Vicapsys Life Sciences, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.1 - Vicapsys Life Sciences, Inc.	v194949_ex32-1.htm
EX-31.1 - Vicapsys Life Sciences, Inc.	v194949_ex31-1.htm
EX-32.2 - Vicapsys Life Sciences, Inc.	v194949_ex32-2.htm
EX-31.2 - Vicapsys Life Sciences, Inc.	v194949_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

T	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2010

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ____ to ____

Commission File Number 333-160700

SSGI, Inc.

(Exact name of registrant as specified in its charter)

Florida	91-1930691
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3706 DMG Drive

Lakeland, Florida 33811

(Address of principal executive offices)

Telephone Number - Area code (863) 644-0456

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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):

Large accelerated filer o	Accelerated filer o

Non-accelerated filer o	Smaller reporting company x

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

As of August 24, 2010, there were 38,107,252 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

		Page No.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Condensed Consolidated Statements of Income
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Comprehensive Income
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	24



PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 3.	Defaults Upon Senior Securities	25

Item 4.	(Removed and Reserved)	25

Item 5.	Other Information	25

Item 6.	Exhibits	25

SIGNATURES		26

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Forward-Looking and Cautionary Statements

This report contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward looking information. Some of the statements contained in this quarterly report are forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” “expect” and similar expressions are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future financial performance and results of operations.

We have based these statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such statements. While it is not possible to identify all factors, factors that could cause actual future results to differ materially include the risks and uncertainties disclosed in our 2009 Annual Report on Form 10-K contained in Part I under “Risk Factors”.

Many of these factors are beyond our ability to control or predict. Any of these factors, or a combination of these factors, could materially and adversely affect our future financial condition or results of operations and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of our future performance, and our actual results and future developments may differ materially and adversely from those projected in the forward-looking statements. We caution against putting undue reliance on forward-looking statements or projecting any future results based on such statements or on present or prior earnings levels. In addition, each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statement.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

SSGI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


ASSETS
	June 30,			December 31,
	2010			2009
CURRENT ASSETS:	(unaudited)			(audited)

Cash and cash equivalents	$	104,236		$	121,970
Restricted cash deposits		237,918			507,028
Contracts receivable, net		1,720,253			1,091,343
Costs and estimated earnings in excess of billings
on uncompleted contracts		704,060			57,411
Prepaid expenses and other current assets		38,785			89,591

TOTAL CURRENT ASSETS		2,805,252			1,867,343

PROPERTY AND EQUIPMENT, NET		546,370			347,874

GOODWILL		5,062,144			-

CASH SURRENDER VALUE OF INSURANCE AND OTHER ASSETS		785,897			15,538

TOTAL ASSETS	$	9,199,663		$	2,230,755

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable and accrued expenses	$	2,723,811		$	1,951,881
Billings in excess of costs and estimated earnings
on uncompleted contracts		747,123			251,797
Current portion of long term debt		491,984			111,891
Promissory note payable		893,160			353,691
Current portion of due to stockholders		450,000			11,395
Term note payable, related party		707,116			965,458

TOTAL CURRENT LIABILITIES:		6,013,194			3,646,113

LONG TERM LIABILITIES
Due to stockholders, net of current portion		125,000			1,185,091
Long term debt, net of current portion		1,576,249			133,540

TOTAL LIABILITIES		7,714,443			4,964,744

STOCKHOLDERS' EQUITY (DEFICIT)

Common stock - $.001 Par Value, 100,000,000 shares authorized
34,187,952 and 34,687,630 issued and outstanding, respectively		34,187			34,688
Additional paid in capital		8,464,836			3,138,628
Accumulated deficit		(6,965,436	)		(5,907,305	)
Total		1,533,587			(2,733,989	)
Non-controlling interest in subsidiary		(48,367	)		-

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)		1,485,220			(2,733,989	)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	9,199,663		$	2,230,755

The accompanying notes are an integral part of these consolidated financial statements.

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SSGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

		Three Months Ended June 30,						Six Months Ended June 30,
		2010			2009			2010			2009

CONTRACT REVENUES EARNED		$	2,925,691		$	1,023,022		$	3,664,428		$	2,696,207
COST OF REVENUES EARNED			3,159,298			1,001,732			4,092,123			2,532,851

GROSS PROFIT (LOSS)			(233,607	)		21,290			(427,695	)		163,356

GENERAL AND ADMINISTRATIVE EXPENSES
	Payroll and related costs		698,949			277,190			806,441			466,128
	Insurance		52,331			42,671			124,281			96,527
	Marketing and advertising		16,010			25,880			24,056			70,411
	Office and technology expenses		116,853			61,738			176,215			97,325
	Professional fees		194,415			61,989			301,503			114,571
	Travel and entertainment		16,852			7,039			23,380			9,388
	Other operating expenses		46,152			31,575			115,218			84,974
	TOTAL GENERAL AND ADMINISTRATIVE EXPENSES		1,141,562			508,082			1,571,094			939,324

LOSS FROM OPERATIONS			(1,375,169	)		(486,792	)		(1,998,789	)		(775,968	)

OTHER INCOME (EXPENSES):
	Interest income		-			-			15			45
	Other income		1,009,855			2,063			1,009,855			2,629
	Financing costs		-			-			-			(181,201	)
	Interest expense		(30,482	)		(45,663	)		(68,927	)		(73,983	)
	Loss on asset disposition		-			-			(285	)		(2,305	)
	TOTAL OTHER INCOME (EXPENSES):		979,373			(43,600	)		940,658			(254,815	)

NET LOSS BEFORE TAXES			(395,796	)		(530,392	)		(1,058,131	)		(1,030,783	)

