<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER 0-8146
MSI HOLDINGS, INC.
(F/K/A MICRO-MEDIA SOLUTIONS, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
[UTAH 87-0280886]
STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER I.D. NO.)
INCORPORATION OR ORGANIZATION
501 WALLER ST., AUSTIN, TEXAS 78702
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE (512) 476-6925
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
NONE N/A
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, NONE
PAR VALUE $.10
Check whether the Issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days.
(1) Yes (X) NO ( ) (2) Yes (X) No ( )
Number of shares of common stock outstanding at DECEMBER 31, 1998:
13,177,960
<PAGE> 2
MSI HOLDINGS, INC.
FORM 10-QSB/A
FOR THE QUARTER ENDED DECEMBER 31, 1998
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements (unaudited) 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults on Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Matters 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE PAGE 20
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MSI HOLDINGS, INC.
Consolidated Balance Sheet (unaudited)
<TABLE>
<CAPTION>
December 31,
1998
------------
(restated)
<S> <C>
ASSETS
Current assets
Cash $ 73,861
Accounts receivable - trade 840,606
Inventory 312,300
Short-term investment 1,350,000
Other receivables - advances 171,647
----------
Total current assets 2,748,414
Property, plant, and equipment-net 1,487,640
----------
Total assets $4,236,054
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
MSI HOLDINGS, INC.
Consolidated Balance Sheet (unaudited) (continued)
<TABLE>
<CAPTION>
December 31,
1998
------------
(restated)
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable - trade $ 1,194,655
Bank line of credit 1,600,000
Other accrued expenses 97,314
Current maturities of notes payable 233,526
Current portion of obligations under capital leases 94,005
Other notes payable 200,000
------------
Total current liabilities 3,419,500
------------
Long-term liabilities
Notes payable 57,748
Obligations under capital leases 290,605
Deferred rent 145,620
------------
Total long-term liabilities 493,973
------------
Total liabilities 3,913,473
------------
Stockholders' equity
Preferred stock; 10,000,000 shares authorized:
Convertible preferred stock series B; $5.30
stated value; 400,000 shares
authorized, issued & outstanding 2,120,000
Convertible preferred stock series C; $10.60
stated value; 94,340 shares
authorized, issued & outstanding 1,000,004
Convertible preferred stock series D; $10.60
stated value; 261,340 shares
authorized, issued & outstanding 2,770,204
Convertible preferred stock series E; $30.00
stated value; 105,000 shares
authorized, 51,975 issued &
outstanding 1,559,250
Common stock at $.10 par value;
50,000,000 authorized and 13,177,960
shares issued and outstanding 1,317,796
Additional paid-in capital 8,301,936
Accumulated Deficit (16,746,609)
------------
Total stockholders' equity 322,581
------------
Total liabilities and stockholders' equity $ 4,236,054
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
MSI HOLDINGS, INC.
Consolidated Statements of Operations (unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31 Ended December 31
1998 1997 1998 1997
------------ ------------ ------------ ------------
(restated) (restated)
<S> <C> <C> <C> <C>
Revenues:
Hardware, software, and peripherals $ 249,156 $ 212,013 $ 1,431,352 $ 1,350,810
Service, support, and integration 155,519 188,298 394,486 702,915
Networks, LAN/WAN 940,958 319,950 1,115,704 685,771
------------ ------------ ------------ ------------
1,345,633 720,261 2,941,542 2,739,496
------------ ------------ ------------ ------------
Cost of goods sold:
Hardware, software, and peripherals 239,419 204,926 1,376,870 885,989
Service, support, and integration 59,393 122,394 150,511 456,896
Networks, LAN/WAN 916,821 255,301 1,080,747 509,415
------------ ------------ ------------ ------------
1,215,633 582,621 2,608,128 1,852,300
------------ ------------ ------------ ------------
Gross Margin 130,000 137,640 333,414 887,196
Selling, general, and administrative expenses:
Salaries and benefits 729,243 576,512 2,290,138 1,304,833
Professional fees and consultants 562,359 164,392 1,083,199 328,451
Occupancy 127,158 70,345 325,369 158,845
Depreciation and amortization 65,000 49,720 171,991 149,160
Vehicle expense 50,995 30,210 125,427 109,061
Other expense 196,124 414,649 503,482 708,865
Provision for uncollectable receivables -- 20,000 -- 21,284
------------ ------------ ------------ ------------
1,730,879 1,325,828 4,499,606 2,780,499
Operating loss (1,600,879) (1,188,188) (4,166,192) (1,893,303)
Interest expense, net 11,642 165,835 412,035 202,342
------------ ------------ ------------ ------------
Net Loss (1,612,521) (1,354,023) (4,578,227) (2,095,645)
Preferred stock dividends and discounts (1,663,390) (1,244,169) (6,618,685) (1,244,169)
------------ ------------ ------------ ------------
Net loss to common stockholders $ (3,275,911) $ (2,598,192) $(11,196,912) $ (3,339,814)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.26) $ (0.24) $ (0.93) $ (0.31)
============ ============ ============ ============
Basic and diluted weighted average
number of shares outstanding 12,803,583 10,764,733 12,051,893 10,764,733
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
MSI HOLDINGS, INC.
