U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
3 SI HOLDINGS, INC.
(Name of Small Business Issuer in its Charter)
Wyoming 514100 84-0245581
(State or jurisdiction of (Primary Standard I.R.S. Employer
incorporation or Classification Code Identification No.
organization) Number)
6886 South Yosemite Street, Englewood, Colorado 80112; (303) 749-0210
(Address and telephone number of Registrant's principal executive
offices and principal place of business)
Brian F. Faulkner, Esq., 3900 Birch Street, Suite 113, Newport
Beach, California; (949) 975-0544
(Name, address, and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.
CALCULATION OF REGISTRATION FEE
Title of Amount to be Proposed Proposed Amount of
Securities Registered Maximum Maximum Registration
to be (1) Offering Aggregate Fee
Registered Price Per Offering
Unit (2) Price
Common
Stock 50,000,000 $0.13 $ 6,500,00 $1,675.00
The company hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
company shall file a further amendment which specifically states
that this registration statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933 or
until the registration statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may
determine.
Pursuant to Rule 416, such additional amounts to prevent dilution
from stock splits or similar transactions.
(2) Calculated in accordance with Rule 457(c): The average of the
bid and ask price as of December 19, 2000
PROSPECTUS
3 SI HOLDINGS, INC.
50,000,000 Shares
Common Stock *
3 Si Holdings, Inc., a Wyoming corporation , is hereby offering
shares of common stock on a delayed basis under a shelf
registration under Rule 415 pursuant to the terms of this
prospectus. A total of 50,000,000 shares of common stock are to be
registered for sales for cash. This offering is being made on a
best-efforts basis by the company, with no minimum purchase
required. The company's common stock trades on the Over the
Counter Bulletin Board under the trading symbol "TSIH".
The shares offered hereby are highly speculative and involve a high
degree of risk to public investors and should be purchased only by
persons who can afford to lose their entire investment (See "Risk
Factors" on page 5).
These securities have not been approved or disapproved by the U.S.
Securities and Exchange Commission or any state securities
commission nor has the U.S. Securities and Exchange Commission or
any state securities commission passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
Price to Public Underwriting Discounts Proceeds to
And Commissions Issuer
Per Share $ (1) $(0) $(1)
Total Maximum $ (1) $(0) $(1)
Information contained herein is subject to completion or amendment.
The registration statement relating to the securities has been
filed with the U.S. Securities and Exchange Commission. The
securities may not be sold nor may offers to buy be accepted prior
to the time the registration statement becomes effective. This
prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of
these securities in any state in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under
the securities laws of any such state.
Subject to Completion, Dated: ______________, 2001
* Pursuant to SEC Rule 416, there will be a change in the amount
of securities being issued to prevent dilution resulting from stock
splits, stock dividends, or similar transaction
The price per share, the maximum amount to be raised under this
offering and the proceeds to the company will be dependent on the
market price at the times that drawdowns are taken under a common
stock purchase agreement.
(2) No commissions will be paid in connection with the sale of the
shares on this delayed basis.
(3) The Proceeds to the company is before the payment of certain
expenses in connection with this offering. See "Use of
Proceeds."
TABLE OF CONTENTS
PROSPECTUS SUMMARY 5
RISK FACTORS 5
USE OF PROCEEDS 11
DETERMINATION OF OFFERING PRICE 12
PLAN OF DISTRIBUTION 12
LEGAL PROCEEDINGS 13
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS 13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 15
DESCRIPTION OF SECURITIES 16
INTEREST OF NAMED EXPERTS AND COUNSEL 17
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES 18
ORGANIZATION WITHIN LAST FIVE YEARS 22
DESCRIPTION OF BUSINESS 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 30
DESCRIPTION OF PROPERTY 35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 36
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 36
EXECUTIVE COMPENSATION 38
FINANCIAL STATEMENTS 40
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 69
AVAILABLE INFORMATION 69
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information appearing elsewhere in this prospectus. Each
prospective investor is urged to read this prospectus in its
entirety.
The Company.
