U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
{x} Quarterly Report under section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999
Or
{ } Transition Report under section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ____________________ to _________________
Commission file number: 0-9358
3Si Holdings, Inc.
(Exact Name of Registrant as specified in its Charter)
Wyoming 83-0245581
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
6886 S. Yosemite Street 80112
Englewood, Colorado
(Address of principal executive offices) (Zip Code)
(303) 741-9123
(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 ____ No _X_
The June 30, 1999, Form 10-K was incomplete. Financial statements were excluded
from the June 30, 1999, Form 10-K pending resolution of significant accounting
issues.
At November 17, 1999, 35,248,530 shares of the Registrant's $.01 par value
common stock were outstanding.
<PAGE>
3Si Holdings, Inc.
Index
Part I: Financial Information
Item 1. Financial Statements
Accountants' Report 3
Consolidated Balance Sheets, at September 30, 1999
and June 30, 1999 (Unaudited) 4
Consolidated Statements of Operations for the quarters
ended September 30, 1999 and 1998 (Unaudited) 5
Consolidated Statements of Cash Flows for the quarters
ended September 30, 1999 and 1998 (Unaudited) 6
Notes to Interim Consolidated Financial Statements
(Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 9
Part II: Other Information
Item 1. Litigation 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature 10
<PAGE>
Board of Directors
3Si Holdings, Inc.
The accompanying consolidated balance sheets of 3Si Holdings, Inc. as
of September 30, 1999, and June 30, 1999, and the statements of
operations and cash flows for the quarters ended September 30, 1999,
and September 30, 1998, were not audited by us, and, accordingly, we do
not express an opinion on them.
/s/ Balogh & Tjornehoj, LLP
Denver, Colorado
November 17, 1999
See accompanying notes to interim consolidated financial statements.
3
<PAGE>
3Si Holdings, Inc.
<TABLE>
<CAPTION>
Consolidated Balance Sheets
September 30, 1999 and June 30, 1999
(Unaudited)
September 30, 1999 June 30, 1999
------------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ..................... $ 1,038,342 $ 1,372,293
Accounts receivable - trade ................... 76,471 437,221
Other current assets .......................... 14,021 11,000
----------- -----------
Total current assets ...................... 1,128,834 1,820,514
PROPERTY AND EQUIPMENT AT COST
Computer systems .............................. 28,575 28,575
Less accumulated depreciation and amortization (8,929) (7,500)
----------- -----------
Net property and equipment ................ 19,646 21,075
OTHER ASSETS
Software development costs (net) .............. 50,583 42,827
Other non-current assets ...................... -- 50,000
----------- -----------
Total other assets ........................ 50,583 92,827
----------- -----------
Total assets ....................................... $ 1,199,063 $ 1,934,416
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Accounts payable - trade ...................... $ 2,789,963 $ 3,301,354
Accrued liabilities ........................... 292,662 427,845
----------- -----------
Total current liabilities ................. 3,082,625 3,729,199
MINORITY INTEREST .................................. 448,291 476,191
STOCKHOLDERS' (DEFICIT) EQUITY
Common stock .................................. 412,992 400,842
Additional paid in capital .................... 2,601,315 2,447,277
Accumulated (deficit) ......................... (3,488,807) (3,261,740)
Treasury stock ................................ (1,857,353) (1,857,353)
----------- -----------
Total stockholders' (deficit) equity ...... (2,331,853) (2,270,974)
----------- -----------
Total liabilities and stockholders' (deficit) equity $ 1,199,063 $ 1,934,416
=========== ===========
</TABLE>
See accompanying notes to interim consolidated financial statements.
4
<PAGE>
3Si Holdings, Inc.
<TABLE>
<CAPTION>
Consolidated Statements of Operations
For the Quarters Ended September 30, 1999 and 1998
(Unaudited)
1999 1998
------------ ------------
<S> <C> <C>
Product sales ................................... $ -- $ 6,425,054
Consulting, service, and license fees ........... 26,489 2,001,305
------------ ------------
Net revenues ............................... 26,489 8,426,359
Cost of products sold ........................... -- 5,918,989
Contract labor and other costs .................. 16,628 535,508
------------ ------------
Total cost of revenues ..................... 16,628 6,454,497
------------ ------------
Gross profit ........................... 9,861 1,971,862
Selling and administrative expenses ............. 212,985 1,880,866
------------ ------------
(Loss) earnings from operations ............ (203,124) 90,996
Other income (expense)
Interest income ............................ 11,328 1,044
Interest expense ........................... (63,171) (70,661)
Miscellaneous income ....................... -- 4,254
------------ ------------
Total other income (expense) ........... (51,843) (65,363)
------------ ------------
Net (loss) earnings before minority interest (254,967) 25,633
Minority interest ............................... 27,900 --
------------ ------------
(Loss) earnings before income taxes .... (227,067) 25,633
Income taxes..................................... -- --
------------ ------------
Net (loss) earnings ........................ $ (227,067) $ 25,633
============ ============
(Loss) earnings per common share ........... $ (.01) $ --
============ ============
Weighted average shares outstanding ............. 34,216,845 33,984,924
</TABLE>
See accompanying notes to interim consolidated financial statements.
