||||||
Pershing
LLC c/f Randy Wicker IRA (8)
|
20,000 | 15,000 | 5,000 | 0.014414 | % | |||||||||||
Pershing
LLC c/f Rusty T. McDowell IRA (8)
|
33,334 | 25,000 | 8,334 | 0.024026 | % | |||||||||||
Pershing
LLC c/f Samuel A. Rodgers IRA (8)
|
50,000 | 37,500 | 12,500 | 0.036036 | % | |||||||||||
Pershing
LLC c/f Victor Bannon IRA (8)
|
66,000 | 49,500 | 16,500 | 0.047567 | % | |||||||||||
Pershing
LLC c/f William P. Adams IRA (8)
|
20,000 | 15,000 | 5,000 | 0.014414 | % | |||||||||||
Federico
Pier (2)
|
145,000 | 14,500 | 130,500 | 0.376215 | % | |||||||||||
Sam
Rodgers
|
6,667 | 5,000 | 1,667 | 0.004805 | % | |||||||||||
Ricardo
Sabha (3)
|
1,485,000 | 148,500 | 1,336,500 | 3.852959 | % | |||||||||||
Ryan
Seddon (4)
|
17,215,000 | 1,721,500 | 15,493,500 | 44.665779 | % | |||||||||||
Donald
P. Simek
|
100,000 | 75,000 | 25,000 | 0.072072 | % | |||||||||||
Richard
& Rhonda Sinz
|
20,000 | 15,000 | 5,000 | 0.014414 | % | |||||||||||
Andrew
B. Small IV
|
100,000 | 75,000 | 25,000 | 0.072072 | % | |||||||||||
Marilyn
M. Smith
|
100,000 | 75,000 | 25,000 | 0.072072 | % | |||||||||||
Wade
C. Smith
|
100,000 | 75,000 | 25,000 | 0.072072 | % | |||||||||||
Henry
LaVaugh Stoll
|
25,000 | 18,750 | 6,250 | 0.018018 | % | |||||||||||
Barbara
Taylor TTEE Barbara Taylor (10)
|
10,000 | 7,500 | 2,500 | 0.007207 | % | |||||||||||
Carol
Touchstone
|
100,000 | 75,000 | 25,000 | 0.072072 | % | |||||||||||
Gifford
Touchstone
|
100,000 | 75,000 | 25,000 | 0.072072 | % | |||||||||||
Underground
Tank Partners (5)
|
6,000,000 | 600,000 | 5,400,000 | 15.567509 | % | |||||||||||
Dan
Vannest
|
16,667 | 12,500 | 4,167 | 0.012012 | % | |||||||||||
Eric
Vatterott
|
30,000 | 22,500 | 7,500 | 0.021622 | % | |||||||||||
Keith
& Laura Webb Jt. Ten
|
114,000 | 85,500 | 28,500 | 0.082162 | % | |||||||||||
Stephen
K. Westervelt
|
20,000 | 15,000 | 5,000 | 0.014414 | % | |||||||||||
Steven
Williams
|
25,000 | 18,750 | 6,250 | 0.018018 | % |
17
Peter
Wilson (6)
|
1,500,000 | 150,000 | 1,350,000 | 3.891877 | % | |||||||||||
Michael
Yurkowski (7)
|
795,000 | 79,500 | 715,500 | 2.062695 | % | |||||||||||
William
Yurkowsky, Jr. TTEE Wm. Yurkowsky Trust (7) (10)
|
40,000 | 4,000 | 36,000 | 0.103783 | % | |||||||||||
Gary
Zimpelman
|
93,000 | 69,750 | 23,250 | 0.067027 | % | |||||||||||
John
Zogg
|
250,000 | 187,500 | 62,500 | 0.180180 | % | |||||||||||
34,289,190 | 7,096,557 | 27,192,633 | 0.7839288 |
|
(1)
|
Mr. Esping is a partner with one
of our directors, Robert Grammen, in Alpina Lending, LP, a lender to the
Company. Alpina Lending, LP, leases office
space to Trenchant Asset Manager, which is co-owned by Peter Wilson and
Michael Yurkowsky, a director of the Company. Mr.
Esping is an affiliate of the
Company.
|
|
(2)
|
Mr. Pier is a director of the
Company.
|
|
(3)
|
Mr. Sabha is an employee of the
Company, and a former officer and director of the
Company.
|
|
(4)
|
Mr. Seddon is the Chairman of the
Board, Chief Executive Officer and President of the
Company. Mr. Seddon is an affiliate of the
Company.
|
|
(5)
|
Mr. Esping has sole voting and
investment control over the securities held by Underground Tank
Partners. In addition, Mr. Grammen, one of our directors, owns
16.67% of Underground Tank
Partners.
|
|
(6)
|
Mr. Wilson is a co-owner of
Trenchant Asset Manager, which is also co-owned by Mr. Yurkowsky, a
director of the Company. Mr. Wilson is an affiliate of the
Company. Mr. Wilson is also a registered broker with Titan
Securities, a broker-dealer located in Dallas,
Texas.
|
|
(7)
|
Mr. Yurkowsky is a director and
affiliate of the Company, and a co-owner of Trenchant Asset
Manager.
|
|
(8)
|
The named account beneficiary of
the individual retirement account (IRA) has sole voting and investment
control over the securities held by the third party record owner of the
account.
|
|
(9)
|
Jerry Foitek is President of
BFS services and has sole voting and investment control over the
securities held by BFS
Services.
|
|
(10)
|
The
trustee has sole voting and investment control over the securities held in
trust for the beneficiary.
|
Except as
set forth in the footnotes above or elsewhere in this prospectus, to our
knowledge, none of the selling shareholders (i) has had a material relationship
with the Company, other than as a shareholder as noted above, at any time within
the past three (3) years, (ii) has ever been an officer or director of the
Company, or (iii) is a broker-dealer or affiliated with a
broker-dealer.
Please
see Item 15 “Recent Sales of Unregistered Securities” for a more detailed
description of the transactions whereby the securities of the selling
shareholders were acquired.
Penny
Stock Rules
Due to
the offering price of our common stock, as well as the fact that we do not
expect to be listed on a national securities exchange registered with the SEC,
our stock may be characterized as “penny stock” under applicable securities
regulations unless we can maintain a minimum net worth of $5 million. If our
stock is characterized as a penny stock, our stock would be subject to
rules adopted by the SEC regulating broker-dealer practices in connection
with transactions in penny stocks. The broker or dealer proposing to effect a
transaction in a penny stock must furnish his customer a document containing
information prescribed by the SEC and obtain from the customer an executed
acknowledgment of receipt of that document. The broker or dealer must also
provide the customer with pricing information regarding the security prior to
the transaction and with the written confirmation of the transaction. The broker
or dealer must also disclose the aggregate amount of any compensation received
or receivable by him in connection with such transaction prior to consummating
the transaction and with the written confirmation of the trade. The broker or
dealer must also send an account statement to each customer for which he has
executed a transaction in a penny stock each month in which such security is
held for the customer’s account. The existence of these rules may have an
effect on the price of our stock, and the willingness of certain brokers to
effect transactions in our stock.
18
PLAN
OF DISTRIBUTION
We are
registering the shares of common stock previously issued to permit the resale of
these shares of common stock by the holders of the common stock from time to
time after the date of this prospectus. We will not receive any of
the proceeds from the sale by the selling shareholders of the shares of common
stock. We will bear all fees and expenses incident to our obligation
to register the shares of common stock.
The
selling shareholders may sell all or a portion of the shares of common stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents. If the
shares of common stock are sold through underwriters or broker-dealers, the
selling shareholders will be responsible for underwriting discounts or
commissions or agent’s commissions. The shares of common stock may be
sold in one or more transactions at fixed prices, at prevailing market prices at
the time of the sale, at varying prices determined at the time of sale, or at
negotiated prices. These sales may be effected in the following
transactions:
·
|
on
any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale;
|
·
|
in
the over-the-counter market;
|
·
|
in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
|
·
|
through
the writing of options, whether such options are listed on an options
exchange or otherwise;
|
·
|
in
ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
|
·
|
in
block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
|
·
|
through
purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
short
sales;
|
·
|
sales
pursuant to Rule 144 (provided, however, that no sales pursuant to Rule
144 will be available until one year following the Company’s initial
filing of the registration statement of which this prospectus is a part,
which was made on July 17, 2009);
|
·
|
broker-dealers
may agree with the selling shareholder to sell a specified number of such
shares at a stipulated price per share;
|
·
|
a
combination of any such methods of sale; and
|
·
|
any
other method permitted pursuant to applicable
law.
|
If the
selling shareholders effect such transactions by selling shares of common stock
to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling shareholders or commissions from
purchasers of the shares of common stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved). In connection with
sales of the shares of common stock or otherwise, the selling shareholders may
enter into hedging transactions with broker-dealers, which may in turn engage in
short sales of the shares of common stock in the course of hedging in positions
they assume. The selling shareholders may also sell shares of common
stock short and deliver shares of common stock covered by this prospectus to
close out short positions and to return borrowed shares in connection with such
short sales. The selling shareholders may also loan or pledge shares
of common stock to broker-dealers that in turn may sell such
shares.
The
Company has not been notified, by any selling shareholder nor has
knowledge of any selling shareholder who intends to take any short
position prior to the effective date of the registration
statement.
The
selling shareholders may pledge or grant a security interest in some or all of
the warrants or shares of common stock owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the shares of common stock from time to time pursuant to this
prospectus or any amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933, as amended (the “Securities
Act”), amending, if necessary, the list of selling shareholders to include the
pledgee, transferee or other successors in interest as selling shareholders
under this prospectus. The selling shareholders also may transfer and
donate the shares of common stock in other circumstances in which case the
transferees, donees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus.
The
selling shareholders and any broker-dealer participating in the distribution of
the shares of common stock may be deemed to be “underwriters” within the meaning
of the Securities Act, and any commission paid, or any discounts or concessions
allowed to, any such broker-dealer may be deemed to be underwriting commissions
or discounts under the Securities Act. At the time a particular
offering of the shares of common stock is made, a prospectus supplement, if
required, will be distributed which will set forth the aggregate amount of
shares of common stock being offered and the terms of the offering, including
the name or names of any broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the selling shareholders and any
discounts, commissions or concessions allowed or re-allowed or paid to
broker-dealers.
19
Under the
securities laws of some states, the shares of common stock may be sold in such
states only through registered or licensed brokers or dealers. In
addition, in some states the shares of common stock may not be sold unless such
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied
with.
There can
be no assurance that any selling shareholder will sell any or all of the shares
of common stock registered pursuant to the shelf registration statement, of
which this prospectus forms a part.
The
selling shareholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), and the rules and regulations there under,
including, without limitation, Regulation M of the Exchange Act, which may limit
the timing of purchases and sales of any of the shares of common stock by the
selling shareholders and any other participating person. Regulation M
may also restrict the ability of any person engaged in the distribution of the
shares of common stock to engage in market-making activities with respect to the
shares of common stock. All of the foregoing may affect the
marketability of the shares of common stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of
common stock.
We will
pay all expenses of the registration of the shares of common stock under this
prospectus, including, without limitation, Securities and Exchange Commission
filing fees and expenses of compliance with state securities or “blue sky” laws;
provided, however, that a selling shareholder will pay all underwriting
discounts and selling commissions, if any; and provided, further, however, that
pursuant to the 2007 Share Exchange Agreement, Trenchant Capital, Ltd. has
agreed to pay or reimburse the Company for all of its expenses in connection
with this registration statement. We will indemnify the selling
shareholders against liabilities, including some liabilities under the
Securities Act, or the selling shareholders will be entitled to
contribution. We may be indemnified by the selling shareholders
against civil liabilities, including liabilities under the Securities Act that
may arise from any written information furnished to us by the selling
shareholder specifically for use in this prospectus or we may be entitled to
contribution.
Once sold
under the registration statement, of which this prospectus forms a part, the
shares of common stock will be freely tradable in the hands of persons other
than our affiliates.
DESCRIPTION
OF SECURITIES
Our
currently authorized capital consists of 100,000,000 shares of common stock,
$0.001 par value per share, of which 34,687,630 shares were issued
and outstanding. The following description is a summary of our Amended and
Restated Articles of Incorporation and By-laws, as currently in effect, and
filed as exhibits to the registration statement.
On
December 18, 2007, the Company, Surge, Ryan Seddon, Michael Yurkowsky and Peter
Wilson entered into a Share Exchange Agreement pursuant to which the Company
purchased all of the shares of Surge’s common stock in a one share for one share
exchange (the “2007 Share Exchange Agreement”). The 2007 Share Exchange
Agreement was authorized by a written consent of the board or directors of the
Company and the majority of shareholders of the Company. Pursuant to
the terms of the 2007 Share Exchange Agreement, on or around January 15, 2008,
the Company affected a 35 to 1 reverse stock split with the Company’s
outstanding shares being reduced from 14,587,370 to
416,782. Additionally, pursuant to the 2007 Share Exchange Agreement
and the closing of the transactions contemplated thereby, on or around February
22, 2008, the Company issued 33,025,000 shares of its common stock to the
shareholders of Surge in exchange for 33,025,000 shares of Surge representing
100% of Surge’s outstanding shares of common stock. As a result of
the closing of the transactions contemplated by the 2007 Share Exchange
Agreement, Surge became a 100% subsidiary of the Company and its sole operating
company.
COMMON
STOCK
Each
shareholder is entitled to one vote for each share of common stock held on all
matters submitted to a vote of shareholders. Cumulative voting for the election
of directors is not provided for in our Amended and Restated Articles of
Incorporation.
Holders
of common stock are entitled to receive dividends as and when declared by our
board of directors out of funds legally available for dividends and, in the
event of liquidation, to share pro-rata in any distribution of our assets after
payment of liabilities. Our board of directors is not obligated to declare a
dividend. It is not anticipated that dividends will be paid in the foreseeable
future.
Holders
of our common stock do not have preemptive rights to subscribe to additional
shares if issued by us. There are no conversions, redemption, sinking fund or
similar provisions regarding the common stock. All of the outstanding shares of
common stock are fully paid and non-assessable.
20
COMMON STOCK PURCHASE WARRANTS
We
currently have outstanding common stock purchase warrants to purchase an
aggregate of 3,477,553 shares of our common stock at exercise prices ranging
from $0.25 per share to $1.00 per share. These warrants expire between June 2011
and April 2019. The exercise price of the warrants is subject to pro-rata
adjustment in the event of stock splits, recapitalizations and similar corporate
events.
TRANSFER
AGENT AND REGISTRAR
The
transfer agent for our common stock is Interwest Transfer Company, Inc.,
located at 1981 East Murray Holladay Road, Suite 100, Salt Lake City, Utah
84117, and its telephone number is: (801) 272-9294.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
An
“expert” is a person who is named as preparing or certifying all or part of our
registration statement or a report or valuation for use in connection with the
registration statement. “Counsel” is any counsel named in the prospectus as
having given an opinion on the validity of the securities being registered or
upon other legal matters concerning the registration or offering of the
securities. No named expert or counsel referred to in the prospectus has any
interest in the Company. No expert or counsel was hired on a contingent basis,
will receive a direct or indirect interest in the Company or was a promoter,
underwriter, voting trustee, director, officer or employee of, or for, the
Company.
Experts
Our
audited financial statements for the period from January 1, 2007 to December 31,
2008 included in this prospectus have been audited by Mallah Furman, Certified
Public Accountants, as set forth in their report included in this
prospectus.
Counsel
The
legal opinion rendered by Block & Garden, LLP, 5949 Sherry Lane,
Suite 900, Dallas, Texas 75225 regarding the common stock of the Company
registered on Form S-1 is as set forth in their opinion letter
dated November 20, 2009, included in this registration
statement.
DESCRIPTION
OF BUSINESS
SSGI,
Inc. was incorporated in Florida on July 7, 1997, under the name All Product
Distribution Corp. On July 29, 1998, the company changed its name to
Phage Therapeutics International, Inc. (“Phage”). On November 16,
2007, the Company changed its name from Phage to SSGI, Inc (“SSGI” or the
“Company”). SSGI is a holding company for our sole operating entity
and wholly owned subsidiary, Surge Solutions Group, Inc.
(“Surge”). Surge was incorporated in Florida on November 26, 2001. On
March 30, 2007, Surge changed its name from Surge Restoration, Inc. to Surge
Solutions Group, Inc.
On
December 18, 2007, the Company, Surge, Ryan Seddon, Michael Yurkowsky and Peter
Wilson entered into the 2007 Share Exchange Agreement pursuant to
which the Company purchased all of the shares of Surge’s common stock in a one
share for one share exchange (the “Agreement”). The 2007 Share
Exchange Agreement was authorized by a written consent of the board or directors
of the Company and the majority of shareholders of the
Company. Pursuant to the terms of the 2007 Share Exchange Agreement,
on or around January 15, 2008, the Company effected a 35 to 1 reverse stock
split with the Company’s outstanding shares being reduced from 14,587,370 to
416,782. Also pursuant to the 2007 Share Exchange Agreement, the
Company changed its name on November 16, 2007 from Phage Therapeutics
International, Inc. to SSGI, Inc. Additionally, pursuant to the 2007
Share Exchange Agreement and the closing of the transactions contemplated
thereby, on or around February 22, 2008, the Company issued 33,025,000 shares of
its common stock to the shareholders of Surge in exchange for 33,025,000 shares
of Surge representing 100% of Surge’s outstanding shares of common
stock. As a result of the closing of the transactions contemplated by
the 2007 Share Exchange Agreement, Surge became a 100% subsidiary of the Company
and its sole operating company.
Industry
Background
Insurance
Restoration
The
insurance industry is driven by number of claims. Homeowners file
claims and niche contractors like Surge work with the insurance company to
formulate the estimate and assist the homeowner with coverage questions and
policy translation. Once the insurance company and the contractor have
agreed upon the price, the contractor performs the work to restore the home or
business to “pre-loss” condition. The landscape of the insurance industry
as a whole has been through many changes in Florida over the past 10
years. Vendor programs allow the insurance company to align themselves
with reputable contractors that utilize proprietary software programs to
estimate a given loss using agreed upon pricing between the insurance company
and the contractor. As Florida experienced hurricanes in 2004 and 2005,
many insurance companies were overwhelmed financially and otherwise, thus either
went out of business, were forced into receivership by the state, or pulled out
of Florida to limit liability. This required financial reorganization by
most firms and vendor programs were in transition for most of 2006 and
2007. Now that Florida has been without hurricanes for almost two years,
insurance companies are healthier and better prepared for emergency response in
the future. Surge continues to align its self with reputable insurance
companies to perform emergency water extraction, fire restoration, mold
remediation and general reconstruction.
21
Replacement
of Underground and Above ground storage tanks, Piping and Accessories/Petroleum
Contamination Cleanup to meet compliance mandates
The
petroleum industry includes all retail gas station facilities, government
petroleum facilities, industrial manufacturers, and any other business that
stores gasoline products. The industry includes both underground and aboveground
applications. Upgrades began across the country almost 17 years
ago. The principal is that single walled storage tanks, if breached,
will leak contamination in to the ground and eventually contaminate the water
supply. In order to be in compliance in Florida, all single walled
components of any fueling facility (i.e. tanks, product piping, and fill
locations) need to be replaced with double wall systems. These systems
provide two layers of protection. If the primary layer is breached, a monitoring
system will alert the technician that a breach has occurred and instead of
leaking contamination into our ground water, the secondary will capture the fuel
until the repair can be made. Mandates come from the Environmental
Protection Agency and individual state governments. According to the EPA and
DEP, Florida and California have been the first two states to set firm
completion dates for compliance upgrades and other states are seeking similar
initiatives. In Florida, Surge estimates that there are thousands of
stations still out of compliance and a limited number of specialty contractors
to fulfill the need.
Commercial/Retail
construction
Commercial/retail
construction encompasses Surge as a construction management firm with the
ability to build all types of commercial, industrial, and residential
structures. The construction industry as a whole has been affected by the
economic downturn, specifically in the residential home market. In
2009/2010, Surge hopes to continue growth in this market through certain
synergies between our petroleum contracting and commercial
markets.
Our
Business
The
Company is a multi disciplined solutions company specializing in three specific
markets of general construction including; insurance restoration, petroleum
contracting, installation services for large scale national home improvement
chain, and new construction.
Services
Insurance
Restoration
Surge has
been in the insurance restoration business since its inception in 2001, which
was initially the core of the Surge business model. Surge is a preferred
contractor for insurance companies. As a preferred vendor, Surge is
qualified for residential, commercial and industrial projects. Surge
has been successful in the insurance restoration arena due to its unique ability
to offer the insured, adjuster and carrier one single source for mold
remediation, flood mitigation, fire restoration, emergency services, contents
cleaning and inventory compilation services. Surge also utilizes
“in-house” crews to perform specialized remediation and restoration services
that we believe gives Surge’s clients a more competitive price and superior
quality of work. Surge, through its well developed infrastructure and
geographic diversity, has the ability to cover most of the State of Florida
which is a key factor that insurance companies look for in Florida
contractors.
Petroleum
Contracting
Petroleum
upgrade replacements involve the removal & replacement of obsolete single
walled tanks and piping and the related clean up on any petroleum dispensing and
or storage sites, i.e. gas stations, factories, citrus farms and multi faceted
industrial facilities.
Currently
Florida legislature has imposed a December 31, 2009 deadline for the
mandate. According to information obtained from the state of Florida
DEP this leaves thousands of sites in the state of Florida needing some level of
compliance upgrade over the next ten months in order to comply with the
mandate
Regulation
of underground petroleum storage tanks began in the early 1980s with the
recognition that Florida’s groundwater, which provides 90% of the state’s needs,
was at risk of becoming contaminated. In 1982, petroleum contamination from a
leaking underground petroleum storage tank was documented in a well field for
the City of Bellevue, in Marion County drinking water, 70% of the state’s
industrial water and 50% of its agricultural water. The legislative response to
the problem was the passage of the Water Quality Assurance Act of
1983. Generally, the act provided for:
22
•
Prohibition against petroleum discharges;
•
Required cleanup of petroleum discharges;
• State
mandated cleanup if not done expeditiously;
• Strict
liability for petroleum contamination; and
•
Required tank inspections and monitoring.
Due to
a shortage of new underground petroleum tanks, there is currently a significant
lead time for the delivery of the new 2009 compliant tanks. All
indications are that this lead time is sure to increase as the deadline gets
closer. This creates incentive for the petroleum tank owners to
commit to an upgrade today.
Management
believes that Surge has a competitive advantage with the compliance upgrades by
utilizing Xerxes secondary containment system to provide an alternative to full
tank replacement. By utilizing the existing tank we can save
significant time and money in comparison to a traditional tank
replacement.
Commercial/Retail Construction
Surge, as
a full service general contractor, provides design/build and construction
services for commercial, industrial and retail customers throughout the State of
Florida. Our construction model has provided a dynamic synergy with
our petroleum markets by providing the client with a single source “turnkey”
solution for retail and wholesale petroleum storage facilities.
Customers
As
noted in our audited financial statements for the years ended December 31, 2008
and 2007, we were dependant on two major customers during 2008 and 2007, which
contributed over 10% of our revenues (on a combined basis) for those two
years. For the year ended December 31, 2008, the Company had two
clients, Kravitz
and Boca West, that exceed 10% of the Company’s
revenue of $6.8 million and likewise for the year ended December 31, 2007, the
Company had two customers, Kravitz
and Baksh, that exceed 10% of the Companies revenue of $1.8 million.
These clients represented 0% of the Company’s
revenue for the nine months ended September 30, 2009. Because we now focus on
government petroleum contracts and other businesses, as described elsewhere in
this prospectus, we are no longer dependant on one or a few major
customers.
The
Company uses a work authorization/contract with each of its non-governmental
customers, which outlines the terms and conditions of the work to be performed
for the customer. The contract contains certain representations, warranties,
indemnification and insurance provided by the Company as well as the contract
price and terms relating to the payment of initial deposits, taxes, permit and
impact fees and the timing of the progress payments. The contract also defines
change orders, which are modifications to the original contract. The Company
provides detailed pricing on a line item basis. The contract also contains
representations by the customer as to the compaction level of the soils present
for digging and excavation planning, dewatering and contamination and other
obligations such as surveys and tank information.
The
Company has been awarded government contracts relating to fueling compliance
upgrades in accordance with the State of Florida mandate of existing tanks (both
underground and above ground). These contracts include replacement and relining
of tanks, new construction of municipalities fueling operations or construction
of municipal buildings. We obtain a package that outlines the detailed
specification of the contract in a request for proposal (“RFP”). The RFP
contains performance standards, scope of work, schedule of values and bonding
requirements. We are required to post a completion bond typically in the range
of 30% of the contract value and are required by a third party bonding company
to purchase an insurance policy for the remaining 70%. This premium is typically
2% of the contract value.
Suppliers
The
Company uses various suppliers and is not dependant on any one specific supplier
for any of its products. We choose to utilize Source North America Corporation
to supply the majority of our piping, manholes, sensors and other construction
supplies needed to complete our contracts. However, the items supplied by Source
North America Corporation are readily available in the marketplace and could be
obtained from a number of other suppliers. None of our selling
shareholders or affiliates is a supplier to the Company.
The
costliest items we use to complete our contracts are new tanks. We primarily use
Xerxes to supply these tanks for our full replacement contracts and occasionally
use other suppliers, such as Hall Tank Company and Petrofuse ZP, for these
tanks. There are numerous suppliers available to us, which allows for
competitive pricing and prevents us from being dependant on one or a few
suppliers.
Competition
Insurance
Restoration
Surge has
three major competitors: Servpro, All Claims Restoration, and Service
Master. Two of our competitors are national franchise companies and
the third, All Claims, is a south Florida company. We would rank
behind the national competitors due to branding and name recognition, but ahead
of the local companies because of our geographic diversity and “in house”
capabilities. To compete we offer substantial depth as it relates to
certifications and licensing that gives us an advantage from a credibility and
qualifications stand point. We also rely on our existing relationships and
prior customer satisfaction to leverage additional business.
23
Petroleum
Contracting
Surge has
five major competitors in the Petroleum markets: Glascow, Delta Petroleum,
B&M construction, MDM Services and Fueling components. Of our major
competitors we are in the top three by virtue of geographic diversity and our
ability to offer “turnkey” projects by utilizing both our petroleum and general
contracting divisions to single source a project from conception through
completion.
Commercial/
Retail Construction
Surge has
several competitors and competes primarily in the public bid market throughout
Florida. In the local market, our competitors are Ocean Gate Construction, West
Construction, Coastal Construction and Brooks & Fruen. Each is a private
company. We generally beat large or publically held construction firms as a
result of our ability to maximize office and field resources to achieve early
completion. To compete we possess a significant labor, material and
subcontractor data base, as well as draw from significant in house knowledge and
experience on a wide variety of commercial construction projects and
developments. We thoroughly evaluate each project needs and risks, means and
methods, plans and specifications, look for various alternative solutions, using
creative detailed estimating processes and ideas to find the best options for
project completion.
