<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
----------------------
Commission File Number 0-8164
MSI HOLDINGS, INC.
(herein referred to as "Registrant", "Company", "MSHI", "we", "us", and "our")
(Exact name of registrant as specified in charter)
UTAH 87-0280886
(State of incorporation or organization) (IRS Employer I.D. No.)
501 WALLER STREET AUSTIN, TEXAS 78702
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number, including area code) 512-476-6925
Securities registered pursuant to section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, 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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-QSB or any amendment to
this Form 10-QSB. [ ]
As of June 30, 1999 the Registrant had 22,650,212 shares of common stock issued
and outstanding.
Transitional Small Business Disclosure Format (check one): Yes (X) NO ( )
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MSI HOLDINGS, INC.
FORM 10-QSB/A
FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Consolidated Financial Statements (unaudited) 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults on Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Matters 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE PAGE 13
</TABLE>
2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MSI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS June 30,
Current assets 1999
------------
(restated)
<S> <C>
Cash $ 385,132
Accounts receivable - trade 403,169
Inventory 14,742
Other receivables - advances 78,377
Other current assets 57,516
------------
Total current assets 938,936
Property, plant, and equipment, net 2,047,785
------------
TOTAL ASSETS $ 2,986,721
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable - trade $ 309,748
Other accrued expenses 141,442
Current maturities of notes payable 196,728
Current portion of obligations under capital leases 118,736
------------
Total current liabilities 766,654
Long-term liabilities
Notes payable 42,224
Obligations under capital leases 667,447
Deferred rent 202,419
------------
Total long-term liabilities 912,090
Commitments and contingencies --
------------
Total liabilities 1,678,744
------------
Stockholders' equity
Preferred stock; 10,000,000 shares authorized:
Convertible preferred stock Series B; $5.30 stated value; 490,000 authorized,
5 shares issued and outstanding 27
Convertible preferred stock Series D; $10.60 stated value; 279,657 authorized,
19,005 shares issued and outstanding 201,453
Convertible preferred stock Series E; $30.00 stated value; 157,500 authorized,
16,005 shares issued and outstanding 480,150
Common stock at $.10 par value; 50,000,000 authorized, 22,650,212
shares (excluding 200,250 shares held in treasury) issued and outstanding 2,265,021
Additional paid-in capital 22,501,695
Accumulated deficit (24,140,369)
------------
Total stockholders' equity 1,307,977
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,986,721
============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
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MSI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
June 30,
1999 1998
------------ ------------
<S> <C> <C>
Revenues: (restated)
Hardware, software and peripherals $ 120,287 $ 503,632
Networks, LAN/WAN 58,990 23,898
Service, support and integration 260,789 74,099
Broadband Internet services 9,077 --
------------ ------------
449,143 601,629
------------ ------------
Cost of Goods Sold:
Hardware, software and peripherals 185,912 419,204
Networks, LAN/WAN 194,482 17,207
Service, support and integration 81,386 64,735
Broadband Internet services 45,666 --
------------ ------------
507,446 501,146
------------ ------------
Gross margin (58,303) 100,483
------------ ------------
Selling, General and Administrative Expenses:
Salaries and benefits 696,214 668,933
Professional fees and consultants 414,497 295,442
Occupancy 94,560 89,679
Depreciation and amortization 97,586 52,991
Vehicle expense 7,229 34,610
Other Expense 100,176 99,375
------------ ------------
Total Selling, General and Administrative Expenses 1,410,262 1,241,030
Interest expense, net 48,556 391,636
------------ ------------
Net Loss $ (1,517,121) $ (1,532,183)
============ ============
Preferred stock dividends and discounts (669,013) (4,005,641)
------------ ------------
Net loss to Common stockholders $ (2,186,134) $ (5,537,824)
============ ============
Basic and diluted net loss per share $ (0.12) $ (0.48)
============ ============
Basic and diluted weighted average shares outstanding 18,453,956 11,507,002
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MSI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
June 30,
1999 1998
----------- -----------
Cash flows from operating activities: (restated)
<S> <C> <C>
Net loss $(1,517,121) $(1,532,183)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization expense 97,586 52,991
Amortization of debt discount -- 371,000
Amortization of deferred rent 10,135 --
Common stock and options issued for compensation -- 109,500
Changes in operating assets and liabilities:
Accounts receivable - trade 172,062 (154,314)