PROVISION FOR TAXES			-			-			-			-

LOSS BEFORE NON-CONTROLLING INTEREST IN
	NET LOSS OF SUBSIDIARY		(395,796	)		(530,392	)		(1,058,131	)		(1,030,783	)

NON-CONTROLLING INTEREST IN NET LOSS
	OF SUBSIDIARY		48,367			-			48,367			-

NET LOSS		$	(347,429	)	$	(530,392	)	$	(1,009,764	)	$	(1,030,783	)

Earnings per share:
Basic and Diluted								$	(2,133.329	)	$	(2,015.216	)

Weighted Average Outstanding Shares:
Basic and Diluted									496			512

Net loss per share:
Basic and Diluted		$	(0.010	)	$	(0.015	)	$	(0.029	)	$	(0.030	)

Weighted Average Outstanding Shares:
Basic and Diluted			34,144,861			34,679,140			34,476,757			34,679,669

The accompanying notes are an integral part of these consolidated financial statements.

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SSGI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Six Months Ended June 30,
	2010			2009

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,009,764	)	$	(1,030,783	)
Non-controlling interest in net loss of subsidiaries		(48,367	)		-
Loss before non-controlling interest in net loss of subsidiaries					(1,030,783	)
Adjustments to reconcile net loss to net cash and cash
equivalents used in operating activities:
Depreciation and amortization		70,352			62,330
Gain on asset disposition		285			-
Provision for bad debts		11,586			-
Warrants issued for compensation		89,731			166,086
Warrants issued as financing costs		-			181,201
Estimated losses on contracts		-			(59,354	)
Loan forgiveness from stockholder loans		(866,055	)		-
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Contracts receivable		796,585			(166,106	)
Costs and estimated earnings in excess of billings
on uncompleted contracts		(13,698	)		(52,128	)
Prepaid expenses and other current assets		178,739			44,508
Cash surrender value of insurance and other assets		12,607			812
Increase (decrease) in liabilities:
Accounts payable and accrued expenses		(334,645	)		(152,929	)
Billings in excess of costs and estimated earnings
on uncompleted contracts		309,889			83,371
Net cash used in operating activities		(802,755	)		(922,992	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment		6,200			34,924
Release (deposits of) restricted cash		269,110			(367,036	)
Purchase of subsidiary		(550,000	)		-
Purchase of equipment		(10,114	)		(20,354	)
Net cash used in investing activities		(284,804	)		(352,466	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term note payable, related party and promissory note					925,000
Issuance of common stock		851,000			-
Payments for term note payable, related party and promissory note					(322,825	)
Advances from stockholders		-			696,007
Net cash provided by financing activities		1,069,825			1,298,182

CHANGE IN CASH AND CASH EQUIVALENTS		(17,734	)		22,724

Cash and cash equivalents at beginning of the period		121,970			64,988

Cash and cash equivalents at end of period	$	104,236		$	87,712

SUPPLEMENTAL CASH FLOW INFORMATION

Interest paid during the period	$	68,927		$	73,983

CHANGES IN NON-CASH FINANCING ACTIVITIES:
Common stock issued for acquisition of subsidiary	$	3,974,773		$	-
Promissory note issued for acquisition of subsidiary	$	1,173,473		$	-
Warrants issued for acquisition of subsidiary	$	171,592		$	-
Note payable issued for acquisition of subsidiary	$	700,000		$	-
Warrants issued for loan forgiveness	$	244,898		$	-

The accompanying notes are an integral part of these consolidated financial statements.

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SSGI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2010

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. 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.

On May 13, 2010, the Company acquired all of the outstanding common shares of B&M Construction Co., Inc. (“B&M”), a Florida construction company licensed to operate in the Southeastern United States. This newly acquired subsidiary specializes in the design, construction and maintenance of retail petroleum facilities.

The Company specializes in the design and construction of industrial and commercial buildings in the petroleum industry; and in the maintenance of retail petroleum facilities in Florida and Georgia. The Company's work is performed under various fee arrangements including cost plus fee contracts, fixed price contracts, fixed price contracts with incentive and penalty provisions, and straight hourly fee contracts. These contracts are undertaken by the Company alone or in conjunction with other contracts. The length of the Company's contracts typically range from three months or less to one year.

Interim Financial Statements

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, 2009 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 June 30, 2010, 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

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SSGI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2010

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Company’s Ability to Continue as a Going Concern (continued)

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.

Principles of Consolidation

These consolidated financial statements includes the accounts of the Company’s wholly owned subsidiary and its 70% majority-owned subsidiary. All significant inter-company transactions have been eliminated.

Non-controlling interest in subsidiaries

FASB ASC 810-10-65, Consolidations, requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. The non-controlling interest represents the minority interests not held by the Company. The Company has recorded a non-controlling interest in its Consolidated Financial Statements to reflect the minority interests.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant management estimate relates to the determination of percentage of completion in connection with the recognition of profit on contracts.

Revenue and Cost Recognition

Revenues from fixed price or modified fixed price construction contracts are recognized on the percentage of completion method, measured by the costs incurred to date relative to estimated total costs for each contract. Where appropriate, certain contracts are segmented into major activities due to the particular scope of work and services to be performed. These methods are used because management considers costs incurred and possible segmentation of specific contracts to be the best available measure of progress. The length of the Company’s contracts varies, but is typically less than one year.

Contract costs include all direct material and labor costs, and those indirect costs related to contract performance such as insurance, employee benefits, supplies, small tools, repairs, and indirect labor. Selling, general and administrative costs are charged to expense as incurred. Provisions for estimated

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SSGI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2010

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue and Cost Recognition (continued)

losses on uncompleted contracts, if applicable, are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those

arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents include money market accounts and investments in a repurchase agreement backed by government securities.