Strategy
The
Company’s primary objective is to achieve growth in each of our diversified
markets through geographic expansion, marketing, competitive pricing, and
quality of work.
Surge
will continue growth in the Insurance Restoration market by continuing to align
ourselves with new and re-emerging insurance companies in Florida as to expand
our vendor program participation and create a larger back log of
claims. Surge plans to expand this market through a conservative
national growth plan as other Surge markets move into other states.
The Surge
Petroleum market will continue to see growth in Florida throughout the remainder
of the mandate and into 2010. Surge will also endeavor to
develop proprietary relationships that will give us a competitive advantage in
core pricing and product diversity. Geographic expansion based on the
institution of additional mandates nationally will fuel the demand and ultimate
growth in this market. Surge will also implement a service program to
help sustain each market following the completion of any
mandate. This would provide residual income from an already well
developed customer base in each mandated state. Surge has also
partnered with former Governor Jeb Bush and associates to assist in the
procurement of public and private sector petroleum related
opportunities. In addition Surge has recently been awarded a direct
vendor contract with the state of Florida where by Surge may now contract
directly with government and local municipalities throughout Florida and
circumvent the expensive and extensive public bid process.
The Surge
strategy for our commercial retail business and other new construction is to
utilize our internal synergies between our Petroleum and Construction services
business which gives us a competitive advantage by offering a “turnkey” single
source package to our clients. Geographic expansion coupled with the
other Surge markets will also be a key to our overall growth strategy. Due to
the overall decline in the economy and new construction in Florida, Surge
expects a decline in the overall demand for new construction in the short
term. With this in mind, the number of contractors will also
decline, potentially giving Surge a better opportunity as the construction
industry improves in the coming years.
Intellectual
Property
The
Company has no registered trademarks or patents.
Regulations
Our
petroleum contamination cleanup services are subject to extensive regulatory
supervision and licensing by the Environmental Protection Agency and various
other federal, state, and local environmental authorities. These regulations
directly impact the demand for the services we offer. We believe that we are in
substantial compliance with all federal, state, and local regulations governing
our business.
The
Resource Conservation and Recovery Act is the principal federal statute
governing hazardous waste generation, treatment, storage, and disposal. The
Resource Conservation and Recovery Act, or the Environmental Protection
Agency-approved state programs, govern any waste handling activities of
substances classified as “hazardous.” Moreover, facilities that treat, store or
dispose of hazardous waste must obtain a Resource Conservation and Recovery Act
permit from the Environmental Protection Agency, or equivalent state agency, and
must comply with certain operating, financial responsibility, and site closure
requirements. Wastes are generally hazardous if they either are specifically
included on a list of hazardous waste, or exhibit certain characteristics
defined as hazardous, and are not specifically designated as non-hazardous. In
1984, the Resource Conservation and Recovery Act was amended to substantially
expand its scope by, among other things, providing for the listing of additional
wastes as “hazardous” and also for the regulation of hazardous wastes generated
in lower quantities than had been previously regulated. The amendments imposed
additional restrictions on land disposal of certain hazardous wastes, prescribe
more stringent standards for hazardous waste and underground storage tanks, and
provided for “corrective” action at or near sites of waste management units.
Under the Resource Conservation and Recovery Act, liability and stringent
operating requirements may be imposed on a person who is either a “generator” or
a “transporter” of hazardous waste, or an “owner” or “operator” of a waste
treatment, storage, or disposal facility.
24
Underground
storage tank legislation, in particular Subtitle I of the Resource Conservation
and Recovery Act, focuses on the regulation of underground storage tanks in
which liquid petroleum or hazardous substances are stored and provides the
regulatory setting for a portion of our business. Subtitle I of the Resource
Conservation and Recovery Act requires owners of all existing underground tanks
to list the age, size, type, location, and use of each tank with a designated
state agency. The Environmental Protection Agency has published performance
standards and financial responsibility requirements for storage tanks over a
five-year period. The Resource Conservation and Recovery Act and the
Environmental Protection Agency regulations also require that all new tanks be
installed in such a manner as to have protection against spills, overflows, and
corrosion. Subtitle I of the Resource Conservation and Recovery Act provides
civil penalties of up to $27,500 per violation for each day of non-compliance
with such tank requirements and $11,000 for each tank for which notification was
not given or was falsified. The Resource Conservation and Recovery Act also
imposes substantial monitoring obligations on parties that generate, transport,
treat, store, or dispose of hazardous waste.
The
Comprehensive Environmental Response Compensation and Liability Act of 1980
authorizes the Environmental Protection Agency to identify and clean-up sites
where hazardous waste treatment, storage, or disposal has taken place. The
Comprehensive Environmental Response Compensation and Liability Act also
authorizes the Environmental Protection Agency to recover the costs of such
activities, as well as damages to natural resources, from certain classes of
persons specified as liable under the statute. Liability under the Comprehensive
Environmental Response Compensation and Liability Act does not depend upon the
existence or disposal of “hazardous waste” as defined by the Resource
Conservation and Recovery Act, but can be based on the existence of any number
of 700 “hazardous substances” listed by the Environmental Protection Agency,
many of which can be found in household waste. The Comprehensive Environmental
Response Compensation and Liability Act assigns joint and several liability for
cost of clean-up and damages to natural resources to any person who, currently
or at the time of disposal of a hazardous substance, by contract, agreement, or
otherwise, arranged for disposal or treatment, or arranged with a transporter
for transport of hazardous substances owned or possessed by such person for
disposal or treatment, and to any person who accepts hazardous substances for
transport to disposal or treatment facilities or sites from which there is a
release or threatened release of such hazardous substances. Among other things,
the Comprehensive Environmental Response Compensation and Liability Act
authorizes the federal government either to clean up these sites itself or to
order persons responsible for the situation to do so. The Comprehensive
Environmental Response Compensation and Liability Act created a fund, financed
primarily from taxes on oil and certain chemicals, to be used by the federal
government to pay for these clean-up efforts. Where the federal government
expends money for remedial activities, it may seek reimbursement from the
potentially responsible parties. Many states have adopted their own statutes and
regulations to govern investigation and clean up of, and liability for, sites
contaminated with hazardous substances.
In
October 1986, the Superfund Amendment and Reauthorization Act were enacted. The
Superfund Amendment and Reauthorization Act increased environmental remediation
activities significantly. The Superfund Amendment and Reauthorization Act
imposed more stringent clean-up standards and accelerated timetables. The
Superfund Amendment and Reauthorization Act also contains provisions which
expanded the Environmental Protection Agency’s enforcement powers and which
encourage and facilitate settlements with potentially responsible parties. We
believe that, even apart from funding authorized by the Superfund Amendment and
Reauthorization Act, industry and governmental entities will continue to try to
resolve hazardous waste problems due to their need to comply with other
statutory and regulatory requirements.
The
liabilities provided by the Superfund Amendment and Reauthorization Act could,
under certain circumstances, apply to a broad range of our possible activities,
including the generation or transportation of hazardous substances, release of
hazardous substances, designing a clean-up, removal or remedial plan and failure
to achieve required clean-up standards, leakage of removed wastes while in
transit or at the final storage site, and remedial operations on ground water.
Such liabilities can be joint and several where other parties are involved. The
Superfund Amendment and Reauthorization Act also authorize the Environmental
Protection Agency to impose a lien in favor of the United States upon all real
property subject to, or effected by, a remedial action for all costs that the
party is liable. The Superfund Amendment and Reauthorization Act provide a
responsible party with the right to bring a contribution action against other
responsible parties for their allocable share of investigative and remedial
costs. The Environmental Protection Agency may also bring suit for treble
damages from responsible parties who unreasonably refuse to voluntarily
participate in such a clean up or funding thereof.
The Oil
Pollution Act of 1990, which resulted from the Exxon Valdez oil spill and the
subsequent damage to Prince William Sound, established a new liability
compensation scheme for oil spills from onshore and offshore facilities and
requires all entities engaged in the transport and storage of petroleum to
maintain a written contingency plan to react to such types of events. Under the
contingency plan, the petroleum products storage or transportation company must
retain an oil spill response organization and a natural resources/wildlife
rehabilitator. Oil spill response organizations are certified by the United
States Coast Guard and receive designations based upon the level of their
capabilities. In the event of an incident, the standby oil response organization
must respond by being on site with containment capability within two to six
hours of notification.
25
Our
operations are also subject to other federal laws protecting the environment,
including the Clean Water Act and Toxic Substances Control Act. In addition,
many states also have enacted statutes regulating the handling of hazardous
substances, some of which are broader and more stringent than the federal laws
and regulations.
Marketing
The Surge
marketing strategy is centered on expansion through geographic and market growth
utilizing our outside sales staff to form new relationships and to service
existing cliental. Surge is affiliated with many trade publications
and is a member of a diverse group of associations that relate to the different
markets that Surge competes in. Surge utilizes association
memberships to direct market members/potential cliental. Surge has
retained the services of former Governor Jeb Bush to assist in the procurement
of public and private sector opportunities. Surge has also retained
the services of a lobbyist, Senator Jim Horne former secretary of education for
the state of Florida. Through our continued training programs, our sales staff
and field personal are provided with the latest technology solutions to offer
our clients the most cost effective and value added products in each of our
respective markets.
Pursuant
to a consulting services agreement, Mr. Bush represents us as our consultant
when we are seeking state, regional, local or private contracts for petroleum
storage tank replacement and contamination cleanup, and assists us in
devising a targeted marketing plan to seek contracts or replace non-compliant
petroleum storage. If the Company is successful through the efforts of Mr. Bush,
he will receive a fee based on the gross amount of the contract as well as
warrants to purchase our stock at a price equal to the current market value at
the time. Mr. Bush will receive one warrant for every dollar of revenue
generated through contracts that he helps procure for the Company, up to a
maximum of 2,000,000 warrants in total. Mr. Bush is also entitled to
receive reimbursement for expenses that he incurs on our behalf. The
agreement is for one year commencing on January 21,
2009. To date, the Company has not paid Mr. Bush any compensation or
other remuneration, nor has Mr. Bush received any warrants from the Company,
under this agreement. However, the agreement with Mr. Bush has impacted our
operations favorably by adding new potential contracts and business
opportunities.
Mr.
Horne, who is employed by Dutco Worldwide, provides lobbying services to the
Company in exchange for a monthly retainer and a percentage of gross sales for
which he is directly responsible for procuring. Mr. Horne has
assisted the Company in becoming an approved state vendor, and has helped to
propose legislation that would streamline the process in which municipalities’
contract with vendors. His contract provides his services in two areas,
government consulting and business development and marketing. The contract term
is for six months from June 25, 2006 and continues monthly until Mr. Horne or we
terminate the contract. He is entitled to receive a reimbursement for expenses
incurred on our behalf. In September 2009, we terminated the contract with Mr.
Horne.
Employees
The
Company’s employees are leased through a Professional Employer
Organization. Currently, the Company had 36 full time leased
employees and 1 part-time leased employee. There are no collective bargaining
agreements between the Company and its employees. The Company offers its leased
employees group health benefits after three months of employment and a 401K
retirement program after one year of employment. The Company considers that its
relationship with its leased employees is good.
In May of
2007, we entered into an employee leasing agreement with a non-affiliated
professional employer organization (“PEO”). The PEO provides us with leased
employees based on Worker’ Compensation Codes. The PEO provides the Company’s’
employees with worker's compensation measures, administrative services, payroll
tax reporting and year end tax reports. The PEO provides benefit plans,
disbursement of payroll checks and bank drafts.
The PEO
agreement has a one year term beginning on its effective date and is renewable
annually. Each party can terminate the agreement with 45 days notice. On
October 15, 2009, the Company exercised its rights to terminate the agreement
effective December 31, 2009. The Company intends to process it payroll
internally.
Employment
Agreements
On
April 1, 2007, Surge entered a three-year employment agreement with Mr. Ryan
Seddon to serve as our Chief Executive Officer (the “Seddon
Agreement”). The Seddon Agreement extends through April 1, 2010 and
originally provided for an annual base salary of $290,000 for the first year,
$320,000 for the second year and $360,000 for the third year. The
Seddon Agreement also provides for a car allowance and a cash bonus equal to 50%
of the prior twelve month’s base salary contingent on the Company reaching
certain performance criteria. The Seddon Agreement further provides
for the annual issuance of 500,000 warrants to purchase shares of our common
stock exercisable at the Company’s valuation at the time of
issuance. The Seddon agreement was amended effective August 1,
2008. The term remains the same, but the annual base salary is
reduced to $190,000 through June 30, 2009. Effective July 1, 2009,
the annual base salary will be increased to $240,000 provided that the Company
has reached profitability at that time. The revised Seddon Agreement
provides for a cash bonus equal to 100% of the annual base salary but is subject
to certain performance criteria. The amendment removed the car
allowance, and Mr. Seddon is provided a Company vehicle. Mr. Seddon
is entitled to participate in all benefit plans maintained by us for salaried
employees. Effective for the year 2009, Mr. Seddon shall receive up to 500,000
warrants annually, exercisable at 15% discount off of the Company’s valuation at
the time of issuance. The number of warrants to be issued is based on a
percentage of the annual net of income of the Company. Mr. Seddon received
500,000 warrants for 2008. The Seddon Agreement also
contains a confidentiality provision and an agreement by Mr. Seddon not to
compete with us upon the expiration of the Seddon Agreement. Mr.
Seddon also serves on the Board of Directors. As a member of the
Board of Directors, Mr. Seddon will receive $8,000 annually in arrears in
January and 12,000 stock options annually issued with a strike price 15% less
than market price at time of issuance and 5 year exercise
period.
26
On May
18, 2009, Surge entered into a one year employment agreement with Rodger Rees to
serve as our Chief Financial Officer (the “Rees Agreement”). The Rees Agreement
provides for a base salary of $110,000 with a performance bonus paid annually
based on the profitability of the Company. The Rees Agreement further provides
for the issuance of 250,000 warrants to purchase the Company’s common stock at
certain periods of continued employment from 6 months to 2 years. Mr. Rees
is entitled to participate in all benefit plans maintained by the Company for
salaried employees. The Rees Agreement also contains a
confidentiality provision and an agreement by Mr. Rees not to compete with us
upon its expiration.
Property
The
Company does not own any real estate.
The
Company leases its principal office at 8120 Belvedere Road, Suite 4, West Palm
Beach, Florida 33411. The term of the lease commenced on February 1,
2008 is for thirty (30) months. The original monthly base rent was
$2,550, increasing annually by 3.5% per year to $3,696 per month as of March 31,
2009. There is no renewal option in the Lease.
The
Company leases approximately 4445 sq. ft. warehouse space at 8010 Belvedere
Road, Unit 9 and 10, West Palm Beach, Florida 33411. The term of the
lease commenced on June 16, 2008 is for twenty-four (24) months and is not
renewable. The monthly base rent is $2,963 as of March 31,
2009. There is no renewal option in the Lease.
The
Company believes that its current facilities are adequate for its needs through
the next six months, and that, should it be needed, suitable additional space
will be available to accommodate expansion of the Company’s operations on
commercially reasonable terms, although there can be no assurance in this
regard. There are no written agreements.
LEGAL
PROCEEDINGS
The
Company is involved in various legal proceedings and claims incident to the
normal conduct of its business. The Company believes that such legal proceedings
and claims, individually and in the aggregate, are not likely to have a material
adverse effect on its financial position or results of operations.
MARKET
FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market
Information
Our
common stock has been included for quotation on the Pink Sheets electronic
quotation system under the symbol SSGI.PK since November 16,
2008. Prior thereto it had been traded in the pink sheets under the
symbol PTXX.OB.
The
following table shows the reported high and low closing bid quotations per share
for our common stock based on information provided by the pink sheets electronic
quotation system for the third quarter of 2009. Particularly since our
common stock is traded infrequently, such over-the-counter market quotations
reflect inter-dealer prices, without markup, markdown or commissions and may not
necessarily represent actual transactions or a liquid trading
market.
High
|
Low
|
|||||||
Fiscal
2007
|
||||||||
Fourth
Quarter
|
$ | 1.33 | $ | 0.60 | ||||
Fiscal
2008
|
||||||||
First
Quarter
|
$ | 1.87 | $ | 0.53 | ||||
Second
Quarter
|
$ | 1.55 | $ | 1.05 | ||||
Third
Quarter
|
$ | 1.40 | $ | 1.05 | ||||
Fourth
Quarter
|
$ | 1.20 | $ | 0.39 | ||||
Fiscal
2009
|
||||||||
First
Quarter
|
$ | 0.80 | $ | 0.36 | ||||
Second
Quarter
|
$ | 0.80 | $ | 0.35 | ||||
Third
Quarter
|
$ | 0.51 | $ | 0.43 |
27
Number
of Shareholders
There
were currently 162 holders of record of our common stock. Currently there are
34,687,630 shares of common stock issued and outstanding. There are no
shares of preferred stock issued or outstanding.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATIONS
You
should read the following description of our financial condition and results of
operations in conjunction with the financial statements and accompanying notes
included in this Annual Report beginning on page F-1.
Overview
SSGI was
incorporated in Florida on July 7, 1997 under the name All Product Distribution
Corp. On July 29, 1998, the Company changed its name to Phage
Therapeutics International, Inc. (“Phage”). On November 16, 2007, the
Company changed its name from Phage to SSGI, Inc (“SSGI” or the
Company). SSGI is a holding company for our sole operating entity and
wholly owned subsidiary, Surge Solutions Group, Inc. (“Surge”). Surge
was incorporated in Florida on November 26, 2001. On March 30, 2007, Surge
changed its name from Surge Restoration, Inc. to Surge Solutions Group,
Inc.
On
December 18, 2007, the Company, Surge Solutions Group, Inc., Ryan Seddon,
Michael Yurkowsky and Peter Wilson entered into a Share Exchange Agreement
pursuant to which the Company purchased all of the shares of Surge Solutions
Group Inc.’s common stock in a one share for one share exchange (the “2007 Share
Exchange Agreement”). The 2007 Share Exchange Agreement was
authorized by a written consent of the board or directors of the Company and the
majority of shareholders of the Company. Pursuant to the terms of the
2007 Exchange Agreement, on or around January 15, 2008, the Company affected a
35 to 1 reverse stock split with the Company’s outstanding shares being reduced
from 14,587,370 to 416,782. Also pursuant to the 2007 Exchange
Agreement, the Company changed its name on November 16, 2007 from Phage
Therapeutics International, Inc. to SSGI, Inc. Additionally, pursuant
to the 2007 Exchange Agreement and the closing of the transactions contemplated
thereby, on or around February 22, 2008 the Company issued 33,025,000 shares of
its common stock to the shareholders of Surge Solutions Group, Inc. in exchange
for 33,025,000 shares of Surge Solutions Group, Inc. representing 100% of Surge
Solutions Group, Inc.’s outstanding shares of common stock. As a
result of the closing of the transactions contemplated by the 2007 Exchange
Agreement, Surge Solutions Group, Inc. became a 100% subsidiary of the Company
and its sole operating company.
The
Company is a multi disciplined solutions company specializing in three specific
markets of general construction including; insurance restoration, petroleum
contracting and commercial construction.
For
the nine months ended September 30, 2009, we incurred a net loss of
$882,066 from revenues of $5,512,077. Although we incurred a net loss of
$2,437,530 and $1,633,530 for the years ended December 31, 2008 and 2007,
respectively, our revenues increased from $1,821,735 for the year ended December
31, 2007 to $6,802,107 for the year ended December 31, 2008. The
following table summarizes these results:
Nine
|
||||||||||||
Months Ended
|
Year Ended
|
Year Ended
|
||||||||||
September 30,
|
December 31,
|
December 31,
|
||||||||||
2009
|
2008
|
2007
|
||||||||||
(unaudited)
|
(restated)
|
(restated)
|
||||||||||
Revenues
|
$
|
5,512,077
|
$
|
6,802,107
|
$
|
1,821,735
|
||||||
Cost
of Revenues & General & Administrative Expenses
|
$
|
6,112,784
|
$
|
9,161,595
|
$
|
3,408,308
|
||||||
Other
Income (Expenses)
|
$
|
(281,359
|
)
|
$
|
(78,042
|
)
|
$
|
(46,957
|
)
|
|||
Net
Loss
|
$
|
(882,066
|
)
|
$
|
(2,437,530
|
)
|
$
|
(1,633,530
|
)
|
|||
Net
Loss Per Common Share, Basic and Diluted
|
$
|
(0.025
|
)
|
$
|
(0.072
|
)
|
$
|
(0.067
|
)
|
28
September 30,
|
December 31,
|
|||||||||||
2009
|
2008
|
2007
|
||||||||||
(restated)
|
(restated)
|
|||||||||||
Total
Assets
|
$
|
3,214,706
|
$
|
1,069,126
|
$
|
429,309
|
||||||
Total
Stockholders’ Deficiency
|
$
|
(1,978,842
|
)
|
$
|
(1,482,143
|
)
|
$
|
(392,180
|
)
|
|||
Retained
Earnings (Accumulated Deficit)
|
$
|
(5,119,376
|
)
|
$
|
(4,237,310
|
)
|
$
|
(1,799,780
|
)
|
Results
of Operations for the Nine Months Ended September 30, 2009 as Compared to the
Nine Months Ended September 30, 2008
Revenue
The
Company’s revenue of $5.51 million for the nine months ended September 30,
2009 increased $1.18 million, or 27.4%, compared to the nine months ended
September 30, 2008’s revenues of $4.33 million. This growth was
primarily due to an increase in petroleum contracting and the Company’s
strategic alliance with Tank Tech, Inc., that opened up the market for an
alternative to full tank replacement. Under our agreement with Tank
Tech, we have the right to use its proprietary method of relining existing
underground storage tanks. This method is licensed to Tank Tech by ZCL/Xerxes
Composites, Inc. and is specific only to Florida government petroleum storage
facilities that are contracted to be relined instead of replaced. Our agreement
with Tank Tech, which expires on May 31, 2010, requires us to prepare the
construction site in advance of Tank Tech’s crews beginning the
relining process in accordance with a schedule agreed upon by Tank Tech and the
Company. We are required to collect funds and pay Tank Tech in accordance with
each contract as well as provide insurance for job site liabilities. We are the
primary obligor of each contract and the revenues are accounted for as
follows: the gross amount of the contract is collected by the Company and
posted to the Company’s financial statements as contract revenues, while payment
is made to Tank Tech and posted in cost of goods sold under that job specific
contract. We are able to offer our customer a competitive price by
leaving the existing tank in the ground, entering the tank and creating a tank
within the existing tank. We do expect this trend to continue in
Florida throughout the remainder of the mandate and beyond. The
impact of the mandate will increase demand and resulting sales as the state
draws closer to the mandate.
Our
petroleum contracts have significantly affected our revenue growth in 2009,
as our income from petroleum related contracts was approximately 89% or
$4.9 million of our total revenues of $5.51 million for the nine months ended
September 30, 2009 as compared to -0- revenues from petroleum related revenue
for the same period last year. We do see the revenue continuing to grow in
Florida through 2010 as many stations will not meet the current mandate and be
forced to take their tanks out of service until financing becomes available.
Also, the Company anticipated an overall downturn in the general
construction industry and devoted significant time in 2008 to changing the
Company’s focus to that of petroleum contracting.
Gross
Profit
Gross
profit as a percentage of contract revenues earned was 13.9% or $.77 million on
sales of $5.51 million for the Nine months ended September 30, 2009 as
compared to negative 0.4% on sales of $4.33 million for the same period in
2008. The Company’s gross profit increased from $0.02 million to a gross
profit of $0.77 million loss for the nine months ended September 30, 2008 and
2009, respectively. This increase is due primarily to the first
full quarter of operations of both private sector and municipal petroleum
contracts. The Company also made a concentrated effort to reduce direct costs
associated with contract revenue.. The Company expanded
construction management personnel, facilities, and equipment for the petroleum
contracting business while decreasing in the same area for the general
contracting business. The Company has experienced significant growth,
but is anticipating a higher growth rate as the state mandated petroleum tank
deadline for replacement or relining approaches. The number of
projects is expected to continue to increase later in 2009 and into 2010 and the
Company expects the gross profit to increase as well. Because
petroleum contracting and general contracting business complement each other,
the Company does not expect a significant decline in their commercial
construction when performed in conjunction with the petroleum business. The
Company does not expect significant growth in the commercial construction
unrelated to their petroleum due to the overall decline in new general
construction. The Company hopes to see low to moderate growth
in insurance restoration in 2009 due to geographic expansion and new
relationships it hopes to develop in the insurance restoration
industry. This growth depends greatly on weather patterns and the
number of natural disasters in the Company’s geographic area.
General
and Administrative
General
and administrative expenses decreased 19.7% from $1.70 million for the nine
months ended September 30, 2008, to $1.37 million for the nine months ended
September 30, 2009. These decreases are due primarily to the
downsizing of the Company’s non-petroleum related business and the overall
growth and the establishment of new processes and controls. The
Company realized the general and administrative expenses were high as compared
to current revenue and took steps to decrease them. We decreased our
payroll expenses 29.4% over the nine month ended September 30, 2008 because of
our decision to move more into the petroleum area where fewer employees and
smaller crews are needed complete the contracts due to increased use of heavy
equipment. Our business in the past has revolved around contracts relating to
small jobs, which are more labor intensive. As a direct result to a
reduction in labor costs, we were able to decrease our office and technology
expenses 36.6% and travel and entertainment expenses 61.1% over the same period
last year. We experienced a reduction in marketing and advertising of 22.2% over
last year due to a reduction in our advertising budget while we revamped our
Company for the petroleum business. General and administrative expenses as a
percentage of revenue for the nine months ended September 30, 2009 and
2008 were 24.8% and 39.4%, respectively. The Company expects
that the percentage of general and administrative expenses as compared to
revenue will continue to decrease as compared to 2008 for the remainder of
2009.
Significant
fluctuations in fuel costs have had an impact on both costs of goods sold and
general and administrative expense. The Company expects fuel costs to
continue to have a similar impact for the remainder of 2009 and into 2010. The
Company continues to seek better relationships that will afford the Company more
significant discounts due to its large volume of fuel usage.
Depreciation
and amortization expense decreased from $0.10 million for the nine
months ended September 30, 2008 to $0.09 million for the nine months ended
September 30, 2009. The decrease is primarily due to a reduction
in purchases of new equipment over the previous year and the disposal of three
vehicles with a cost of $0.09 million earlier in 2009. Of the total depreciation
and amortization expense for each period, the Company allocated $0.05
million and $0.05 million of the depreciation expense for the nine
months ended September 30, 2009 and 2008, respectively, to cost of revenues
earned with the balance allocated to general and administrative
expense..