Inventory (14,742) 99,451
Other receivables - advances 1,322 (91,140)
Accounts payable - trade (1,463,463) (110,797)
Other accrued expenses (2,043) 37,037
----------- -----------
Net cash used in operating activities (2,716,264) (1,218,455)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant, and equipment (117,716) (193,071)
Proceeds from sales leaseback transaction 127,685 --
----------- -----------
Net cash used in investing activities 9,969 (193,071)
----------- -----------
Cash flows from financing activities:
Payments on bank line of credit (200,000) (158,966)
Payments on notes payable (49,973) (170,900)
Payments on obligations under capital leases (13,481) (22,404)
Proceeds - private placement of preferred stock 526,800 1,746,094
Proceeds - issuance of restricted common stock 2,819,610 --
----------- -----------
Net cash provided by financing activities 3,082,956 1,393,824
----------- -----------
NET CHANGE IN CASH 376,661 (17,702)
CASH AT BEGINNING OF PERIOD 8,471 25,786
=========== ===========
CASH AT END OF PERIOD $ 385,132 $ 8,084
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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MSI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
June 30,
1999 1998
---------- ----------
<S> <C> <C>
Supplemental disclosure: (restated)
Cash paid during the year for:
Interest $ 44,491 $ 20,636
Supplemental schedule of non-cash investing and financing activities: Preferred
stock issued for :
Placement agent fees $ -- $ 100,350
Stock options or warrants issued for:
Placement agent fees -- 539,619
Common stock issued for:
Preferred stock dividends 69,013 66,743
Discount on preferred stock issued 600,000 3,938,898
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MSI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)
JUNE 30, 1999 (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. In the opinion
of management all adjustments, consisting of normal recurring adjustments,
necessary for the fair presentation of financial position and results of
operations for the interim periods presented have been reflected herein. The
results of operation 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, 1999, 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 a net loss of $1,517,121 for the three months ended June 30, 1999. The
ability of the Company to continue as a going concern is dependent on the
Company obtaining additional financing to fund operations and capital
improvements.
At March 31, 1999, the Company had completed arrangements with a private
investment group for the private placement of up to 1.5 million shares of the
Company's Common Stock to raise approximately $4.5 million in capital. From
April through July 15, 1999, the Company received approximately $3.2 million in
this private placement. The Company received $526,800 in net proceeds from the
private placement of 20,000 shares of the Company's Series E Preferred Stock,
$30 stated value (the "Series E Preferred") during the three months ended June
30, 1999. These funds have been used to retire debt, decrease past due accounts
payable and pay operating expenses. In addition, management closed a substantial
contract with GTE during the year ended March 31, 1999. In the first quarter of
fiscal year 2000, the Company established an affiliation with Southwestern Bell
as a Digital Subscriber Line ("xDSL") service reseller which will foster its
ability to provide state-of-the-art connectivity services.
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
The Company had a secured line of credit agreement with a bank which was paid in
full at April 30, 1999 and was not renewed.
NOTE 3 - NOTES PAYABLE
The Company was out of compliance with debt covenants on certain notes payable
as of June 30, 1999. Amounts outstanding related to these notes have been
classified as current liabilities.
NOTE 4 - STOCKHOLDERS' EQUITY
During the three months ended June 30, 1999, the Company received gross proceeds
of $600,000 from the Private Placement of 20,000 shares of Series E, 6%
Cumulative Convertible Non-Voting Preferred Stock, Stated value $30.00 per
share. The Company paid $73,200 in cash 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.
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<PAGE> 8
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 $600,000 in the quarter ended June 30, 1999, which
is equivalent to the gross proceeds of the offering.
During the quarter ended June 30, 1999, 399,995 shares of Series B, 177,335
shares of Series D, and 130,247 shares of Series E Preferred Stock were
collectively converted to 7,075,770 shares of Common Stock.
During the quarter ended June 30, 1999, the Company issued 944,033 shares of
common stock in a private placement resulting in net proceeds of $2,819,610. The
Company paid $115,000 in cash and issued 15,000 shares of common stock for
payment of commission fees of the private placement.
During the quarter ended June 30, 1999, 12,057 shares of common stock were
issued as preferred stock dividends and were recorded as a reduction of retained
earnings in the amount of $69,013.