Concentration of Credit Risk

The Company is subject to some credit risk through short term cash investments which are placed with high credit quality financial institutions. The Company has entered into an overnight repurchase and cash management agreement with a financial institution to invest idle funds in US government securities. The Company maintains its cash accounts in several commercial banks located in Central Florida. The Federal Deposit Insurance Corporation (FDIC) guarantees accounts in the financial institution up to $250,000. At various times throughout the period, the Company had cash balances that exceeded the FDIC limit.

The Company provides construction services, parts sales and servicing and extends trade credit to the petroleum distribution industry. The customers are primarily to major oil companies and large

independent distributors in Florida and Georgia. The Company grants credit to its customers during the normal course of business. The Company performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral. Management believes that its contract acceptance, billing and collections policies are adequate to minimize potential risk. The Company does not believe that any single customer, industry, or concentration in any geographic area represents significant credit risk.

Contracts Receivable

Contracts receivable are customer obligations due under contractual terms. The Company sells its services to residential, commercial, government 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.

Net Loss Per Share

The Company follows ASC 260-10, “Earnings Per Share” in calculating the basic and diluted loss per share. The Company computes basic loss per share by dividing net loss and net loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted loss per share considers the effect of common share equivalent shares. There were no common share equivalents at June 30, 2010 and 2009.

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SSGI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2010

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Treasury Stock

The Company accounts for treasury stock at par value. Under this method, the treasury stock account is increased by the par value of each share of common stock reacquired. Any excess paid per share over the par value is debited to additional paid-in capital for the amount per share that was originally credited. Any remaining excess is charges to retained earnings.

Income Taxes

Income taxes are accounted for under the asset and liability method as stipulated by Accounting Standards Codification (“ASC”) 740 formerly 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 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

In January 1, 2009, the Company adopted certain provisions under ASC Topic 740, Income Taxes, (“ASC 740”), which provide interpretative guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Effective with the Company’s adoption of these provisions, interest related to the unrecognized tax benefits is recognized in the financial statements as a component of income taxes. The adoption of ASC 740 did not have an impact on the Company’s financial position and results of operations.

In the unlikely event that an uncertain tax position exists in which the Company could incur income taxes, the Company would evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination by the taxing authorities. Reserves for uncertain tax positions would then be recorded if the Company determined it is probable that a position would not be sustained upon examination or if a payment would have to be made to a taxing authority and the amount is reasonably estimable. As of June 30, 2010, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authorities. The Company’s tax returns are subject to examination by the federal and state tax authorities for the years ended 2007 through 2009.

Property and Equipment

Property and equipment are recorded at cost and depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, usually from three to forty years. Routine repairs and maintenance are expensed as incurred. Accelerated depreciation is used for tax reporting and straight-line depreciation is used for financial statement reporting.

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SSGI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2010

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Long-lived Assets

The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. If the undiscounted future cash flows attributable to the related assets are less than the carrying amount, the carrying amounts are reduced to fair value and an impairment loss is recognized in accordance with FASB ASC 360-10-05, Accounting for the Impairment or Disposal of Long-Lived Assets.

Marketing and Advertising Costs

Marketing and advertising costs are expensed as incurred. Marketing and advertising costs for the three months ended June 30, 2010 and 2009 were $24,056 and $70,411, respectively.

Fair Value Measurements

In January 1, 2009, the Company adopted FASB ASC 820 “Fair Value Measurements”, (“FASB ASC 820”) for its non-financial assets and liabilities and for its financial assets and liabilities measured at fair value on a nonrecurring basis. This Standard provides a framework for measuring fair value in generally accepted accounting principles, expands disclosures about fair value measurements, and establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The adoption of FASB ASC 820 for the Company’s non-financial assets and liabilities did not have a material impact on the Company’s consolidated financial statements.

Financial Instruments

Financial instruments consist of cash and cash equivalents, contracts receivable, accounts payable and accrued expenses, promissory note payable, due to stockholders, and long-term debt. The carrying values of cash and cash equivalents, contracts receivable, and accounts payable and accrued expenses, approximate their fair values due to their relatively short lives to maturity. The fair value of long-term debt also approximates 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.

Common Stock Purchase Warrants

The Company accounts for common stock purchase warrants at fair value in accordance with ASC 815-40 Derivatives and Hedging, formerly Emerging Issues Task Force Issue (“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

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SSGI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2010

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Common Stock Purchase Warrants (continued)

that the Company make assumptions regarding stock volatility, dividend yields, expected term of the warrants and risk-free interest rates.

The Company accounts 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 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 February 2010, the FASB issued ASU No. 2010-09, Amendments to Certain Recognition and Disclosure Requirements and which amends Subtopic ASC 855-10 Subsequent Events, removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. The FASB also clarified that if the financial statements have been revised, then an entity that is not an SEC filer should disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. The FASB believes these amendments remove potential conflicts with the SEC’s literature. The adoption of this amendment did not have a material impact on the Company’s financial statements.

NOTE 2 – 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 fee to guarantee performance on 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.

Upon successful completion of the contract, cash deposits are released by the bonding agency. Such proceeds are used to pay 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 June 30, 2010, the Company had $237,918 on deposit.

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SSGI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2010

NOTE 3 – CONTRACTS RECEIVABLE

Contracts receivable are as follows

	June 30, 2010			December 31, 2009
Contract billings	$	1,813,478		$	1,272,788
Allowance for doubtful accounts		(93,225	)		(181,445	)
Total	$	1,720,253		$	1,091,343

Management used the allowance method of recording bad debts and has reviewed all outstanding accounts for collectability. Credit losses have been minimal and have consistently been within management’s expectation. No additional allowance was considered necessary at June 30, 2010 and December 31, 2009, respectively.