Other
Income and Expenses
Interest
expense increased from $0.04 million for the nine months ended September 30,
2008 to $0.10 million for the nine months ended September 30, 2009, or
132%. The increase is primarily due to the additional borrowings
on loans made by financial institutions in the previous year, additional
borrowings from officers and certain employees along with the
addition of the $1,238,971 term note made to the Company to fund collateral for
performance bonds in its government projects.
Net
Loss
The
Company’s net loss of approximately $.88 million for the nine
months ended September 30, 2009 decreased from a net loss of $1.78
million for the nine months ended September 30, 2008 or
50.0%. The $0.90 million decrease was due primarily to a the
Company posting a profit of $0.15 million during the three months period ending
September 30, 2009 resulting in increased gross profit thus far
in 2009 coupled with 19.7%, or $0.33 million
decrease in general and administrative expense,
consisting primarily of payroll and related costs.
Liquidity
and Capital Resources
As of
September 30, 2009, the Company had total current assets of approximately $2.85
million, comprised of cash restricted cash deposits, contracts receivable,
prepaid expenses and costs and estimated earnings in excess of billings on
uncompleted contracts. This compares with current assets in the same categories
of approximately $0.62 million for December 31, 2008. Contracts receivable
increased 420% from $0.34 million as of December 31, 2008 to $1.77 million
as of September 30, 2009.
The
Company reported $1.77 million in contracts receivable at September 30,
2009. As of November 17, 2009,, the Company had collected 70% of
these receivables, or $1.05 million. The balance that remained
uncollected was predominately contracts that were signed by the Company and its
customers near the end of September 30, 2009, and significant work had not yet
commenced. At September 30, 2008, the Company’s contract receivable
balance consisted of 53 open contracts. Of those contacts, 36 were in
conjunction with our business for a large retail home improvement chain at an
average contract price of $343, and 17 were commercial construction contracts at
an average price of $0.02 million per open contract. At September 30, 2009, the
Company had only 29 open accounts, but the average price of each open contract
was $0.06 million. This increase in the average price of the contract between
the two periods was due largely to the Company’s contract mix. Prior to the
three months ended September 30, 2009, the Company’s contracts were
predominately in the non-governmental petroleum area. Beginning in July 2009,
the Company commenced its business plan in the governmental petroleum market
where the average price per contract was $189,963. It is the
Company’s practice to record up to 50% of the contract value as a receivable for
private sector petroleum contracts, prior to commencing work on the contract.
This insures that the Company will realize a level of cash flow from its billing
process prior to commencing construction. The unearned portion of the contract
receivable is adjusted by applying a percentage that corresponds to how much
work has been completed to date to the total amount of work that is estimated to
complete the project. This adjustment is made to the corresponding revenue
account and has the effect of adjusting the contract receivable to the actual
amount earned. An entry is then made to the account billings in excess of costs
and estimated earnings. In governmental contracts, the Company records the
amount of the contract that has actually been billed to the governmental entity
based on actual work completed to date.
Costs
and estimated earnings in excess of billings on uncompleted
contracts increased 7.5% from December 31, 2008 to September 30, 2009
due predominately the Company’s focus on controlling expenditures in conjunction
with respect to its billing process.
The
Company’s current liabilities are comprised primarily of accounts payable,
accrued expenses, current portions of notes payable to stockholders and third
parties and billings in excess of costs and estimated earnings on uncompleted
contracts. As of September, 2009, current liabilities totaled approximately
$3.85 million which increased 80.1%, from current liabilities of $2.14 as of
December 31, 2008. This was due primarily to the additional borrowings on the
Company’s term loan to fund 4 additional government petroleum performance bonds
and a 120% increase in accounts payable and accrued expenses. The size and scope
of the Companies contracts have contributed significantly to the increase in
accounts payable and accrued expenses. Other liabilities increased
$0.93 million from $0.41 million to $01.34 million for December 31, 2008 and
September 30, 2009, respectively. This significant increase of 224% relates to
the fact that the Company borrowed additional funds from one of its
officers and a certain employee to offset the time difference between billing
and collecting.
The
following is a summary of the Company’s cash flows provided by (used in)
operating, investing and financing activities for the nine months ended
September, 2009 and 2008 (in 000’s):
Nine
Months Ended
|
Nine Months Ended
|
|||||||
September 30, 2009
|
September 30, 2008
|
|||||||
Net
cash (used) in operating activities
|
$ | (1,016 | ) | $ | 1,209 | ) | ||
Net
cash (used) in investing activities
|
(810 | ) | (31 | ) | ||||
Net
cash provided by financing activities
|
1,860 | 1,268 | ||||||
Net
increase in cash
|
$ | 34 | $ | 28 |
Net cash
used in operations for the nine months ended September 30, 2009 and 2008 was
$1.01 million and $1.21 million, respectively. The decrease in cash usage
was due primarily to improved profitability between periods.
Net cash
used in investing activities for the nine months ended September 30, 2009 was
$0.81 million. We disposed of three vehicles, purchased petroleum equipment for
use in the completion of our contracts and increased our cash deposits used as
collateral for performance bonds in accordance with our governmental petroleum
contracts. Net cash used of $0.03 million for the six months
ended September 30, 2008 was a result of the purchase of new
equipment.
We have
significant cash requirements due over the next twelve month period. We have a
promissory note to a financial institution due in December 2009 in the amount of
approximately $0.35 million. At September 30, 2009, the current balance due was
approximately $0.45 million. The Company is having discussions with
the financial institution to continue the loan on an amortizing basis past the
December due date. There are no assurances this will happen and the financial
institution could continue to seek a balloon payment in December. Although this
debt carries a variable interest rate, we do not believe that a significant
increase in the interest rate will cause an adverse effect on our financial
position. The promissory note is recorded on our September 30, 2009
balance sheet under current liabilities.
As of
September 30, 2009 we are indebted on a term loan to related parties in the
amount of approximately $1.24 million. The proceeds from this loan are due in
three separate installments that are timed in conjunction with the release of
deposits made to collateralize our municipal petroleum contracts. We believe
that the principal, when due, will be satisfied by the restricted funds on
deposit and shown as a current asset on our September 30, 2009 balance sheet.
Our Chief Executive Officer has provided a guaranty on this loan. The
loan carries a fixed interest rate and as a result does not create an
unmanageable interest rate risk for our Company.
As of
September 30, 2009, we were also indebted to Ryan Seddon, our Chairman
of the Board, Chief Executive Officer and President, and to Ricardo Sabha,
a former officer and director and current employee of the Company, for funds
advanced to the Company in the amounts of $0.87 million and $0.34
million, respectively. These balances are reflected in the Company’s
September 30, 2009 financial statements as due to stockholders under other
liabilities, with the current portion reflected under current
liabilities. These loans are due in December of 2011. We currently
have no sources to repay these amounts. If we are unable to repay these notes or
make alternative arrangements, there would be a material effect on the Company
financial position.
Future
Cash Requirements
As of
September 30, 2009, the Company had contracts in progress of approximately $3.84
million. Our estimated profits from those contracts are approximately
$0.21 million after general and administrative expenses of approximately $.46
million. In October of 2009, we were obligated to make a principal payment on a
term loan of $0.43 million. During the same period, the
company holding the restricted cash deposits released funds on four
contracts, two of the contracts were 100% completed and the restricted deposits
were released to the term note lender. The other two projects were 80% complete
and 80% of the restricted cash deposits held for those contracts was
released. The Company applied $.35 million to principal and accrued
interest. The Company anticipates the remaining 20% of the restricted
deposits to be released in 30 to 60 days and we will satisfy our October
obligation on the term loan. The balance currently due on the entire term loan
is approximately $0.90 million. Recorded on our balance sheet as of September
30, 2009 are restricted cash deposits of approximately $0.81
million. These restricted cash deposits are funds held by a third
party as completion guarantees on our government related petroleum
contracts.
On
December 3, 2009, the Company is required to satisfy all outstanding principal
and interest to a financial institution in the estimated amount of $0.35
million. The Company is currently amortizing the promissory note by making
monthly payments of $35,000, approximately 90% of which payments are applied to
principal with the balance applied to accrued interest. As previously
discussed, the Company is in negotiations with the financial institution to
continue amortizing the note past the due date on the same term and
conditions. In the event the Company is unsuccessful in extending the
note, the Company intends to utilize its available cash to pay the principal
when due.
Also,
on or before December 31, 2009, the Company is obligated to make a second
principal reduction payment on a term loan in the amount of $0.45
million. The Company anticipates paying this second installment with
funds held in its restricted cash deposit account upon successful completion of
its municipal petroleum contract.
31
The
Company will be required on or before April 27, 2010 to pay the final principal
payment of $0.50 million on its term loan. We anticipate that the Company will
be successful in extending the note to the financial institution and will have
the funds available from its operating revenues for the year end December
31, 2009 and the three month period ended March 31, 2010. Any shortfall will be
funded by loans expected to be made to the Company by officers and employees of
the Company.
Ryan
Seddon, our Chairman of the Board, Chief Executive Officer and President,
and Ricardo Sabha, a former officer and director and current employee of the
Company, have loaned the Company significant funds since 2007, these loans
are recorded on the Company’s balance sheet as due to stockholders. The Company
believes that it will need to raise additional capital through an equity
offering sometime in the second or third quarters of 2010, which we believe will
allow us to meet our financial obligations over the next 12 months. Mr.
Seddon and Mr. Sabha have indicated that they would be willing to convert a
portion of their debt to equity, if approved by the Company’s Board of
Directors. These loans are due in December
2011.
The
nature of our business does not involve large capital expenditures. Heavy
equipment needed to complete our contracts is rented on a daily basis and
included in our job cost estimates. Our commercial, industrial and retail new
construction business as well as our insurance restoration business requires the
customer to pay a significant amount of the value of the contract, up to 50% for
most contracts, prior to beginning the contract work.
In our
government petroleum contracts, we are required to spend a portion of the
contract cost prior to our first request for funds. Typically once we have
submitted a request for funds, there is a 30 day lag time for the municipality
to fund. The largest capital expenditure in this area of our business is for new
tanks on full replacement and the relining process for relined tanks. Our
suppliers of these products and services allow the Company a minimum of 30 days
after completion of the replacement or reline to satisfy the obligations for
these products and services.
The
Company does not have any off balance sheet obligations except for a
lease on our office and warehouse facilities and an automobile used by an
employee of the Company.
Results
of Operations for the Year Ended December 31, 2008 as Compared to Year Ended
December 31, 2007
Revenue
The
Company’s revenue of $6.80 million for the year ended December 31, 2008
increased $4.98 million or 273%, compared to $1.82 million for the year ended
December 31, 2007. This growth was primarily due to petroleum
contracting which increased from $0 for the year ended December 31, 2007 to
$3.15 million for the year ended December 31, 2008. Non-petroleum construction
increased to $2.10 million from $0.53 million for a total of $1.57 million or
299%. The Company’s remediation and small installation services decreased 78%
and 21% respectively. As an installer, Surge has no control over sales or
overall market share so that any decline in revenues or market share directly
affects our installation business. The Company anticipated an overall downturn
in the general construction industry and devoted significant time and resource
in 2008 to narrowing the Company’s focus to that of petroleum contracting and
commercial construction.
Gross Profit
(Loss)
For the
year ended December 31, 2008, the Company had a gross loss as a percentage of
contract revenues of 2.1% or a negative $0.14 million on sales of $6.80 million
for the year ended December 31, 2008 as compared to a 1.2% or a negative
$22 thousand gross loss on sales of $1.82 million for the same period in
2007. In dollars, the Company’s gross loss increased from $22,090 to
$140,837 for the year end December 31, 2007 and 2008,
respectively. This decrease was due primarily to the significant
increase in overall cost associated with the large increase in revenues. The
Company’s cost of revenues earned increased 277% from $1.84 million for the year
ended December 31, 2007 to $6.94 million for the year ended December 31, 2008. A
significant portion of that increase was costs associated with the increased
revenues. The other factor resulting in the increase was the
Company’s infrastructure ramp up. The Company increased the
commissions paid to acquire business approximately 2960% from approximately $4
thousand for the year ended December 31, 2007 to approximately $135
thousand for the year ended December 31, 2008. The Company also
focused sales efforts into the private sector petroleum contracts, as a
significant back log was established; customers had severe difficulty in getting
financed. The Company experienced rapid growth with both sales and
infrastructure. Once fully developed, management was able to identify
areas of focus and narrowed the diversity of the Company’s product mix, thus
resulting in the opportunity to significantly reduce overhead and
costs.
General
and Administrative
General
and administrative expenses increased 42% from $1.56 million for the year ended
December 31, 2007, to $2.22 million for the year ended December 31,
2008. This increase was due, in part, to labor expenses which
increased 42% from $0.85 million to $1.20 million for the years ended
December 31, 2007 and 2008, respectively. The Company increased its advertising
costs 188.2% from approximately $0.06 million to $0.18 between the two years.
Insurance premiums increased 30% from approximately $0.15 million to
approximately $0.19 million and auto and truck expenses increased 53% from
approximately $0.09 million to approx $0.13 million. General and
administrative expenses as compared to contract revenue earned for the years
ended December 31, 2008 and 2007 were approximately 32.6 and 85.9%,
respectively.
32
Significant
increases in fuel costs have had an impact on both costs of goods sold and
general and administrative expense. The Company expects fuel costs to
continue to have a similar impact in the future.
Depreciation
expense increased from $0.07 million for the year ended December 31, 2007 to
$0.13 million for the year ended December 31, 2008. The increase is primarily
due to the purchase of construction and transportation equipment needed for
petroleum contracting. The Company allocated $60,758 and $34,799 of the
depreciation expense for the year end December 31, 2008 and 2007, respectively,
to cost of revenues earned.
For the
year ended December 31, 2008, we recorded bad debt expense of $23,886 which
includes a reserve amount for doubtful accounts of $10,513. Our bad debt expense
was 0.35% of contract revenues earned or 7% of our contracts receivable balance
of $339,914 at December 31, 2008. Contracts receivable are customer obligations
due under contractual terms. The Company sells its services to residential,
commercial, and retail customers as well as municipalities. On most
projects, the Company has liens rights under Florida law which are typically
enforced on balances not collected within 90 days. The Company
includes any balances that are determined to be uncollectible along with a
general reserve in its overall allowance for doubtful accounts. Collectability
of our accounts receivable allowance is reviewed on a monthly basis.
Municipalities pay the Company based on a percentage completion formula less a
10% retainage.
Other
Income and Expenses
Interest
expense increased from $0.04 million for the year ended December 31, 2007 to
$0.07 million for the year ended December 31, 2008, or 72%. The
increase is primarily due to the additional debt from loans made by financial
institutions for the purchase of transportation equipment and a line of credit.
For the year ended December 31, 2008, the Company recorded a loss of $13,136 on
the disposition of an asset and paid a legal settlement for the year ended
December 31, 2007 in the amount of $22,656.
Net
Loss
The
Company sustained net losses of $2.44 million and $1.63 million for the years
ended December 31, 2008 and 2007, respectively. A significant portion of the
loss for the year ended December 31, 2008 was a result of the increase of the
Company’s infrastructure ramp up to enter the petroleum business. In
order to prepare for the securities market a significant investment was made to
the Company’s infrastructure, creating systems and controls to comply with SOX
as well as new non revenue producing positions to meet
compliance. The Company experienced significant growth and
increased it general and administrative expenses to handle the
growth.
Liquidity
and Capital Resources
As of
December 31, 2008, the Company had total current assets of approximately $0.62
million, comprised of cash, contracts receivable, prepaid expenses and costs and
estimated earnings in excess of billings on uncompleted contracts. This compares
with current assets in the same categories of approximately $0.10 million for
December 31, 2007. Contracts receivable increased 1507% from $0.02 million as of
December 31, 2007 to $0.34 million for the year ended December 31,
2008. This increase was due to the average price and number of the
open contracts included in the contract receivables balance at December 31,
2007, which consisted entirely of small contracts performed by the Company for a
large retail home improvement chain. The 2007 balance consisted of 37 open
contracts with an average contract price of $499. During 2008, the Company made
a decision to move into the commercial construction segment. At December 31,
2008, while the number of open contracts with this same home improvement chain
decreased 42% to 26 with an average contract price of $387, the Company had 28
commercial construction contracts that were open at December 31, 2008, with
average contract price of $12,155. Costs and estimated earnings in
excess of billings on uncompleted contracts increased 725% from December 31,
2007 to December 31, 2008 due predominately to the increased volume of
contracts.
As discussed
earlier our revenues increased $4.98 million or 273%. As a percentage of
sales our contracts receivable increased approximately 4% between December
31, 2008 and December 30, 2007. Our costs and estimated earnings in
excess of billings as a percentage of sales were approximately 2% and 1% for the
years ended December 31, 2008 and 2007, respectively. Likewise our accounts
payable increased significantly due to the increase in sales and the related
expenses associated with those sales. We have experienced a large number of
contracts in progress as evidenced by the increased in sales.
The
Company’s current liabilities are comprised primarily of accounts payable,
accrued expenses, current portions of notes payable to stockholders and third
parties and billings in excess of costs and estimated earnings on uncompleted
contracts. As of December 31, 2008 current liabilities totaled approximately
$2.14 million which increased significantly, approximately 224%, over current
liabilities of $.70 million as of December 31, 2007. This was due primarily
to a large increase in accounts payable of approximately 489% from approximately
$0.12 million at December 31, 2007 to approximately $0.73 million at December
31, 2008 due in large part to the increase in contracts in
progress. In place at December 31, 2007, was an obligation due to a
financial institution under a credit line of $0.38 million. At
December 31, 2008, this credit line was converted to a term note payable to the
same financial institution with a balance due of $0.75
million. At December 31, 2008, billings in excess of costs and
estimated earnings on uncompleted contracts had a balance of $0.49 million which
was an increase of approximately 352% over the balance of $0.11 million at
December 31, 2007. This increase is directly related to the size of
the contracts between periods. The Company had contracted for larger
commercial projects at December 31, 2008, as opposed to numerous small contracts
for a national home improvement chain. The jobs for the home
improvement chain were small jobs that were usually completed within one
accounting period. At December 31, 2008, the Company had fewer but
larger jobs that lasted over several accounting periods. Other
liabilities at December 31, 2007 increased approximately 210% over the same
period in 2008. This increase was due primarily to loans made by
stockholders to the Company and notes payable to several financial
institutions for the purchases of the Company’s transportation equipment in the
combined amount of approximately $0.2 million. At December 31, 2008
and 2007, the Company had increased its debt in conjunction with the purchases
of its transportation equipment from $0.21 million to $0.37
million.
33
The
following is a summary of the Company’s cash flows provided by (used in)
operating, investing and financing activities for the years
ended December 31, 2008 and 2007 (in 000’s):
For the Year Ended
|
For the Year Ended
|
|||||||
December 31, 2008
|
December 31, 2007
|
|||||||
Net
cash used in operating activities
|
$ | (1,596 | ) | $ | (1,507 | ) | ||
Net
cash used in investing activities
|
(11 | ) | (34 | ) | ||||
Net
cash provided by financing activities
|
1,615 | 1,591 | ||||||
Net
increase in cash
|
8 | 50 |
Net cash
used in operations for the years ended December 31, 2008 and 2007 was $1.60
million and $1.51 million, respectively. The increase in cash usage was due
primarily an increase in contracts receivable, prepaid expenses and costs and
estimated earnings in excess of billings on uncompleted contracts and offset by
a decrease in accounts payable and accrued expenses and billings in excess of
costs and estimated earnings on uncompleted contracts.
Net cash
used in investing activities for the years ended December 31, 2008 and 2007 was
approximately $0.01 million and $0.03 million, respectively. For the year
ended December 31, 2008, proceeds from the sale of equipment of approximately
$0.11 million was offset by the purchase of new equipment in the
amount of approximately $0.12 million while new equipment was
purchased in the amount of approximately $0.03 million for the year
ended December 31, 2007.
As of
December 31, 2008, we were indebted to Ryan Seddon, our Chairman of the Board,
Chief Executive Officer and President, and to Ricardo Sabha, a former
officer and director and current employee of the Company, in the amounts of
$0.07 million and $0.08 million, respectively. These balances are
reflected in the Company’s December 31, 2008 and 2007 financial statements as
due to stockholders under other liabilities, with the current portion reflected
under current liabilities. These loans are due in December
2011.
For the
years ended December 31, 2008 and 2007, we reported in our audited financial
statements that we were dependant had two major customers during 2008 and 2007
which contributed over 10% of our revenues. We also reported that we had two
major subcontractors in 2007 and one major subcontractor in 2008 of which we
paid between 25% and 35%. Because of our focus on government petroleum
contracts, and on use of in-house employees instead of outside subcontractors,
we no longer are dependent on these customers and subcontractors.
Major
Trends and Known Facts
The
Company expects significant growth in petroleum contracting projects due the
requirement found in Florida Administrative Code 62-761 for double walled
petroleum tanks and piping. The current deadline for compliance
for the mandate is December 31, 2009. If owners of petroleum sites
are under contract with a contractor by December 31, 2009, they can obtain a 90
day extension. Sources vary, but the Company estimates that
thousands of non-compliant stations still exist in Florida. According to the EPA
and DEP California and Florida have been the first states to implement a
deadline for compliance. The Company’s continued growth past 2010 is
partially dependent on additional states in the United State setting deadlines
for compliance.
General
construction industry has seen a significant decline in the past two
years. The Company is continuing to contract projects for new
commercial construction, but does not expect growth in this market until the
general construction industry improves. The Company has significantly
reduced overhead in this department and is positioning itself for increased
potential as the construction industry improves, specifically due to the fact
that many competitors have gone out of business.
During
2008, the State of Florida did not have any significant
hurricanes. The quantity of hurricanes and other natural disasters
have had and will continue to have an impact on the insurance restoration
business. The lack of hurricanes in recent years has resulted in an
improvement in insurance company operations, claims processing, and emergency
response. Because of these improvements, the Company may have
increased opportunities to establish new relationships with insurance
companies.
During
2007 and 2008, the Company has obtained several new employees and
subcontractors. The Company’s success is highly dependent on its
ability to obtain and retain both employees and subcontractors.
Specifically,
the Company has a working relationship with a national petroleum tank
remediation firm (“TankTech”) which has provided increased opportunity in the
petroleum industry in the State of Florida. This relationship could also provide
the Company opportunities to expand outside of Florida into other
States. The Company currently has a good working relationship with
Tank Tech. If TankTech should fail to supply us with access to
potential tank upgrade opportunities or if the relationship deteriorated, it
would negatively affect our operating results. Similarly, if TankTech should
encounter technical, operating or financial difficulties, it could negatively
affect our operating results.
34
The
credit and securities markets have exhibited extreme volatility and disruption
throughout 2008 and early 2009. In light of this continuing volatility, the
Company’s reliance on its line of credit for a significant portion of its cash
requirements could adversely affect the Company’s liquidity and cash
flow.
Tighter
credit and securities markets have also had an impact on customers obtaining
financing. If customers have difficulty closing loans for their
projects, this can delay or even cancel projects. The Company has
developed relationships with several banks and investment brokers who are
familiar with the compliance issue and the Company’s quality products to assist
customers with obtaining required financing for projects.
The
Company has experienced significant growth in the petroleum contracting business
which demonstrates their ability to enter a new market and gain market
acceptance. The Company is marketing full tank replacements and
in-service tank upgrades using the Phoenix System through
Xerxes. The Company’s ability to grow at a rapid rate is
partially dependent on the continued market acceptance of the Xerxes
system. Surge has a subcontractor relationship with
TankTech. TankTech has the exclusive North American rights to Xerxes
system.
As the
petroleum government mandate approaches, the demand for pollutant storage tanks
will increase significantly. We have good relationships with our
vendors and suppliers, however, increased demand could have an impact on our
ability to obtain necessary materials in a timely fashion. On a
positive note, this potential shortage could also encourage more clients to
consider the Xerxes method. Most Xerxes projects can be completed in
significantly less time allow a quicker project turnover and increase revenue
with less employees and overhead.
The
Company is in the process of due diligence as it relates to launching a service
department to its petroleum contracting division. It is still in the
planning and investigation stage. We have obtained preliminary market
acceptance from clients and vendors. A service department adds
the opportunity for residual income from ongoing long-term maintenance contracts
and adds additional credibility in the petroleum market. The
Company has not yet assessed the upfront costs of this potential
venture.
Recent
Financing Activities
In
November of 2007, a financial institution extended us a line of credit in the
amount of $750,000 million. In November of 2008, with a balance due of $0.74
million 745,000, we converted the line of credit to a term loan that required
monthly interest payments at the Prime Rate plus 1.5% until December 3,
2008. Thereafter, we were required to make monthly principal and
interest payments of $35,000 with the first payment due on January 3, 2009. The
note was due in full on September 3, 2009. The line is collateralized
with a blanket lien on business assets of the Company and a personal guarantee
of one shareholder. On September 3, 2009, the financial institution extended the
maturity date of the loan to December 3, 2009 at the Prime Rate plus 2% (but not
less than 5%). The loan extension continues to require us to make
monthly principal and interest payments of $35,000. The balance is
currently $0.39 million.
In
September of 2008, Mr. Sabha loaned us $40,000. The loan bears interest at 7%
per annum and requires that we make a monthly payment of $1,095 until the loan
is paid in full in March of 2012. The unpaid balance on this loan at
September 30, 2009 was $29,686. The current balance is $28,789.
Through
September 30, 2009, we borrowed $265,000 at 8% per annum from Mr. Sabha. At
December 31, 2008, we had an existing balance due to Mr. Sabha of $43,257. The
current unpaid balance at September 30, 2009 was $308,257. The loan bears
interest at 8% per annum and all outstanding principal and interest is due and
payable on December 31, 2011. During October, we reduced the principal by
$15,000 for a balance due currently $293,265.
Through September 30, 2009, we have borrowed $800,654 from Mr.
Seddon at 7% per annum. At December 31, 2008 we had an existing balance due to
Mr. Seddon of $73,070. The current unpaid balance at September 30, 2009 was
$73,724. Since September 30, 2009, we have borrowed an additional $125,000 and
repaid $95,000. We currently owe Mr. Seddon $903,724.
In
April 2009, the Company borrowed $500,000 from William Esping, a significant
shareholder and affiliate of the Company. The term note evidencing this loan
bore interest of 9% with principal and unpaid interest due on October 27,
2009. In September 2009, the Company repaid the principal amount of
this term note with proceeds from a new term loan from Alpina Lending, LP (a
limited partnership in which Mr. Esping and Robert Grammen, a director of the
Company, are partners), in the amount of $925,000. In July 2009, this
term loan was amended to provide for an additional $445,000 in principal to
increase the face amount of the loan to $1,370,000. To date, the
Company has borrowed a total of $1,349,444 under the note evidencing this term
loan. We have paid principal on the loan in the amount of $352,150
with a current balance due of $1,011,542. The note bears interest at 9% and all
outstanding principal and accrued but unpaid interest is due on October 27,
2009, December 31, 2009 and April 27, 2010 (except for the additional
$445,000 in principal is due December 27, 2009). The Company intends
to use the proceeds to fund performance bonding requirements on government
construction contacts.