NOTE 5 - RESTATEMENT OF EARNINGS
The Company has restated earnings for the period ended June 30, 1999 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>
As Restated Previously Reported
-------------- -----------------------
<S> <C> <C>
Net loss $ (1,517,121) $ (1,799,857)
Preferred stock dividends and discounts (669,013) (69,013)
Net loss applicable to common stockholders (2,186,134) (1,868,870)
Basic and diluted net loss per share (0.12) (0.09)
</TABLE>
NOTE 6 - CONTINGENCIES AND LEGAL MATTERS
During the year ended March 31, 1999, the Company incurred a business obligation
with a consulting firm whose principal is an officer of the Company, and an
individual, who is a Director of the Company. The consulting firm also has a
financial arrangement with another Director of the Company. The consulting firm
is claiming compensation of 250,000 shares of the Company's common stock for
services allegedly performed. The Company disputes the validity of the claim. As
of September 28, 1999, no compromise of this claim has been reached.
NOTE 7 - SUBSEQUENT EVENTS
Subsequent to June 30, 1999, an additional 8,000 shares of the Company's Series
E Preferred Stock were converted into 80,000 shares of the Company's Common
Stock.
On July 28, 1999, the Company was sued by its former President seeking more than
$50,000, excluding costs and attorneys' fees. A settlement was reached during
mediation on September 20, 1999. Formal settlement documents are being prepared
for execution by the parties to the lawsuit. The terms of settlement are
confidential, but there is no material adverse effect on the Company's results
of operations or financial condition from the settlement terms.
On August 9, 1999, the stockholders approved an amendment to the 1998 Stock
Option Plan to increase the number of common shares reserved for future issuance
from 1,500,000 to 4,500,000 shares.
On August 9, 1999, the stockholders approved the Non-Employee Directors Stock
Option Plan. The Plan provides for the grant of nonqualified options, as defined
by the Internal Revenue Code, to directors who are not employees of the Company.
8
<PAGE> 9
In September 1999, we received $1,250,000 in bridge loans from three accredited
individuals. These promissory notes bear interest of 8 1/4% per annum and mature
in March 2000 or upon consummation of a secondary public offering, whichever is
sooner. In connection with these loans, stock warrants were issued to purchase
an aggregate of 125,000 shares of our common stock with an exercise price of
$0.10 per share. The shares of common stock into which these warrants are
exercisable as "restricted" securities and are subject to the provisions of Rule
144 under the Securities Act.
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, 1999.
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, 1999, as
filed with the Commission.
RESULTS OF OPERATIONS
Quarter Ended June 30, 1999, compared with the Quarter Ended June 30, 1998:
Comparison Table
<TABLE>
<CAPTION>
HARDWARE
SOFTWARE SERVICE,
BROADBAND AND NETWORKS SUPPORT AND
INTERNET PERIPHERALS LAN/WAN INTEGRATION TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
QUARTER ENDED JUNE 30, 1999
Revenues $ 9,077 $ 120,287 $ 58,990 $ 260,789 $ 449,143
Cost of goods sold 45,666 185,912 194,482 81,386 507,446
Gross profit (loss)($) (36,589) (65,625) (135,492) 179,403 (58,303)
Gross profit (loss)(%) (403.10) (54.6) (229.7) 68.8 (13.0)
QUARTER ENDED JUNE 30, 1998
Revenues $ -- $ 503,632 $ 23,898 $ 74,099 $ 601,629
Cost of goods sold -- 419,204 17,207 64,735 501,146
Gross profit (loss)($) -- 84,428 6,691 9,364 100,483
Gross profit (loss)(%) -- 16.8 28.0 12.6 16.7
INCREASE/(DECREASE)
Revenues $ 9,077 $ (383,345) $ 35,092 $ 186,690 $ (152,486)
Cost of goods sold 45,666 (233,292) 177,275 16,651 6,300
Gross profit (loss)($) (36,589) (150,053) (142,183) 170,039 (158,786)
Gross profit (loss)(%) (403.1) (71.4) (257.7) 56.2 (29.7)
</TABLE>
9
<PAGE> 10
Total revenues for the quarter ended June 30, 1999, decreased $152,486,
or 25.3%, from the total revenues recorded for the same period in the prior
year. This was caused by a decrease of $383,345 in hardware, software and
peripherals revenue, which was partially offset by increases in revenues from
network LAN/ WAN and service, support and integration, and the addition of
broadband Internet services. The revenue from broadband Internet services was
$9,077 and only represents revenues from the initiation of the service in late
June 1999 through the end of the quarter. The decrease in hardware, software and
peripherals reflects a reduction in large one-time sales to governmental
agencies. This is a direct result of our shift in focus from hardware, software
and peripherals to broadband Internet services. The increase of $35,092 in
network LAN/ WAN revenues was due to normal fluctuations in installation
projects that were in place during each period. The $186,690 increase in
service, support and integration revenues is due to increased activity on our
service contract with Siemens Nixdorf.