The company is an e-commerce, transaction and content company
that intends to create Intranet and Internet-based systems in
conjunction with local area governments and high profile
corporations. The company intends to provide local communities with
community based entertainment and information services widely used
in all facets of everyday life and deliver these services through
Internet browsers and wireless devices. Set-top devices, if they
run on an Internet browser, will be supported.
The principal offices of the company's are located at 6886 South
Yosemite Street, Englewood, Colorado 80112. The telephone number
for the company is (303) 749-0210.
The Offering.
50,000,000 shares of common stock of the company will be sold on a
delayed basis under a shelf registration under Rule 415 (shares
outstanding prior to this offering: 41,541,467) (shares to be
outstanding after this offering, assuming a full subscription:
91,541,467), for cash sales under and pursuant to a form of common
stock purchase agreement.
The amount of proceeds from this offering will depend on the
offering price per share and the number of shares sold. The
initial offering price of the shares will be based on the price per
share determined under the terms of the form of common stock
purchase agreement. The proceeds of the offering, less the
expenses of the offering (estimated at $63,675), will be used to
provide working capital for the company.
RISK FACTORS
The securities offered hereby are highly speculative in nature and
involve a high degree of risk. They should be purchased only by
persons who can afford to lose their entire investment. Therefore,
each prospective investor should, prior to purchase, consider very
carefully the following risk factors among other things, as well as
all other information set forth in this prospectus.
Limited Revenues, History of Operating Loss and Accumulated
Deficit.
The company has had limited revenue to date. Although the company
has been involved with the internet industry since 1998, it has
been primarily engaged in research and development. The company
has incurred significant operating losses: $444,742 for the fiscal
year ended June 30, 2000, $3,197,545 for the fiscal year ended June
30, 1999, and $62,918 for the fiscal year ended June 30, 1998. At
September 30, 2000, the company had an accumulated deficit of
$3,561,672. The future growth and profitability of the company
will be principally dependent upon its ability to successfully
complete development and testing of, obtain regulatory approvals
for, and market or license its primary products. Accordingly, the
company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered in connection with
the establishment of a new business in a highly competitive
industry, characterized by new product introductions.
The company anticipates that it will incur substantial operating
expenses in connection with the research, development, testing and
approval of its proposed products. There can be no assurance that
the company will be able to significantly increase revenues.
Failure to obtain additional capital, if needed, would have a
material adverse effect on the company's operations.
Significant Working Capital Requirements.
The working capital requirements associated with the plan
of business of the company will continue to be significant. The
company anticipates, based on currently proposed assumptions
relating to its operations (including with respect to costs and
expenditures and projected cash flow from operations), that it can
generate sufficient cash flow to continue its operations for an
indefinite period at the current level without requiring additional
financing. However, the company will need to raise additional
capital in the next six months, through debt or equity, to
implement fully implement its sales and marketing strategy and
grow. In the event that the company's plans change or its
assumptions change or prove to be inaccurate or if cash flow from
operations proves to be insufficient to fund operations (due to
unanticipated expenses, technical difficulties, problem or
otherwise), the company would be required to seek additional
financing sooner than currently anticipated or may be required to
significantly curtail or cease its operations.
Risk of Product Development.
There can be no assurance that the company will generate
significant revenues in the future from it developed products; and
there can be no assurance that the company will operate at a
profitable level. If the company is unable to obtain customers and
generate sufficient revenues so that it can profitably operate, the
company's business will not succeed. In such event, investors in
the shares of common stock of the company may lose their entire
investment.
As a result of the fixed nature of many of the company's
expenses, the company may be unable to adjust spending in a timely
manner to compensate for any unexpected delays in the marketing of
the company's products or any capital raising or revenue shortfall.
Any such delays or shortfalls will have an immediate adverse
impact on the company's business, operations and financial condition.
Risk of Product Distribution and Market Acceptance.
The company has developed a subscription-based distribution model
for our proprietary products. Although subscription-based services
are commonplace within the information technology industry, this
model represents a significant deviation for the traditional
knowledge management and support center industry. Existing support
center call management products are Windows-based applications
licensed on a per-user basis with an associated annual maintenance
fee. A subscription-based service offers many advantages over
traditional software distribution models. This model has not yet
been proven within the target market.