35
Going
Concern
Our
independent auditors have added an explanatory paragraph to their audit opinion
issued in connection with the financial statements of the Company for the years
ended December 31, 2008 and 2007, with respect to their doubt about our ability
to continue as a going concern due to our recent losses from operations and our
accumulated deficit. We have incurred operating losses of $2.43 million and
$1.63 million for December 31, 2008 and 2007, respectively, as well as a loss of
$$0.88 million for the nine months ended September 30,
2009. We have an accumulated deficit of approximately $5.12 million
at September 30, 2009, which, together with our operating losses,
raises doubt about our ability to continue as a going concern. Our ability to
continue as a going concern will be determined by our ability to successfully
complete the government and commercial contracts that we have been awarded on a
profitable basis. In order to continue, we may have to raise capital
from debt, equity and other sources. Our unaudited financial statements at
September 30, 2009, do not include any adjustments that might result
from the outcome of this uncertainty.
Critical
Accounting Policies and Estimates
The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and
liabilities.
On an
ongoing basis, we evaluate our estimates, including those related to product
returns, bad debts, inventories, valuation of options and warrants, intangible
assets, long-lived assets and contingencies and litigation. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.
Revenue
Recognition
In
general, revenues are recognized in connection with complete contracts when
all of the following conditions are met: (1) there exists persuasive evidence of
an arrangement with the customer, typically consisting of a purchase order or
contract; (2) products have been delivered and title and risk of loss has passed
to the customer, which occurs when a product is shipped under customary terms;
(3) the amount of revenue is fixed or determinable; and (4) collectability is
reasonably assured. The Company’s specific revenue recognition policy is as
follows:
The
Company uses percentage of completion method of accounting for all contracts.
Revenue of individual long-term contracts are included in operations as the
project is completed by using costs incurred to date in relation to the
estimated total costs of the contracts to measure the stage of completion.
Original contract prices are adjusted for change orders in the amounts that are
reasonably estimated based on the Company’s historical experience. The
cumulative effects of changes in estimated total contract costs and revenues
(change orders) are recorded in the period in which the facts requiring such
revisions become known, and are accounted for using the percentage-of-completion
method. At the time it is determined that a contract is expected to result in a
loss; the entire estimated loss is recorded.
Contract
costs include all direct material, subcontractors and direct labor and those
indirect costs related to contract performance, such as indirect labor and
supplies. Selling, general, and administrative expenses are charged
to operations as incurred.
Allowance
for Doubtful Accounts
As of
September 30, 2009 and the year ended December 31, 2008, the Company estimated a
1.56% and 3% allowance for doubtful accounts respectively. The provisions at
September 30, 2009 was $28,024 and at December 31, 2008,
$10,513. There was no allowance estimated as of December 31,
2007. Historically, the Company has had minimal bad debt
write-offs. The allowance for doubtful accounts is evaluated
regularly and has been estimated based on historical results in order to
reserve for credit losses as a result of customers’ inability to
pay.
Discontinued
Operations
None.
Depending
on the amount of revenue and the timing of collections, the Company may need to
obtain additional debt or issue additional stock. The Company is
authorized to issue up to 100,000,000 shares.
Our
continued existence is dependent upon several factors, including increased sales
volumes, collection of existing receivables and the ability to achieve
profitability from the sale of our products. In order to increase our
cash flow, we are continuing our efforts to stimulate sales. We are
also continuing to establish new supplier and subcontractor relationships in
order to decrease costs.
36
Contractual
Obligations
At
October 31, 2009, the Company had approximately 28 (twenty-eight) projects
in construction at various stages from engineering to punch out
list. The total contract value of these projects is approximately
$5.8 million.
Below is
a table of our current debt obligations:
7.99%
notes payable to Chrysler Financial collateralized by vehicles and
guaranteed by stockholders. Due in monthly installments of $881 including
interest through 2012.
|
$
|
16,394
|
||
8.75%
to 8.99% notes payable to Ford Credit collateralized by vehicles and
guaranteed by founding stockholders. Due in monthly installments of $2,918
including interest through 2013.
|
49,616
|
|||
6.50%
to 7.15% notes payable to Wachovia Bank collateralized by vehicles and
guaranteed by founding stockholders. Due in monthly installments of $5,654
including interest through 2012.
|
123,131
|
|||
7.50%
note payable to Wells Fargo collateralized by a vehicle and
equipment. Due in monthly installments of $967 including
interest through 2012.
|
30,319
|
|||
219,460
|
||||
Less
current portion of long term debt
|
89,274
|
|||
$
|
129,586
|
The
balance on the above obligations at September 30, 2009 was $226,160 with the
current portion being $82,290.
Off-Balance
Sheet Arrangements and Concentration of Credit Risk
Currently,
the Company was committed under leases for the following
facilities:
Facility
|
Monthly
Lease
Payment
|
Term
|
|||
Warehouse,
West Palm Beach
|
$
|
3,696
|
Through
July 2010
|
||
Headquarters,
West Palm Beach
|
$
|
3,156
|
Through
July
2010
|
Currently,
the Company was committed under a vehicle lease for $448 per month through
February 2011.
Future
minimum lease payments currently due are as follows:
Year
|
Amount
|
|||
2009
|
$
|
14,600
|
||
2010
|
53,340
|
|||
2011
|
896
|
|||
Thereafter
|
-
|
|||
TOTAL
|
$
|
68,836
|
The
Company maintains its cash balances with a high quality financial institution
which the Company believes limits its risk. The balances are insured
by the Federal Deposit Insurance Corporation (FDIC) and Securities Investor
Protection Corporation (SIPC) up to $250,000.
The
Company has accounts receivable from customers engaged in various
industries. These industries may be affected by economic factors,
which may impact accounts receivable. The Company does not believe
that any single customer, industry, or concentration in a geographic area
represents significant credit risk.
Inflation
We do not
believe that inflation in the cost of our raw materials has had in the past or
will have in the future any significant negative impact on our operations.
However, no assurance can be given that we will be able to offset such
inflationary cost increases in the future.
37
Recently
Issued Accounting Standards
In
December 2007, the Financial Accounting Standard Board (“FASB”) issued Statement
No. 141 (revised 2007) Business Combinations, now
codified as ASC 805, Business
Combinations. This Statement applies to all transactions or other events
in which an entity (the acquirer) obtains control of one or more businesses (the
acquirer), including those sometimes referred to as “true mergers” or “mergers
of equals” and combinations achieved without the transfer of consideration, for
example, by contract alone or through the lapse of minority veto rights. This
Statement applies to all business entities, including mutual entities that
previously used the pooling-of-interests method of accounting for some business
combinations. This Statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The Company adopted
this statement January 1, 2009. The Company is currently evaluating
the impact of adopting the provisions of ASC 805, Business Combinations,
formerly SFAS No. 141(r) but does not believe that the adoption of ASC 805 will
materially impact its financial position, cash flows, or results of
operations.
In
December 2007, the FASB issued guidance which is now part of ASC 810-10 Non controlling Interests in
Financial Statements—an amendment of ARB No. 5, formerly the Statement of Financial Accounting
Standards (“SFAS”) 160, Noncontrolling Interests in Consolidated Financial
Statements—an amendment of ARB No. 51. This statement requires that the
ownership interests in subsidiaries held by parties other than the parent be
clearly identified, labeled, and presented in the statement of financial
position within equity, but separate from the parent’s equity. This Statement is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008 (that is, January 1, 2009, for entities
with calendar year-ends). Earlier adoption is prohibited. We will adopt this
statement on January 1, 2009. The Company is currently evaluating the
impact of adopting the provisions of ASC 810-10 but does not believe that the
adoption of ASC 810-10 will materially impact its financial position, cash
flows, or results of operations.
In May
2009, the FASB issued new guidance for subsequent events. This new guidance now
part of ASC 855-10 Subsequent
Events, formerly Statement of Financial Accounting Standards (“SFAS”) No.
165, Subsequent Events.
This Statement establishes general standards of accounting for and disclosures
of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. It requires the disclosure
of the date through which an entity has evaluated subsequent events and the
basis for that date and is effective for interim and annual periods ending after
June 15, 2009. The adoption of ASC 855-10 did not have a material impact on the
Company’s financial statements.
In June
2009, the FASB issued SFAS 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles” now
codified as ASC 105-10. ASC 105-10 will become the single source of
authoritative nongovernmental GAAP (US), superseding existing FASB, AICPA, EITF,
and related accounting literature. ASC 105-10 reorganizes the thousands of GAAP
pronouncements into roughly 90 accounting topics and displays them using a
consistent structure. Also included is relevant Securities and Exchange
Commission guidance organized using the same topical structure in separate
sections. ASC 105-10 will be effective for financial statements issued for
reporting periods that end after September 15, 2009. This statement will have an
impact on the Company’s financial statements since all future references to
authoritative accounting literature will be references in accordance with the
new ASC codification of accounting standards topical index.
The
management is currently evaluating the impact that the above statements will
have on its financial statements.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There
have been no changes in and/or disagreements with Mallah Furman, CPAs, our
independent registered public accountants, on accounting and financial
disclosure matters.
You
should rely only on the information contained in this prospectus. No dealer,
salesperson or other person is authorized to give information that is not
contained in this prospectus. This prospectus is not an offer to sell nor does
it constitute an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted regardless of the time of the delivery of this
prospectus or any sale of these securities.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not
currently have any market risk sensitive instruments.
38
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The
following persons are our executive officers and directors. Directors are
elected to hold offices until the next annual meeting of Shareholders and until
their successors are elected or appointed and qualified. Officers are appointed
by the board of directors until a successor is elected and qualified or until
resignation, removal or death.
NAME
|
AGE
|
OFFICES HELD
|
||
Ryan
Seddon
|
32
|
Chairman
of the Board, Chief Executive Officer and President
|
||
Rodger
Rees
|
54
|
Chief
Financial Officer
|
||
Mark
S. Feldmesser
|
67
|
Director
|
||
Michael
Yurkowsky
|
37
|
Director
|
||
Robert
Grammen
|
55
|
Director
|
||
Frederico
Pier
|
|
41
|
|
Director
|
Ryan Seddon serves as our
President and Director (Chairman) from February 2008 to present. Mr.
Seddon has served as the President/CEO and Director of Surge Solution Group,
Inc, the Company’s wholly-owned subsidiary since November 2001. From 1998
through 2000, Mr. Seddon was a Managing Partner of Discount Cellular, Inc., a
national telecommunications firm located in West Palm, Florida. Mr.
Seddon holds an Associate’s degree from Palm Beach Community College and is a
Florida state certified General Contractor (CGC), a certified Pollutant Storage
System Contractor (PSSC), Certified Mold Remediation Supervisor (CMRS) and a
Certified Indoor Environmental Consultant (CIEC). The business
address for Mr. Seddon is 8120 Belvedere Road, Suite 4, West Palm Beach, Florida
33411.
Rodger Rees has been Chief
Financial Officer of the Company since May 2009. From June 2006 to April 2009,
Mr. Rees was a financial consultant with Space Coast Business Consultants and
Tatum, LLC. While a consultant, Mr. Rees provided financial services to small
public and private companies in the real estate, financial services, private
equity and marine industries. While engaged by Tatum, LLC, Mr. Rees
provided consulting services to Bonds.com Holdings, Inc., a publicly traded
company, and subsequently acted as interim Chief Financial
Officer. From May 2005 through May 2006, Rodger E. Rees served as
Chief Financial Officer and Secretary of Empire Financial Holding, Inc. (now
Jessup & Lamont, Inc.), a publicly traded brokerage, asset management, and
investment banking firm. From February 2001 through April 2005, Mr. Rees served
as director of independent broker-dealer services and in January 2004
subsequently became Chief Operating Officer of Empire Financial Group Inc., a
subsidiary of Empire Financial Holding, Inc. From 1985 to 2001, Mr.
Rees was Chief Executive Officer, Chief Financial Officer and founder of two
financial services firms, Buckhead Financial Corporation and Centennial Capital
Management, the latter of which was sold to Empire Financial Holdings, Inc. in
2001. Mr. Rees holds a Bachelor of Science degree with a major in accounting
from East Tennessee State University and is a Certified Public Accountant
licensed in the state of Georgia. The business address for Mr. Rees is 8120
Belvedere Road, Suite 4, West Palm Beach, Florida 33411.
Mark S. Feldmesser has served
as a director since February 2008. Mr. Feldmesser is a Managing
Member of Friedman, Feldmesser & Karpeles CPA, LLC, a CPA firm (January
2002- present) and President of Chief Financial Officers Corp. a consulting firm
(December 1990 to present). He is a graduate of Rutgers University (BS.
Accounting) and of Baruch College (MBA Finance). The business address for Mr.
Feldmesser is Friedman, Feldmesser & Karpeles, CPA,
LLC, 641 University Boulevard, Suite 210, Jupiter, Florida
33458.
Michael Yurkowsky has served
as a director since April 2008. Since August 2003, Mr. Yurkowsky has
been the Managing Director of Trenchant Asset Management, an asset management
company based in Dallas, Texas. From November 1997 to August 2003, Mr. Yurkowsky
was a Vice President of Investments at Wachovia Securities in Dallas, Texas. The
business address for Mr. Yurkowsky is Trenchant Asset Management,
2828 Routh Street, Suite 500, Dallas, Texas 75201.
Robert P. Grammen is a Senior
Partner and Principal of EFO Holdings, LP (“EFO”), an investment management
firm with in excess of $250 Million under management. EFO has
offices in Dallas, Texas and Naples, Florida, and Mr. Grammen serves
as the Managing Director of the Florida office. Grammen is
responsible for the origination, analysis, structure and execution of direct
debt and equity investments. Prior to joining EFO in 1999, Mr. Grammen served as
a Vice President of International Trading Group focusing on the purchase,
restructure and sale of distressed municipal bond debt, and prior thereto as a
Vice President of Landbase, Inc. (1987-1994) working in 13 countries as an
investment banker in the international resort development
industry. Mr. Grammen serves as a director and principal of several
EFO portfolio companies including Laser Spine Institute, LLC, Cypress Lending
Group, Ltd., Family Access Exchange, Azunia Brands, LP,, Surge Solutions Group
and Melbourne Greyhound Park, LLC. Mr. Grammen received his B.A. in Economics
from Bethany College and conducted advanced business studies in Oxford, England.
The business address for Mr. Grammen is 8120 Belvedere Road, Suite 4, West Palm
Beach, Florida 33411.
Frederico Pier has been
working in the financial services industry for 19 years. He holds a
BBA in Corporate Finance from the University of North Texas, and an MBA in
Corporate and International Finance from the Graduate School of Management at
the University of Dallas. Mr. Pier has extensive
international business experience having worked both in the banking
and investment sectors. Mr. Pier is a Senior Vice President with
Oppenheimer & Co. Inc since November of 2007. Mr. Pier, his wife
and three children live in Irving, Texas. The business address for Mr. Pier
is 13455 Noel Road, Suite 1200 Dallas, Texas 75240.
39
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain current information known to us with respect
to the beneficial ownership of our common stock:
|
·
|
all
persons who are beneficial owners of five percent (5%) or more of our
common stock;
|
|
·
|
each
of our directors;
|
|
·
|
each
of our executive officers; and
|
|
·
|
all
current directors and executive officers as a
group.
|
Except as
otherwise indicated, and subject to applicable community property laws, the
persons named in the table below have sole voting and investment power with
respect to all shares of common stock held by them.
Applicable
percentage ownership in the following table is based on 34,687,630 shares of
common stock currently outstanding:
Beneficial
ownership is determined in accordance with the rules of the SEC. In computing
the number of shares beneficially owned by a person and the percentage ownership
of that person, shares of common stock subject to options held by that person
that are currently exercisable or exercisable within 60 days are deemed
outstanding. Such shares, however, are not deemed outstanding for the purpose of
computing the percentage ownership of any other person.
Title of Class
|
Name and Business Address of
Owner
|
Title
|
Amount
Owned
Before
Offering
|
Percentage
of Issued
Common
Stock
|
||||||||
Common
Stock
|
Ryan
Seddon (1)
8120
Belvedere Road, Suite 4
West
Palm Beach, Florida 33411
|
Chief
Executive Officer, President and Chairman of the Board of
Directors
|
17,715,000
|
50.3444
|
%
|
|||||||
Common
Stock
|
Rodger
Rees (2)
8120
Belvedere Road, Suite 4
West
Palm Beach, Florida 33411
|
Chief Financial
Officer
|
50,000
|
0.1439
|
%
|
|||||||
Common
Stock
|
Mark
S. Feldmesser (3)
641 University
Boulevard, Suite 210
Jupiter,
Florida 33458
|
Director
|
12,000
|
0.0346
|
%
|
|||||||
Common
Stock
|
Michael
W. Yurkowsky (4)
2828 Routh
Street, Suite 500
Dallas,
Texas 75201
|
Director
|
857,000
|
2.4662
|
%
|
|||||||
Common
Stock
|
Robert
P. Grammen (5)
9180
Galleria Court #600
Naples,
Florida 34109
|
Director
|
1,063,120
|
3.0593
|
%
|
|||||||
Common
Stock
|
Federico
Pier
13455
Noel Road, Suite 1200
Dallas,
Texas 75240
|
Director
|
225,000
|
0.6486
|
%
|
|||||||
Common
Stock
|
William
Esping (6)
2828 Routh
Street, Suite 500
Dallas,
Texas 75201
|
5%
shareholder
|
7,466,666
|
17.29772
|
% | |||||||
Directors
and Officers as a Group
|
19,922,120
|
56.3177
|
%
|
(1)
|
Includes warrants to purchase
500,000 shares. 9,990,000 shares are pledged to secure payment
of a note due to Ricardo Sabha, a former officer and director
and current employee of the
Company.
|
(2)
|
Includes warrants to purchase
50,000 shares.
|
(3)
|
Includes warrants to purchase
12,000 shares.
|
(4)
|
Includes warrants to purchase
62,000 shares.
|
(5)
|
Includes warrants to purchase
62,920 shares.
|
(6)
|
Includes
6,000,000 shares owned by Underground Tank Partners. Mr. Esping
has sole voting and investment control over the shares owned by
Underground Tank Partners.
|
40
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Employment
Agreements
On
April 1, 2007, Surge entered a three-year employment agreement with Mr. Ryan
Seddon to serve as our Chief Executive Officer (the “Seddon
Agreement”). The Seddon Agreement extends through April 1, 2010 and
originally provided for an annual base salary of $290,000 for the first year,
$320,000 for the second year and $360,000 for the third year. The
Seddon Agreement also provides for a car allowance and a cash bonus equal to 50%
of the prior twelve month’s base salary contingent on the Company reaching
certain performance criteria. The Seddon Agreement further provides
for the annual issuance of 500,000 warrants to purchase shares of our common
stock exercisable at the Company’s valuation at the time of
issuance. The Seddon agreement was amended effective August 1,
2008. The term remains the same, but the annual base salary is
reduced to $190,000 through June 30, 2009. Effective July 1, 2009,
the annual base salary will be increased to $240,000 provided that the Company
has reached profitability at that time. The cash bonus cap was
increased to 100% of the annual base salary but is subject to certain
performance criteria. Effective for the year 2009, Mr. Seddon shall receive up
to 500,000 warrants annually, exercisable at a 15% discount off the Company’s
valuation at the time of issuance. The number of warrants to be issued is based
on a percentage of the annual net of income of the Company. Mr. Seddon received
500,000 warrants for 2008. The amendment removed the car
allowance, and Mr. Seddon is provided a Company vehicle. Mr. Seddon
is entitled to participate in all benefit plans maintained by us for salaried
employees. The Seddon Agreement also contains a confidentiality
provision and an agreement by Mr. Seddon not to compete with us upon the
expiration of the Seddon Agreement. Mr. Seddon also serves on the
Board of Directors. As a member of the Board of Directors, Mr. Seddon
will receive $8,000 annually in arrears in January and 12,000 stock options
annually issued with a strike price 15% less than market price at time of
issuance and 5 year exercise period.
On May
18, 2009, Surge entered into a one year employment agreement with Rodger Rees to
serve as our Chief Financial Officer (the “Rees Agreement”). The Rees Agreement
provides for a base salary of $110,000 with a performance bonus paid annually
based on the profitability of the Company. The Rees Agreement further provides
for the issuance of 250,000 warrants to purchase the Company’s common stock at
certain periods of continued employment from 6 months to 2 years. Mr. Rees
is entitled to participate in all benefit plans maintained by the Company for
salaried employees. The Rees Agreement also contains a
confidentiality provision and an agreement by Mr. Rees not to compete with us
upon its expiration.
In
December 2007, Ricardo Sabha, a former officer and director and current employee
of the Company, sold 9,990,000 shares of common stock that he owned in Surge
Solutions Group, Inc., to Ryan Seddon, our Chairman of the Board, Chief
Executive Officer and President. The consideration for the stock purchase
was $1,000 and a promissory note in the amount of $4,950,000. The
note is secured by a pledge of the shares sold to Mr. Seddon.
Loans from Officers, Directors
and Other Related Parties
During
2009, Mr. Seddon loaned the Company $800,654. The Company previously had a
balance due to Mr. Seddon of $73,070, for total indebtedness of $873,724 at
September 30, 2009. The loan bears interest at 8% per annum and all outstanding
principal and interest is due and payable on December 31, 2011. Subsequent
to September 30, 2009, Mr. Seddon loaned us an Additional $30,000. We currently
owe Mr. Seddon $904,724.
In
September 2008, Mr. Sabha loaned the Company $40,000. This loan bears interest
at 7% per annum and requires the Company to make a monthly payment of $1,095
until the loan is paid in full in March of 2012. At September 30,
2009, the unpaid balance on this loan is $29,686. Subsequent
to September 30, 2009, the Company has paid $4,382 in principal to Mr. Sabha.
The Current Balance on this loan In addition to this loan, in
January of 2009, the Company borrowed $265,000 from Mr. Sabha. At the time of
this loan, the Company had an existing balance due to Mr. Sabha of
$43,257. As of September 30, 2009, the unpaid balance on this loan
was $308,257. Subsequent
to September 30, 2009, the Company repaid Mr. Sabha $15,000 in principal. We
currently owe Mr. Sabha $293,257 for this loan. The loan bears interest
at 8% per annum and all outstanding principal and interest is due and payable on
December 31, 2011.
In April
2009, the Company borrowed $500,000 from William Esping, a significant
shareholder and affiliate of the Company . The term note evidencing this loan
bore interest of 9% with principal and unpaid interest due on October 27,
2009. In September 2009, the Company repaid the principal amount of
this term note with proceeds from a new term loan from Alpina Lending, LP (a
limited partnership in which Mr. Esping and Robert Grammen, a director of the
Company, are partners), in the amount of $925,000. In July 2009, this
term loan was amended to provide for an additional $445,000 in principal to
increase the face amount of the loan to $1,370,000. The Company has
borrowed a total of $1,271,971 under the note evidencing this term
loan. The note bears interest at 9% and all outstanding principal and
accrued but unpaid interest is due on October 27, 2009, December 31, 2009 and
April 27, 2010 (although the additional $445,000 in principal is due December
27, 2009). The Company intends to use the proceeds to fund
performance bonding requirements on government construction
contacts.
Loan
Guarantees and Collateral Provided by Key Executives and Employees
In order
to procure vehicle financing, leased facilities, and loans made to us, at
various times Mr. Seddon and Mr. Sabha have acted as guarantors under such
financing arrangements.
In 2008,
Mr. Sabha also provided collateral in the amount of $247,000 in order to secure
a performance bond required for a construction project. The
collateral is being held in a certificate of deposit in the name of Mr. Sabha,
therefore no asset or liability is shown on the balance sheet of the
Company. The Company paid Mr. Sabha monthly interest at the annual
rate of 7% for providing the collateral. The collateral was released
back to Mr. Sabha in February 2009.
41
APPROXIMATE
NUMBER OF COMMON STOCK HOLDERS
Currently,
there are 162 holders of record of the Company’s common stock as determined from
the Company’s transfer agent’s list. Such list does not include
beneficial owners of securities whose shares are held in the names of various
dealers and clearing agencies.
Of the
34,687,630 shares of common stock currently outstanding 28,606,666 shares
of common stock are beneficially held by “affiliates” of the Company and
6,080,964 shares are held by non-affiliates of the Company. All shares of common
stock registered pursuant to this Registration Statement will be freely
transferable without restriction or registration under the Securities Act,
except to the extent purchased or owned by our “affiliates” as defined for
purposes of the Securities Act.
Currently,
there are 3,477,553 outstanding warrants.
Currently,
34,687,630 shares of common stock are “restricted securities” as defined under
Rule 144 promulgated under the Securities Act and may only be sold pursuant to
an effective registration statement or an exemption from registration, if
available. The SEC has adopted final rules amending Rule 144 which became
effective on February 15, 2008. Pursuant to the new Rule 144, one year must
elapse from the time a “shell company”, as defined in Rule 405, ceases to be a
“shell company” and files Form 10 information with the SEC, before a restricted
shareholder can resell their holdings in reliance on Rule 144. Form
10 information is equivalent to information that a company would be required to
file if it were registering a class of securities on Form 10 under the
Securities and Exchange Act of 1934 (the “Exchange Act”). Under the amended Rule
144, restricted or unrestricted securities, that were initially issued by a
reporting or non-reporting shell company or an Issuer that has at anytime
previously a reporting or non-reporting shell company as defined in Rule 405,
can only be resold in reliance on Rule 144 if the following conditions are met:
(1) the issuer of the securities that was formerly a reporting or non-reporting
shell company has ceased to be a shell company; (2) the issuer of the securities
is subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act; (3) the issuer of the securities has filed all reports and material
required to be filed under Section 13 or 15(d) of the Exchange Act, as
applicable, during the preceding twelve months (or shorter period that the
Issuer was required to file such reports and materials), other than Form 8-K
reports; and (4) at least one year has elapsed from the time the issuer filed
the current Form 10 type information with the SEC reflecting its status as an
entity that is not a shell company.