Consolidated Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended December 31,
1998 1997
------------ ------------
(restated)
<S> <C> <C>
Cash flows from operating activities:
Net Loss $(4,578,227) $(2,095,645)
Adjustments to reconcile net loss used
in operating activities:
Depreciation and amortization expense 171,991 148,587
Amortization of debt discount 371,000 --
Common stock and options issued for compensation 412,871 --
Changes in operating assets and liabilities:
Accounts receivable - trade (669,883) 359,566
Other receivables (84,686)
Inventory (27,277) (165,461)
Accounts payable - trade 894,620 (221,968)
Other accrued expenses (72,022) (89,185)
----------- -----------
Net cash used in operating activities (3,581,613) (2,064,106)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant, and equipment (604,238) (56,429)
Additional other receivables -- (15,022)
----------- -----------
Net cash used in investing activities (604,238) (71,451)
----------- -----------
Cash flows from financing activities:
Net draws on (proceeds from) bank line of credit 371,034 (520,235)
Proceeds on notes receivables -- 685,450
Payments on notes payable (227,515) (116,932)
Payments on obligations under capital leases (60,609) (100,142)
Proceeds - private placement of preferred stock 3,764,116 1,818,000
Proceeds - issuance of common stock 53,000 --
Proceeds - exercise of warrants 333,900 --
Proceeds - senior convertible debt -- 371,000
----------- -----------
Net cash provided by financing activities 4,233,926 2,137,141
----------- -----------
Net increase in cash 48,075 1,584
Cash at beginning of period 25,786 18,112
----------- -----------
Cash at end of period $ 73,861 $ 19,696
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
MSI HOLDINGS, INC.
Consolidated Statements of Cash Flows (unaudited) (continued)
<TABLE>
<CAPTION>
Nine Months Ended December 31,
1998 1997
------------ ------------
(restated)
<S> <C> <C>
Supplemental disclosures:
Cash paid during the period for:
Interest $ 41,035 $ 81,891
========== ==========
Supplemental schedule of non-cash investing
and financing activities:
Preferred stock issued for:
Placement agent fees $ 215,410 $ 106,000
Stock options or warrants issued for:
Placement agent fees 1,359,883 367,350
Common stock issued for:
Compensation 152,906 --
Preferred stock dividends 263,562 --
Discount on preferred stock issued 6,355,123 1,890,769
Capital lease obligations 254,562 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
MSI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (restated)
December 31, 1998 (unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation:
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principals and the rules of the
Securities and Exchange Commission (the SEC), and should be read in conjunction
with the audited financial statements and notes thereto contained in the
Company's latest annual Report filed with the SEC on Form 10-KSB/A and the
latest quarterly report filed with the SEC on form 10QSB/A. In the opinion of
management, all adjustments consisting of normal recurring adjustments,
necessary for the fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein. The
results of operations are not necessarily indicative of the results to be
expected for the full year. Notes to the financial statements which would
substantially duplicate the disclosure contained in the audited financial
statements for the year ended March 31, 1998, as reported in the Form 10-KSB as
amended, have been omitted.
Going concern:
As shown in the accompanying consolidated financial statements, the Company has
incurred net losses of $4,578,227 for the nine month period ending December 31,
1998. As of December 31, 1998 the Company's current liabilities exceeded its
current assets by $671,086. These factors create a substantial doubt about the
Company's ability to continue as a going concern. The ability of the Company to
continue as a going concern is dependent on the Company obtaining additional
financing to fund the expenses related to operations and capital improvements.
In November 1998 through February 1999, the Company received approximately $2
million in partial completion of a private placement agreement of a newly
created series of preferred stock (Series E), which proceeds have been used by
the Company for operating expenses and remodeling the existing facility.
Additional proceeds of approximately $1 million from the completion of the
Series E private placement are expected by the end of March 1999. The closing of
the Series E private placement will enable the Company to have sufficient funds
to meet the its working capital and capital expenditures needs. Management has
identified and closed substantial contracts with GTE and Siemens Nixdorf during
the nine months ending December 31, 1998, and believes it can produce the level
of revenue necessary to return the Company to a positive earnings trend.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
Comprehensive Income:
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. The Company adopted SFAS No. 130 during 1998.
There was no impact to the Company as a result of the adoption of SFAS No. 130,
as there were no differences between net loss and comprehensive loss for the
periods presented.
NOTE 2. BANK LINE OF CREDIT
In December 1998, the Company secured a new line of credit in the amount of
$1,600,000 which matures on January 31, 1999. Principal and accrued interest at
7.75% are due upon maturity. The previous line of credit was paid in full and
canceled. The line is secured by inventory and a $1,350,000 certificate of
deposit held in the Company's name by Compass Bank. The balance of the borrowing
as of December 31, 1998 was $1,600,000.
8
<PAGE> 9
NOTE 3. NOTES PAYABLE
The Company was out of compliance with debt covenants on certain notes payable
as of December 31, 1998. Amounts outstanding related to these notes has been
classified as current liabilities.
NOTE 4. STOCKHOLDERS' EQUITY
During the three months ended June 30, 1998, the Company received gross proceeds
of $2,007,004 from the Private Placement of 189,340 shares of Series D, 6%
Cumulative Convertible Non-Voting Preferred Stock, Stated value $10.60 per
share. The Company paid $260,910 in cash and issued 9,467 shares of the Series D
Preferred Stock as agreed for payment of commission fees of the Private
Placement. Each share of Preferred D stock is initially convertible into ten
shares of the Company's Common Stock. Also, options to purchase 255,850 shares
of Common Stock at $1.59 per share were issued as a part of the agreement. The
stock options had a fair value of $1,061,723.
At the time of issuance the Series D Preferred Stock was convertible to Common
Stock at an amount that was "in-the-money". This beneficial conversion feature
was limited to the proceeds of the offering and was accounted for as an increase
to additional paid in capital and an in-substance dividend to the related
preferred stockholders. The beneficial conversion feature resulted in the
recognition of a discount of $2,107,354 in the quarter ended June 30, 1998,
which is composed of the gross proceeds of the offering and the stated value of
the Series D Preferred Stock issued for placement agent fees.
In addition, the $1,831,544 discount which was deferred in fiscal year 1998
related to the Series B and C Preferred Stock was recognized in the quarter
ended June 30, 1998, as a result of the Company's election to not renew its' HUB
status.
During the three months ended September 30, 1998, the Company received gross
proceeds of $816,165 from the Private Placement of 77,000 additional shares of
Series D, 6% Cumulative Convertible Non-Voting Preferred Stock, Stated value
$10.60 per share. The Company paid $88,373 in cash and issued 3,850 shares of
the Series D Preferred Stock as agreed for payment of commission fees of the
Private Placement. Each share of Preferred D stock is initially convertible into
ten shares of the Company's Common Stock.