5
<PAGE>
3Si Holdings, Inc.
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
For the Quarters Ended September 30, 1999 and 1998
(Unaudited)
1999 1998
----------- -----------
<S> <C> <C>
Operating activities
Net (loss) earnings ................................ $ (227,067) $ 25,633
Reconciling adjustments
Depreciation and amortization .................. 9,429 34,753
Loss attributable to minority interest ......... (27,900) --
Change in operating assets and liabilities
Accounts receivable ....................... 319,697 (2,079,960)
Inventory ................................. -- 1,555
Other assets .............................. 93,032 (37,860)
Accounts payable .......................... (361,703) 2,367,203
Other liabilities ......................... (135,183) (46,888)
----------- -----------
Total adjustments ...................... (102,628) 238,803
----------- -----------
Net cash (used for) provided by operating activities (329,695) 264,436
Investing activities
Purchases of equipment ............................. -- (170,041)
Software development costs ......................... (15,756) (176,771)
Loans to stockholders .............................. -- (26,559)
----------- -----------
Net cash (used for) investing activities ........... (15,756) (373,371)
Financing activities
Revolving line of credit, net ...................... -- 158,406
Payments on capital lease .......................... -- (6,080)
Proceeds from exercise of stock options ............ 11,500 --
----------- -----------
Net cash provided by financing activities .......... 11,500 152,326
----------- -----------
Net change in cash and cash equivalents ................. (333,951) 43,391
Cash and cash equivalents, beginning .................... 1,372,293 13,843
----------- -----------
Cash and cash equivalents, ending ....................... $ 1,038,342 $ 57,234
=========== ===========
Supplemental disclosures of cash flow information
Interest paid ...................................... $ 63,171 $ 50,148
=========== ===========
Income tax paid .................................... $ -- $ --
=========== ===========
</TABLE>
See Note 3 related to non-cash consideration in settlement of litigation.
See accompanying notes to interim consolidated financial statements.
6
<PAGE>
3Si Holdings, Inc.
Notes to Interim Consolidated Financial Statements
September 30, 1999
(Unaudited)
Note 1. Management's Statement
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (all of which are normal and recurring in nature)
necessary to present fairly the financial position of 3Si Holdings, Inc. at
September 30, 1999, and June 30, 1999, and the results of operations and cash
flows for quarters ended September 30, 1999, and September 30, 1998. The Notes
to the Consolidated Financial Statements which are contained in the June 30,
1999, Form 10-K should be read in conjunction with these Interim Consolidated
Financial Statements.
Note 2. (Loss) Earnings Per Share
Net (loss) earnings per share was computed on the basis of the weighted average
number of common shares only, as shares subject to warrants and stock options
would have an anti-dilutive effect.
Note 3 - Contingencies
Lease Agreement
During the year ended June 30, 1998, the Company entered into a Federal Master
Assignment Agreement with a leasing company to effect a government lease of
certain equipment. Under the terms of the assignment agreement, if the
government terminated the lease for any reason other than "Termination for
Convenience or Non-appropriation", 3SiH would be liable for the present value of
the discounted cash flows then owed under the lease. On July 31, 1998, the
lessee terminated the lease for convenience.
The leasing company filed suit against 3SiH to recover the present value of the
discounted cash flows. A settlement was reached in September 1999. 3SiH paid the
plaintiffs $75,000 and issued 1,100,000 shares of its restricted common stock
(valued at $154,688) to the plaintiffs. The $224,688 settlement (which is net of
the $5,000 value of inventory recovered) was accrued as a loss at June 30, 1999.
Accounts Payable
As of September 30, 1999, accounts payable balances owed to two vendors are
approximately $500,000 and $2,200,000.
The Company has made semi-monthly payments to, and has performed services for,
one of the vendors reducing the amount owed to approximately $500,000. This
vendor has not taken any legal action to pursue collection.
The vendor who is owed approximately $2,200,000 has filed suit to attempt to
attach the Company's assets for the collection of that liability. 3SiH does not
believe that this amount is due at this time so long as 3SiH is current on
interest payments as called for in the parties' written agreement. Counsel for
3SiH believes that it is too early to express an opinion as to whether the court
will find the liability due at this time.
7
<PAGE>
3Si Holdings, Inc.
Management's Discussion and Analysis of Financial Condition
And Results of Operations
September 30, 1999
Financial Condition
At September 30, 1999, current liabilities exceed current assets by
$1,953,791. Also at September 30, 1999, the Company has a deficit in
stockholders' equity of $2,331,853. The Company has sold its systems
integration business effective as of May 1, 1999. Its remaining
business is the licensing of its software products. Through September
30, 1999, there has been nominal license fee revenue generated from its
software products.