At the
present time, the Company is not classified as a “shell company” under Rule 405
of the Securities Act; however, prior to the consummation of the 2007 Exchange
Agreement on February 22, 2008, the Company was a “shell company.” As such, all
restricted securities presently held by shareholders of the Company may not be
resold in reliance on Rule 144 until: (1) the Company files Form 10 information
with the SEC; (2) the Company has filed all reports as required by Section 13
and 15(d) of the Securities Act for twelve consecutive months; and (3) one year
has elapsed from the time the Company files the current Form 10 type information
with the SEC reflecting its status as an entity that is not a shell company. The
Company filed a Form S-1 with the SEC on July 17, 2009. Accordingly, security
holders of the Company may utilize Rule 144, assuming that the Company is
current in its reporting requirements pursuant to the Exchange Act of 1934, as
amended, beginning on July 17, 2010.
EXECUTIVE
COMPENSATION
Board
of Directors
All of
our directors hold office until the next annual meeting of shareholders and the
election and qualification of their successors. Our executive officers are
elected annually by the board of directors to hold office until the first
meeting of the board following the next annual meeting of shareholders and until
their successors are chosen and qualified. The Company has not yet
identified members of the audit, nominating or compensation committees. The
Company has five directors, two of whom (Mark S. Feldmesser and Frederico Pier)
are independent. The board of directors has determined that each of
Messrs. Feldmesser and Pier is independent under the rules of the Securities and
Exchange Commission and the listing standards of the NASDAQ Stock
Market.
Directors’
Compensation
Fees
|
||||||||||||||||||
Earned
or
|
Non-equity
Incentive
|
Non-qualified
Deferred
|
All
|
|||||||||||||||
Paid in
|
Stock
|
Option
|
Plan
|
Compensation
|
Other
|
|||||||||||||
Name
|
Cash
|
Awards
|
Awards
|
Compensation
|
Earnings
|
Compensation
|
Total
|
|||||||||||
Ryan
Seddon
|
||||||||||||||||||
Mark
S. Feldmesser
|
$
|
4,000
|
$
|
5511
|
$
|
9511
|
||||||||||||
Michael
W. Yurkowsky
|
700
|
5511
|
6211
|
|||||||||||||||
Robert
P. Grammen
|
||||||||||||||||||
Federico
Pier
|
42
We
reimburse our directors for expenses incurred in connection with attending board
meetings. Directors also receive $8,000 annually in arrears in
January and 12,000 stock options annually issued with a strike price 15% less
than market price at time of issuance and 5 year exercise period.
Employees, who are also directors, receive the same compensation as for
non-employee directors.
Executive
Compensation
The
compensation discussion addresses all compensation awarded to, earned by, or
paid to the SSGI’s named executive officers. As of December 31, 2008,
two of our executive officers are currently earning
compensation. Set forth below is the aggregate compensation for
services rendered in all capacities to us during our fiscal years ended December
31, 2008, 2007 and 2006 by our executive officers. Except as indicated below,
none of our executive officers were compensated in excess of
$100,000.
Non-equity
|
Non-Qualified
|
||||||||||||||||||||||
Name and
|
Incentive
|
Deferred
|
|||||||||||||||||||||
Principal
|
Stock
|
Option
|
Plan
|
Compensation
|
All Other
|
||||||||||||||||||
Position
|
Year
|
Salary
|
Bonus
|
Awards
|
Awards
|
Compensation
|
Earnings
|
Compensation
|
Total
|
||||||||||||||
Ryan
Seddon
|
2008
|
$
|
211,600
|
$
|
16,803
|
$
|
228,403
|
||||||||||||||||
Chairman, Chief
|
2007
|
193,800
|
14,907
|
208,707
|
|||||||||||||||||||
Executive Officer
|
2006
|
120,000
|
15,049
|
135,049
|
|||||||||||||||||||
Director
|
|||||||||||||||||||||||
Vaughn
Stoll
|
2008
|
112,642
|
112,642
|
||||||||||||||||||||
Former Chief
|
2007
|
34,112
|
34,112
|
||||||||||||||||||||
Financial Officer
|
The
Company filed a Form S-1 with the SEC on July 17, 2009. Accordingly,
security holders of the Company may utilize Rule 144, assuming that the Company
is current in its reporting requirements pursuant to the Exchange Act of 1934,
as amended, on July 17, 2010.
Currently,
non-qualified options to purchase 3,477,553 shares of common stock were
outstanding.
The
following table provides current information concerning unexercised options;
stock that has not vested; and equity incentive plan awards for each named
executive officer outstanding:
NAME
|
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
WARRANTS (#)
EXERCISABLE
|
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
WARRANTS (#)
UNEXERCISABLE
|
EQUITY
INCENTIVE
PLAN
AWARDS:
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
UNEARNED
WARRANTS
|
WARRANTS
EXERCISE
PRICE
|
WARRANTS
EXPIRATION
DATE
|
NUMBER OF
SHARES OR
UNITS
OF STOCK
THAT
HAVE NOT
VESTED (#)
|
MARKET
VALUE
OF SHARES
OR
UNITS OF
STOCK
THAT HAVE
NOT
VESTED
|
EQUITY INCENTIVE
PLAN AWARDS:
NUMBER OF
UNEARNED
SHARES,
UNITS OR OTHER
RIGHTS THAT
HAVE
NOT VESTED
|
EQUITY
INCENTIVE
PLAN
AWARDS:
MARKET OR
PAYOUT
VALUE OF
UNEARNED
SHARES,
UNITS
OR OTHER
RIGHTS THAT
HAVE NOT
VESTED
|
||||||||||
Ryan Seddon
|
|
|
|||||||||||||||||
Chairman,
Chief Executive
Officer
and President
|
500,000
|
$0.63
|
2014
|
||||||||||||||||
|
|
|
|||||||||||||||||
Rodger Rees
|
|
|
|||||||||||||||||
Chief
Financial Officer
|
0
|
250,000
|
-0-
|
$0.25-$0.45
|
2014
|
250,000
|
$
|
0.70
|
-0-
|
-0-
|
COMMON
STOCK PURCHASE WARRANTS
We
currently have outstanding common stock purchase warrants to purchase an
aggregate of 3,477,553 shares of our common stock at exercise prices ranging
from $0.25 per share to $1.00 per share. These warrants expire between June 2011
and December 2016. The exercise price of the warrants is subject to pro-rata
adjustment in the event of stock splits, recapitalizations and similar corporate
events.
DISCLOSURE
OF COMMISSION POSITION OF
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our
By-Laws allow for the indemnification of Company officers and directors in
regard to their carrying out the duties of their offices. We have been advised
that in the opinion of the Securities and Exchange Commission indemnification
for liabilities arising under the Securities Act is against public policy as
expressed in the Securities Act, and is, therefore unenforceable. In the event
that a claim for indemnification against such liabilities is asserted by one of
our directors, officers, or other controlling persons in connection with the
securities registered, we will, unless in the opinion of our legal counsel the
matter has been settled by controlling precedent, submit the question of whether
such indemnification is against public policy to a court of appropriate
jurisdiction. We will then be governed by the court’s decision.
43
ORGANIZATION
WITHIN THE LAST FIVE YEARS
SSGI was
incorporated in Florida on July 7, 1997 under the name All Product Distribution
Corp. On July 29, 1998, the Company changed its name to Phage
Therapeutics International, Inc. (“Phage”). On November 16, 2007, the
Company changed its name from Phage to SSGI, Inc (“SSGI” or the
Company). SSGI is a holding company for our sole operating entity and
wholly owned subsidiary, Surge Solutions Group, Inc. (“Surge”). Surge
was incorporated in Florida on November 26, 2001. On March 30, 2007, Surge
changed its name from Surge Restoration, Inc. to Surge Solutions Group,
Inc.
OUR
COMPANY
The
Company was incorporated in the State of Florida in July of 1997 as All Product
Distribution Corp. One year later, the All Product Distribution Corp. changed
its name to Phage Therapeutics International, Inc (“Phage”) in anticipation of
entering the medical field. The Company did not commence operations. Phage was a
reporting company under the Exchange Act of 1934 but deregistered in
2005.
On
December 18, 2007, the Company entered into a Share Exchange Agreement (the
“Agreement”) with Surge Solutions Group, Inc, a Florida corporation originally
incorporated under the name of Surge Restoration, Inc. (“Surge”). Incorporated
in November of 2001, Surge was formed to serve residential, commercial and
industrial customers with their general contracting needs. The Company, through
its relationships with insurance companies, performed extensive restoration work
from hurricane storm damage and other insurance funded contracts. Also, the
Company, through its relationship with a national retail building supply firm
installed and serviced customer purchases as a preferred vendor. Prior to
execution of the Agreement, the Company changed its name to SSGI,
Inc.
Pursuant
to the Share Exchange Agreement, in January and February of 2008, the Company
affected a 35 to 1 reverse stock split thereby reducing the shares outstanding
from 14,587,370 to 416,782 and the Company issued 33,025,000 shares of common
stock to Surge in a 1 to 1 exchange. Surge became a 100% owned subsidiary of the
Company and its sole operating company.
At
inception, Surge’s primary focus was the insurance restoration
industry. At that time, management saw an industry trend towards
vendor contractor programs as a means to reduce potential exposure for insurance
companies with a focus to lower claim payouts by providing the insured with a
pre-approved contractor that was using wholesale pricing in exchange for volume
work. Through good customer service and an aggressive marketing plan,
we experienced significant business growth in this market through 2005 and
2006. In order to maintain a diversified revenue stream and
increase growth, management has streamlined the current business
profile to include segments of the market:
·
|
Insurance
restoration
|
·
|
Petroleum
contracting
|
·
|
Commercial
construction
|
The
Company’s headquarters are located at 8120 Belvedere Road, Suite 4, West Palm
Beach, Florida 33411 with its warehouse located at 8080 Belvedere
Road, Suite 9 & 10, West Palm Beach, Florida 33411
REPORTS
TO SECURITIES HOLDERS
We have
filed with the SEC a registration statement on Form S-1 under the Securities Act
with respect to the issuance of shares of our common stock being offered by this
prospectus. This prospectus, which forms a part of the registration statement,
does not contain all of the information set forth in the registration statement.
For further information with respect to us and the shares of our common stock,
reference is made to the registration statement. We are not currently subject to
the informational requirements of the Securities Exchange Act of 1934. As a
result of the offering of the shares of our common stock, we will become subject
to the informational requirements of the Exchange Act, and, in accordance
therewith, will file quarterly and annual reports and other information with the
SEC; and send a copy of our annual report together with audited financial
statements to each of our shareholders. The registration statement, such reports
and other information can be inspected and copied at the Public Reference Room
of the SEC located at 100 F Street N.E., Washington D.C. 20549. Copies of such
materials, including copies of all or any portion of the registration statement,
can be obtained from the Public Reference Room of the SEC at prescribed rates.
You can call the SEC at 1-800-SEC-0330 to obtain information on the operation of
the Public Reference Room. Such materials may also be accessed electronically by
means of the SEC’s home page on the internet
(http://www.sec.gov).
44
INDEX
TO FINANCIAL STATEMENTS
SSGI,
Inc. (f/k/a Phage Therapeutics International, Inc.)
Financial
Statements - December 31, 2008 and 2007
|
||
Report
of Independent Registered Public Accounting Firm
|
F-3
|
|
Balance
Sheets
|
F-4
|
|
Statements
of Operations
|
F-5
|
|
Statements
of Change in Stockholders’ Deficit
|
F-6
|
|
Statements
of Cash Flows
|
F-7
|
|
Notes
to Financial Statements
|
F-8
to F-24
|
|
Interim
Financial Statements - September 30, 2009
|
||
Balance
Sheets (unaudited)
|
F-26
|
|
Statements
of Operations (unaudited)
|
F-27
|
|
Statements
of Change in Stockholders’ Deficit (unaudited)
|
F-28
|
|
Statements
of Cash Flows (unaudited)
|
F-29
|
|
Notes
to Financial Statements (unaudited)
|
F-30 to
F-43
|
F-1
SSGI,
INC.
(f/k/a
PHAGE THERAPEUTICS INTERNATIONAL, INC.)
FINANCIAL
STATEMENTS
DECEMBER
31, 2008 AND 2007
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
SSGI,
Inc.(f/k/a Phage Therapeutics International, Inc.)
We have
audited the accompanying balance sheets of SSGI, Inc. (f/k/a Phage Therapeutics
International, Inc.) (“the Company”) as of December 31, 2008 and 2007, and the
related statements of operations, changes in stockholders’ deficit and cash
flows for the years then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of SSGI, Inc. (f/k/a Phage
Therapeutics International, Inc.) as of December 31, 2008 and 2007, and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has insufficient working capital to fund ongoing
operations and expects to incur further losses which raise substantial doubt
about the Company’s ability to continue as a going concern. Management’s plans
are described in Note 1 to the financial statements. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
As
discussed in note 2, the balance sheets as of December 31, 2008 and 2007, and
the related statements of operations, changes in stockholders’ deficit and cash
flows for the years then ended have been restated to reflect a change in the
Company’s revenue recognition policy for its short term contracts.
/s/
Mallah Furman
Fort
Lauderdale, Florida
March
26 , 2009 , except for
Note 2
which is as of
F-3
SSGI,
INC.
(f/k/a
PHAGE THERAPEUTICS INTERNATIONAL, INC.)
BALANCE
SHEETS
DECEMBER
31, 2008 AND 2007
2008
|
2007
|
|||||||
(restated)
|
(restated)
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$
|
64,988
|
$
|
56,736
|
||||
Contracts
receivable, net
|
339,914
|
21,151
|
||||||
Prepaid
expenses
|
79,457
|
8,970
|
||||||
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
135,582
|
16,427
|
||||||
Total
current assets
|
619,941
|
103,284
|
||||||
PROPERTY
AND EQUIPMENT, NET
|
428,164
|
302,392
|
||||||
OTHER
ASSETS
|
21,021
|
23,633
|
||||||
$
|
1,069,126
|
$
|
429,309
|
|||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable and accrued expenses
|
$
|
734,113
|
$
|
124,590
|
||||
Borrowings
under line of credit
|
-
|
375,000
|
||||||
Estimated
losses on uncompleted contracts
|
59,354
|
-
|
||||||
Current
portion of long term debt
|
100,292
|
52,270
|
||||||
Term
loan payable
|
745,000
|
-
|
||||||
Current
portion of due to stockholders
|
10,521
|
-
|
||||||
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
487,571
|
107,908
|
||||||
Total
current liabilities
|
2,136,851
|
659,768
|
||||||
OTHER
LIABILITIES:
|
||||||||
Due
to stockholders, net of current portion
|
143,259
|
-
|
||||||
Long
term debt, net of current portion
|
271,159
|
161,721
|
||||||
Total
liabilities
|
2,551,269
|
821,489
|
||||||
STOCKHOLDERS’
DEFICIT:
|
||||||||
Common
stock - $.0010 Par value, 100,000,000 shares authorized, 34,672,630 issued
and outstanding in 2008 and 33,000,000 issued and outstanding in
2007
|
34,673
|
33,000
|
||||||
Additional
paid in capital
|
2,720,494
|
1,374,600
|
||||||
Accumulated
deficit
|
(4,237,310
|
)
|
(1,799,780
|
)
|
||||
Total
stockholders’ deficit
|
(1,482,143
|
)
|
(392,180
|
)
|
||||
$
|
1,069,126
|
$
|
429,309
|
F-4
SSGI,
INC.
(f/k/a
PHAGE THERAPEUTICS INTERNATIONAL, INC.)
STATEMENTS
OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2008
|
2007
|
|||||||
(restated)
|
(restated)
|
|||||||
CONTRACT
REVENUES EARNED
|
$
|
6,802,107
|
$
|
1,821,735
|
||||
COST
OF REVENUES EARNED
|
6,942,944
|
1,843,825
|
||||||
Gross
loss
|
(140,837
|
)
|
(22,090
|
)
|
||||
GENERAL
AND ADMINISTRATIVE EXPENSES
|
||||||||
Payroll
and related costs
|
1,202,430
|
849,649
|
||||||
Insurance
|
193,092
|
148,248
|
||||||
Marketing
and advertising
|
178,930
|
62,090
|
||||||
Office
and technology expenses
|
202,434
|
148,835
|
||||||
Professional
fees
|
140,000
|
174,374
|
||||||
Auto
and truck expense
|
133,987
|
87,165
|
||||||
Travel
and entertainment
|
48,592
|
33,242
|
||||||
Bad
debt expense
|
23,886
|
-
|
||||||
Depreciation
and amortization
|
68,499
|
40,748
|
||||||
Other
operating expenses
|
26,801
|
20,132
|
||||||
Total
general and administrative expenses
|
2,218,651
|
1,564,483
|
||||||
Loss
from operations
|
(2,359,488
|
)
|
(1,586,573
|
)
|
||||
OTHER
INCOME (EXPENSES):
|
||||||||
Interest
expense
|
(66,524
|
)
|
(38,484
|
)
|
||||
Interest
income
|
143
|
4,086
|
||||||
Loss
on asset disposition
|
(13,136
|
)
|
(503
|
)
|
||||
Other
income
|
1,475
|
10,600
|
||||||
Legal
settlement
|
-
|
(22,656
|
)
|
|||||
Total
other expenses
|
(78,042
|
)
|
(46,957
|
)
|
||||
NET
LOSS
|
$
|
(2,437,530
|
)
|
$
|
(1,633,530
|
)
|
||
Loss
per share:
|
||||||||
Basic
and Diluted
|
$
|
(0.072
|
)
|
$
|
(0.067
|
)
|
||
Weighted
Average Outstanding Shares:
|
||||||||
Basic
and Diluted
|
34,020,307
|
24,225,317
|
The
accompanying notes are an integral part of these financial
statements.
F-5
SSGI,
INC.
(f/k/a
PHAGE THERAPEUTICS INTERNATIONAL, INC.)
STATEMENTS
OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
Common
Stock
|
Additional
Paid In Capital
|
Retained
earnings
(accumulated
deficit)
|
Receivables
from
Stockholders
|
Total
|
||||||||||||||||
(restated)
|
(restated)
|
|||||||||||||||||||
BALANCE
AT JANUARY 1,
2007
|
$
|
100
|
$
|
—
|
$
|
103,395
|
$
|
(304,777
|
)
|
$
|
(201,282
|
)
|
||||||||
Net
loss
|
—
|
—
|
(1,633,530
|
)
|
—
|
(1,633,530
|
)
|
|||||||||||||
Issuance
of stock net of related expenses of $105,000
|
32,900
|
1,374,600
|
—
|
—
|
1,407,500
|
|||||||||||||||
Distributions
|
—
|
—
|
(269,645
|
)
|
—
|
(269,645
|
)
|
|||||||||||||
Collections
on stockholders’ loans
|
—
|
—
|
—
|
304,777
|
304,777
|
|||||||||||||||
BALANCE
AT DECEMBER 31, 2007
|
33,000
|
1,374,600
|
(1,799,780
|
)
|
—
|
(392,180
|
)
|
|||||||||||||
Net
loss
|
—
|
—
|
(2,437,530
|
)
|
—
|
(2,437,530
|
)
|
|||||||||||||
Issuance
of stock net of related expenses of $89,635
|
1,656
|
1,189,209
|
—
|
—
|
1,190,865
|
|||||||||||||||
Stocks
and warrants issued as compensation
|
17
|
156,685
|
—
|
—
|
156,702
|
|||||||||||||||
BALANCE
AT DECEMBER 31,
2008
|
$
|
34,673
|
$
|
2,720,494
|
$
|
(4,237,310
|
)
|
$
|
—
|
$
|
(1,482,143
|
)
|
The
accompanying notes are an integral part of these financial
statements.
F-6
SSGI,
INC.
(f/k/a
PHAGE THERAPEUTICS INTERNATIONAL, INC.)
STATEMENTS
OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
2008
|
2007
|
|||||||
(restated)
|
(restated)
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$
|
(2,437,530
|
)
|
$
|
(1,633,530
|
)
|
||
Adjustments
to reconcile net loss to net cash and cash equivalents used in operating
activities:
|
||||||||
Depreciation
and amortization
|
129,256
|
74,101
|
||||||
Stock
and warrants issued as compensation
|
156,702
|
-
|
||||||
Loss
on disposal of assets
|
13,136
|
-
|
||||||
Estimated
losses on contracts
|
59,354
|
-
|
||||||
(Increase)
decrease in:
|
||||||||
Contracts
receivable
|
(318,767
|
)
|
23,992
|
|||||
Prepaid
expenses
|
(70,487
|
)
|
(8,090
|
)
|
||||
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
(119,150
|
)
|
(16,426
|
)
|
||||
Other
assets
|
2,612
|
(22,021
|
)
|
|||||
Increase
(decrease) in:
|
||||||||
Accounts
payable and accrued expenses
|
609,523
|
3,423
|
||||||
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
379,662
|
71,991
|
||||||
Net
cash used in operating activities
|
(1,595,689
|
)
|
(1,506,560
|
)
|
||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Proceeds
from sale of equipment
|
106,229
|
-
|
||||||
Purchase
of equipment, net
|
(116,820
|
)
|
(34,440
|
)
|
||||
Net
cash used in investing activities
|
(10,591
|
)
|
(34,440
|
)
|
||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Borrowings
under line of credit/term loan payable
|
370,000
|
205,000
|
||||||
Due
to stockholders
|
153,780
|
304,778
|
||||||
Payments
on debt, net
|
(100,113
|
)
|
(56,345
|
)
|
||||
Distributions
to stockholders
|
-
|
(269,645
|
)
|
|||||
Proceeds
from issuance of stock
|
1,190,865
|
1,407,500
|
||||||
Net
cash provided by financing activities
|
1,614,532
|
1,591,288
|
||||||
CHANGE
IN CASH AND CASH EQUIVALENTS
|
8,252
|
50,288
|
||||||
Cash
and cash equivalents at beginning of the year
|
56,736
|
6,448
|
||||||
Cash
and cash equivalents at end of year
|
$
|
64,988
|
$
|
56,736
|
||||
SUPPLEMENTAL
CASH FLOW INFORMATION
|
||||||||
Interest
paid during the year
|
$
|
66,524
|
$
|
38,484
|
||||
SUPPLEMENTAL
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
Purchase
of vehicles with long-term debt
|
$
|
257,573
|
$
|
152,104
|
F-7
SSGI,
INC.
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
1 –
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Nature of
Operations
SSGI,
Inc. (the “Company”) was incorporated under the laws of the State of Florida as
Phage Therapeutics International, Inc. on December 26, 1996. The Company was a
public shell whose stock is traded in the Pink Sheets Electronic Over the
Counter Markets. In February 2008, through a share exchange, the
company acquired Surge Solutions Group, Inc. (“Surge”) As a consequence of the
latter exchange, which qualified as a reverse merger, Surge became the
accounting acquirer and the reporting entity prospectively.
The
Company specializes in petroleum contracting and general construction in Florida
including insurance restoration, installation services for large scale national
home improvement chains, new commercial construction, and post construction
finish and customization work. The Company ’ s work is performed
under cost-plus-fee contracts, fixed-price contracts, and fixed-price contracts
modified by incentive and penalty provisions. The length of the
Company’s contracts typically range from three months or less to one
year.
Company’s Ability to
Continue as a Going Concern
At
December 31, 2008, the Company has not yet achieved profitable operations, has
insufficient working capital to fund ongoing operations and expects to incur
further losses. These circumstances cast substantial doubt about the Company’s
ability to continue as a going concern. The Company’s ability to continue as a
going concern is dependent upon its ability to generate future profitable
operations and to obtain the necessary financing to meet its obligations and
repay its liabilities arising during the normal business
operations.
These
financial statements have been prepared in accordance with generally accepted
accounting principles applicable to a going concern, which assumes that the
Company will be able to meet its obligations and continue its operations.
Realization values may be substantially different from carrying values as shown
in the financial statements and do not give effect to adjustments that would be
necessary to the carrying values and classification of assets and liabilities
should the Company be unable to continue as a going concern.
Use of
estimates
Management
uses estimates and assumptions in preparing these financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities and the
reported revenues and expenses. Actual results could vary from the
estimates that were used. The significant areas requiring management’s estimates
and assumptions relate to determining the fair value of stock-based
compensation, fair value of shares issued for services and the determination of
percentage of completion in connection with the recognition of profit on
customer contracts.
F-8
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
1 –
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
Reclassification
Certain
reclassifications were made to the 2007 financial statements to conform to the
2008 presentation.
Cash and cash
equivalents
For the
purpose of reporting cash flows, the Company has defined cash equivalents as
those highly liquid investments purchased with an original maturity of three
months or less.
Revenue and cost
recognition
The
Company uses the cost to cost method to arrive at the percentage-of-completion
for long-term contracts more than three months in duration. Revenue of
individual long-term contracts are included in operations as the project is
completed by using costs incurred to date in relation to the estimated total
costs of the contracts to measure the stage of completion. Original contract
prices are adjusted for change orders in the amounts that are reasonably
estimated based on the Company’s historical experience. The cumulative effects
of changes in estimated total contract costs and revenues (change orders) are
recorded in the period in which the facts requiring such revisions become known,
and are accounted for using the percentage-of-completion method. At the time it
is determined that a contract is expected to result in a loss, the entire
estimated loss is recorded.
Contract
costs include all direct material, subcontractors and direct labor and those
indirect costs related to contract performance, such as indirect labor and
supplies. Selling, general, and administrative expenses are charged
to operations as incurred.
Prior to
the restatement disclosed in Note 2, the Company used the completed-contract
method of accounting for short-term contracts less than three months in
duration. Accordingly, revenue and costs of individual short-term contracts were
included in operations in the period during which they were completed. Losses
expected to be incurred on contracts in progress were charged to operations in
the period such losses were determined. The aggregate of costs on uncompleted
contracts in excess of related billings was shown as a current asset while the
aggregate of billings on uncompleted contracts in excess of related costs was
shown as a current liability.
Contracts
Receivable
Contracts
receivable are customer obligations due under contractual terms. The Company
sells its services primarily to residential, commercial, and retail
customers. On most projects, the Company has liens rights under
Florida law which are typically enforced on balances not collected within 90
days. The Company includes any balances that are determined to
be uncollectible along with a general reserve in its overall allowance for
doubtful accounts.
F-9
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
1 –
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
Financial
Instruments
Financial
instruments consist of cash and cash equivalents, contracts receivable, accounts
payable and accrued expenses, borrowings under line of credit, and debt. The
carrying values of these instruments approximate their fair values due to their
relatively short lives to maturity. The fair value of borrowings under the
line of credit and debt also approximate fair market value, as these amounts are
due at rates which are compatible to market interest rates.
Concentration of Credit
Risk
The
Company maintains its cash balances with a high quality financial institution
which the Company believes limits its risk. The balances are insured
by the Federal Deposit Insurance Corporation (FDIC) up to $250,000.
The
Company has accounts receivable from customers engaged in various
industries. These industries may be affected by economic factors,
which may impact the customer’s ability to pay. The Company does not
believe that any single customer, industry, or concentration in a geographic
area represents significant credit risk.