At the time of issuance the Series D Preferred Stock was convertible to Common
Stock at an amount that was "in-the-money". This beneficial conversion feature
was limited to the proceeds of the offering and was accounted for as an increase
to additional paid in capital and an in-substance dividend to the related
preferred stockholders. The beneficial conversion feature resulted in the
recognition of a discount of $856,975 in the quarter ended September 30, 1998,
which is composed of the gross proceeds of the offering and the stated value of
the Series D Preferred Stock issued for placement agent fees.
During the quarter ended September 30, 1998 the Company received $53,000 for
5,000 shares of Series D preferred stock at $10.60 per share. Due to the Series
D preferred stock being over subscribed, the company converted the 5,000
preferred shares to 50,000 shares of Rule 144 common stock.
During the three months ended December 31, 1998, the Company received gross
proceeds of $1,485,000 from the Private Placement of 49,500 shares of Series E,
6% Cumulative Convertible Non-Voting Preferred Stock, stated value $30.00 per
share. The Company paid $194,805 in cash and issued 2,475 shares of Series E
Preferred Stock as agreed for payment of commission fees of the Private
Placement. Each share of Preferred E stock is initially convertible into ten
shares of the Company's Common Stock.
Also, options to purchase 54,500 shares of Common Stock at $4.50 per share were
issued as part of the agreement. The stock options have a fair value of
$298,160.
At the time of issuance the Series E Preferred Stock was convertible to Common
Stock at an amount that was "in-the-money". This beneficial conversion feature
was limited to the proceeds of the offering and was accounted for as an increase
to additional paid in capital and an in-substance dividend to the related
preferred stockholders. The beneficial conversion feature resulted in the
recognition of a discount of $1,559,250 in the quarter ended December 31, 1998,
which is composed of the gross proceeds of the offering and the stated value of
the Series E Preferred Stock issued for placement agent fees.
9
<PAGE> 10
During the quarter ended December 31, 1998, 90,000 shares of Series B, 4,717
shares of Series C, and 18,317 shares of Series D Preferred Stock were
collectively converted to 1,130,340 shares of Common Stock.
Stock options granted to employees during the quarter ended June 30, 1998 were
recorded as compensation expense in the amount of $109,500 to the extent the
exercise price was less than the market price of the stock on the grant date, in
accordance with APB No. 25.
Stock options granted to non-employees during the quarter ended September 30,
1998 were recorded as professional fees in the amount of $150,465 at the fair
value of the options at the grant date as determined using the Black-Scholes
option pricing model.
During the quarter ended June 30, 1998, 11,724 shares of common stock were
issued as preferred stock dividends and were recorded as a reduction of retained
earnings in the amount of $66,743.
During the quarter ended September 30, 1998, 12,651 shares of common stock were
issued as preferred stock dividends and were recorded as a reduction of retained
earnings in the amount of $92,679.
During the quarter ended December 31, 1998, 15,399 shares of common stock were
issued as preferred stock dividends and were recorded as a reduction of retained
earnings in the amount of $104,140.
The Company issued 31,000 shares of common stock to employees during the quarter
ended September 30, 1998, which was recorded as compensation expense in the
amount of $152,906.
During the quarter ended September 30, 1998, Class A warrants were exercised for
420,000 shares of common stock at $.795 per share in the amount of $333,900.
NOTE 5. RESTATEMENT OF EARNINGS
The Company has restated earnings for the nine months ended December 31, 1998
primarily to effect for the limitation of dividend recognition related to the
beneficial conversion features on the convertible preferred stock issuances.
Previously, the Company did not limit the recognition of a discount and the
related dividend to the proceeds raised in the issuance. The following table
shows the restated results of operations for the period compared to previously
reported results:
<TABLE>
<CAPTION>
Previously
As Restated Reported
------------ -----------
<S> <C> <C>
Net loss $ (4,578,227) $(3,947,262)
Preferred stock dividends and discounts (6,618,685) (798,062)
Net loss applicable to common stockholders (11,196,912) (4,745,324)
Basic and diluted net loss per share (0.93) (0.39)
</TABLE>
NOTE 6. CONTINGENCIES AND LEGAL MATTERS
On December 18, 1997, Argus Management, Inc. filed Plaintiff's Original Petition
in the 216th District Court of Kerr County, Texas. Argus claims the Company and
Mr. Jose G. Chavez, as joint obligors, defaulted on their obligation to Argus
pursuant to two promissory notes for $100,000 each, both dated June 2, 1997.
Argus is seeking a judgment for $200,000, together with interest on the notes at
the rate of 20% per annum from June 2, 1997, through the date the notes are
satisfied. As of March 31, 1998, $65,000 had been disbursed to third parties in
satisfaction of obligations of Argus Management, Inc. The $65,000 has been
recorded in other receivables in the accompanying financial statements.
On February 6, 1998, the Company filed Plaintiff's Original Petition in the
above-referenced case. The Company asserts breach of contract, fraud,
defamation, usury, and civil conspiracy claims against Argus Management, Inc.
The Company strongly disagrees with Argus' contentions and denies liability to
Argus under the notes and plans to oppose vigorously Argus' claims and recover
the amounts disbursed to third parties.
10
<PAGE> 11
On January 22, 1998, the Company filed a lawsuit against Bits Technical
Corporation for damages attributable to a breach of commitment. This matter is
still pending. On August 17, 1998, Bits Technical Corporation ("BTC") filed a
counterclaim against the Company in connection with the above case. In the
counterclaim, BTC asserts the Company fraudulently induced BTC to promise to
loan money to the company. In particular, BTC claims the Company promised
certain contracts and business opportunities to BTC that the Company was
unwilling or unable to deliver.
On November 20, 1996, MCA Communications, Inc. ("MCA") filed a lawsuit against
the Company in County Court at Law No. 2 in Harris County, Texas. MCA claims the
Company owes $12,485.40 for certain goods and services that MCA claims to have
provided to MSI in connection with various projects for the Texas Department of
Health. MCA also seeks interest, costs, and attorneys' fees. On January 6, 1997,
the Company filed its answer and denied the above-referenced claim in its
entirety.
