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 December 31, 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 X No
------- -------
At February 1, 2000, 35,133,530 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 December 31, 1999
(unaudited) and June 30, 1999 4
Consolidated Statements of Operations for the quarter
and six months ended December 31, 1999 and
1998 (Unaudited) 5
Consolidated Statements of Cash Flows for the six
months ended December 31, 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 6. Exhibits and Reports on Form 8-K 10
Signature 10
2
<PAGE>
Board of Directors
3Si Holdings, Inc.
The accompanying consolidated balance sheets of 3Si Holdings, Inc. as
of December 31, 1999, and the statements of operations and cash flows
for the periods ended December 31, 1999 and 1998, were not audited by
us, and, accordingly, we do not express an opinion on them.
The balance sheet as of June 30, 1999, was audited by us and we
expressed an unqualified opinion on it in our report dated September
28, 1999, but we have not performed any auditing procedures since that
date.
/s/ Balogh & Tjornehoj, LLP
Denver, Colorado
February 01, 2000
<PAGE>
3Si Holdings, Inc.
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31, 1999 June 30, 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ..................... $ 568,549 $ 1,372,293
Accounts receivable - trade ................... -- 437,221
Other current assets .......................... 1,769 11,000
----------- -----------
Total current assets ...................... 570,318 1,820,514
PROPERTY AND EQUIPMENT AT COST
Computer systems .............................. 34,448 28,575
Less accumulated depreciation and amortization (10,358) (7,500)
----------- -----------
Net property and equipment ................ 24,090 21,075
OTHER ASSETS
Software development costs (net) .............. 46,852 42,827
Other non-current assets ...................... 24,861 50,000
----------- -----------
Total other assets ........................ 71,713 92,827
----------- -----------
Total assets ....................................... $ 666,121 $ 1,934,416
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Accounts payable - trade ...................... $ 2,606,836 $ 3,301,354
Accrued liabilities ........................... 171,830 427,845
----------- -----------
Total current liabilities ................. 2,778,666 3,729,199
MINORITY INTEREST .................................. 85,954 149,932
STOCKHOLDERS' (DEFICIT) EQUITY
Common stock .................................. 411,842 400,842
Additional paid in capital .................... 2,907,196 2,773,536
Accumulated (deficit) ......................... (3,660,184) (3,261,740)
Treasury stock ................................ (1,857,353) (1,857,353)
----------- -----------
Total stockholders' (deficit) equity ...... (2,198,499) (1,944,715)
----------- -----------
Total liabilities and stockholders' (deficit) equity $ 666,121 $ 1,934,416
=========== ===========
</TABLE>
See accompanying notes to interim consolidated financial statements.
4
<PAGE>
3Si Holdings, Inc.
<TABLE>
<CAPTION>
Consolidated Statements of Operations
(Unaudited)
Quarter Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
------------- ------------- ------------- --------
<S> <C> <C> <C> <C>
Product sales .......................... $ -- $ 3,339,971 $ -- $ 9,657,525
Consulting, service, and license fees .. 21,722 1,597,076 48,211 3,598,381
------------ ------------ ------------ ------------
Net revenues ...................... 21,722 4,937,047 48,211 13,255,906
Cost of products sold .................. -- 3,270,550 -- 9,189,539
Contract labor and other costs ......... 15,323 1,265,557 31,951 2,751,065
------------ ------------ ------------ ------------
Total cost of revenues ............ 15,323 4,536,107 31,951 11,940,604
------------ ------------ ------------ ------------
Gross profit .................. 6,399 400,940 16,260 1,315,302
Selling and administrative expenses .... 166,879 1,785,707 379,864 2,716,573
------------ ------------ ------------ ------------
(Loss) earnings from operations ... (160,480) (1,384,767) (363,604) (1,401,271)
Other income (expense)
Interest income ................... 6,717 3,211 18,045 4,255
Interest expense .................. (64,771) (48,866) (127,942) (119,527)
Loss on disposition of assets ..... -- (283,097) -- (283,097)
Miscellaneous income .............. 11,079 124 11,079 4,378
------------ ------------ ------------ ------------
Total other income (expense) .. (46,975) (328,628) (98,818) (393,991)
------------ ------------ ------------ ------------
Net (loss) before minority interest (207,455) (1,713,395) (462,422) (1,795,262)
Minority interest ...................... 36,078 -- 63,978 --
------------ ------------ ------------ ------------
(Loss) before income taxes .... (171,377) (1,713,395) (398,444) (1,795,262)
Income taxes____ ....................... -- (69,000) -- (69,000)
------------ ------------ ------------ ------------
Net (loss)_ ....................... $ (171,377) $ (1,782,395) $ (398,444) $ (1,864,262)
============ ============ ============ ============
(Loss) per common share ........... $ -- $ (.05) $ (.01) $ (.05)
============ ============ ============ ============
Weighted average shares outstanding .... 35,133,530 33,934,298 34,643,313 33,946,955
</TABLE>
See accompanying notes to interim consolidated financial statements.