Income
Taxes
In 2007,
the Company revoked its election under Subchapter S of the Internal Revenue Code
thus opting to be taxed as a C Corporation. Income taxes are accounted for under
the asset and liability method as stipulated by Statement of Financial
Accounting Standards (“SFAS”) No. 109, “Accounting for Income
Taxes”. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and
liabilities or a change in tax rate is recognized in income in the period that
includes the enactment date. Deferred tax assets are reduced to
estimated amounts to be realized by the use of a valuation allowance. A
valuation allowance is applied when in management’s view it is more likely than
not (50%) that such deferred tax will not be utilized.
Effective
January 1, 2008, the Company adopted the provisions of Financial Accounting
Standards Board Interpretation No. (“FIN”) 48, “Accounting for Uncertainties in
Income Taxes”, an interpretation of SFAS No. 109. FIN 48 contains a two-step
approach to recognizing and measuring uncertain tax positions accounted for in
accordance with SFAS No. 109, “Accounting for Income Taxes”.
F-10
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
1 –
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
Property and
Equipment
Property
and equipment is stated at cost net of accumulated depreciation and
amortization. Depreciation is computed using the straight-line method
over the useful life of the related asset. Amortization of leasehold
improvements is computed using the straight-line method over the term of the
related lease. Capital expenditures that extend the useful life of an
asset are capitalized and depreciated over the remaining useful life of such
asset. Maintenance and repairs that do not extend the life of an
asset are charged to expense when incurred.
Basic and Diluted Net Income
(Loss) Per Share
The
Company computes net income (loss) per share in accordance with SFAS No. 128,
“Earnings per Share”, which requires presentation of both basic and diluted
earnings per share (“EPS”) on the face of the income statement. Basic EPS is
computed by dividing net income (loss) available to common shareholders
(numerator) before and after discontinued operations, by the weighted average
number of common shares outstanding (denominator) during the period, including
contingently issuable shares where the contingency has been resolved. Diluted
EPS gives effect to all dilutive potential common shares outstanding during the
period using the treasury stock method and convertible preferred stock using the
if-converted method. In computing diluted EPS, the average stock price for the
period is used in determining the number of shares assumed to be purchased from
the exercise of stock options or warrants. Diluted loss per
share excludes all dilutive potential shares as if their effect is
anti-dilutive.
Stock Based
Compensation
The
Company applies the fair value method of Statement of Financial Accounting
Standards No. 123R, “Accounting for Stock Based Compensation” (“SFAS No. 123R”)
in accounting for its stock based compensation. SFAS No. 123R is a revision
of SFAS No. 123, and supersedes APB Opinion No. 25, and its related
implementation guidance. SFAS No. 123R addresses all forms of share-based
payment awards including shares issued under employee stock purchase plans,
stock options, restricted stock and stock appreciation rights. Under SFAS No.
123R, stock-based awards result in a cost that will be measured at fair value on
the award’s grant date, based on the estimated number of awards that are
expected to vest that will result in a charge to operations.
Common Stock Purchase
Warrants
The
Company accounts for common stock purchase warrants at fair value in accordance
with EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to and
Practically Settled in, a Company’s Own Stock”. The Black-Scholes
option pricing valuation method is used to determine fair value of these
warrants. Use of this method requires that the Company make
assumptions regarding stock volatility, dividend yields, expected term of the
warrants and risk-free interest rates.
F-11
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
1 –
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
Recent Accounting
Pronouncements
In
December 2007, the FASB issued Statement No. 141 (revised 2007) Business
Combinations. This Statement applies to all transactions or other events in
which an entity (the acquirer) obtains control of one or more businesses (the
acquirer), including those sometimes referred to as “true mergers” or “mergers
of equals” and combinations achieved without the transfer of consideration, for
example, by contract alone or through the lapse of minority veto rights. This
Statement applies to all business entities, including mutual entities that
previously used the pooling-of-interests method of accounting for some business
combinations. This Statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. We will adopt this
statement on January 1, 2009. The Company is currently evaluating the
impact of adopting the provisions of SFAS No. 141(r) but does not believe that
the adoption of SFAS No. 141(r) will materially impact its financial position,
cash flows, or results of operations.
In
December 2007, the FASB issued Statement No. 160 Non controlling Interests in
Financial Statements—an amendment of ARB No. 51. This statement requires that
the ownership interests in subsidiaries held by parties other than the parent be
clearly identified, labeled, and presented in the statement of financial
position within equity, but separate from the parent’s equity. This Statement is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008 (that is, January 1, 2009, for entities
with calendar year-ends). Earlier adoption is prohibited. We will adopt this
statement on January 1, 2009 . The Company is currently evaluating
the impact of adopting the provisions of SFAS No. 160 but does not believe that
the adoption of SFAS No. 160 will materially impact its financial position, cash
flows, or results of operations.
NOTE
2 –
|
RESTATEMENT
OF PREVIOUSLY ISSUED FINANCIAL
STATEMENTS
|
The
accompanying 2008 and 2007 financial statements have been restated to reflect a
change in the Company’s revenue recognition policy for its short term
contracts. The Company had previously used the completed contract
method of accounting for short-term contracts less than three months in duration
and the percentage of completion method for all other contracts. Under the
completed contract method, revenues and costs of individual short-term contracts
were included in operations in the year during which they were completed.
Although using both methods simultaneously is an accepted accounting practice,
the Company now desires to only use the percentage of completion method to allow
for a more consistent presentation of revenue, cost of revenue and gross profit.
This restatement does not affect the ultimate gross profit and cash flows on the
contracts, but only the timing of the gross profit recognition.
F-12
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
2 –
|
RESTATEMENT
OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
(continued)
|
Set forth
below are the effect of the restatement to the various financial statement
captions:
For the Years Ended
|
||||||||
December 31,
|
||||||||
Balance sheets
|
2008
|
2007
|
||||||
Contracts
receivable as reported
|
$
|
339,914
|
$
|
36,151
|
||||
Restatement
|
-
|
(15,000
|
)
|
|||||
Contracts
receivable as restated
|
$
|
339,914
|
$
|
21,151
|
||||
Costs
and estimated earnings in excess of billings on uncompleted contracts as
reported
|
$
|
127,826
|
$
|
11,028
|
||||
Restatement
|
7,756
|
5,399
|
||||||
Costs
and estimated earnings in excess of billings on uncompleted contracts as
restated
|
$
|
135,582
|
$
|
16,427
|
||||
Accounts
payable and accrued expenses as reported
|
$
|
734,113
|
$
|
139,315
|
||||
Restatement
|
-
|
(14,725
|
)
|
|||||
Accounts
payable and accrued expenses as restated
|
$
|
734,113
|
$
|
124,590
|
||||
Billings
in excess of costs on uncompleted contracts as reported
|
$
|
60,222
|
$
|
18,651
|
||||
Restatement
|
(60,222
|
)
|
(18,651
|
)
|
||||
Billings
in excess of costs on uncompleted contract as restated
|
$
|
-
|
$
|
-
|
F-13
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
2 –
|
RESTATEMENT
OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
(continued)
|
For the Years Ended
|
||||||||
December 31,
|
||||||||
2008
|
2007
|
|||||||
Billings
in excess of costs and estimated earnings on on uncompleted contracts
as reported
|
$
|
426,253
|
$
|
69,314
|
||||
Restatement
|
61,318
|
38,594
|
||||||
Billings
in excess of costs and estimated earnings on uncompleted contracts as
restated
|
$
|
487,571
|
$
|
107,908
|
||||
Accumulated
deficit as reported
|
$
|
(4,243,970
|
)
|
$
|
(1,784,961
|
)
|
||
Restatement
|
6,660
|
(14,819
|
)
|
|||||
Accumulated
deficit as restated
|
$
|
(4,237,310
|
)
|
$
|
(1,799,780
|
)
|
||
Stockholders
’ deficit as reported
|
$
|
(1,488,803
|
)
|
$
|
(377,361
|
)
|
||
Restatement
|
6,660
|
(14,819
|
)
|
|||||
Stockholders’
deficit as restated
|
$
|
(1,482,143
|
)
|
$
|
(392,180
|
)
|
||
Statements
of Operations
|
||||||||
Revenue
as reported
|
$
|
6,721,256
|
$
|
1,900,808
|
||||
Restatement
|
80,851
|
(79,073
|
)
|
|||||
Revenue
as restated
|
$
|
6,802,107
|
$
|
1,821,735
|
||||
Cost
of revenues earned as reported
|
$
|
6,883,572
|
$
|
1,864,599
|
||||
Restatement
|
59,372
|
(20,774
|
)
|
|||||
Cost
of revenues earned as restated
|
$
|
6,942,944
|
$
|
1,843,825
|
||||
Gross
(loss)profit as reported
|
$
|
(162,316
|
)
|
$
|
36,209
|
|||
Restatement
|
21,479
|
(58,299
|
)
|
|||||
Gross
loss as restated
|
$
|
(140,837
|
)
|
$
|
(22,090
|
)
|
F-14
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
2 –
|
RESTATEMENT
OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
(continued)
|
For the Years Ended
|
||||||||
December 31,
|
||||||||
2008
|
2007
|
|||||||
Net
loss as reported
|
$
|
(2,459,009
|
)
|
$
|
(1,575,231
|
)
|
||
Restatement
|
21,479
|
(58,299
|
)
|
|||||
Net
loss as restated
|
$
|
(2,437,530
|
)
|
$
|
(1,633,530
|
)
|
||
Basic
and diluted loss per share as reported
|
$
|
(0.072
|
)
|
$
|
(0.065
|
)
|
||
Restatement
|
-
|
(0.002
|
)
|
|||||
Basic
and diluted loss per share as restated
|
$
|
(0.072
|
)
|
$
|
(0.067
|
)
|
||
Statements
of Cash Flows
|
||||||||
Net
loss as reported
|
$
|
(2,459,009
|
)
|
$
|
(1,575,231
|
)
|
||
Restatement
|
21,479
|
(58,299
|
)
|
|||||
Net
loss as restated
|
$
|
(2,437,530
|
)
|
$
|
(1,633,530
|
)
|
||
(Increase)
Decrease in contracts receivable as reported
|
$
|
(303,763
|
)
|
$
|
8,992
|
|||
Restatement
|
(15,004
|
)
|
15,000
|
|||||
(Increase)
Decrease in contracts receivable as restated
|
$
|
(318,767
|
)
|
$
|
23,992
|
|||
Increase in
costs and estimated earnings in excess of billings on uncompleted
contracts as reported
|
$
|
(116,798
|
)
|
$
|
(11,028
|
)
|
||
Restatement
|
(2,352
|
)
|
(5,398
|
)
|
||||
Increase in
costs and estimated earnings in excess of billings on uncompleted
contracts as restated
|
$
|
(119,150
|
)
|
$
|
(16,426
|
)
|
F-15
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
2 –
|
RESTATEMENT
OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
(continued)
|
For the Years Ended
|
||||||||
December 31,
|
||||||||
2008
|
2007
|
|||||||
Increase
in accounts payable and accrued expenses as reported
|
$
|
594,798
|
$
|
18,148
|
||||
Restatement
|
14,725
|
(14,725
|
)
|
|||||
Increase
in accounts payable and accrued expenses as restated
|
$
|
609,523
|
$
|
3,423
|
||||
Increase
in billings in excess of costs on uncompleted contracts as
reported
|
$
|
41,571
|
$
|
(60,744
|
)
|
|||
Restatement
|
(41,571
|
)
|
60,744
|
|||||
Increase
in billings in excess of costs on uncompleted contracts as
restated
|
$
|
-
|
$
|
-
|
||||
Increase
in billings in excess of costs and estimated earnings on uncompleted
contracts as reported
|
$
|
356,939
|
$
|
69,314
|
||||
Restatement
|
22,723
|
2,677
|
||||||
Increase
in billings in excess of costs and estimated earnings on uncompleted
contracts as restated
|
$
|
379,662
|
$
|
71,991
|
NOTE
3 –
|
LINE
OF CREDIT AND TERM LOAN
PAYABLE
|
In
November of 2007, a financial institution extended the Company a line of credit
in the amount of $750,000. At December 31, 2007 the balance due on the line of
credit was $375,000. In November of 2008, with a balance due of
$745,000, the Company converted the line of credit to a term loan that required
monthly interest payments at the Prime Rate plus 1.5% until December 3, 2008.
The balance on the term loan at December 31, 2008 was $745,000. Thereafter, the
Company was required to make monthly principal and interest payments of $35,000
with the first payment due on January 3, 2009. The note was due in full on June
3, 2009.
F-16
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
4 –
|
CONTRACTS
RECEIVABLE
|
Contracts
receivable as of December 31, 2008 and 2007 are as follows:
2008
|
2007
|
|||||||
(restated)
|
(restated)
|
|||||||
Completed
contracts
|
$
|
144,255
|
$
|
21,151
|
||||
Contracts
in progress
|
206,172
|
-
|
||||||
Allowance
for doubtful accounts
|
(10,513
|
)
|
-
|
|||||
$
|
339,914
|
$
|
21,151
|
NOTE
5 –
|
COST
AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS UNDER THE PERCENTAGE OF
COMPLETION METHOD
|
2008
|
2007
|
|||||||
(restated)
|
(restated)
|
|||||||
Costs
incurred on uncompleted contracts
|
$
|
2,438,797
|
$
|
546,834
|
||||
Estimated
earnings
|
62,605
|
19,994
|
||||||
Less:
Billings to date
|
(2,853,391
|
)
|
(658,309
|
)
|
||||
$
|
(351,989
|
)
|
$
|
(91,481
|
)
|
2008
|
2007
|
|||||||
(restated)
|
(restated)
|
|||||||
Included
in accompanying balance sheets under the following
captions:
|
||||||||
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
$
|
135,582
|
$
|
16,427
|
||||
Billings
and excess of costs and estimated earnings on uncompleted
contracts
|
(487,571
|
)
|
(107,908
|
)
|
||||
$
|
(351,989
|
)
|
$
|
(91,481
|
)
|
NOTE
6 –
|
INCOME
TAXES
|
A
reconciliation of the differences between the effective income tax rate and the
statutory federal tax rate for 2008 and 2007 are as follows:
2008
|
2007
|
|||||||
Tax
benefit at U.S. statutory rate
|
34.00
|
%
|
34.00
|
%
|
||||
State
taxes, net of federal benefit
|
3.63
|
3.63
|
||||||
Change
in valuation allowance
|
(37.63
|
)
|
(37.63
|
)
|
||||
-
|
%
|
-
|
%
|
F-17
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
6 –
|
INCOME
TAXES (continued)
|
The tax
effect of temporary differences that give rise to significant portions of the
deferred tax assets and liabilities at December 31, 2008 and 2007 consisted of
the following:
Deferred
Tax Assets
|
2008
|
2007
|
||||||
(restated)
|
(restated)
|
|||||||
Net
Operating Loss Carryforward
|
$
|
1,400,000
|
$
|
474,000
|
||||
Other
|
202,971
|
100,325
|
||||||
Total
Deferred Tax Assets
|
1,602,971
|
574,325
|
||||||
Deferred
Tax Liabilities
|
(57,215
|
)
|
-
|
|||||
Net
Deferred Tax Assets
|
1,545,756
|
574,325
|
||||||
Valuation
Allowance
|
(1,545,756
|
)
|
(574,325
|
)
|
||||
Total
Net Deferred Tax Assets
|
$
|
-
|
$
|
-
|
As of
December 31, 2008, the Company had a net operating loss carry forward for income
tax reporting purposes of approximately $3,600,000 that may be offset against
future taxable income through 2027. Current tax laws limit the amount
of loss available to be offset against future taxable income when a substantial
change in ownership occurs. Therefore, the amount available to offset
future taxable income may be limited. No tax asset has been reported
in the financial statements, because the Company believes there is a 50% or
greater chance the carry-forwards will expire unused. Accordingly,
the potential tax benefits of the loss carry forwards are offset by a valuation
allowance of the same amount.
The
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (“FIN 48”) effective January 1, 2008. The purpose
of FIN 48 is to clarify and set forth consistent rules for accounting for
uncertain tax positions in accordance with Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes”. The cumulative effect of
applying the provisions of this interpretation are required to be reported
separately as an adjustment to the opening balance of retained earnings in the
year of adoption. The adoption of this standard did not have an impact on the
financial condition or the results of the Company’s operations.
The
Company was an “S” Corporation up to March 31, 2007, therefore not subject to
the requirements of SFAS 109.
F-18
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
7 –
|
PROPERTY
AND EQUIPMENT, NET
|
Property
and equipment consist of the following as of December 31, 2008 and
2007:
Category
|
Estimated
Useful
Lives
|
2008
|
2007
|
|||||||
Tools
and equipment
|
7
Years
|
$
|
98,070
|
$
|
21,634
|
|||||
Leasehold
Improvements
|
2
Years
|
28,801
|
4,934
|
|||||||
Vehicles
|
5
Years
|
431,714
|
343,497
|
|||||||
Office
equipment
|
5-7 Years
|
50,574
|
61,441
|
|||||||
609,159
|
431,506
|
|||||||||
Less:
accumulated depreciation and amortization
|
180,995
|
129,114
|
||||||||
$
|
428,164
|
$
|
302,392
|
The
Company allocates a portion of its depreciation and amortization expense to cost
of revenues earned. Total depreciation and amortization for 2008 and 2007
amounted to $129,256 and $74,101, respectively. The unallocated portion for 2008
and 2007 is $68,499 and $40,748, respectively.
NOTE
8 –
|
RETIREMENT
PLAN
|
The
Company’s 401(k) savings plan allows all qualified employees to
participate. The plan is a defined contribution retirement plan.
Under the agreement the Company contributes to the plan a portion of employee
contributions plus additional funds at its discretion. All
contributions are subject to certain limitations and are allocated to each
individual’s account in the plan. At the option of the participants,
plan funds are invested in various pooled investments offered by the
Trustee. The plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA). The Company
contributed approximately $55,755 and $14,683 to the plan in 2008 and 2007,
respectively.
NOTE
9 –
|
COMMON
STOCK PURCHASE WARRANTS
|
During
2008, the Company completed private placements resulting in the issuance of
units consisting of one share of Company restricted common stock and one warrant
(each warrant is exercisable into one share of Company restricted common
stock). As part of the transaction, the Company also issued common
stock purchase warrants to certain individuals who assisted with the private
placement. There was no value assigned to these warrants when they were
granted.
F-19
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
9 –
|
COMMON
STOCK PURCHASE WARRANTS
(continued)
|
The
Company also issued common stock purchase warrants to certain employees as part
of their compensation package. The value assigned to these warrants
was calculated using the Black-Scholes option pricing model.
A summary
of the change in common stock purchase warrants for the year ended December 31,
2008 is as follows:
Number of
Warrants
Outstanding
|
Weighted
Average
Exercise
Price
|
Weighted Average
Remaining
Contractual Life
(Years)
|
||||||||||
Balance,
December 31, 2007
|
-
|
-
|
-
|
|||||||||
Warrants
issued
|
2,734,054
|
$
|
0.59
|
4.58
|
||||||||
Warrants
exercised
|
-
|
-
|
-
|
|||||||||
Warrants
expired
|
-
|
-
|
-
|
|||||||||
Balance,
December 31, 2008
|
2,734,054
|
$
|
0.59
|
4.58
|
The
balance of outstanding and exercisable common stock warrants as at December 31,
2008 is as follows:
Number of Warrants
Outstanding
|
Exercise
Price
|
Remaining Contractual
Life (Years)
|
||||||||
2,734,054 |
$
|
0.59
|
2.5
- 5.0
|
The fair
value of stock purchase warrants granted using the Black-Scholes option pricing
model was calculated using the following assumptions:
Years Ended December 31,
|
||||||
2008
|
2007
|
|||||
Risk
free interest rate
|
.5%
- 1.5%
|
Not applicable
|
||||
Expected
volatility
|
20% - 86%
|
Not
applicable
|
||||
Expected
term of stock warrant in years
|
2.5
- 4.75
|
Not
applicable
|
||||
Expected
dividend yield
|
0%
|
Not
applicable
|
||||
Average
value per option
|
.13 - .57
|
Not
applicable
|
F-20
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE
9 –
|
COMMON
STOCK PURCHASE WARRANTS
(continued)
|
Expected
volatility is based on historical volatility of the Company and other comparable
companies. Short Term U.S. Treasury rates were utilized. The expected
term of the options was calculated using the alternative simplified method
permitted by SAB 107, which defines the expected life as the average of the
contractual term of the options and the weighted average vesting period for all
option tranches. Since trading volumes and the number of unrestricted
shares are very small compared to total outstanding shares, the value of the
warrants was decreased for lack of marketability.
NOTE
10 –
|
COMMITMENTS
|
As of
December 31, 2008, the Company was committed under leases for the following
facilities:
Facility
|
Monthly Lease
Payment
|
Term
|
|||
Warehouse,
West Palm Beach, Florida
|
$
|
3,000
|
Through July 2010
|
||
Headquarters,
West Palm Beach, Florida
|
$
|
2,550
|
Through
July 2010
|
||
Satellite
Office, Ormond Beach, Florida
|
$
|
1,370
|
Through May 2009
|
Rent
expense for the years ended December 31, 2008 and 2007 was approximately
$119,000 and $41,000, respectively. These amounts have been allocated to costs
of revenues earned and general and administrative, respectively.
As of
December 31, 2008, the Company was committed under a vehicle lease for $448 per
month through February 2011.
Future
minimum lease payments as of December 31, 2008 are as follows:
Year
|
Amount
|
|||
2009
|
$
|
78,826
|
||
2010
|
44,226
|
|||
Thereafter
|
-
|
|||
TOTAL
|
$
|
123,052
|
F-21
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE 11 – LONG TERM DEBT
A summary
of long-term debt as of December 31, 2008 and 2007 is as follows:
2008
|
2007
|
|||||||
7.99%
notes payable to Chrysler Financial collateralized by vehicles and
guaranteed by founding stockholders. Due in monthly installments of $881
including interest through 2012.
|
$
|
32,389
|
$
|
57,789
|
||||
8.75%
to 8.99% notes payable to Ford Credit collateralized by vehicles and
guaranteed by founding stockholders. Due in monthly installments of $2,918
including interest through 2013.
|
108,381
|
97,239
|
||||||
6.50%
to 7.15% notes payable to Wachovia Bank collateralized by vehicles and
guaranteed by founding stockholders. Due in monthly installments of $5,654
including interest through 2012.
|
195,052
|
19,000
|
||||||
7.50%
note payable to Wells Fargo collateralized by a vehicle and
equipment. Due in monthly installments of $967 including
interest through 2012.
|
35,629
|
-
|
||||||
5.84%
note payable to Pentagon Federal Credit Union collateralized by a vehicle
and guaranteed by founding stockholders. Note settled in
2008.
|
-
|
18,565
|
||||||
6.65%
to 6.79% notes payable to Riverside Federal Credit Union collateralized by
vehicles and guaranteed by founding stockholders. Note settled in
2008.
|
-
|
21,398
|
||||||
371,451
|
213,991
|
|||||||
Less
current portion of long term debt
|
100,292
|
52,270
|
||||||
$
|
271,159
|
$
|
161,721
|
Maturities
of long-term debt for the years subsequent to December 31, 2008 are as
follows:
Year
|
Amount
|
|||
2009
|
$
|
100,292
|
||
2010
|
108,089
|
|||
2011
|
112,154
|
|||
2012
|
43,740
|
|||
2013
|
7,176
|
|||
TOTAL
|
$
|
371,451
|
F-22
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE 12 – MAJOR CUSTOMERS
In 2008
and 2007, two of the Company’s major customers contributed more than 10% of
revenues. Revenues from these customers were approximately $1,400,000
and $700,000 during the years ended December 31, 2008 and 2007,
respectively. In addition, the Company’s revenue stream has moved
into the direction of petroleum contracting. The Company expects
petroleum contracting to be a primary source of revenue in the near
future. A change in the demand for petroleum contracting could affect
operating results.
NOTE 13 – MAJOR
SUBCONTRACTOR
In 2008,
the Company had two major subcontractors, while in 2007, the Company had one
major subcontractor. During the years ended December 31, 2008 and
2007, the Company paid its major subcontractors, approximately $1,730,000 and
$615,000, respectively, for subcontracting work. The amounts paid approximated
25% and 35%, respectively, of contract costs incurred during the periods. A
change in these vendors could cause delays in the Company’s contracts, which
could ultimately affect operating results.
NOTE 14 – RELATED PARTY
TRANSACTIONS
In order
to procure vehicle financing and leased facilities, at various times the
founding stockholders of the Company have acted as guarantors under such
financing arrangements. Founding stockholders have also loaned the
Company a total of $153,780 as of December 31, 2008. Beginning in
November 2008, these stockholder loans will accrue interest at rates ranging
between 7.5% to 8.5%. In addition, the company purchased insurance
through the spouse of a corporate officer via an arm’s length
transaction.
In 2008,
a founding stockholder of the Company also provided collateral in the amount of
$247,000 in order to secure a performance bond required for a construction
project. The collateral is being held in a certificate of deposit in
the name of the stockholder, so no asset or liability is shown on the balance
sheet of the Company. The Company is currently paying the stockholder
interest monthly at the annual interest rate of 7% for providing the
collateral. The collateral is estimated to be released back to the
stockholder in the first six months of 2009.
NOTE 15 – LEGAL MATTERS
The
Company is a party in legal proceedings in the ordinary course of
business. While the alleged damages could be greater than $15,000,
these proceedings are in the discovery stages and therefore there is no specific
amount of damage asserted against the Company. The outcome of the
Company’s legal proceedings is unknown, but it is the opinion of management that
the outcome of the legal proceedings will not have a significant adverse impact
on the Company’s financial statements.
F-23
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO THE FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
NOTE 16 – SUBSEQUENT EVENTS
In
January and February 2009, founding stockholders loaned the Company an
additional $685,000. These stockholder loans will accrue interest at
8% and have a maturity date of December 31, 2011.
F-24
SSGI,
INC.
(f/k/a
PHAGE THERAPEUTICS INTERNATIONAL, INC.)
INTERIM
FINANCIAL STATEMENTS
September
30, 2009
F-25
SSGI,
INC.
(f/k/a
PHAGE THERAPEUTICS INTERNATIONAL, INC.)