NOTE 7. SUBSEQUENT EVENTS
Through March 31, 1999, the Company received gross proceeds of $2,105,040 for
70,168 additional shares of Series E Preferred Stock at a purchase price of
$30.00 per share. The Company paid cash of $220,995 and issued 4,190 shares of
Series E Preferred Stock as payment of commission fees of the private placement.
Also, options to purchase 36,084 shares of Common Stock at $4.50 per share were
issued as part of the agreement. The stock options have a fair market value of
$136,784.
Subsequent to March 31, 1999, the Company received gross proceeds of $600,000
for 20,000 additional shares of Series E Preferred Stock at a purchase price of
$30.00 per share. The Company paid cash of $73,200 as payment of commission fees
of the private placement. This completed the Series E Private Placement.
11
<PAGE> 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This quarterly report on Form 10-QSB contains forward-looking statements, which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or those anticipated. Words used in this report such as
"believe", "anticipate", "expect", "may", "will" and similar expressions are
intended to identify forward-looking statements but are not the exclusive means
of identifying such statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. The Company does not undertake any
obligation to update or revise these forward-looking statements to reflect any
future events or circumstances. Readers are urged to carefully review and
consider the various disclosures made by the Company in this report, including
those under the section entitled "OTHER FACTORS THAT MAY AFFECT OPERATING
RESULTS," which consist primarily of a brief discussion of certain risks which
are in their entirety forward-looking statements, and those included in the
Company's other reports previously filed with the commission, including the
disclosures in the "RISK FACTORS" section appearing in the Form 10-KSB, as
amended, for the fiscal year ended March 31, 1998.
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with (i) the financial
statements and accompanying notes appearing in this Quarterly Report, and
(ii)the Company's financial statements and accompanying notes appearing in the
Company's Form 10-KSB, as amended, for the fiscal year ended March 31, 1998, as
filed with the Commission.
OVERVIEW
The Company's revenues consist of hardware sales, prepackaged software sales and
the delivery of technical services, including installing and maintaining network
systems. The technical service sales of the Company typically yield a higher
margin than the hardware and software sales of the Company. This is due, in
part, to the intense competition in the hardware and software sales sector from
Original Equipment Manufactures ("OEM's") and distributors. As a result, the
Company, is attempting to strategically reposition itself from emphasizing
hardware and software sales to intensifying sales of technical services.
Recent Developments
On July 27, 1998, MSI entered into a renewable 10 year sublease with GTE
Intelligent Network Services, Inc. ("GTE") under which MSI agreed to lease a
portion of their east Austin facilities to GTE for installation of GTE's Point
of Presence ("POP") equipment (the "Sublease"). On May 29, 1998, MSI entered
into a 3 year subscription to GTE's Internet Advantage version 5.1 Connection
Service granting MSI access to GTE's POP (the "Connection Service")(the Sublease
and Connection Service are collectively referred to as the "GTE Agreement").
GTE's establishment, management and monitoring of multiple domains on behalf of
MSI is included in the Connection Service. The Connection Service was upgraded
to GTE's Internet Advantage version 6.0 on September 29, 1998. MSI will lease
connections to the POP for access to the GTE Internet network to other
businesses. MSI will target companies that need direct, high-speed access to the
Internet through turn-key collocation services for high volume (known as
bandwidth) Internet web applications. Collocation is a service that provides a
high speed, high bandwidth connection to the Internet backbone using various
backup systems to increase the connection's fault tolerance. By connecting
directly to Internet via the POP, MSI is able to eliminate the local loop, the
weakest component in localized Internet connections. MSI will have the capacity
to support over four thousand collocation rack spaces at its Austin, Texas
facilities. These rack spaces will be used to host the network servers for MSI
clients and provide those clients with direct access to the Internet. When fully
implemented, these collocation services are expected to significantly increase
The Company's revenues over the term of the Connection Service. The GTE
Agreements provide the potential for The Company to increase revenue by selling
Internet access to various high Internet demand entities for such activities as
commerce and academics. The Company has remodeled a portion of its east Austin
facility in preparation of supplying the Collocation service. It is anticipated
that the requisite hardware will be operational in February 1999.
In July 1998, MSI began providing systems integration, warehousing, systems
configuration and other fulfillment services for Siemens-Nixdorf Information
Systems, Inc. ("Siemens-Nixdorf") for Point of Sale ("POS") systems and
Automated Teller Machines for Siemens-Nixdorf's customers such as Sears-Roebuck,
and Beall's department stores (the "Siemens-Nixdorf Agreement"). This agreement
provides that Siemens-Nixdorf will store its inventory at MSI, and will charge
Siemens-Nixdorf for various systems
12
<PAGE> 13
integration services. This arrangement provides The Company with a revenue
stream without a significant working capital commitment.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997.
Revenues for the quarter ended December 31, 1998 of $1,345,633 increased
$625,372 or 86.8% from the $720,261 recorded in the quarter ended December 31,
1997. This increase is a combination of an increase of $37,143 in Hardware,
Software & Peripherals (HSP) revenues; decrease of $32,779 in Service, Support &
Integration (SSI) revenues; and an increase of $621,008 in Network Installation
(NI) revenues.
The 17.5% increase in HSP revenues of $37,143 is a reflection of the normal
fluctuations in sales of HSP products.
The 17.4% decrease in SSI revenues of $32,779 is a of a reduction in the scope
of work on a several contracts. New revenue sources for SSI are being developed
to replace the reduction in revenues. As described in the "Recent Developments"
section above, the Company has signed a contract with Siemens-Nixdorf to
supplement its SSI revenues. Other decreases in SSI revenues relate to normal
fluctuations in service requests from customers that occur throughout the year.
