I'm out. Good luck to everyone. Had high hopes for this one but the last report was a disaster. They have a serious cash flow problem that may require more dilution. $270K of cash on hand and a working capital deficit of $2.1 million. I'm sure that was related to their failure to pay $6.6 million in taxes. In addition, they have doubts as to their ability to function as a going concern in the future. It appears that the nature of their business will require paying substantial workers compensation costs on a routine basis and these are not unusual expenses. My take on things. From the 10-Q
"We had cash on hand of $270,048 and working capital deficit of ($2,057,304) as of September 30, 2011 compared to cash on hand of $781,720 and working capital of $727,491 for the year ended December 31, 2010.
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Cash Provided In Operating Activities
We used cash from operating activities in the amount of $634,526 during the nine months ended September 30, 2011 as compared to cash provided in operating activities of $907,314 in the comparative period in 2010. Cash used from operating activities resulted from the net loss from continuing operating.
Cash Used In Investing Activities
We used cash in investing activities in the amount of $46,125 during the nine months ended September 30, 2011 as opposed to $35,675 cash provided in investing activities during the nine months ended September 30, 2010.
Cash from Financing Activities
We provided cash of $168,979 in financing activities during the nine months ended September 30, 2011 and as compared to $nil in financing activities from the comparative period in 2010. Cash used in financing activities during the period increased primarily due to a loan of $275,000 to AMS Inc. to cover an insurance payment.
Withholding Taxes
Due to several factors including an error in the preparation of the quarterly 941's for the March and June 2011 quarters, it was discovered that approximately $6.6 million in 941 taxes was not submitted to the Internal Revenue Service. The Company has hired a consultant/expert to review, recommend and implement changes in the Company's policies, procedures and safeguards in order to prevent this from occurring again.
Future Cash Needs
STTNS future capital requirements will depend on numerous factors, including the control of workers compensation claims, the establishment of reasonable workers compensation premiums, and growing the business with business that employee more favorable worker compensation class types. We cannot for certain claim that our current operations along with financing from outside will be sufficient to meet our ongoing operating needs. We will need to seek outside capital in order to continue as a going concern. In addition, we cannot predict when and if any additional capital contributions may be needed and we may need to seek one or more substantial new investors. New investors could cause substantial dilution to existing stockholders
Going Concern
As shown in the accompanying financial statements, the Company has incurred a large loss from operations, and as of September 30, 2011, its total liabilities exceeded its total assets by $2,057,304. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management has hired a consultant to put controls in the cash management area and will institute more efficient management techniques in the finance department. All areas of operations will be reviewed to look for savings. However, the Company has a need for additional capital investment. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. "
