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Stratus hits brakes on car shows amid shakeup

By   /   Friday, August 24th, 2012  /   Comments Off on Stratus hits brakes on car shows amid shakeup

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By Julian Moore on August 24, 2012

A Santa Barbara company that produces lavish luxury and collectible car shows has suspended its event schedule amid a financial shortfall and turmoil in its executive suite.
Stratus Media Group, the luxury car show and fight promoter that owns the event, has sacked its CEO and given him four months to help find $2 million in new capital or lose his $20,833 a month paycheck. The company faces mounting losses, lawsuits from shareholders and a dispute with its former landlord.

Stratus, a public company traded on the OTC Bulletin Board, operates wine and car shows in cities such as Santa Barbara, Miami and Las Vegas. The events are called “Vino D’Elegance” and “Concours D’Elegance.” The Santa Barbara Councours usually occurs in October, but Stratus said in its most recent quarterly report that it won’t be able to hold any events this year unless it raises funds for working capital.

“As a result of the lack of working capital, Stratus has no events currently scheduled pending receipt of sufficient funds from financings which it is currently pursuing,” the company said in the quarterly report, filed Aug. 17 with the Securities and Exchange Commission. “In the absence of obtaining sufficient funds, Stratus will be unable to schedule or reschedule some or all of its events and implement its business plan.”

The Santa Barbara-based company  also owns a business line that packages film screenings and fine dining. About a year ago, Stratus purchased a debt-laden mixed martial arts fighting label called “Pro Elite” that briefly featured industry celebrities such as Belarusian Andrei “Pit Bull” Arlovski.

In June, Paul Feller was ousted as longtime CEO and was replaced by board member Jerry Rubenstein. Stratus lost $15.8 million in 2011 on a mere $570,476 in revenue and has struggled to regain its footing after briefly shutting down in 2009. The firm faces lawsuits from a number of investors who claim they were misled and its former landlord who says the company owes $200,000 in back rent and damages related to its downtown Santa Barbara offices.

Stratus’ share price has fallen from more than 80 cents last August to 36 cents on Aug. 22. The company has about 80 million shares outstanding. At the end of its most recent quarter, Stratus had $3.7 million in assets – only $42,934 of which was cash – and $8.8 million in liabilities.

Feller could not be reached for comment, but his attorney, Craig Miriam of Los Angeles-based Gordon & Rees, said Feller denies all allegations against him.

In court filings, Feller’s attorney has questioned whether the shareholders’ claims should be heard, saying they happened long before the company’s 2008 public offering and are barred by statutes of limitation. In recent SEC filings, Stratus said it believes “the claims are without merit and have been aggressively defending the action.”

Four investors filed an action against Stratus in Santa Barbara County Superior Court  last year claiming the company refused to allow them to sell their stock in the company as its sales floundered. In November,  12 more investors filed suit. Some of the plaintiffs have settled with the company.

Stratus shuffled its leadership by electing Rubenstein as CEO and making Feller a consultant whose pay is contingent on fundraising. Feller resigned as CEO and chairman but will earn $20,833 a month if Stratus succeeds in raising $2 million by Oct. 28, according to SEC filings.

In their lawsuits, the disgruntled investors allege that between 1999 and 2011, Feller and other executives at Stratus misled them about details of Stratus’ plans to go public, as well as Feller’s qualifications to lead the company.

Stratus went public in 2008 after a complicated “triangular reverse merger” with a publicly traded shell company, which bought up Pro Sports, the original company that Feller used to raise investment money, and then changed the shell company’s name to Stratus Media Group.

Some of the plaintiffs allege in court filings that Feller claimed to hold a bachelor’s degree in mechanical engineering from Purdue University, a law degree from Columbus Law School and a MBA from Pepperdine University and did not hold all of those degrees.  Mariam, Feller’s attorney, declined to comment on the specifics of the case but said his client “denies all allegations against him.”

As one of the first investors in Stratus, which then operated under the moniker Pro Sports, lead plaintiff Howell Douglas Wood claims to have bought $400,000 worth of stock in the nascent company in 1999.

Wood alleges that Feller told him in 1999 that Pro Sports was then on the verge of being listed on the NASDAQ exchange. In his complaint, Wood alleges Pro Sports was “neither capable of being listed on the NASDAQ nor was then engaged in discussions with the SEC or any suitable merger sub to be listed on a public exchange.”

Another investor, Doddie Giles, claims in court filings that in 2007, she was persuaded by Feller that the company was poised to be listed on the Nasdaq stock exchange and that she would receive shares “reserved for family and friends at a special price.” Giles alleges Feller offered her shares for $3, claiming their real worth was $6, and that by investing with the company at that time she was immediately doubling her investment.

The shareholders told the court they weren’t given the full picture of the company’s financials before they invested.  According to Wood’s complaint, Pro Sports was listed on the OTC Bulletin Board, which according to their filings, “is a far less regulated, transparent or reputable market than the NASDAQ.”

Feller’s lawyers, however,  have questioned whether the allegations are permissible in court. Feller’s legal team has argued in court that plaintiffs are barred from taking action due to a statute of limitations on the claims they were forced to keep their stock in the company.

Separate court documents also allege that Stratus was booted from its offices on De La Guerra Street in Santa Barbara in April. In addition to unpaid rent, Stratus’ former landlords are suing the company for more than $200,000 in damages accrued during the time Stratus occupied the Santa Barbara office.

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