NOTE 4 – COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Costs and estimated earnings on uncompleted contracts consist of the following at:

	June 30, 2010			December 31, 2009
Costs incurred on uncompleted contracts	$	4,846,097		$	1,072,453
Estimated earnings		490,320			269,282
		5,336,417			1,341,735
Less billings to date		5,379,480			1,536,121
Total	$	(43,063	)	$	(194,386	)

These amounts are included in the Company’s consolidated balance sheet under the following captions:

	June 30, 2010			December 31, 2009
Costs and estimated earnings in excess of
billings on uncompleted contracts	$	704,060		$	57,411

Billings in excess of costs and estimated
earnings on uncompleted contracts		(747,123	)		(251,797	)
Total	$	(43,063	)	$	(194,386	)

NOTE 5– ACQUISITION AND GOODWILL

On May 13, 2010, the Company completed the acquisition of B&M.

The following information summarizes the allocation of fair value assigned to the assets and liabilities at the acquisition date:

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SSGI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2010

NOTE 5– ACQUISITION AND GOODWILL (continued)


Current Assets	$	2,221,217
Property and Equipment		265,209
Other Assets		785,798
Goodwill		5,062,144
Liabilities Assumed		(2,314,540	)
	$	6,019,838

Consideration paid was comprised of the following:

Warrants	$	171,592
Stock		3,674,773
Cash		1,000,000
Note Payable		1,173,473
	$	6,019,838

The fair value of the assets and liabilities acquired have been determined on a provisional basis and will be completed by August 31, 2010.

In contemplation of the acquisition, the Company and the former Chairman of the Board, President and Chief Executive Officer entered into a Modification Agreement that required the former officer to surrender to the Company all shares of common stock held with the exception of 4,000,000 shares. The former officer also forgave the Company for all except for $125,000 of remaining principal and accrued interest of previous loans made by the former officer to the Company. The $125,000 not forgiven is evidenced by a promissory note bearing interest at 5% and payable in full on December 31, 2011. The Modification Agreement also requires the former officer to provide certain transitional consulting services to the Company, on a limited basis, for 12 months in exchange for a consulting fee of $9,333 per month as well as the issuance of 500,000 warrants to purchase the Company’s common stock at $0.60 per share exercisable for five years.

In addition, a former officer and director and current employee to the Company was issued 500,000 warrants to purchase the Company’s common stock at $0.60 per share exercisable for five years. The Company also agreed, as part of the Modification Agreement, to use its best efforts to repay outstanding credit card indebtedness incurred by the Company and personally guaranteed by the former officer and director. The former officer also forgave the Company for all remaining principal and accrued interest of previous loans made by the employee to the Company.

Total debt forgiveness was $866,055 and has been included as other income in the consolidated statements of operations for the period ended June 30, 2010. The remaining $143,800 of other income resulted from adjustments to outstanding liabilities held by the Company.

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SSGI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2010

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, the Company converted the line of credit to a promissory note payable which required monthly principal and interest payments of $35,000 commencing January 2009. The interest rate for the promissory note was 1.5% above the published prime rate. On June 3, 2009, the promissory note was extended until December 2009. On February 26, 2010, the promissory note was extended for an additional year at the same monthly payment with the interest rate fixed at 7% with the first monthly payment due in April 2010.

At June 30, 2010, a financial institution converted an additional line of credit to a promissory note payable due to the bank withdrawing B&M’s line of credit. There is no set principal payment required at the current time, interest only. It is the intent of management to place the balance with another financial institution. The balances on the promissory notes at June 30, 2010 and December 31, 2009 were $893,160 and $353,691, respectively. The Company paid $39,580 and $63,677 in interest for the six months ended June 30, 2010 and 2009, 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% per annum with $425,000 in principal due on October 27, 2009 and $500,000 on April 27, 2010. The Company has not made all payments as required by the terms of note. In April, the Nevada limited partnership extended the term note to April 2011. A director of the company and a stockholder are limited partners in the Nevada limited partnership. The Company 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.

For the six months ended June 30, 2010, the Company has not paid interest on the term loan. At June 30, 2010 and 2009, the balance due on the term note is $707,116 and $965,458, respectively.

NOTE 8 – LONG TERM DEBT

A summary of long-term debt as of June 30, 2010 and December 31, 2009 is as follows:

	June 30, 2010		December 31, 2009

5.00% note payable to a former stockholder, $9,317 principal and interest payments monthly, through June 2015	$	491,748	$	-

5.00% note payable to a former stockholder, $2,097 principal and interest payments monthly, through June 2015		111,125		-

3.25% note payable to a former stockholder,
$2,357 principal and interest payments monthly,
through January 2016.		144,600		-

4.00% note payable to a former stockholder, $26,496 principal and interest payable monthly, through May 2014.		1,150,889		-

7.99% note payable to Chrysler Financial collateralized by vehicle and guaranteed by founding stockholders. Due in monthly installments of $293 including interest through May 2012.		6,240		15,435

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.		38,931		47,002

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.		86,509		113,170

7.50% note payable to Wells Fargo collateralized by a vehicle and equipment. Due in monthly installments of $967 including interest through 2012.		22,320		28,759

5.40% note payable to Premium Financing Specialists. Due in monthly installments of $11,952 including interest through 2010 paid in June.		-		23,743

7.65% note payable to SunTrust Bank collateralized by a vehicle. Due in monthly installments of $349 including interest through 2014.		15,871		17,322

		2,068,233		245,431
Less current portion		491,984		111,891
Total	$	1,576,249	$	133,540

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SSGI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2010

NOTE 8 – LONG TERM DEBT (continued)

Interest paid on long term debt for the six month periods ended June 30, 2010 and 2009 was $29,337 and $10,306, respectively.