5
<PAGE>
3Si Holdings, Inc.
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 1999 and 1998
(Unaudited)
1999 1998
----------- -----------
<S> <C> <C>
Operating activities
Net (loss) ........................................ $ (398,444) $(1,864,262)
Reconciling adjustments
Depreciation and amortization ................. 18,858 114,104
Reserve for stockholders' loan ................ -- 130,344
Stock option compensation ..................... -- 52,726
Net loss on disposition of assets ............. -- 283,097
Loss attributable to minority interest ........ (63,978) --
Change in operating assets and liabilities
Accounts receivable ...................... 386,517 1,374,946
Inventory ................................ -- (14,411)
Other assets ............................. 90,074 37,441
Accounts payable ......................... (640,134) 941,143
Other liabilities ........................ (160,711) 99,027
Deferred taxes ........................... -- 69,000
----------- -----------
Total adjustments ..................... (369,374) 3,087,417
----------- -----------
Net cash (used for) provided by operating
activities ...................................... (767,818) 1,223,155
Investing activities
Purchases of equipment ............................ (5,873) (167,523)
Software development costs ........................ (20,025) --
Loans to stockholders ............................. -- (50,462)
----------- -----------
Net cash (used for) investing activities .......... (25,898) (217,985)
Financing activities
Revolving line of credit, net ..................... -- (809,216)
Payments on capital lease ......................... -- (39,079)
Proceeds from exercise of stock options ........... 11,500 --
Purchase of treasury shares ....................... (21,528) --
----------- -----------
Net cash provided by financing activities ......... (10,028) (848,295)
----------- -----------
Net change in cash and cash equivalents ................ (803,744) 156,875
Cash and cash equivalents, beginning ................... 1,372,293 13,843
----------- -----------
Cash and cash equivalents, ending ...................... $ 568,549 $ 170,718
=========== ===========
Supplemental disclosures of cash flow information
Interest paid ..................................... $ 127,942 $ 127,034
=========== ===========
Income tax paid ................................... $ -- $ 15,000
=========== ===========
</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
December 31, 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
December 31, 1999 and June 30, 1999, and the results of operations and cash
flows for periods ended December 31, 1999, and December 31, 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 December 31, 1999, accounts payable balances owed to two vendors are
approximately $360,000 and $2,200,000.
The Company has made payments to, and has performed services for, one of the
vendors reducing the amount owed to approximately $360,000. 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
December 31, 1999
Financial Condition
At December 31, 1999, current liabilities exceed current assets by
$2,208,348. Also at December 31, 1999, the Company has a deficit in
stockholders' equity of $2,198,499. 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 December
31, 1999, there has been nominal license fee revenue generated from its
software products.
As of December 31, 1999, accounts payable balances owed to two vendors
are approximately $360,000 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 $360,000. 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 December 31, 1999, and no additional
contingent payments are due to 3SiH at December 31, 1999.
The first $158,000 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 December 31, 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 additional payments to vendors as the contingent
payments from the sale of its systems integration business are
received. There is currently no assurance as to when or if 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
December 31, 1999
Results of Operations
The Company reported a net loss of $398,444 for the six months ended
December 31, 1999, while a net loss of $1,864,262 was reported for the
six months ended December 31, 1998*.
The operations for the period ended December 31, 1998, include the
Company's systems integration business which was subsequently sold
effective as of May 1, 1999. The operations for the period ended
December 31, 1999, only include the remaining business of licensing its
software products and revenue related to those products.
Revenues for the three months and six months ended December 31, 1999,
include $15,000 and $38,000, respectively, for consulting and services
to one customer. This customer is also a 3SiH vendor, who is owed a net
$360,000 at December 31, 1999. The revenues generated have reduced the
amount owed to this vendor.
The Company has four remaining employees as of December 31, 1999.
Interest expense for the period ended December 31, 1999, represents
payments to a vendor as called for in the parties' written agreements.
*Restatement
The statements of operations for the three months and six months ended
December 31, 1998, have been restated to reflect adjustments of $1.9
million applicable to these periods. These adjustments were discovered
in the fourth quarter of fiscal year June 30, 1999.
9
<PAGE>
3Si Holdings, Inc.
Other Information
December 31, 1999
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: February 1, 2000 By: /s/ Frank Backes
-------------------------
Frank Backes, CEO, CFO
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 568,549
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 570,318
<PP&E> 34,448
<DEPRECIATION> 10,358
<TOTAL-ASSETS> 666,121
<CURRENT-LIABILITIES> 2,778,666
<BONDS> 0
0
0
<COMMON> 411,842
<OTHER-SE> (2,610,341)
<TOTAL-LIABILITY-AND-EQUITY> 666,121
<SALES> 0
<TOTAL-REVENUES> 21,722
<CGS> 0
<TOTAL-COSTS> 15,323
<OTHER-EXPENSES> 166,879
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,771
<INCOME-PRETAX> (171,377)
<INCOME-TAX> 0
<INCOME-CONTINUING> (171,377)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (171,377)
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