The 194% increase in NI revenues of $621,008 relates to specific significant
school district network installation contracts that were in place during each
quarter. During the quarter ended December 31, 1997 MSI was finishing a contract
for Hereford ISD. During the quarter ended December 31, 1998, MSI completed a
major portion of the work for an installation of a network system under a
contract with San Felipe Del Rio CISD.
Cost of goods sold, (COGS), for the quarter ended December 31, 1998 increased
$633,012 or 108.6% to $1,215,633 compared to the quarter ended December 31, 1997
representing 90.3% of revenue resulting in a margin of 9.7%. Cost of Goods Sold
for the quarter ended December 31, 1997 was $582,621 or 80.9% of revenue
resulting in a margin of 19.1%. The decrease in margins is a combination of an
increase in COGS for HSP in the amount of $34,493 and a decrease in COGS for SSI
in the amount of $63,001 and an increase in COGS for NI in the amount of
$661,520.
COGS as a percentage of revenues for HSP was 96.1% for the quarter ended
December 31, 1998 resulting in a margin of 3.9% compared to a margin of 3.3% for
the quarter ended December 31, 1997. The low margins on HSP revenues is due to
market pressure to lower prices on HSP products from the Company's competitors
and customers including the result of the competitive bidding process required
for sales to public entities.
COGS as a percentage of revenues for SSI was 38.2% for the quarter ended
December 31, 1998 resulting in a margin of 61.8% compared to a margin of 35.0%
for the quarter ended December 31, 1997. The increase in margins is a result of
MSI obtaining an SSI contract with Siemens Nixdorf for system integration. This
contract requires that Siemens Nixdorf supply all hardware and software products
to be integrated into the systems. Additional increases in margins are a result
of a contract to install Texas State Lottery vending machines in retail
businesses. This contract requires the lottery contractor to supply all hardware
cost.
COGS as a percentage of revenues for NI was 97.4% for the quarter ended December
31, 1998 resulting in a margin of 2.6% compared to a margin of 20.2% for the
quarter ended December 31, 1997. The decrease in margins relate to specific
significant school district network installation contracts that were in place
during each quarter. During the nine months ending December 31, 1998 MSI
received a contract of approximately $700,000 with San Felipe Del Rio CISD (Del
Rio) for network system installation. The margin on this contract was less due
to competitive bidding required by public entities. Additional contracts with
Del Rio were received, subsequently, that allow the opportunity for increased
overall margins. Aggregate contracts and purchase orders with Del Rio are now in
excess of $1 million.
Selling, General and Administrative Expenses for the quarter ended December 31,
1998 of $1,730,879 represents 128.6% of Revenues. The 1998 amount represents an
increase over the quarter ended December 31, 1997 of $405,051 or 30.6%.
Approximately $153,000 of the increase represents the increase in staff salaries
and benefits. Staff additions include technical staff, sales staff, accounting
staff and middle management. These increases are needed as the Company prepares
to offer collocation services at its Austin, Texas facility and will also enable
the Company to work on larger service contracts. Increases in professional fees
of $398,000 is largely attributable the reporting requirements associated with
being a public company and fees paid for technical consulting related to the
design and implementation of the Collocation services described in the "Recent
Developments" section above. Occupancy expense increased approximately $57,000
due to facility expansion and increased staffing. Interest
13
<PAGE> 14
expense decreases of $154,000 is a result of a reduction in late fees and
interest charged on past due invoices and decrease line of credit usage.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997.
Revenues for the nine months ended December 31, 1998 of $2,941,542 increased
$202,046 or 7.4% from the $2,739,496 recorded in the nine months ended December
31, 1997. This increase is a combination of an increase of $80,542 in HSP
revenues; a decrease of $308,429 in SSI revenues and an increase of $429,933 in
NI revenues.
The nominal increase of $80,542 in HSP revenues reflects normal fluctuations in
sale of HSP products.
The $308,429 decrease in SSI revenues relates to a reduction in the scope of
work on two contracts. Revenues on a contract for the installation and servicing
of lottery machines decreased approximately $328,000 from the nine months ended
December 31, 1997 compared to the December 31, 1998 period. Other decreases in
revenues were on a contract for the City of Austin of approximately $64,000 from
the nine months ended December 31, 1997 compared to December 31, 1998 period.
Increases in SSI revenues of approximately $84,000 are attributed to new
contracts received from Siemens Nixdorf and the State of Texas lottery
contractor.
The $429,933 decrease in NI revenues relates to specific significant school
district network installation contracts that were in place during each period.
During the nine months ended December 31, 1997 MSI was finishing on a contract
for Hereford ISD which started in April 1997. During the nine months ended
December 31, 1998, MSI began the installation of a network system under a
contract with San Felipe Del Rio CISD. This contract was executed in July 1998
with installation beginning in August 1998.
Cost of goods sold for the nine months ended December 31, 1998 increased
$755,828 or 40.8% to $2,608,128 compared to the nine months ended December 31,
1997 representing 88.7% of revenue resulting in a margin of 11.3%. Cost of goods
sold for the nine months ended December 31, 1997 was $1,852,300 or 67.6% of
revenue resulting in a margin of 32.4%. The decrease in margins is a combination
of an increase in COGS for HSP in the amount of $490,881 and decrease in COGS
for SSI in the amount of $306,385 and an increase in COGS for NI in the amount
of $571,332.
COGS as a percentage of revenues for HSP was 96.2% for the nine months ended
December 31, 1998 resulting in a margin of 3.8% compared to a margin of 34.4%
for the nine months ended December 31, 1997. The decreasing margins are due to
market pressure to lower prices on HSP products from the Company's competitors
and customers including the result of the competitive bidding process required
for sales to public entities. Contributing to the lower margins for 1998 were
sales made below cost as a result of poor estimating of cost by MSI. Procedures
are now in place to insure profitable margins on HSP sales.
COGS as a percentage of revenues for SSI was 38.2% for the nine months ended
December 31, 1998 resulting in a margin of 61.8% compared to a margin of 35.0%
for the nine months ended December 31, 1997. The increase in margins is a result
of MSI obtaining an SSI contract with Siemens Nixdorf for system integration.