Maturities of long-term debt for the years subsequent to June 30, 2010 are as follows:


2011	$	491,984
2012		494,199
2013		457,274
2014		446,134
2015 and thereafter		178,642
	$	2,068,233

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.

During the six months ended June 30, 2010, the Company issued 45,000 warrants in payment for legal fees, 500,000 warrants to the former Chairman of the Board, President and Chief Executive Officer, 500,000 warrants to a founding shareholder, former director, and current employee and 250,000 warrants to employee shareholders of the acquired company which resulted in a total of 4,820,053 warrants outstanding at that date. The Company used the Black Scholes option pricing method to value the warrants.

A summary of the change in common stock purchase warrants for the six months ended June 30, 2010 is as follows:

					Weighted Average
	Number of				Remaining
	Warrants		Weighted Average		Contractual Life
	Outstanding		Exercise Price		(Years)
Balance, December 31, 2009		3,525,053	$	0.60		4.47
Warrants Issued		1,295,000	$	0.63		4.88
Balance, June 30, 2010		4,820,053	$	0.61		4.39

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SSGI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2010

NOTE 9 – COMMON STOCK PURCHASE WARRANTS (continued)

The balance of outstanding and exercisable common stock warrants as at June 30, 2010 is as follows:

Number of		Remaining
Warrants		Contractual Life
Outstanding		Exercise Price		(Years)

	4,820,053	$	0.61		1.0 – 9.0

The fair value of stock purchase warrants granted using the Black-Scholes option pricing model was calculated using the following assumptions:

	June 30,			December31,
	2010			2009
Risk free interest rate		1.12% - 1.63	%		.5% - 1.8	%
Expected volatility		231% - 297	%		20% - 86	%
Expected term of stock warrant in years		2.5 - 3.5			1.5 – 5.0
Expected dividend yield		0	%		0	%
Average value per option		.02 - .69			.13 - .73

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 newly codified as ASC 718, formerly Staff Accounting Bulletin (“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 – INCOME TAXES

A reconciliation of the differences between the effective income tax rate and the statutory federal tax rate for June 30, 2010 and 2009 are as follows:

	2010			2009
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 June 30, 2010 and December 31, 2009 consisted of the following:

	June 30,			December 31,
Deferred Tax Assets	2010			2009

Net Operating Loss Carryforward	$	2,365,000		$	1,958,000
Other		88,000			173,000
Total Deferred Tax Assets		2,453,000			2,131,000
Deferred Tax Liabilities		( 313,000	)		(278,000	)
Net Deferred Tax Assets		2,140,000			1,853,000
Valuation Allowance		(2,140,000	)		(1,853,000	)
Total Net Deferred Tax Assets	$	-		$	-

- 17 -

SSGI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2010

NOTE 10 – INCOME TAXES (continued)

As of June 30, 2010, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $11,000,000 that may be offset against future taxable income through 2029. 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.

NOTE 11 – 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.

The Company has amounts due to the founding stockholders totaling $125,000 and $1,196,486 as of June 30, 2010 and December 31, 2009, respectively. The founding stockholders forgave the Company for all except for $125,000 of remaining principal and accrued interest of previous loans as of April 20. The $125,000 not forgiven is evidenced by a promissory note bearing interest at 5% and payable in full on December 31, 2011.

The Company also has amounts due to the majority stockholder of B&M of $450,000 as of June 30, 2010.

In addition, the Company purchased insurance through the spouse of a stockholder and consultant via an arm’s length transaction.

The Company leases office facilities from three entities related to Company stockholders. The lease payments for the facilities were $130,353 for the six month period ended June 30, 2010. The leases provide for minimum annual rental payments plus sales tax.

NOTE 12– 401(k) RETIREMENT PLAN

The acquired Company sponsors a 401(k) plan for eligible employees. The Company’s contributions to the Plan are determined annually by the Board of Directors. The allocation of the Company’s contribution to the Plan among eligible employees was based upon formulas stated within the Plan. The contribution for the six month period ended June 30, 2010 was $10,874. The Company matches up to 3% of compensation that a participant contributes to the Plan.

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SSGI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

June 30, 2010

NOTE 13 – LEGAL MATTERS

The Company is a party in legal proceedings in the ordinary course of business. At June 30, 2010, there were no legal proceedings against the Company. The Company has filed a lawsuit against several customers for non-payment of contract revenues and has been awarded summary judgments in various cases. While the outcome of continuing collection efforts is unknown, it is the opinion of management that the Company will be successful in collecting a majority of court ordered awards.

NOTE 14 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date the financial statements were available for issuance. There were no other reportable subsequent events.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The purpose of management’s discussion and analysis (“MD&A”) is to increase the understanding of the reasons for material changes in our financial condition since the most recent fiscal year-end and results of operations during the current fiscal period as compared to the corresponding period of the preceding fiscal year. The MD&A should be read in conjunction with the condensed consolidated financial statements and accompanying notes and our 2009 Annual Report on Form 10-K.

Business Environment and Results of Operations

Overview

SSGI, Inc. (the “Company”, “we”) was incorporated under the laws of the State of Florida as Phage Therapeutics International, Inc. on December 26, 1996. In February 2008, through a share exchange, the company acquired Surge Solutions Group, Inc.. As a consequence of the latter exchange, which qualified as a reverse merger, we became the accounting acquirer and the reporting entity prospectively.