BALANCE
SHEETS
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
(audited)
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 99,241 | $ | 64,988 | ||||
Restricted
cash deposits
|
806,473 | |||||||
Contracts
receivable, net
|
1,767,948 | 339,914 | ||||||
Prepaid
expenses
|
32,574 | 79,457 | ||||||
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
145,732 | 135,582 | ||||||
Total
current assets
|
2,851,968 | 619,941 | ||||||
PROPERTY
AND EQUIPMENT, NET
|
335,988 | 428,164 | ||||||
OTHER
ASSETS
|
26,750 | 21,021 | ||||||
$ | 3,214,706 | $ | 1,069,126 | |||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable and accrued expenses
|
$ | 1,615,508 | $ | 734,113 | ||||
Estimated
losses on uncompleted contracts
|
- | 59,354 | ||||||
Current
portion of notes payable
|
82,290 | 100,292 | ||||||
Promissory
note payable
|
453,116 | 745,000 | ||||||
Term
note payable, related party
|
1,238,971 | - | ||||||
Current
portion of due to stockholders
|
11,170 | 10,521 | ||||||
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
448,126 | 487,571 | ||||||
Total
current liabilities
|
3,849,181 | 2,136,851 | ||||||
OTHER
LIABILITIES:
|
||||||||
Due
to stockholders, net of current portion
|
1,200,497 | 143,259 | ||||||
Notes
payable, net of current portion
|
143,870 | 271,159 | ||||||
Total
liabilities
|
5,193,548 | 2,551,269 | ||||||
STOCKHOLDERS'
DEFICIT:
|
||||||||
Common
stock - $.0010 Par value, 100,000,000 shares authorized, 34,687,630 and
34,672,630 shares issued and outstanding in in 2009 and 2008,
respectively.
|
34,688 | 34,673 | ||||||
Additional
paid in capital
|
3,105,846 | 2,720,494 | ||||||
Accumulated
deficit
|
(5,119,376 | ) | (4,237,310 | ) | ||||
Total
stockholders' deficit
|
(1,978,842 | ) | (1,482,143 | ) | ||||
$ | 3,214,706 | $ | 1,069,126 |
The
accompanying notes are an integral part of these interim financial
statements.
F-26
SSGI,
Inc.
(f/k/a
PHAGE THERAPEUTICS INTERNATIONAL, INC.)
STATEMENTS
OF OPERATIONS
(Unaudited)
Nine
Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
(restated)
|
||||||||
CONTRACT
REVENUES EARNED
|
$ | 5,512,077 | $ | 4,327,538 | ||||
COST
OF REVENUES EARNED
|
4,744,026 | 4,345,014 | ||||||
Gross
profit (loss)
|
768,051 | (17,476 | ) | |||||
GENERAL
AND ADMINISTRATIVE EXPENSES
|
||||||||
Payroll
and related costs
|
661,452 | 936,671 | ||||||
Insurance
|
146,142 | 137,567 | ||||||
Marketing
and advertising
|
103,471 | 132,979 | ||||||
Office
and technology expenses
|
112,824 | 177,818 | ||||||
Professional
fees
|
206,770 | 98,903 | ||||||
Auto
and truck expense
|
53,038 | 115,608 | ||||||
Travel
and entertainment
|
13,346 | 34,321 | ||||||
Depreciation
and amortization
|
37,098 | 52,342 | ||||||
Other
operating expenses
|
34,617 | 17,402 | ||||||
Total
general and admistrative expenses
|
1,368,758 | 1,703,611 | ||||||
Loss
from operations
|
(600,707 | ) | (1,721,087 | ) | ||||
OTHER
INCOME (EXPENSES):
|
||||||||
Interest
expense
|
(101,531 | ) | (43,717 | ) | ||||
Interest
income
|
49 | 105 | ||||||
Financing
costs
|
(181,201 | ) | - | |||||
Loss
on asset disposition, net
|
(2,305 | ) | (15,995 | ) | ||||
Other
income
|
3,629 | 1,175 | ||||||
Total
other expenses
|
(281,359 | ) | (58,432 | ) | ||||
NET
LOSS
|
$ | (882,066 | ) | $ | (1,779,519 | ) | ||
Loss
per share
|
||||||||
Basic
and diluted
|
$ | (0.025 | ) | $ | (0.052 | ) | ||
Weighted
Average Outstanding Shares
|
||||||||
Basic
and diluted
|
34,681,361 | 34,039,177 |
The
accompanying notes are an integral part of these interim financial
statements.
F-27
(f/k/a
PHAGE THERAPEUTICS INTERNATIONAL, INC.)
STATEMENTS
OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR
THE PERIOD FROM DECEMBER 31, 2008 TO SEPTEMBER 30, 2009
(Unaudited)
Common
|
Additional
|
Accumulated
|
||||||||||||||
Stock
|
Paid In Capital
|
Deficit
|
Total
|
|||||||||||||
BALANCE
AT DECEMBER 31, 2008
|
$ | 34,673 | $ | 2,720,494 | $ | (4,237,310 | ) | $ | (1,482,143 | ) | ||||||
Net
loss
|
- | - | (882,066 | ) | (882,066 | ) | ||||||||||
Stock
and warrants issued as compensation
|
15 | 204,151 | - | 204,166 | ||||||||||||
Warrants
issued as financing costs
|
- | 181,201 | - | 181,201 | ||||||||||||
BALANCE
AT SEPTEMBER 30, 2009
|
$ | 34,688 | $ | 3,105,846 | $ | (5,119,376 | ) | $ | (1,978,842 | ) |
The
accompanying notes are an integral part of these interim financial
statements.
F-28
SSGI,
INC.
(f/k/a
PHAGE THERAPEUTICS INTERNATIONAL, INC.)
STATEMENTS
OF CASH FLOWS
(Unaudited)
For
the Nine Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
(restated)
|
||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (882,066 | ) | $ | (1,779,519 | ) | ||
Adjustments
to reconcile net loss to net cash and cash equivalents used in operating
activities:
|
||||||||
Depreciation
and amortization
|
91,952 | 91,468 | ||||||
Warrants
issued for compensation
|
204,166 | 100,971 | ||||||
Warrants
issued as financing costs
|
181,201 | - | ||||||
Estimated
losses on contracts
|
(59,354 | ) | - | |||||
Loss
on disposition of assets
|
2,305 | |||||||
(Increase)
decrease in:
|
||||||||
Contracts
receivable
|
(1,428,034 | ) | (249,959 | ) | ||||
Prepaid
expenses
|
46,883 | (9,765 | ) | |||||
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
(10,150 | ) | (197,100 | ) | ||||
Other
assets
|
(9,212 | ) | (2,521 | ) | ||||
Increase
in:
|
||||||||
Accounts
payable and accrued expenses
|
881,395 | 567,545 | ||||||
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
(39,445 | ) | 269,703 | |||||
Net
cash (used in) operating activities
|
(1,020,359 | ) | (1,209,177 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Proceeds
from disposition of assets
|
9,400 | - | ||||||
Deposits
of restricted cash
|
(806,473 | ) | - | |||||
Purchase
of equipment, net
|
(34,497 | ) | (30,706 | ) | ||||
Net
cash (used) in investing activities
|
(831,570 | ) | (30,706 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Borrowings
under term note payable, related party and promissory note
payable
|
1,238,971 | 370,000 | ||||||
Payments
of promissory note payable, notes payable and stockholder
loans
|
(418,442 | ) | (77,493 | ) | ||||
Advances
from stockholders
|
1,065,653 | 156,327 | ||||||
Proceeds
from issuance of stock
|
- | 818,865 | ||||||
Net
cash provided by financing activities
|
1,886,182 | 1,267,699 | ||||||
CHANGE
IN CASH AND CASH EQUIVALENTS
|
34,253 | 27,816 | ||||||
Cash
and cash equivalents at beginning of the period
|
64,988 | 56,736 | ||||||
Cash
and cash equivalents at end of the period
|
$ | 99,241 | $ | 84,552 | ||||
SUPPLEMENTAL
CASH FLOW INFORMATION
|
||||||||
Interest
paid during the period
|
$ | 94,192 | $ | 43,717 | ||||
SUPPLEMENTAL
DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
|
||||||||
Purchase
of vehicles with long-term debt
|
$ | - | $ | 227,414 |
The
accompanying notes are an integral part of these interim financial
statements.
F-29
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(unaudited)
NOTE 1 –
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Nature of
Operations
SSGI,
Inc. (the “Company”) was incorporated under the laws of the State of Florida as
Phage Therapeutics International, Inc. on December 26, 1996. The Company was a
public shell whose stock is traded in the Pink Sheets Electronic
Over-the-Counter Markets. In February 2008, through a share exchange,
the company acquired Surge Solutions Group, Inc. (“Surge”) As a consequence of
the latter exchange, which qualified as a reverse merger, Surge became the
accounting acquirer and the reporting entity prospectively.
The
Company specializes in petroleum contracting and general construction in Florida
including insurance restoration, new commercial construction, and post
construction finish and customization work. The Company's work is
performed under cost-plus-fee contracts, fixed-price contracts, and fixed-price
contracts modified by incentive and penalty provisions. The length of
the Company's contracts typically range from three months or less to one
year.
.
Interim Financial
Statements
Although
the Company is not a Securities Exchange Commission registrant, these financial
statements have been prepared in accordance with the rules of interim financial
statements stipulated in Regulation S-X. In the opinion of management, such
financial statements include all adjustments (consisting of normal recurring
accruals) necessary for the fair presentation of the financial position and the
results of operations. The results of operations for the periods presented are
not necessarily indicative of the results to be expected for the full year. The
balance sheet information as of December 31, 2008 was derived from the
audited financial statements. The interim financial statements should be read in
conjunction with those statements.
Company’s Ability to
Continue as a Going Concern
At
September 30, 2009, the Company had not yet achieved profitable operations, had
insufficient working capital to fund ongoing operations and expects to incur
further losses. These circumstances cast doubt about the Company’s ability to
continue as a going concern. The Company’s ability to continue as a going
concern is dependent upon its ability to generate future profitable operations
and to obtain the necessary financing to meet its obligations and repay its
liabilities arising from normal business operations.
These
financial statements have been prepared in accordance with generally accepted
accounting principles applicable to a going concern, which assumes that the
Company will be able to meet its obligations and continue its operations.
Realization values may be substantially different from carrying values as shown
in the financial statements and do not give
effect to adjustments that would be necessary to the carrying values and
classification of assets and liabilities should the Company be unable to
continue as a going concern.
F-30
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(unaudited)
NOTE 1 –
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
|
Use of
estimates
|
Management
uses estimates and assumptions in preparing these financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities and the
reported revenues and expenses. Actual results could vary from the
estimates that were used. The significant areas requiring management’s estimates
and assumptions relate to determining the fair value of stock-based
compensation, fair value of shares issued for services and the determination of
percentage of completion in connection with the recognition of profit on
customer contracts.
Reclassification
Certain
reclassifications were made to the 2008 statements of operations and cash flows
to conform to the 2009 presentation.
|
Revenue and cost
recognition
|
The
Company uses the cost to cost method to arrive at the percentage-of-completion
for all contracts. Revenue of individual long-term contracts are included in
operations as the project is completed by using costs incurred to date in
relation to the estimated total costs of the contracts to measure the stage of
completion. Original contract prices are adjusted for change orders in the
amounts that are reasonably estimated based on the Company’s historical
experience. The cumulative effects of changes in estimated total contract costs
and revenues (change orders) are recorded in the period in which the facts
requiring such revisions become known, and are accounted for using the
percentage-of-completion method. At the time it is determined that a contract is
expected to result in a loss; the entire estimated loss is
recorded.
|
Contract
costs include all direct material, subcontractors and direct labor and
those indirect costs related to contract performance, such as indirect
labor and supplies. Selling, general, and administrative
expenses are charged to operations as
incurred.
|
|
Prior
to the restatement disclosed in Note 2, the Company used the
completed-contract method of accounting for short-term contracts less than
three months in duration. Accordingly, revenue and costs of individual
short-term contracts were included in operations in the period during
which they are completed. Losses expected to be incurred on contracts in
progress were charged to operations in the period such losses were
determined. The aggregate of costs on uncompleted contracts in excess of
related billings was shown as a current asset while the aggregate of
billings on uncompleted contracts in excess of related costs was shown as
a current liability.
|
F-31
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(unaudited)
NOTE 1 –
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
Cash and cash
equivalents
For the
purpose of reporting cash flows, the Company has defined cash equivalents as
those highly liquid investments purchased with an original maturity of three
months or less.
Contracts
Receivable
Contracts
receivable are customer obligations due under contractual terms. The Company
sells its services primarily to residential, commercial, and retail
customers. On most projects, the Company has liens rights under
Florida law which are typically enforced on balances not collected within 90
days. The Company includes any balances that are determined to be uncollectible
along with a general reserve in its overall allowance for doubtful
accounts.
Income
Taxes
In
2007, the Company revoked its election under Subchapter S of the Internal
Revenue Code thus opting to be taxed as a C Corporation. Income taxes are
accounted for under the asset and liability method prescribed by the Accounting
Standard Codification (“ASC”) 740, Income Taxes, formerly Statement of
Accounting Standards (“SFAS”) No. 109, “Accounting for Income
Taxes”. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. Under ASC 740, the effect on deferred tax assets and
liabilities or a change in tax rate is recognized in income in the period that
includes the enactment date. Deferred tax assets are reduced to
estimated amounts to be realized by the use of a valuation allowance. A
valuation allowance is applied when in management’s view it is more likely than
not (50%) that such deferred tax will not be utilized.
Effective
January 1, 2008, the Company adopted the provisions of ASC 740-10, Accounting for Income Taxes;
formerly Financial Accounting Standards Board Interpretation (“FIN”) No. 48,
“Accounting for Uncertainties
in Income Taxes”, which contains a two-step approach to recognizing and
measuring uncertain tax positions as well as the disclosure of interest and
penalties. ASC 740-10 established provisions for the accounting treatment and
disclosures of income taxes in interim periods including transition relating to
the adoption of ASC 740-10.
Marketing and Advertising
Costs
Marketing
and advertising costs are expensed as incurred. Marketing and advertising costs
for the nine months ended September 30, 2009 and 2008 were $109,471 and
$132,979, respectively.
F-32
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(unaudited)
NOTE 1 –
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
Financial
Instruments
Financial
instruments consist of cash and cash equivalents, restricted cash deposits,
contracts receivable, accounts payable and accrued expenses, notes payable, and
due to stockholders. The carrying values of these instruments
approximate their fair values due to their relatively short lives to
maturity. The fair value of notes payable and due to stockholders
approximate fair market value, as these amounts are due at rates which are
compatible to market interest rates.
Stock Based
Compensation
The
Company applies the fair value method of ASC 718, Share Based Payment, formerly
Statement of Financial Accounting Standards ("SFAS”) No. 123R “Accounting for Stock Based
Compensation", in accounting for its stock based compensation. This
standard states that compensation cost is measured at the grant date based on
the value of the award and is recognized over the service period, which is
usually the vesting period. As the Company does not have sufficient, reliable
and readily determinable values relating to its common stock, the Company has
used the stock value pursuant to its most recent sale of stock for purposes
of valuing stock based compensation.
Property and
Equipment
Property
and equipment is stated at cost net of accumulated depreciation and
amortization. Depreciation is computed using the straight-line method
over the useful life of the related asset. Amortization of leasehold
improvements is computed using the straight-line method over the term of the
related lease. Capital expenditures that extend the useful life of an
asset are capitalized and depreciated over the remaining useful life of such
asset. Maintenance and repairs that do not extend the life of an
asset are charged to expense when incurred.
Concentration of Credit
Risk
The
Company maintains its cash balances with a high quality financial institution
which the Company believes limits its risk. The Company places its
cash in bank deposit accounts that, at times, may exceed federally insured
limits. The balances are insured by the Federal Deposit
Insurance
Corporation (FDIC) and Securities Investor Protection Corporation (SIPC) up to
$250,000.
The
Company has accounts receivable from customers engaged in various
industries. These industries may be affected by economic factors,
which may impact the customer’s ability to pay. The Company does not
believe that any single customer, industry, or concentration in a geographic
area represents significant credit risk.
F-33
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(unaudited)
NOTE 1 –
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
Stock Purchase
Warrants
The
Company accounts for common stock purchase warrants at fair value in accordance
with ASC 815-40 Derivatives
and Hedging, formerly (“EITF”) No. 00-19, “Accounting for Derivative Financial
Instruments Indexed to and Practically Settled in, a Company’s Own
Stock”. The Black-Scholes option pricing valuation method is
used to determine fair value of these warrants consistent with ASC 718, Share Based Payment, formerly
Statement of Financial Accounting Standards ("SFAS”) No. 123R “Accounting for Stock Based
Compensation.
Use of this method requires that the Company make assumptions regarding stock
volatility, dividend yields, expected term of the warrants and risk-free
interest rates.
We
account for transactions in which services are received in exchange for equity
instruments based on the fair value of such services received from
non-employees, in accordance with ASC 505-50 Equity Based Payments to
Non-employees, formerly Emerging Issues Task Force Issue (“EITF”) No.
96-18, Accounting for Equity
Instruments that are Issued to other than Employees for Acquiring, or in
Conjunction with Selling Goods or Services.
Recent Accounting
Pronouncements
In
December 2007, the Financial Accounting Standard Board (“FASB”) issued Statement
No. 141 (revised 2007) Business Combinations, now
codified as ASC 805, Business
Combinations. This Statement applies to all transactions or other events
in which an entity (the acquirer) obtains control of one or more businesses (the
acquirer), including those sometimes referred to as “true mergers” or “mergers
of equals” and combinations achieved without the transfer of consideration, for
example, by contract alone or through the lapse of minority veto rights. This
Statement applies to all business entities, including mutual entities that
previously used the pooling-of-interests method of accounting for some business
combinations. This Statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The Company does not
believe that the adoption of ASC 805, if applicable, will materially impact its
financial position, cash flows, or results of operations.
In
December 2007, the FASB issued guidance which is now part of ASC 810-10 Non controlling Interests in
Financial Statements—an amendment of ARB No. 5, formerly the Statement of Financial Accounting
Standards (“SFAS”) 160, Noncontrolling Interests in Consolidated Financial
Statements—an amendment of ARB No. 51. This statement requires that the
ownership interests in subsidiaries held by parties other than the parent be
clearly identified, labeled, and presented in the statement of financial
position within equity, but separate from the parent’s equity. This Statement is
effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008 (that is,
January 1, 2009, for entities with calendar year-ends). The Company does not
believe that the adoption of ASC 810-10, if applicable, will materially impact
its financial position, cash flows, or results of
operations.
F-34
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(unaudited)
NOTE 2 –
|
RESTATEMENT
OF PREVIOUSLY ISSUED FINANCIAL
STATEMENTS
|
The
accompanying 2008 interim financial statements have been restated to reflect a
change in the Company’s revenue recognition policy for its short term contracts.
The Company had previously used the completed contract method of accounting for
its short-term contracts and the percentage of completion method for all other
contracts. Under the completed contract method, revenues and costs of individual
short-term contracts were included in operations in the year during which they
were completed. Although using both methods simultaneously is an accepted
accounting practice, the Company now desires to use only the percentage of
completion method due to its preferred usage and the Company’s ability to make
reasonably dependable estimates. This Restatement by the Company does not affect
ultimate cash flows from operations and profits to be recognized, only the
timing of the recognition.
F-35
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(unaudited)
NOTE 2 –
|
RESTATEMENT
OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS,
continued
|
Set forth
below are the effect of the restatement to the various financial statement
captions:
For the Nine
|
||||
Months ended
|
||||
September 30, 2008
|
||||
Statement of Operations
|
||||
Revenue
as reported
|
$ | 4,138,380 | ||
Net
change in reported revenue
|
189,158 | |||
Revenue
as restated
|
$ | 4,327,538 | ||
Cost
of revenues earned as reported
|
$ | 4,268,633 | ||
Net
change in reported cost of revenues earned
|
76,381 | |||
Cost
of revenues earned as restated
|
$ | 4,345,014 | ||
Gross
loss as reported
|
$ | (130,253 | ) | |
Net
change in gross loss
|
112,777 | |||
Gross
loss as restated
|
$ | (17,476 | ) | |
Net
loss as reported
|
$ | (1,892,296 | ) | |
Net
change in net loss
|
112,777 | |||
Net
loss as restated
|
$ | (1,779,519 | ) | |
Basic
and diluted loss per share as reported
|
$ | (0.056 | ) | |
Net
change in basic and diluted loss per share
|
0.004 | |||
Basic
and diluted loss per share as restated
|
$ | (0.052 | ) |
F-36
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(unaudited)
NOTE 2 –
|
RESTATEMENT
OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS,
continued
|
Statement of Cash
Flows
|
||||
Net
loss as reported
|
$ | (1,892,296 | ) | |
Net
change in net loss
|
112,777 | |||
Net
loss as restated
|
$ | (1,779,519 | ) | |
Contracts receivable as reported | $ | (234,959 | ) | |
Net change in contracts receivable | (15,000 | ) | ||
Contracts receivable as restated | (249,959 | ) | ||
Costs
and estimated earnings in excess of billings
|
||||
on
uncompleted contracts as reported
|
$ | (159,002 | ) | |
Net
change
|
(38,098 | ) | ||
Costs
and estimated earnings in excess of billings
|
||||
on
uncompleted contracts as restated
|
$ | (197,100 | ) | |
Accounts payable and accrued expenses as reported | $ | 552,820 | ||
Net change in accounts payable and accrued expenses | 14,725 | |||
Accounts payable and accrued expenses as restated | $ | 567,545 | ||
Billings
in excess of costs on uncompleted contracts as
reported
|
$ | 82,888 | ||
Net
change
|
(82,888 | ) | ||
Billings
in excess of costs on uncompleted contracts as
restated
|
$ | - | ||
Billings
in excess of costs and estimated earnings
|
||||
on
uncompleted contracts as reported
|
$ | 261,219 | ||
Net
change
|
8,484 | |||
Billings
in excess of costs and estimated earnings
|
||||
on
uncompleted contracts as restated
|
$ | 269,703 |
NOTE 3 –
|
RESTRICTED
CASH DEPOSITS
|
In some
instances the Company is required to post performance bonds on contracts awarded
by certain state agencies and municipalities to guarantee performance in
accordance with the terms of the contracts. The Company deposits cash equal to a
percentage of the contract price with an independent third party bonding agency
that holds the deposits for the benefit of the state agency or municipality that
has awarded the contract to the Company. The Company also pays a premium to
insure performance for the percentage of the contract not covered by the cash
deposit. Following successful completion of the contract, the bonding agency has
up to 90 days to return the deposited cash along with interest in accordance
with the contract.
F-37
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(unaudited)
NOTE 3 –
|
RESTRICTED
CASH DEPOSITS, continued
|
Amounts
received by the Company are to be paid to the note holders as mentioned in Note
7. If the Company fails to perform, these deposits could be claimed by the party
that suffers the loss pursuant to non-performance. At September 30, 2009, the
Company has $806,473 on deposit.
NOTE 4 –
|
CONTRACTS
RECEIVABLE
|
|
Contracts
receivable are as follows:
|
September
30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Completed
contracts
|
$ | 128,202 | $ | 144,255 | ||||
Contracts
in progress
|
1,667,770 | 206,172 | ||||||
Allowance
for doubtful accounts
|
( 28,024 | ) | (10,513 | ) | ||||
$ | 1,767,948 | $ | 339,914 |
NOTE 5 –
|
COST
AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS UNDER THE PERCENTAGE OF
COMPLETION METHOD
|
September
30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(restated)
|
||||||||
Costs
incurred on uncompleted contracts
|
$ | 1,896,103 | $ | 2,438,797 | ||||
Estimated
earnings
|
530,657 | 62,605 | ||||||
Less:
Billings to date
|
(2,729,154 | ) | (2,853,391 | ) | ||||
$ | (302,394 | ) | $ | (351,989 | ) |
Included
in the accompanying balance sheets under the following captions:
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
$ | 145,732 | $ | 135,582 | ||||
Billings
and excess of costs and estimated earnings on uncompleted
contracts
|
(448,126 | ) | (487,571 | ) | ||||
$ | (302,394 | ) | $ | (351,989 | ) |
F-38
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(unaudited)
NOTE 6 –
|
PROMISSORY
NOTE PAYABLE
|
In
November of 2007, a financial institution extended the Company a line of credit
in the amount of $750,000. In November of 2008, with a balance due of $745,000,
the Company converted the line of credit to a promissory note that required
monthly interest payments at the Prime Rate plus 1.5% until December 3, 2008.
Thereafter, the Company was required to make
monthly principal and interest payments of $35,000 with the first payment due on
January 3, 2009. On June 3, 2009, with the principal balance on the loan at
$551,164, the financial institution extended the maturity date of the promissory
note to December 3, 2009 at the Prime
Rate plus 2% (but not less than 5%). The loan extension required the
Company to continue making monthly principal and interest payments in arrears of
$35,000.
The
principal balance on the promissory note at September 30, 2009 and December 31,
2008 was $453,116 and $745,000, respectively. The Company paid $23,116 and
$10,898 in interest for the nine months ended September 30, 2009 and 2008,
respectively.
NOTE 7 –
|
TERM
NOTE PAYABLE, RELATED PARTY
|
In April
2009, the Company borrowed against a line of credit from an existing shareholder
in the amount of $500,000. In June 2009, the Company paid the principal amount
of the line of credit with proceeds from a new term note from a Nevada limited
partnership in the principal amount of $925,000. The term note bears interest at
9% with $425,000 in principal and accrued interest due on October 27, 2009 and
$500,000 in principal and accrued interest due on April 27, 2010. A director of
the company and a stockholder are limited partners in the Nevada limited
partnership. The Company has used a portion of the proceeds to pay premiums on
performance bonds, escrow deposits required by performance bonds and working
capital. Once the performance bonds for the government construction contracts
are completed, the escrow deposits are returned to the Company with accrued
interest. The terms of the note require the Company to use the proceeds from the
deposits to repay the term note.
In July
and September of 2009, the Company borrowed an additional $424,444 against the
term note to fund performance bonds for four municipal petroleum construction
projects and was refunded 80% of two performance bonds in the amount of
$110,473, the proceeds of which were applied against the principal of the term
loan. The Company paid $35,390 in accrued interest on the term loan. At
September 30, 2009, the balance due on the note is $1,238,971.
As
additional compensation on the term note, the Company has issued 632,000
warrants to purchase the Company’s common stock at $0.30 per share. The warrants
vested at the time the loans were funded. The Company valued the warrants using
the Black Scholes option pricing model and
has recorded an expense of $181,201 as financing costs on its statement of
operations with a corresponding increase to the Company’s additional
paid-in-capital account.