This contract requires that Siemens Nixdorf supply all hardware and software
products to be integrated into the systems. Additional decreases in COGS are a
result of a contract to install Texas State Lottery vending machines in retail
businesses. This contract requires the lottery contractor to supply all hardware
cost.
COGS as a percentage of revenues for NI was 96.9% for the nine months ended
December 31, 1998 resulting in a margin of 3.1% compared to a margin of 25.7%
for the nine months ended December 31, 1997. The decrease in margins relate to
specific significant school district network installation contracts that were in
place during each quarter. During the quarter ending December 31, 1998 MSI
received a contract of approximately $700,000 with San Felipe Del Rio CISD for
network system installation. The margin on this contract was less due to
competitive bidding required by public entities. Additional contracts with Del
Rio were received, subsequent to December 31, 1998, that allow the opportunity
for increased overall margins. Aggregate contracts and purchase orders with Del
Rio are now in excess of $1 million.
Selling, General and Administrative Expenses for the nine months ended December
31, 1998 of $4,499,606 represents 153.0% of Revenues. The 1998 amount represents
an increase over the nine months ended December 31, 1997 of $1,719,107 or 61.8%.
Approximately $985,000 of the increase represents the increase in staff salaries
and benefits. Staff additions include technical staff, sales staff, accounting
staff and middle management. These increases are needed as the Company prepares
to offer collocation services at its Austin, Texas facility and will also enable
the Company to work on larger service contracts. Increases in professional fees
of $755,000 is attributable to the reporting requirements associated with being
a public company and fees paid for technical consulting related to the design
and implementation of the Collocation services described in the "Recent
Developments" section
14
<PAGE> 15
above. Occupancy expense increased approximately $167,000 due to facility
expansion and increased staffing. Interest expense decreases of $210,000 is a
result of a reduction in late fees and interest charged on past due invoices and
decrease line of credit usage.
Going Concern Issues
The Company's significant historical losses raise a doubt as to the Company's
ability to continue as a going concern. The Company plans to address the going
concern issues described in the notes to the financial statements through an
additional private placement of series E preferred stock and from substantial
contracts signed during fiscal year ending March 31, 1999, which will provide
sufficient working capital and cash flows for the next twelve month period.
However, there can be no assurance that the Company will be able to secure such
additional capital or that the contracts will generate sufficient cash flows or
working capital. Subsequent to March 31, 1998, the Company received $2.8 million
dollars in gross proceeds from the Series D Preferred Stock Private Placement
that have been used to retire debt, decrease past due accounts payable and for
operating expenses. The Company has completed arrangements with a private
investment group for a private placement of a newly created series E of
preferred stock with gross proceeds to the Company of approximately $4.2 million
to take place in November 1998 through April 1999. Approximately $1.5 million
was received in November 1998 on the Series E private placement with the balance
to be received through April 1999.
Management, based upon expressions of interest, estimated growth and facility
capacities, believes that its contracts with GTE and Siemens Nixdorf (the
"Contracts") have the possibility of producing revenues of approximately $8
million during the next twelve month period. Management further anticipates the
contracts to yield approximately 10% of revenues as net income. The Company has
purchased the required equipment with capital leases as of September 30, 1998,
and will begin operations under the contracts by February 1999. The proceeds
from the Series E Preferred will allow the Company to remodel the existing
facility and continue operations through the end of the current fiscal year, by
which point it is anticipated that the contracts will be generating positive
cash flow and adequate working capital.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended December 31, 1998 and the year ended March 31,1998,
the Company's total assets were $4,236,054 and $2,699,452 respectively, with
liabilities of $3,913,473 and $2,753,403, respectively. Current assets of
$2,748,414 and $1,898,621 represent 80.4% and 90.8% of current liabilities of
$3,419,500 and $2,090,701. Deterioration of the Company's cash position is a
result of the Company's continuing operating losses. See "Going Concern" in Note
1 to the financial statements above. The Company's liabilities of $3,913,473 at
December 31,1998 consist of $1,600,000 of a secured line of credit, $1,819,500
of current liabilities and $493,973 of long-term liabilities.
Net shareholders equity as of December 31, 1998 and March 31, 1998 was $322,581
and ($53,951), respectively. During the year ended March 31, 1998, and the nine
months ended December 31, 1998, the Company completed private placements of
Series B Stock, Series C Stock and Series D Stock. The Series E Stock private
placement was partially completed through December 31, 1998 with the Company
receiving $1,485,000 in exchange for 49,500 shares of Series E Stock. Receipt of
these funds enabled the Company to fund its operations, reduce its outstanding
debt and pay off past due accounts payable.
From December 31, 1998 through March 31, 1999, the Company received gross
proceeds of $2,105,040 for 70,168 additional shares of Series E Preferred Stock
at a purchase price of $30.00 per share. The Company paid cash of $220,995 and
issued 4,190 shares of Series E Preferred Stock as payment of commission fees of
the private placement. Also, options to purchase 36,084 shares of Common Stock
at $4.50 per share were issued as part of the agreement. The stock options have
a fair value of $136,784.
Subsequent to March 31, 1999, the Company received gross proceeds of $600,000
for 20,000 additional shares of Series E Preferred Stock at a purchase price of
$30.00 per share. The Company paid cash of $73,200 as payment of commission fees
of the private placement. This completed the Series E Private Placement.
15
<PAGE> 16
During the nine months ended December 31, 1998, working capital decreased
$479,006 from March 31, 1998. Accounts payable, accrued expenses, and accounts
receivable increased as a result of increased sales. At December 31, 1998, the
Company had a working capital deficit of $671,086 compared to a working capital
deficit of $192,080 at March 31, 1998. The Company was current on all
significant accounts payable at December 31, 1998. As of March 31, 1998 the
Company was more than 30 days past due on $170,000 or 57% of its accounts
payable. The Company's account receivables at December 31, 1998 include
approximately $465,000 from the Del Rio Consolidated School District, which was
subsequently collected.