On July 7, 2009, we filed a Form S-1 with the Securities and Exchange Commission to register a portion of our common stock and to become a fully reporting Company in accordance with the Securities and Exchange Act of 1934. On December 9, 2009, the Company’s registration statement was declared effective.

We specialize in petroleum contracting and general construction in Florida including new commercial construction. We perform under cost-plus-fee contracts, fixed-price contracts, and fixed-price contracts modified by incentive and penalty provisions. The lengths of our contracts typically range from three months or less to one year.

We are a multi disciplined solutions company specializing in two specific markets of general construction including petroleum contracting and commercial construction.

Resignation of Chairman of the Board, President and Chief Executive Officer.

On April 10, 2010, the Chairman of the Board, President and Chief Executive Officer resigned these positions and remained as director of the Company. In connection with the resignation, the Company and the former Chairman of the Board, President and Chief Executive Officer entered into a Modification Agreement that required the former officer to surrender to the Company all shares of common stock held with the exception of 4,000,000 shares. The former officer also forgave the Company for all except for $125,000 of remaining principal and accrued interest of previous loans made by the former officer to the Company. The $125,000 not forgiven is evidenced by a promissory note bearing interest at 5% and payable in full on December 31, 2011. The Modification Agreement also requires the former officer to provide certain transitional consulting services to the Company, on a limited basis, for 12 months in exchange for a consulting fee of $9,333 per month as well as the issuance of 500,000 warrants to purchase the Company’s common stock at $0.60 per share exercisable for five years. The Company also agreed, as part of the Modification Agreement, to use its best efforts to repay outstanding credit card indebtedness incurred by the Company and personally guaranteed by the former officer and director.

Recent Acquisition of B&M Construction Co., Inc.

On May 13, 2010, we acquired all of the outstanding shares of capital stock of B&M Construction Co., Inc., a Florida corporation (“B&M”), from Bobby L. Moore, Jr. (the “Majority B&M Shareholder”), Phillip A. Lee, William H. Denmark and Evan D. Finch (Messrs. Lee, Denmark and Finch are collectively referred to as the “Minority B&M Shareholders”). B&M is a construction company operating in the Southeastern United States that specializes in the design, construction and maintenance of retail petroleum facilities. The consideration paid by the Company to the Majority B&M Shareholder consisted of (a) $1,000,000 in cash, payable $300,000 at closing, $250,000 within 30 days of the closing date, $250,000 within 60 days of the closing date, and $200,000 within 90 days of the closing date, plus (b) $1,173,473 represented by a Promissory Note bearing interest at 4% per annum and payable in forty-eight (48) equal monthly installments, commencing on the 30th day following the closing date, plus (c) 4,124,622 shares of the Company’s common stock. The consideration paid by the Company to the Minority B&M Shareholders consisted of (in the aggregate) (a) 2,000,000 shares of the Company’s common stock, and (b) warrants to purchase 250,000 shares of the Company’s common stock exercisable for five years at an exercise price of $0.75 per share. In addition, at the closing of the acquisition, the Minority B&M Shareholders became employees of SSGI, Inc.

- 20 -

Six months ended June 30, 2010 as compared to six months ended June 30, 2009

Revenue

The Company’s revenue of $3.66 million for the six months ended June 30, 2010 increased $0.97 million or 35.9%, compared to $2.70 million for the six months ended June 30, 2009. This increase was in revenues was primarily due to our acquisition of B&M Construction Co., Inc., and the backlog between the two companies. Significant time was spent during the six months ended June 30, 2010 finalizing the acquisition and seeking additional capital. (See “Recent Financings” )

Gross Profit (Loss)

For the six months ended June 30, 2010, we had a gross loss as a percentage of contract revenues of 11.67% or $0.43 million on revenues of $3.66 million as compared to a $.16 million gross profit on sales of $2.70 million for the same period in 2009. Our gross loss increased $0.59 million from a gross profit of $0.16 million for the six months end June 30, 2010 and 2009, respectively. Our cost of revenues increased approximately 61.6% from $2.53 million for the six months ended June 30, 2009 to $4.09 million for the six months ended June 30, 2010. This decrease was due primarily to our inability to fund cash needed to commence construction on new contracts as well as the unfavorable pricing model required to obtain contracted work.

General and Administrative

General and administrative expenses increased from $0.94 million to $1.52 million for the periods ended June 30, 2009 and 2010, respectively. Payroll and related costs increased 73% from $0.47 million for the six months ended June 30, 2009 to $0.81 million for the six months ended June 30, 2010, professional fees increased 163% from $0.11 to $0.30 million for the same periods. The increase in payroll and related costs was due primarily to the acquisition of B&M Construction Co., Inc., and combination of two operating companies. The increase in professional fees was due mainly to our litigation costs incurred in collecting several delinquent contracts, legal fees associated with regulatory filings and acquisition expenses. Insurance costs increased 28.8% from 2009 to 2010 for second quarter of each period. This increase was due primarily to the Company purchasing its own insurance coverage on rental equipment that was previously purchased each time equipment was rented through the equipment rental companies. Due to rising costs of employee health insurance, our insurance expense was also affected adversely between the periods. Office and technology expense increased 81.0%, from $0.10 million to $0.18 million due to the closing of one office and obtaining thee offices in the acquisition. Overall, the consolidated general and administrative expenses increased 150.6% from the periods ended June 30.

Other Income and Expenses

Total interest expense decreased minimally for the six months ended June 30, 2009 and June 30, 2010. We paid interest to a financial institution on its promissory note during the six months ended June 30, 2010 and 2009 of approximately $0.018 million and $0.012 million, respectively.