Risk of Changing Technologies.
The company's business is subject to changes in technology and new
service introductions. Accordingly, the company's ability to
compete will be depend upon its ability to adapt to technological
changes in the industry and to develop services based on those
changes to satisfy evolving client requirements. Technological
changes may create new products or services that are competitive
with, superior to, or render obsolete the services currently
offered.
Risk of Acceptance and Effectiveness of Internet Electronic
Commerce.
The company's success in establishing an e-commerce business
web site will be dependent on consumer acceptance of e-retailing
and an increase in the use of the Internet for e-commerce. If the
markets for e-commerce do not develop or develop more slowly than
the company expects, its e-commerce business may be harmed. If
Internet usage does not grow, the company may not be able to
increase revenues from Internet advertising and sponsorships which
also may harm both the company's retail and e-commerce business.
Internet use by consumers is in an early stage of development, and
market acceptance of the Internet as a medium for content,
advertising and e-commerce is uncertain. A number of factors may
inhibit the growth of Internet usage, including inadequate network
infrastructure, security concerns, inconsistent quality of service,
and limited availability of cost-effective, high-speed access. If
these or any other factors cause use of the Internet to slow or
decline, the company's results of operations could be adversely
affected.
Competition in Internet Commerce.
Increased competition from e-commerce could result in reduced
margins or loss of market share, any of which could harm both the
company's retail and e-commerce businesses. Competition is likely
to increase significantly as new companies enter the market and
current competitors expand their services. Many of the company's
present and potential competitors are likely to enjoy substantial
competitive advantages, including larger numbers of users, more
fully-developed e-commerce opportunities, larger technical,
production and editorial staffs, and substantially greater
financial, marketing, technical and other resources. If the
company does not compete effectively or if it experiences any
pricing pressures, reduced margins or loss of market share
resulting from increased competition, the company's business could
be adversely affected.
Unreliability of Internet Infrastructure.
If the Internet continues to experience increased numbers of
users, frequency of use or increased bandwidth requirements, the
Internet infrastructure may not be able to support these increased
demands or perform reliably. The Internet has experienced a variety
of outages and other delays as a result of damage to portions of
its infrastructure, and could face additional outages and delays in
the future. These outages and delays could reduce the level of
Internet usage and traffic on the company website. In addition,
the Internet could lose its viability due to delays in the
development or adoption of new standards and protocols to handle
increased levels of activity. If the Internet infrastructure is
not adequately developed or maintained, use of the company website
may be reduced. Even if the Internet infrastructure is adequately
developed, and maintained, the company may incur substantial
expenditures in order to adapt its services and products to
changing Internet technologies. Such additional expenses could
severely harm the company's financial results.
Transactional Security Concerns.
A significant barrier to Internet e-commerce is the secure
transmission of confidential information over public networks. Any
breach in the company's security could cause interruptions in the
operation of the company's website and have an adverse effect on
the company's business.
Risk of Governmental Regulation of the Internet.
The company is subject to the same federal, state and local laws as
other companies conducting business on the Internet. Today, there
are relatively few laws specificlaly directed towards online
services. However, due to the increasing popularity and use of the
Internet and online services, it is possible that laws and
regulations will be adopted with respect to the Internet or online
services. These laws and regulations could cover issues such as
online contracts, user privacy, freedom of expression, pricing,
fraud, content and quality of products and services, taxation,
advertising, intellectual property rights and informatino security.
Applicability to the Internet of existing laws governing issues
such as property ownership, copyrights and other intellectual
property issues, taxation, libel, obscenity and personal privacy is
uncertain.
Several states have proposed legislation that would limit the
uses of personal user information gathered online or require online
services to establish privacy policies. The Federal Trade
Commission also has recently started a proceeding with one online
service regarding the manner in which personal information is
collected from users and provided to third parties. Changes to
existing laws or the passage of new laws intended to address these
issues could directly affect the way the company does business or
could create uncertainty in the marketplace. This could reduce
demand for the company's services or increase the delivery costs,
or could otherwise harm our business. In addition, goods to users
worldwide, foreign jurisdictions may claim that the company is
required to comply with their laws. In some jurisdictions, the
company will be required to collect value-added taxes on the
company's fees. Our failure to comply with foreign laws could
subject it to penalties ranging from fines to bans on the company's
ability to offer its services.