The Company has a critical need for additional working capital to meet
contractual obligations under the GTE Agreements. Management believes that the
GTE Agreements with Siemens Nixdorf Agreements have the potential to increase
revenue levels, provided that sufficient working capital is obtained.
Subsequent Events
As of March 23, 1999, the Company has been certified by GTE's BBN Professional
Services as meeting their technology and service quality standards for network
architecture, security architecture and facilities design. The Company is the
first to receive this certification. Throughout the last half of fiscal year
1999, the Company, in conjunction with GTE's BBN Professional Services
consultants designed and implemented the Internet Accelerator Portal ("IAPTM").
The IAPTM accelerates end-to-end Internet connectivity, increasing the user's
proximity and access speed to the Internet's content through direct connection
via the POP. This allows direct access to virtually unlimited bandwidth on
demand and eliminates the need for costly local loop circuits. End-users access
high speed connectivity services by taking advantage of Digital Subscriber Line
("DSL") technology. In May 1999, the Company formed an alliance with
Southwestern Bell to provide Southwestern Bell's DSL service ("the Southwestern
Bell DSL Reseller's Agreement"). As an authorized reseller of Southwestern
Bell's DSL service, the Company will offer its customers (Internet Service
Providers ("ISPs") and other resellers) the opportunity to leverage Southwestern
Bell's broadband technology and provide them with high speed links, increased
bandwidth and Asynchronous Transfer Mode, a cell-based switching technology
designed for broadband transmission of voice, data and video. The combined
IAP(TM), BBN Certification and DSL Agreement, when operational, will enable the
Company 's customers to access the Internet or corporate networks up to 200
times faster than conventional analog modems.
Subsequent to December 31, 1998, an additional 8,701,412 shares of Common Stock
were issued comprised as follows. During the last quarter of fiscal year ended
March 31, 1999: (i) 94,340 shares of Series C Preferred were converted to
943,400 shares of Common Stock; (ii) 65,000 shares of Series D Preferred were
converted to 650,000 shares of Common Stock; and (iii) 32,242 shares of Common
Stock were issued as dividends for the Series B, C, D, and E Preferred.
Subsequent to March 31, 1999: (i) 399,995 shares of Series B Preferred were
converted to 3,999,950 shares of Common Stock; (ii) 177,335 shares of Series D
Preferred were converted to 1,773,350 shares of Common Stock; and (iii) 130,247
shares of Series E Preferred were converted to 1,302,470 shares of Common Stock.
On February 22, 1999, the Company hired Glenn Birk as Vice President of Sales
and he was subsequently named an officer of the Company. Mr. Birk has over 9
years of experience in sales at NCR, AT&T, Lawson Software, and BBN/GTE. Prior
to joining the Company, Mr. Birk was an Account Executive for BBN/GTE and was
recognized as the company's sixth leading sales representative for 1998. Mr.
Birk holds a Bachelors of Business Administration degree in Marketing from the
University of Texas at Austin. Mr. Birk's employment is currently not the
subject of an employment contract.
As of March 24, 1999, Roger M. Lane became the Company's Chief Operating Officer
pursuant to an employment agreement between Mr. Lane and the Company (the "Lane
Agreement"). The Lane Agreement provides for an annual salary of $120,000 and
reimbursement of ordinary, necessary and documented business expenses. In
addition, the Lane Agreement provides for a stock option to purchase up to
450,000 shares of Common Stock vesting as follows: (i) options to purchase
100,000 shares of Common Stock will vest at six months after the grant date of
March 24, 1999; (ii) options to purchase an additional 110,000 shares of Common
Stock will vest on the first anniversary of the grant date; and (iii) options to
purchase 120,000 shares will vest on each of the second and third anniversary of
the grant date. The agreement is terminable by either party. Mr. Lane has more
than 20 years of experience in operations and logistics management in the
computer, copier, and software industries. Prior to joining the Company, Mr.
Lane was the Chief Operating Officer at Techworks, Inc. in Austin, Texas. Prior
to that, Mr. Lane was Vice-President of Operations at Ashton-Tate Corporation in
Torrance, California and Vice-President of Logistics at Intellogic Trace, Inc.
and Datapoint Corporation, both of San Antonio Texas. He holds a Bachelors of
Science degree in Mechanical Engineering from the
16
<PAGE> 17
University of Maine at Orono, and a Masters of Science degree in Management
(Inventory and Production Control) from Rensselaer Polytechnic Institute, Troy,
New York.
As of March 31, 1999, the Company has agreed to settle its lawsuits related to
the Company's relationship with a former consultant, Kenneth O'Neal ("O'Neal")
and a firm which he controls, Argus Management, Inc. ("Argus"). On December 18,
1997 Argus filed a lawsuit in Kerr County, Texas, 216th Judicial District, to
collect on two promissory notes in the aggregate principal amount of $200,000.
The Company vigorously defended this lawsuit and filed a related suit against
O'Neal and Argus in Travis County, Texas on February 6, 1998, alleging fraud,
usury in connection with the promissory notes, and seeking an order from the
Court demanding that Argus transfer 293,185 shares of Common Stock of MSI, held
by Argus, to various shareholders who have previously purchased such shares (the
"Argus Related Shares"). The agreed upon settlement provides that Argus return
200,250 shares of MSHI's Common Stock to MSHI, that MSHI tender $250,000 to
Argus and that MSHI issue the balance of 92,935 shares of Common Stock as
restricted shares. The parties have agreed to cancel the two promissory notes
from MSHI to Argus and release all other claims among the parties.
On April 20, 1999, Jose Chavez, Mitchell Kettrick and Jaime Munoz, the President
and CEO, Secretary and Vice-President of Operations, respectively, were
terminated.
On June 2, 1999, a group of the Company's Common Stock shareholders filed a
Schedule 13-D for the sole purpose of acting as a group to exercise a change in
control of the Company's Board of Directors. The group filing the Schedule 13-D
consists of 25 shareholders with an aggregate of 10,324,499 shares of the
Company's Common Stock or 47.36% of the 21,802,016 shares of Common Stock
outstanding as of May 31, 1999.