Interest expenses associated with amortizing loans for the purchase of vehicles decreased approximately 50% between the two years due to reduction in the principal.

Other income increased $1.01 million over the six month period for 2009. This is due to the resignation of the former Chairman of the Board, President and Chief Executive Officer. In connection with the resignation, the Company and the former Chairman of the Board, President and Chief Executive Officer entered into a Modification Agreement that required the former officer to forgive the Company for all except for $125,000 of remaining principal and accrued interest of previous loans made by the former officer to the Company.

- 21 -

Net Loss

We incurred net losses of $1.01 million and $1.03 million for the periods ended June 30, 2010 and 2009, respectively. Our net losses decreased approximately 2.0% or $0.02 million between the two years.

During the six months ended June 30, 2010, we experienced a gross loss from our construction business. We were unable to commence or complete construction on some of our contracts, pre-acquisition. Also contributing to the net loss was the 163% increase in professional fees between the two periods. These professional fees were incurred as a result of our litigation on delinquent accounts, fees incurred for its regulatory filings and acquisition related costs

We experienced losses on several of our contracts. Approximately $0.05 million of costs of revenues earned were incurred on contracts that were completed in previous periods. Our policy is to allocate overhead associated with our program managers, a portion of our senior management and warehouse salaries as well as indirect vehicle costs to contracts in progress. For the six months ended June 30, 2010, we allocated indirect overhead of approximately $0.084 million directly to cost of revenues earned.

Liquidity and Capital Resources

As of June 30, 2010, we had total current assets of approximately $2.81 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 $1.87 million at December 31, 2009. Contracts receivable increased 58% from $1.09 million as of December 31, 2009 to $1.72 million at June 30, 2010. Costs and estimated earnings in excess of billings on uncompleted contracts increased 1,127% from $0.057 million to $0.704 million as of December 31, 2009 and June 30, 2010, respectively. These increases are a result of our acquisition of B&M Construction Co., Inc. and the addition of capital resources that allowed us to commence construction on several of our contracts. The Company also used, as required by terms of its term note payable to related party, approximately $0.27 million of its restricted cash deposits to reduce principal and interest on its term note payable to a related party. Prepaid expenses decreased $0.05 million, or 57% from $0.09 million as of December 31, 2009 to $0.04 as of June 30, 2010. This decrease is due primarily to reduction in prepaid insurance. The insurance expense was associated with our auto, general liability and directors and officers liability insurance policies. At June 30, 2010, property and equipment, net, increased approximately 57% due to the acquisition of B&M Construction Co., Inc’s fixed assets compared to the same period in 2009. In connection with the acquisition, other assets increased to $4.79 in 2010 from $0.02 million for the same period in 2009. The primary increases are a company owned whole-life policy with a cash surrender value of $0.79 million and $4.00 million recognized as Goodwill.

The Company’s current liabilities are comprised of accounts payable and accrued expenses, current portions of notes payable to stockholders, term note payable to a related party, promissory note payable and billings in excess of costs and estimated earnings on uncompleted contracts. At June 30, 2010, current liabilities were $6.01 million as compared to $3.65 million at December 31, 2009. Accounts payable and accrued liabilities increased $0.77 million, or 40%, due primarily to an inability to make timely payments to suppliers and vendors. Billings in excess of costs and earnings increased from $0.25 million to $0.75 million for the periods ended June 30, 2009 and June 30 2010, respectively. This was due to the practice of billing customers before any significant progress or costs had been incurred on projects, essentially customer financing. Current portion of notes payable increased 340% associated with prior retired shareholders of the acquired company. A 27% reduction in the term note payable to a related party was a result of cash released from a third party bonding agent and paid to the holder of the term note payable related party. For the six months ended June 30, 2010, we completed two bonded contracts which resulted in $0.27 million being released from restricted cash deposits, reported in the current asset section of our balance sheet, the proceeds of which were paid directly from a third party bonding agent to the holder of the term note payable to a related party. At December 31, 2009, we failed to make additional payments required under the terms of the term note and were in default. In April of 2010, the holder of the term note payable related party agreed to extend the maturity date to April 2011.

- 22 -

We are indebted to a financial institution for promissory notes with principal balances of $0.89 million at June 30, 2010 and $0.35 million at December 31, 2009. In February of 2010, the Company was successful in extending the principal balance to December 2010. Principal payments were made in the amount of $0.10 million during the six months ended June 30, 2010.

Other liabilities consist of the long term portion of debt due to Ryan Seddon, our former Chairman of the Board, Chief Executive Officer and President, notes payable to financial institutions for our transportation equipment, purchase consideration to the majority B&M Shareholder and notes payable to former shareholders of B&M Construction. Other liabilities increased approximately $0.39 million or 30% over the balance $1.32 million at December 31, 2009. This increase was due primarily to the purchase consideration to the majority B&M Construction shareholder in the amount of $1.17 million. Ryan Seddon, the former Chairman of the Board, Chief Executive Officer and President, and Ricardo Sabha, a former officer and director and current employee to the Company forgave $1.07 million in loans. Former B&M Construction shareholders accounted for $0.75 million. Notes payable to several financial institutions for the purchases of our transportation equipment decreased $0.04 million to $0.17 million between these two periods due to amortization of the principal balance as a result of monthly installment payments.

We have insufficient working capital to fund ongoing operations and are expecting this trend to continue. We have had to use most of our cash resources from operations to pay acquisition related expenses as well as general and administrative expenses. At June 30, 2010, the current liabilities exceed current assets by $3.2 million. Included in the current assets is $0.24 million of restricted cash deposits that are used to satisfy term notes payable to related parties and will not be available to be utilized by the Company to fund operations in the future.