Cost of goods sold for the quarter ended June 30, 1999, increased
$6,300, or 1.3%, from the same period in the prior year. The total cost of goods
sold includes $45,666 related to broadband Internet services that were not
offered in 1998. The cost of goods sold related to network LAN/ WAN increased
$177,275, and the cost of goods sold related to service, support, and
integration increased $16,651. There was a decrease of $233,292 in cost of goods
sold for hardware, software and peripherals due to the corresponding reduction
in revenues.
The gross margin for the quarter ended June 30, 1999, was ($58,303), or
(13.0%) of total revenue, compared to a gross margin of $100,483, or 16.7% of
total revenue, for the same period in the prior year. The gross margin for
hardware, software and peripherals for the quarter ended June 30, 1999, was
(54.6%), compared to a gross margin of 16.8% in the quarter ended June 30, 1998.
This 71.4% decrease is the result of fixed costs and decreasing revenue. In
addition, profits are decreasing due to price declines, competitive bidding and
other industry conditions. The gross margin for network LAN/WAN was (229.7%) for
the quarter ended June 30, 1999, compared to a gross margin of 28.0% for the
same period in the prior year. The decrease in margin of 257.7% is the result of
fixed costs and increased salaries related to network LAN/WAN installations. The
gross margin for service, support and integration was 68.8% for the quarter
ended June 30, 1999, compared to a gross margin of 12.6% for the quarter ended
June 30, 1998. The increase is a result of increased revenues and lower fixed
costs associated with service contracts.
Selling, general and administrative expenses, excluding interest
expense, for the quarter ended June 30, 1999, were $1,410,262 or 314.0% of
revenue, compared with $1,241,030, or 206.3% of revenue for the quarter ended
June 30, 1998. This is an increase of $169,232, or 13.6%. Increases in salaries
and benefits account for $27,281. Staff additions include technical, sales and
accounting staff and project management personnel. Additional personnel were
required to enable the Company to enter the broadband Internet services market.
Depreciation and amortization expense increased $44,595. This increase was due
to the first full quarter of depreciation expense being recorded on equipment
acquired for the build-out of data center at our Austin, Texas facility.
Increases in professional fees and consultants were $119,055.
Interest expense for the quarter ended June 30, 1999, was $48,556,
which was 10.8% of revenues. Interest expense for the quarter ended June 30,
1998, was $391,636, which was 65.1% of revenues. Interest expense decreased
$343,080 from 1998 to 1999, which was due to a discount charge in 1998 to
interest for senior convertible debt issued for cash.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a critical need for additional working capital to meet
obligations under lease agreements with GTE relating to the GTE POP located in
our primary facility in Austin, Texas. Management believes that its relationship
with GTE has the potential to substantially increase revenue if sufficient
working capital is obtained.
As of June 30, 1999, MSI had working capital of $172,282. This was an
increase of $1,922,218 from the working capital deficit of $1,749,936 on March
31, 1999. Accounts payable and accrued expenses decreased as a result of the
private placement of our Series E preferred stock and the common stock private
placement during the quarter. In addition, accounts receivable decreased
$172,061 during the quarter ended June 30, 1999. As of June 30, 1999, we were
more than 30 days past due on approximately $170,000 of accounts payable trade.
We used $2,716,264 and $1,218,455 in our operating activities for the
three month period ended June 30, 1999 and June 30, 1998, respectively. This was
mainly the result of losses of $1,517,121 and $1,532,183 for the three month
period ended June 30, 1999 and June 30, 1998, respectively. We provided $9,969
and used $193,071 in investing activities for the three month period ended June
30, 1999 and June 30, 1998, respectively. Our financing activities for the three
month period ended June 30, 1999 and June 30, 1998, provided $3,082,956 and
$1,393,824, respectively, from the private placement of our securities.
10
<PAGE> 11
Subsequent to March 31, 1999, we paid our loans with Compass Bank, N.A.
in full and eliminated the borrowing under our fully secured line of credit. Net
stockholders' deficit as of March 31, 1999, was $521,313 and net stockholders'
equity was $1,307,977 as of June 30, 1999. During the year ended March 31, 1999,
we completed three phases of the Series D preferred stock private placement and
the Series E preferred stock private placement. Receipt of these funds enabled
us to purchase property, plant, and equipment, retire debt, decrease past due
accounts payable and pay for operating expenses.