OTHER FACTORS THAT MAY AFFECT OPERATING RESULTS
The Company's operating results may fluctuate due to a number of factors,
including, but not limited to, the ability of the Company to develop and expand
relationships with new and existing clients, the ability to accurately estimate
costs for fixed-fee contracts, the increased level of competition in the market,
the ability to retain and hire experienced and qualified personnel. In addition,
all of the above factors are difficult for the Company to forecast, and any one
of which may materially adversely affect the Company's business and operating
results for one quarter or a series of quarters.
17
<PAGE> 18
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On December 18, 1997, Argus Management, Inc. filed Plaintiff's Original Petition
in the 216th District Court of Kerr County, Texas. Argus claims the Company and
Mr. Jose G. Chavez, as joint obligors, defaulted on their obligation to Argus
pursuant to two promissory notes for $100,000 each, both dated June 2, 1997.
Argus is seeking a judgment for $200,000, together with interest on the notes at
the rate of 20% per annum from June 2, 1997, through the date the notes are
satisfied. As of March 31, 1998, $65,000 had been disbursed to third parties in
satisfaction of obligations of Argus Management, Inc. The $65,000 has been
recorded in other receivables in the accompanying financial statements.
On February 6, 1998, the Company filed Plaintiff's Original Petition in the
above-referenced case. The Company asserts breach of contract, fraud,
defamation, usury, and civil conspiracy claims against Argus Management, Inc.
The Company strongly disagrees with Argus' contentions and denies liability to
Argus under the notes and plans to oppose vigorously Argus' claims and recover
the amounts disbursed to third parties.
On January 22, 1998, the Company filed a lawsuit against Bits Technical
Corporation for damages attributable to a breach of commitment. This matter is
still pending. On August 17, 1998, Bits Technical Corporation ("BTC") filed a
counterclaim against the Company in connection with the above case. In the
counterclaim, BTC asserts the Company fraudulently induced BTC to promise to
loan money to the company. In particular, BTC claims the Company promised
certain contracts and business opportunities to BTC that the Company was
unwilling or unable to deliver.
On November 20, 1996, MCA Communications, Inc. ("MCA") filed a lawsuit against
the Company in County Court at Law No. 2 in Harris County, Texas. MCA claims the
Company owes $12,485.40 for certain goods and services that MCA claims to have
provided to MSI in connection with various projects for the Texas Department of
Health. MCA also seeks interest, costs, and attorneys' fees. On January 6, 1997,
the Company filed its answer and denied the above-referenced claim in its
entirety.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
For a discussion of Changes in Securities and Use of Proceeds, refer to Note 4,
Stockholders' Equity, in the Notes to Consolidated Financial Statements in
Part I, Item 1.
ITEM 3: DEFAULT UPON SENIOR SECURITIES
NONE
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
Item 5. OTHER MATTERS
A shareholder who wishes to make a proposal at the 1999 Annual Meeting of
Shareholders without complying with the requirements of the SEC's Rule 14a-8
(and therefore without including the proposal in the Company's proxy materials)
should notify the Company's Secretary, at the Company's principal executive
offices, of that proposal by July 1, 1999. If a shareholder fails to give notice
by that date, then the persons named as proxies in the proxy cards solicited by
the Company's Board of Directors for that meeting will be entitled to vote the
proxy cards held by them regarding that proposal, if properly raised at the
meeting, as directed by the Company's management.
The Company's former Chief Financial Officer, David Hill, is no longer employed
by the Company and is pursuing other business interests.
18
<PAGE> 19
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27.1 FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K
16.1 FORM 8-K/A, FILED SEPTEMBER 25, 1998
16.2 FORM 8-K, FILED SEPTEMBER 17, 1998
16.3 FORM 8-K, FILED SEPTEMBER 17, 1998
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MSI HOLDINGS, INC.
Date: October 13, 1999 By: /s/ Robert Gibbs
------------------------------
Robert Gibbs, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of this
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Steve Metzger Director October 13, 1999
- ---------------------------------
Steve Metzger
/s/ Davinder Sethi Director October 13, 1999
- ---------------------------------
Davinder Sethi
/s/ Ernesto Chavarria Director October 13, 1999
- ---------------------------------
Ernesto Chavarria
/s/ Blandina Cardenas Director October 13, 1999
- ---------------------------------
Blandina Cardenas
/s/ Daniel Dornier Director October 13, 1999
- ---------------------------------
Daniel Dornier
/s/ Humbert Powell Director October 13, 1999
- ---------------------------------
Humbert Powell
/s/ Robert Gibbs President and
- --------------------------------- Chief Executive Officer October 13, 1999
Robert Gibbs
/s/ Doug Banister Chief Financial Officer October 13, 1999
- ---------------------------------
Doug Banister
/s/ Stephen Hoelscher Secretary, Controller
- --------------------------------- Chief Accounting Officer October 13, 1999
Stephen Hoelscher
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
20
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MSI
HOLDINGS, INC. FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD ENDED
DECEMBER 31, 1998 AS RESTATED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 73,861
<SECURITIES> 0
<RECEIVABLES> 840,606
<ALLOWANCES> 0
<INVENTORY> 312,300
<CURRENT-ASSETS> 2,748,414
<PP&E> 2,031,969
<DEPRECIATION> 544,329
<TOTAL-ASSETS> 4,236,054
<CURRENT-LIABILITIES> 3,419,500
<BONDS> 0
0
7,449,458
<COMMON> 1,317,796
<OTHER-SE> (8,444,673)
<TOTAL-LIABILITY-AND-EQUITY> 4,236,054
<SALES> 2,941,542
<TOTAL-REVENUES> 2,941,542
<CGS> 2,608,128
<TOTAL-COSTS> 2,608,128
<OTHER-EXPENSES> 4,499,606
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 412,035
<INCOME-PRETAX> (4,578,227)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,578,227)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,578,227)
<EPS-BASIC> (0.93)
<EPS-DILUTED> (0.93)
</TABLE>