At June 30, 2010, the contracts receivable was $1.72 million or 63% of the accounts payable and accrued expenses balance of $2.72 million in contrast to the contracts receivable balance of $1.09 million or 56% of the accounts payable and accrued expenses balance of $1.95 million at December 31, 2009. Typically, we use collections from contracts receivable to reduce accounts payable and accrued expenses that are directly related to the contracts resulting in the posting of new contracts receivable. The company was not able commence construction on new contracts and thus increase billings during the period ended June 30, 2010. The Company needed collections from its contracts receivable to fund general and administrative expenses. Without the Company raising additional capital, it will be unable to reduce the accounts payable and accrued expenses balance and it will continue to experience liquidity problems. The inability to pay these accrued costs of revenues earned has caused our vendors to cease extending credit to us and has continued to challenge our efforts to commence construction on new contracts.

Without significant capital infusions to satisfy our cash flow shortage, we will not be able to continue operations in an efficient manner. We have focused on this situation for an extended period of time and have not yet been successful in acquiring the needed capital. We are considering all options as it relates to our current cash flow needs.

The following is a summary of the Company’s cash flows provided by (used in) operating, investing and financing activities for the years ended June 30, 2010 and 2009 (in 000’s):

	For the six months ended June 30,
	2010			2009

Net cash used in operating activities	$	( 802	)	$	( 923	)
Net cash used in investing activities		( 284	)		( 352	)
Net cash provided by financing activities		1,069			1,298
Net increase (decrease) in cash	$	( 17	)	$	23

- 23 -

Net cash used in operations for the six months ended June 30, 2010 was $0.82 million while for the six months ended June 30, 2009 net cash used by operations was $0.92 million. For the six months ended June 30, 2010, net cash used in operations was a result of an increase in contracts receivable and costs in excess of billings offset slightly by a decrease in account payable and accrued expenses. For the same six month period in 2009 cash used in operations was a result of a decrease in contracts receivable and the change in estimated losses on contracts recognized. Net cash used in investing activities for the six months ended June 30, 2010 was primarily the return of restricted cash deposits while for the same period in 2009 we used $0.02 million to purchase equipment. For the six months ended June 30, 2010 issuance of common stock was offset by the acquisition of B&M Construction Co., Inc. Additional borrowings from a financial institution provided $0.64 million. On April 20, 2010, Mr. Seddon forgave all but $125,000 of his loans to the Company while Mr. Sabha forgave all of his loans to the Company.

Recent Financings

On May 13, 2010, we acquired all of the outstanding shares of capital stock of B&M Construction Co., Inc., a Florida corporation, from Bobby L. Moore, Jr., Phillip A. Lee, William H. Denmark and Evan D. Finch. B&M is a construction company operating in the Southeastern United States that specializes in the design, construction and maintenance of retail petroleum facilities. The consideration paid by the Company to the Mr. Moore consisted of $0.30 million paid at closing and issuance of a promissory note for $0.70 million. The terms of the promissory note require a $0.25 million payment within 30 days of the closing date, $0.25 million within 60 days of the closing date, and $0.20 million within 90 days of the closing date. In addition we executed an additional promissory note in the amount of approximately $1.17 million bearing interest at 4% per annum and requiring 48 equal monthly installments commencing on the 30th day following the closing date. We also issued Mr. Moore 4,124,622 shares of the Company’s common stock. Mr. Lee, Mr. Denmark and Mr. Finch were issued 2,000,000 shares of the our common stock and .25 million warrants to purchase our common stock at $0.75 exercisable for five years in payment for their shares in B & M Construction Co, Inc.

Also on May 13, 2010, we commenced a private offering to accredited investors of up to 15 million shares of the Company’s common stock at $0.10 per share. On that date, we accepted subscriptions for 2.9 million shares of common stock from 12 accredited investors for $0.29 million in cash. On May 25, 2010, we accepted $0.18 million in cash for 1.8 million shares from 5 accredited investors. From May 27 to June 30, 2010, we accepted subscriptions for 3.81 million shares of common stock from 15 accredited investors for $0.381 million in cash. There were no warrants attached to these shares.

Critical Accounting Estimates

The Company uses estimates and assumptions in preparing its 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 are 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined in Regulation S-K, and are not required to provide the information under this item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that, as of June 30, 2010, these disclosure controls and procedures were ineffective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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There have been no material changes in internal control over financial reporting that occurred during the first fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations Over Internal Controls

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Item 4T. Controls and Procedures.

Not applicable.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

There are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

Item 1A. Risk Factors.

There are no material changes from the risk factors previously disclosed in Part I, Item 1A in our Annual Report on Form 10-K for 2009, which is incorporated herein by reference, for the three months ended June 30, 2010.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Between May 13, 2010, and June 28, 2010, we sold for cash to accredited investors, in a series of related transactions, 8,510,000 of our shares of common stock in an offering not registered under the Securities Act. The aggregate offering price for these shares was $851,000, or $0.10 per share. These shares of common stock were issued without registration under the Securities Act in reliance on Section 4(2) of the Securities Act and the rules and regulations promulgated thereunder.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. (Removed and Reserved).

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

31.1		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.

32.1		Section 1350 Certification of Principal Executive Officer.

32.2		Section 1350 Certification of Principal Financial Officer.

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SSGI, Inc.

August 24, 2010	By: ______________________________
	Larry M. Glasscock, Jr.,
	Chief Executive Officer


August 24, 2010	By: ______________________________
	Evan Finch,
	Principal Financial Officer

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Attached files

Vicapsys Life Sciences, Inc. Reports

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