As of September 30, 1999, accounts payable balances owed to two vendors
are approximately $500,000 and $2,200,000. The Company has made
semi-monthly payments to, and has performed services for, one of the
vendors reducing the amount owed to approximately $500,000. This vendor
has not taken any legal action to pursue collection. The vendor who is
owed approximately $2,200,000 has filed suit to attempt to attach the
Company's assets for the collection of that liability. 3SiH does not
believe that this amount is due at this time so long as 3SiH is current
on interest payments as called for in the parties' written agreement.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability and classification of
recorded assets, or the amounts and classification of liabilities that
might be necessary in the event the Company cannot continue in
existence.
3SiH received $802,000 of the purchase price for the sale of its
systems integration business on June 30, 1999. 3SiH will also be able
to earn up to an additional $2,198,000 over a three-year period based
upon the contingencies set forth in the agreement. The agreement
provides for additional contingent payments to 3SiH of $325,000 when
key contracts are renewed. The agreement also provides for contingent
payments to 3SiH of 75% of the profits in excess of contract renewal
payments from the sold business for the first year, and 50% of the
profits in excess of contract renewal payments for the second and third
years.
Contract renewal payments of $302,000 were included in the amount
received at June 30, 1999. Profits from the sold business have not
exceeded $302,000 through September 30, 1999, and no additional
contingent payments are due to 3SiH at September 30, 1999.
The first $54,000 of additional contingent payments earned by 3SiH will
be retained by the buyer to pay for compensated absences for former
3SiH employees. This amount is included under accrued liabilities in
the September 30, 1999, balance sheet.
Management is seeking to attract sponsors or investors to fund its
continuing software sales and development operations. The Company
intends to make payments to vendors as the contingent payments from the
sale of its systems integration business are received. There is no
assurance as to whether any contingent payments will be received or
whether there will be sufficient funds to pay all creditors.
8
<PAGE>
3Si Holdings, Inc.
Management's Discussion and Analysis of Financial Condition
And Results of Operations
September 30, 1999
Results of Operations
The Company reported a net loss of $227,067 for the quarter ended
September 30, 1999, while net earnings of $25,633 were reported for the
quarter ended September 30, 1998.
The operations for the quarter ended September 30, 1998, include the
Company's systems integration business which was subsequently sold
effective as of May 1, 1999.
The operations for the quarter ended September 30, 1999, only include
the remaining business of licensing its software products and revenue
related to those products.
The Company has four remaining employees as of September 30, 1999.
Interest expense for the quarter ended September 30, 1999, represents
payments to a vendor as called for in the parties' written agreements.
9
<PAGE>
3Si Holdings, Inc.
Other Information
September 30, 1999
Item 1. Litigation
During the year ended June 30, 1998, the Company entered into a Federal
Master Assignment Agreement with a leasing company to effect a
government lease of certain equipment. Under the terms of the
assignment agreement, if the government terminated the lease for any
reason other than "Termination for Convenience or Non-appropriation",
3SiH would be liable for the present value of the discounted cash flows
then owed under the lease. On July 31, 1998, the lessee terminated the
lease for convenience.
The leasing company filed suit against 3SiH to recover the present
value of the discounted cash flows. A settlement was reached in
September 1999. 3SiH paid the plaintiffs $75,000 and issued 1,100,000
shares of its restricted common stock (valued at $154,688) to the
plaintiffs. The $224,688 settlement (which is net of the $5,000 value
of inventory recovered) was accrued as a loss at June 30, 1999.
A vendor who is owed approximately $2,200,000 has filed suit to attempt
to attach the Company's assets for the collection of that liability.
3SiH does not believe that this amount is due at this time so long as
3SiH is current on interest payment as called for in the parties'
written agreement. Counsel for 3SiH believes that it is too early to
express an opinion as to whether the court will find the liability due
at this time.
Item 6. Exhibits and Reports on Form 8-K
(a) Not applicable.
(b) A Form 8-K was not required to be filed in the period covered
by this report.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
3Si Holdings, Inc.
(Registrant)
Date: November 17, 1999 By: /s/ Frank Backes
Frank Backes, CEO, CFO
<TABLE> <S> <C>
<ARTICLE> 5
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<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,038,342
<SECURITIES> 0
<RECEIVABLES> 76,471
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<PP&E> 28,575
<DEPRECIATION> 8,929
<TOTAL-ASSETS> 1,199,063
<CURRENT-LIABILITIES> 3,082,625
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0
0
<COMMON> 412,992
<OTHER-SE> (2,744,845)
<TOTAL-LIABILITY-AND-EQUITY> 1,199,063
<SALES> 0
<TOTAL-REVENUES> 26,489
<CGS> 0
<TOTAL-COSTS> 16,628
<OTHER-EXPENSES> 212,985
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<INTEREST-EXPENSE> 63,171
<INCOME-PRETAX> (227,067)
<INCOME-TAX> 0
<INCOME-CONTINUING> (227,067)
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