F-39
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(unaudited)
NOTE
8 –
|
INCOME
TAXES
|
A
reconciliation of the differences between the effective income tax rate and the
statutory federal tax rate for the period ended September 30, 2009 and December
31, 2008 are as follows:
2009
|
2008
|
|||||||
Tax
benefit at U.S. statutory rate
|
34.00 | % | 34.00 | % | ||||
State
taxes, net of federal benefit
|
3.63 | 3.63 | ||||||
Change
in valuation allowance
|
(37.63 | ) | (37.63 | ) | ||||
- | % | - | % |
The tax
effect of temporary differences that give rise to significant portions of the
deferred tax assets and liabilities at September 30, 2009 and December 31, 2008
consisted of the following:
September 30,
|
December 31,
|
|||||||
Deferred Tax Assets
|
2009
|
2008
|
||||||
Net
Operating Loss Carryforward
|
$ | 1,700,000 | $ | 1,400,000 | ||||
Other
|
287,797 | 202,971 | ||||||
Total
Deferred Tax Assets
|
1,987,797 | 1,602,971 | ||||||
Deferred
Tax Liabilities
|
(208,819 | ) | (57,215 | ) | ||||
Net
Deferred Tax Assets
|
1,778,978 | 1,545,756 | ||||||
Valuation
Allowance
|
(1,778,978 | ) | (1,545,756 | ) | ||||
Total
Net Deferred Tax Assets
|
$ | - | $ | - |
As of
September 30, 2009, the Company had a net operating loss carry forward for
income tax reporting purposes of approximately $4,600,000 that may be offset
against future taxable income through 2028. Current tax laws limit
the amount of loss available to be offset against future taxable income when a
substantial change in ownership occurs. Therefore, the amount
available to offset future taxable income may be limited. No tax
asset has been reported in the financial statements, because the Company
believes there is a 50% or greater chance the carry forwards will expire
unused. Accordingly, the potential tax benefits of the loss carry
forwards are offset by a valuation allowance of the same
amount.
F-40
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(unaudited)
NOTE
9 –
|
COMMON
STOCK PURCHASE WARRANTS
|
During
2008, the Company completed private placements resulting in the issuance of
units consisting of one share of Company restricted common stock and one warrant
(with each warrant exercisable for one share of Company restricted common
stock). As part of the transaction, the Company also issued common
stock purchase warrants to certain individuals who
assisted with the private placement. There was no value assigned to these
warrants when they were granted.
The
Company also issued common stock purchase warrants to certain employees as part
of their compensation package. The value assigned to these warrants
was calculated using the Black-Scholes option pricing model.
For the
nine months ended September 30, 2009, the Company issued 1,495,999 warrants to
purchase the Company’s common stock. Of these warrants, 1,188,499 of the
warrants vested immediately and 307,500 of the warrants vested in periods
ranging from 6 months to 2 years. The vested warrants were expensed in the nine
month period ending September 30, 2009 with the remaining warrants amortized
over the vesting period. The Company used the Black Scholes option pricing
method to value the warrants. These warrants were accounted for on the Company’s
financial statements as an $185,866 charge to payroll and related costs. This
charge includes $13,827 related to a stock awarded to two of the Company’s
employees. An additional $181,201 was expensed to financing costs for warrants
issued in conjunction with the Company’s term loan and $18,300 was expensed to
professional fees in payment of directors’ fees and legal costs. These non-cash
expenses were offset by a corresponding increase to additional paid-in-capital
and capital stock.
The
Company also canceled 752,500 warrants previously issued to employees who were
terminated or have left the company. Stock compensation expense was adjusted to
reflect this decrease.
A summary
of the change in common stock purchase warrants for the nine months ended
September 30, 2009 is as follows:
Number of
Warrants
Outstanding
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
||||||||||
Balance,
December 31, 2008
|
2,734,054 | $ | 0.59 | 4.58 | ||||||||
Warrants
issued
|
1,495,999 | 0.44 | 6.64 | |||||||||
Warrants
exercised
|
- | - | - | |||||||||
Warrants
cancelled
|
(752,500 | ) | 0.25 | 4.26 | ||||||||
Balance,
September 30, 2009
|
3,477,553 | $ | 0.60 | 4.95 |
F-41
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(unaudited)
NOTE
9 –
|
COMMON
STOCK PURCHASE WARRANTS,
(continued)
|
The
balance of outstanding and exercisable common stock warrants as at September 30,
2009:
Number of Warrants
Outstanding
|
Exercise Price
|
Remaining Contractual
Life (Years)
|
||||||
3,477,553
|
$ | 0.60 |
4.95
|
The fair
value of stock purchase warrants granted using the Black-Scholes option pricing
model was calculated using the following assumptions:
September
30,
|
December
31,
|
||
2009
|
2008
|
||
Risk
free interest rate
|
.83%
-1.87%
|
.5%
- 1.5%
|
|
Expected
volatility
|
163%
- 183%
|
20%
- 86%
|
|
Expected
term of stock warrant in years
|
1.96–10.07
|
2.5
- 4.75
|
|
Expected
dividend yield
|
0%
|
0%
|
|
Average
value per warrant
|
.18
- .63
|
.13
- .57
|
Expected
volatility is based on historical volatility of the Company and other comparable
companies. Short Term U.S. Treasury rates were utilized. The expected
term of the options was calculated using the alternative simplified method
permitted by ASC 718, Stock
Compensation, previously Staff Accounting Bulletin (“SAB”) No. 107, Share Based Payment, which
defines the expected life as the average of the contractual term of the options
and the weighted average vesting period for all option
tranches. Since trading volumes and the number of unrestricted shares
are very small compared to total outstanding shares, the value of the warrants
was decreased for lack of marketability.
NOTE
10 –
|
RELATED
PARTY TRANSACTIONS
|
In order
to procure vehicle financing and leased facilities, at various times the Chief
Executive officer and a former officer and employee of the Company act as
guarantors under financing arrangements. The Company is indebted to
these stockholders for three loans at September 30, 2009 and December 31, 2008
in the amount of $1,211,667 and $153,780, respectively. Two of these loans in
the principal amount $1,181,981 at September 30, 2009 began in November of 2008
accruing interest at 8%. The third loan bears interest at 7% and requires
monthly principal and interest payments.
F-42
SSGI,
INC.
(f/k/a
Phage Therapeutics International, Inc.)
NOTES
TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(unaudited)
NOTE
10 –
|
RELATED
PARTY TRANSACTIONS, continued
|
In 2008,
a founding stockholder of the Company also provided collateral in the amount of
$247,000 in order to secure a performance bond required for a construction
project. The collateral was being held in a certificate of deposit in
the name of the stockholder, so no asset or liability is shown on the balance
sheet of the Company. The Company paid the stockholder monthly
interest at the annual rate of 7% for providing the collateral. The
collateral was released back to the stockholder in February 2009 and all
interest was paid.
NOTE
11 –
|
SUBSEQUENT
EVENTS
|
|
Management
has evaluated subsequent events through November 20, 2009, the date at
which the financial statements were available for
issue.
|
|
In
October, the Chief Executive Officer loaned the Company $125,000 and was
repaid $95,000 in November. In October, a former officer and employee was
repaid $15,000 in principal against loans made to the Company by
him.
|
NOTE
12 –
|
LEGAL
MATTERS
|
|
The
Company is involved in lawsuits from time to time in the ordinary course
of business. Management believes that these actions when settled will not
have a significant adverse impact on the Company’s financial
statements.
|
F-43
7,096,557
SHARES
SSGI,
INC.
COMMON
STOCK
PROSPECTUS
DEALER
PROSPECTUS DELIVERY OBLIGATION
Until
________, 2009, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to delivering a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
November
20, 2009
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The
following table sets forth our estimates of the expenses to be incurred by it in
connection with the common stock being offered hereby:
SEC
Registration Fee
|
$
|
202.00
|
||
Printing
registration statement and other documents*.
|
7,000.00
|
|||
Legal
fees and expenses*
|
12,500.00
|
|||
Accounting
fees and expenses*
|
30,000.00
|
|||
Miscellaneous
expenses*
|
1,500.00
|
|||
Total
expenses*
|
$
|
51,202.00
|
*estimated
Of the
expenses incurred by SSGI in connection with this offering, $6,500.00 is
outstanding.
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our
Articles of Incorporation provide that we must indemnify our directors and
officers to the fullest extent permitted under Florida law against all
liabilities incurred by reason of the fact that the person is or was a director
or officer or a fiduciary of SSGI. The effect of these provisions is potentially
to indemnify our directors and officers from all costs and expenses of liability
incurred by them in connection with any action, suit or proceeding in which they
are involved by reason of their affiliation with SSGI. Pursuant to Florida law,
a corporation may indemnify a director, provided that such indemnity shall not
apply on account of:
(a) acts
or omissions of the director finally adjudged to be intentional misconduct or a
knowing violation of law;
(b) unlawful
distributions; or
(c) any
transaction with respect to which it was finally adjudged that such director
personally received a benefit in money, property, or services to which the
director was not legally entitled.
Our
Bylaws provide that we will indemnify our officers and directors for costs and
expenses incurred in connection with the defense of actions, suits, or
proceedings against them on account of their being or having been directors or
officers of SSGI, absent a finding of negligence or misconduct in
office.
Our
Bylaws also permit us to maintain insurance on behalf of our officers,
directors, employees and agents against any liability asserted against and
incurred by that person whether or not we have the power to indemnify such
person against liability for any of those acts.
II-1
In
addition to the indemnification provided by our Articles of Incorporation and
Bylaws, we have entered into indemnification agreements with each of our current
directors and executive officers. These agreements require us to indemnify these
individuals to the fullest extent permitted under Florida law against
liabilities, costs and expenses that may arise by reason of their service to us
and our subsidiaries, and to advance expenses incurred as a result of any
proceeding against them as to which they could be indemnified. We also
intend to enter into indemnification agreements with our future directors and
executive officers.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers, or persons controlling us pursuant to the
foregoing provisions, we have been informed that, in the opinion of the SEC,
that type of indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth
below is information regarding the issuance and sales of our securities without
registration for the past three (3) years from the date of this Registration
Statement. No such sales involved the use of an underwriter, no advertising or
public solicitation were involved, and the securities bear a restrictive
legend.
The
Company paid $105,000 in connection with sales made via the private placement
memorandum. There were no commissions paid on any other transaction. The numbers
in the labeled code column indicates the method of purchase: (1) stock purchased
via private placement memorandum, (2) stock issued as employee
compensation, (3) stock issued via exchange offer, original stockholder of the
Company, (4) stock issued as compensation via private placement memorandum (5)
private sale.
Names/Identities to whom
Securities Issued
|
Code
|
Type of
Securities
|
Number of
Shares
|
Issue
Date
|
Aggregate
Proceeds
From
Issuance
|
|||||||||
Thomas
W. Adams
|
1
|
Common
Stock
|
20,000
|
March-08
|
$
|
10,000
|
||||||||
John
Allen (A)
|
1
|
Common
Stock
|
658,000
|
March-08
|
$
|
329,000
|
||||||||
William
C. Armor
|
1
|
Common
Stock
|
10,000
|
March-08
|
$
|
5,000
|
||||||||
William
C. Armor
|
1
|
Common
Stock
|
116,000
|
March-08
|
$
|
58,000
|
||||||||
Ryan
D. Aubert
|
1
|
Common
Stock
|
200,000
|
March-08
|
$
|
100,000
|
||||||||
Victor
P. Bannon
|
1
|
Common
Stock
|
6,000
|
March-08
|
$
|
3,000
|
||||||||
Lee
Palmer Bearsch
|
1
|
Common
Stock
|
20,000
|
March-08
|
$
|
10,000
|
||||||||
Cindy
Bell
|
1
|
Common
Stock
|
273,000
|
March-08
|
$
|
136,500
|
||||||||
BFS
Services
|
1
|
Common
Stock
|
190,517
|
March-08
|
$
|
95,259
|
||||||||
Brad
Brooks
|
4
|
Common
Stock
|
30,000
|
March-08
|
$
|
-
|
||||||||
CEDE
and Company
|
1
|
Common
Stock
|
40,000
|
March-08
|
$
|
20,000
|
||||||||
Agatha
Gabriela Cailide
|
1
|
Common
Stock
|
12,500
|
March-08
|
$
|
6,250
|
||||||||
Philip
L. Cook
|
1
|
Common
Stock
|
100,000
|
March-08
|
$
|
50,000
|
||||||||
M.
G. Crain
|
2
|
Common
Stock
|
15,000
|
January-09
|
$
|
7,500
|
||||||||
H.
Dodd Crutcher
|
1
|
Common
Stock
|
100,000
|
March-08
|
$
|
50,000
|
||||||||
Chris
Dollar (B)
|
2
|
Common
Stock
|
15,000
|
January-09
|
$
|
7,500
|
||||||||
Daniel
S. Dykes
|
1
|
Common
Stock
|
100,000
|
March-08
|
$
|
50,000
|
||||||||
Jack
Edmonds
|
1
|
Common
Stock
|
16,000
|
March-08
|
$
|
8,000
|
||||||||
William
Esping ©
|
1
|
Common
Stock
|
1,466,666
|
October-08
|
$
|
733,333
|
||||||||
FCC
C/F Sharon Laminack
|
1
|
Common
Stock
|
30,000
|
March-08
|
$
|
15,000
|
||||||||
Michael
T. Ferris
|
1
|
Common
Stock
|
20,000
|
March-08
|
$
|
10,000
|
||||||||
Brian
Flanagan
|
1
|
Common
Stock
|
50,000
|
March-08
|
$
|
25,000
|
||||||||
Gerry
Geddes
|
1
|
Common
Stock
|
50,000
|
March-08
|
$
|
25,000
|
||||||||
Telese
Gray
|
1
|
Common
Stock
|
20,000
|
March-08
|
$
|
10,000
|
||||||||
Bradley
Hickman (D)
|
1
|
Common
Stock
|
733,334
|
March-08
|
$
|
366,667
|
||||||||
IRA
Plus Southwest FBO Ella Oliver
|
1
|
Common
Stock
|
18,000
|
March-08
|
$
|
9,000
|
||||||||
IRA
Plus Southwest FBO Walter Parker
|
1
|
Common
Stock
|
20,000
|
March-08
|
$
|
10,000
|
||||||||
Harvey
Kaye
|
5
|
Common
Stock
|
12,500
|
March-08
|
$
|
6,250
|
||||||||
Helen
Kaye
|
5
|
Common
Stock
|
12,500
|
March-08
|
$
|
6,250
|
||||||||
Andrew
Konen
|
1
|
Common
Stock
|
50,000
|
March-08
|
$
|
25,000
|
||||||||
Brenda
Kostohryz (D)
|
1
|
Common
Stock
|
333,334
|
March-08
|
$
|
166,667
|
||||||||
Joel
Lebovitz (E)
|
1
|
Common
Stock
|
83,334
|
May-08
|
$
|
41,667
|
||||||||
Earnest
Kent Lindsey
|
1
|
Common
Stock
|
50,000
|
March-08
|
$
|
25,000
|
||||||||
Laurie
Michele Markum
|
4
|
Common
Stock
|
10,000
|
March-08
|
$
|
5,000
|
||||||||
Ralph
E. Mayo
|
1
|
Common
Stock
|
50,000
|
March-08
|
$
|
25,000
|
||||||||
Mark
McConnell (E)
|
1
|
Common
Stock
|
20,000
|
July-08
|
$
|
10,000
|
||||||||
Erik
Menegay
|
2
|
Common
Stock
|
10,000
|
May-08
|
$
|
-
|
||||||||
John
Miller
|
5
|
Common
Stock
|
187,500
|
March-08
|
$
|
93,750
|
||||||||
Robert
Miller
|
1
|
Common
Stock
|
18,520
|
March-08
|
$
|
9,260
|
||||||||
Oppenheimer
& Co. Federico Pier IRA (F)
|
1
|
Common
Stock
|
80,000
|
April-08
|
$
|
40,000
|
||||||||
H.
Winfield Padgett Jr.
|
1
|
Common
Stock
|
280,000
|
March-08
|
$
|
140,000
|
||||||||
Charles
Pero
|
1
|
Common
Stock
|
200,000
|
March-08
|
$
|
100,000
|
||||||||
Pershing
LLC c/f Camilla M. Bannon IRA
|
1
|
Common
Stock
|
4,000
|
March-08
|
$
|
2,000
|
||||||||
Pershing
LLC c/f James E. Kennedy
|
1
|
Common
Stock
|
80,000
|
March-08
|
$
|
40,000
|
||||||||
Pershing
LLC c/f James Foitek SEP
|
1
|
Common
Stock
|
20,000
|
March-08
|
$
|
10,000
|
||||||||
Pershing
LLC c/f Julie Geddes IRA (E)
|
1
|
Common
Stock
|
33,334
|
May-08
|
$
|
16,667
|
||||||||
Pershing
LLC c/f Lee J. Morrison IRA
|
1
|
Common
Stock
|
100,000
|
March-08
|
$
|
50,000
|
||||||||
Pershing
LLC c/f Randy Wicker IRA
|
1
|
Common
Stock
|
20,000
|
March-08
|
$
|
10,000
|
||||||||
Pershing
LLC c/f Rusty T. McDowell IRA (E)
|
1
|
Common
Stock
|
33,334
|
March-08
|
$
|
16,667
|
||||||||
Pershing
LLC c/f Samuel A. Rodgers IRA (G)
|
1
|
Common
Stock
|
50,000
|
March-08
|
$
|
25,000
|
||||||||
Pershing
LLC c/f Victor Bannon IRA
|
1
|
Common
Stock
|
66,000
|
March-08
|
$
|
33,000
|
||||||||
Pershing
LLC c/f William P. Adams IRA
|
1
|
Common
Stock
|
20,000
|
March-08
|
$
|
10,000
|
||||||||
Federico
Pier (F)
|
1
|
Common
Stock
|
145,000
|
March-08
|
$
|
72,500
|
||||||||
Sam
Rodgers (G)
|
1
|
Common
Stock
|
6,667
|
May-08
|
$
|
3,334
|
||||||||
Ricardo
Sabha
|
3
|
Common
Stock
|
1,485,000
|
April-08
|
$
|
-
|
||||||||
Ryan
Seddon (H)
|
3
|
Common
Stock
|
17,215,000
|
April-08
|
$
|
-
|
||||||||
Donald
P. Simek
|
1
|
Common
Stock
|
100,000
|
March-08
|
$
|
50,000
|
||||||||
Richard
& Rhonda Sinz
|
1
|
Common
Stock
|
20,000
|
March-08
|
$
|
10,000
|
||||||||
Andrew
B. Small IV
|
1
|
Common
Stock
|
100,000
|
March-08
|
$
|
50,000
|
||||||||
Marilyn
M. Smith
|
1
|
Common
Stock
|
100,000
|
March-08
|
$
|
50,000
|
||||||||
Wade
C. Smith
|
1
|
Common
Stock
|
100,000
|
March-08
|
$
|
50,000
|
||||||||
Henry
LaVaugh Stoll (I)
|
2
|
Common
Stock
|
25,000
|
April-08
|
$
|
-
|
||||||||
Barbara
Taylor TTEE Barbara Taylor (10)
|
1
|
Common
Stock
|
10,000
|
March-08
|
$
|
5,000
|
||||||||
Carol
Touchstone
|
1
|
Common
Stock
|
100,000
|
March-08
|
$
|
50,000
|
||||||||
Gifford
Touchstone
|
1
|
Common
Stock
|
100,000
|
March-08
|
$
|
50,000
|
||||||||
Underground
Tank Partners
|
5
|
Common
Stock
|
6,000,000
|
July-08
|
$
|
900,000
|
||||||||
Dan
Vannest (J)
|
2
|
Common
Stock
|
16,667
|
July-08
|
$
|
-
|
||||||||
Eric
Vatterott
|
2
|
Common
Stock
|
30,000
|
July-08
|
$
|
-
|
||||||||
Keith
& Laura Webb Jt. Ten (K)
|
1
|
Common
Stock
|
114,000
|
March-08
|
$
|
57,000
|
||||||||
Stephen
K. Westervelt
|
1
|
Common
Stock
|
20,000
|
March-08
|
$
|
10,000
|
||||||||
Steven
Williams
|
5
|
Common
Stock
|
25,000
|
March-08
|
$
|
12,500
|
||||||||
Peter
Wilson (L)
|
4
|
Common
Stock
|
1,500,000
|
March-08
|
$
|
-
|
||||||||
Michael
Yurkowsky (M)
|
4
|
Common
Stock
|
795,000
|
March-08
|
$
|
-
|
||||||||
William
Yurkowsky, Jr. TTEE Wm. Yurkowsky Trust
|
4
|
Common
Stock
|
40,000
|
March-08
|
$
|
20,000
|
||||||||
Gary
Zimpelman (N)
|
4
|
Common
Stock
|
93,000
|
March-08
|
$
|
46,500
|
||||||||
John
Zogg
|
1
|
Common
Stock
|
250,000
|
March-08
|
$
|
125,000
|
II-2
(A)
|
Owner 84,000 warrants to purchase
common stock at $0.95 per
share
|
(B)
|
Owner 30,000 warrants to purchase
common stock at $0.50 per
share
|
(C)
|
Owner 666,667 warrants to
purchase common stock at $0.95 per share and 314,594 warrants to purchase
common stock at $0.25 per
share.
|
(D)
|
Owner 133,334 warrants to
purchase common stock at $0.95 per
share.
|
(E)
|
Owner 33,334 warrants to purchase
common stock at $0.95 per
share.
|
(F)
|
Member of the Company’s
Board of Directors and will be entitled to 12,000 warrants in
the future.
|
(G)
|
Owner 6,667 warrants to purchase
common stock at $0.95 per
share.
|
(H)
|
Owner 500,000 warrants to
purchase common stock at $0.63 per
share.
|
(I)
|
Owner 250,000 warrants to
purchase common stock at $0.25 per
share.
|
(J)
|
Owner 20,000 warrants to purchase
common stock @ $1.00 per share and 50,000 warrants at
$0.50
|
(K)
|
Owner 50,000 warrants to purchase
common stock @ $0.95 per
share.
|
(L)
|
Owner 184,500 warrants to
purchase common stock @ $0.25 per
share.
|
(M)
|
Owner 12,000 warrants to purchase
common stock at $0.68 per share and 50,000 warrants at
$0.25
|
(N)
|
Owner 67,750 warrants to purchase
common stock at $0.25 per
share.
|
The
transactions described above were exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933 by reason that: (i) no
commissions were paid for the issuance of security; (ii) the issuance of such
security by the Company did not involve a “public offering”; (iii) the
purchasers of each security were sophisticated and accredited investors; (iv)
the offerings were not a “public offering” as defined in Section 4(2) due to the
insubstantial numbers of persons involved in such sales, size of the offering,
manner of the offering and number of securities offered; and (v) in addition,
each purchaser had the necessary investment intent as required by Section 4(2)
since each purchaser agreed to and received security bearing a legend stating
that such security is restricted pursuant to Rule 144 of the 1933 Securities
Act. (These restrictions ensure that this security would not be immediately
redistributed into the market and therefore not be part of a “public
offering”).
II-3
ITEM
16. EXHIBITS.
Exhibit
|
|||
Number
|
Description of Exhibits
|
||
3.1
|
*
|
Amended
and Restated Articles of Incorporation
|
|
3.2
|
*
|
Amended
and Restated By-Laws
|
|
4.1
|
*
|
Specimen
common stock certificate
|
|
5.1
|
Opinion
of Block & Garden, LLP
|
||
10.1
|
*
|
Form
of Indemnification Agreement by and between the registrant and each
director and executive officer
|
|
10.2
|
*
|
Employment
Agreement between Registrant and Ryan Seddon dated April 1,
2007
|
|
10.3
|
*
|
Amendment
to Employment Agreement between Registrant and Ryan Seddon dated August 1,
2008
|
|
10.4
|
*
|
Employment
Agreement between Registrant and Rodger Rees dated May 18,
2009
|
|
10.5
|
*
|
Promissory
Note between Registrant and Wachovia Bank date June 3,
2009
|
|
10.6
|
*
|
Promissory
Notes between Registrant and Ricardo Sabha and Ryan Seddon dated February
17, 2009
|
|
10.7
|
*
|
Contractual
Alliance between Registrant and Tank Tech, Inc. dated December 9,
2008
|
|
10.8
|
*
|
Share
Exchange Agreement between registrant and Surge, Ryan Seddon, Michael
Yurkowsky and Peter Wilson dated December 18, 2007
|
|
10.9
|
+
|
Key
Man Life Insurance Policy-Ryan Seddon
|
|
10.10
|
+
|
Employee
Leasing Agreement
|
|
10.11
|
+
|
Seddon
Note to Shareholder-Stock Purchase
|
|
10.12
|
+
|
Nevada
Limited Partnership Term Note
|
|
10.13
|
+
|
Nevada
Limited Partnership Warrant
|
|
10.14
|
+
|
Agreement
with Jeb Bush and Associates
|
|
10.15
|
+
|
Agreement
with the Horne Group
|
|
10.16
|
+
|
Sample
of Registrant’s standard Work Authorization/Contract
|
|
23.1
|
Consent
of Independent Auditor
|
*
|
Previously filed (incorporated by
reference to the Company’s Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on July 17,
2009).
|
+
|
Previously filed (incorporated by
reference to the Company’s Registration Statement on Form S-1/A filed with
the Securities and Exchange Commission on September 29,
2009).
|
ITEM
17. UNDERTAKINGS.
We hereby
undertake:
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 (the
“Act”) may be permitted to directors, officers and controlling persons of SSGI
pursuant to the foregoing provisions, or otherwise, SSGI has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy and as expressed in the Act and is, therefore,
unenforceable.
(a) The
undersigned registrant hereby undertakes to:
(1) to
file, during any period in which it offers or sales are being made, a
post-effective amendment to this registration statement to:
i.
include any prospectus required by Section 10(a)(3) of the Securities
Act;
ii.
include any prospectus required by Section 10(a)(3) of the Securities
Act;
iii.
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective
registration statement; and
II-4
iv.
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) If
the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such date of first use.
(b) Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described under Item 15 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by SSGI of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of West Palm Beach, State of
Florida, on the 20th day of November, 2009.
SSGI,
INC.
/s/ Ryan Seddon
|
Ryan
Seddon
Principle
Executive Officer
|
/s/ Rodger Rees
|
Rodger
Rees
Principle
Accounting Officer
|
POWER OF
ATTORNEY
Each
person whose signature appears below constitutes and appoints Ryan Seddon and
Rodger Rees as his true and lawful attorney-in-fact and agent, each acting
alone, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
(including any and all post-effective amendments) to the registration statement
on Form S-1, and any registration statement related to the same offering as this
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed below by the following persons in the capacities
indicated on November 20, 2009.
Signature
|
Title
|
|
/s/ Ryan Seddon
|
||
Ryan
Seddon
|
Chairman
of the Board and President (principle executive
officer)
|
|
/s/ Rodger Rees
|
||
Rodger
Rees
|
Chief
Financial Officer (principal accounting officer)
|
|
/s/ Michael Yurkowsky
|
||
Michael
Yurkowsky
|
Director
|
|
/s/ Mark Feldmesser
|
||
Mark
Feldmesser
|
Director
|
|
/s/ Robert Grammen
|
||
Bob
Grammen
|
Director
|
|
/s/ Federico Pier
|
||
Federico
Pier
|
Director
|