In September 1999, we received $1,250,000 in bridge loans from three
accredited individuals. These promissory notes bear interest of 8 1/4% per annum
and mature in March 2000 or upon the consummation of a secondary public
offering, whichever is sooner. In connection with these loans, we also issued
warrants to purchase an aggregate of 125,000 shares of our common stock with an
exercise price of $0.10 per share. The shares of common stock into which these
warrants are exercisable are "restricted" securities and are subject to the
provisions of Rule 144 under the Securities Act.
Management is consulting with investment bankers and plans a private
placement or secondary public offering in the near future.
The auditors' reports relating to our audited balance sheets as of
March 31, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended each contain an
explanatory paragraph as to our ability to continue as a going concern. Such
going concern explanation relates only to our financial statements covered by
the auditors' report.
We believe that funds generated from operations and the net proceeds of
a proposed offering will be sufficient to finance our current and anticipated
operations for at least 12 months after a proposed offering. Our long-term
capital requirements beyond this proposed period will depend on numerous
factors, including, but not limited to, the following:
o The rate of market acceptance of our products and services
o The ability to expand our customer base
o The level of expenditures for sales and marketing and other factors
If the funds from a proposed offering and our revenues are insufficient
to fund the activities in the short or long term, we would need to raise
additional funds by incurring debt or through public or private offerings of our
stock. We may not be able to do either on terms favorable to us, if at all.
11
<PAGE> 12
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 28, 1999, the Company was sued by its former President and
Chief Technology Officer seeking more than $50,000, excluding costs and
attorneys' fees. A settlement was reached during mediation on September 20,
1999. Formal settlement documents are being prepared for execution by the
parties to the lawsuit. The terms of settlement are confidential, but there is
no material adverse effect on the Company's results of operations or financial
condition from the settlement terms.
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 INFORMATION
On April 20, 1999, Jose Chavez, President & CEO, Mitchell Kettrick,
Secretary, and Jaime Munoz, Vice-President of Operations, respectively, were
terminated.
Robert Gibbs joined the company as President and Chief Executive
Officer in June 1999. In July 1999, Roger M. Lane, Chief Operating Officer, was
terminated from the Company. In addition, Patricia Hrabina, Vice President of
Human Resources, Cliff Luckey, Vice President of Technology & Solutions, and
Robert Frank, Executive Vice President of New Business Development were hired
subsequent to June 30, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Registrant filed no Reports on Form 8-K during the quarter covered
by this Report on Form 10-QSB.
12
<PAGE> 13
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: November 12, 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/ Stephen J. Metzger
- ------------------------- Director November 12, 1999
Stephen J. Metzger
/s/ Davinder Sethi
- ------------------------- Director November 12, 1999
Davinder Sethi
/s/ Ernesto Chavarria
- ------------------------- Director November 12, 1999
Ernesto Chavarria
/s/ Blandina Cardenas
- ------------------------- Director November 12, 1999
Blandina Cardenas
/s/ Daniel Dornier
- ------------------------- Director November 12, 1999
Daniel Dornier
/s/ Humbert Powell, III
- ------------------------- Director November 12, 1999
Humbert Powell, III
/s/ Robert Gibbs President and
- ------------------------- Chief Executive Officer November 12, 1999
Robert Gibbs
/s/ Douglas W. Banister
- ------------------------- Chief Financial Officer November 12, 1999
Douglas W. Banister
/s/ Stephen Hoelscher Secretary, Controller November 12, 1999
- -------------------------
Stephen Hoelscher
</TABLE>
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
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 THREE MONTH PERIOD ENDED
JUNE 30, 1999 AS RESTATED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 385,132
<SECURITIES> 0
<RECEIVABLES> 403,169
<ALLOWANCES> 0
<INVENTORY> 14,742
<CURRENT-ASSETS> 938,936
<PP&E> 2,782,027
<DEPRECIATION> 734,242
<TOTAL-ASSETS> 2,986,721
<CURRENT-LIABILITIES> 766,654
<BONDS> 0
0
681,630
<COMMON> 2,265,021
<OTHER-SE> (1,638,674)
<TOTAL-LIABILITY-AND-EQUITY> 2,986,721
<SALES> 449,143
<TOTAL-REVENUES> 449,143
<CGS> 507,446
<TOTAL-COSTS> 507,446
<OTHER-EXPENSES> 1,410,262
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,556
<INCOME-PRETAX> (1,517,121)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,517,121)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,517,121)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