Influence of Other External Factors on Prospects for Company.
The industry of the company in general is a speculative venture
necessarily involving some substantial risk. There is no certainty
that the expenditures to be made by the company will result in a
commercially profitable business. The marketability of its
products will be affected by numerous factors beyond the control of
the company. These factors include market fluctuations, and the
general state of the economy (including the rate of inflation, and
local economic conditions), which can affect companies' spending.
Factors which leave less money in the hands of potential customers
of the company will likely have an adverse effect on the company.
The exact effect of these factors cannot be accurately predicted,
but the combination of these factors may result in the company not
receiving an adequate return on invested capital.
Success of Company Dependent on Management.
The company's success is dependent upon the hiring of key
administrative personnel. None of the company's officers,
directors, and key employees have an employment agreement with the
company; therefore, there can be no assurance that these personnel
will remain employed by the company after the termination of such
agreements. Should any of these individuals cease to be affiliated
with the company for any reason before qualified replacements could
be found, there could be material adverse effects on the company's
business and prospects. In addition, management has no experience
is managing other companies in the same business as the company.
In addition, all decisions with respect to the management of
the company will be made exclusively by the officers and directors
of the company. Investors will only have rights associated with
ownership interests to make decisions which effect the company.
The success of the company, to a large extent, will depend on the
quality of the directors and officers of the company. Accordingly,
no person should invest in the shares unless he is willing to
entrust all aspects of the management of the company to the
officers and directors.
Risk of Control of Company by Officers and Directors.
The company's officers and directors beneficially own
approximately 64% of the outstanding shares of the company's common
stock. As a result, such persons, acting together, have the
ability to exercise significant influence over all matters
requiring stockholder approval. Accordingly, it could be difficult
for the investors hereunder to effectuate control over the affairs
of the company. Therefore, it should be assumed that the officers,
directors, and principal common shareholders who control the
majority of voting rights will be able, by virtue of their stock
holdings, to control the affairs and policies of the company.
Limitations on Liability, and Indemnification, of Directors and
Officers.
The articles of incorporation of the company provide for
indemnification of officers and directors of the company. In
addition, the Wyoming Business Corporation Act provides for
permissive indemnification of officers and directors and the
company may provide indemnification under such provisions. Any
limitation on the liability of any director, or indemnification of
directors, officer, or employees, could result in substantial
expenditures being made by the company in covering any liability of
such persons or in indemnifying them.
Potential Conflicts of Interest Involving Management.
Currently, only two of the officers and directors of the company
devote 100% of their time to the business of the company. However,
conflicts of interest may arise in the area of corporate
opportunities which cannot be resolved through arm's length
negotiations. All of the potential conflicts of interest will be
resolved only through exercise by the directors of such judgment as
is consistent with their fiduciary duties to the company. It is
the intention of management, so as to minimize any potential
conflicts of interest, to present first to the board of directors
to the company, any proposed investments for its evaluation.
Absence of Cash Dividends
The board of directors does not anticipate paying cash dividends on
the shares for the foreseeable future and intends to retain any
future earnings to finance the growth of the company's business.
Payment of dividends, if any, will depend, among other factors, on
earnings, capital requirements, and the general operating and
financial condition of the company, and will be subject to legal
limitations on the payment of dividends out of paid-in capital.
Offering Price.
The offering price of the shares will be determined in relation to
the then current market price of the shares on the Over the Counter
Bulletin Board. Because of market fluctuations, there can be no
assurance that the shares will maintain market values commensurate
with the offering price.
"Shelf" Offering.
The shares are offered directly by the company on a delayed basis.
No assurance can be given that any or all of the shares will be
issued. No broker-dealer has been retained as an underwriter and
no broker-dealer is under any obligation to purchase any of the
shares. In addition, the officers and directors of the company,
collectively, have limited experience in the offer and sale of
securities on behalf of the company.
Use of Proceeds Not Specific.
The proceeds of this offering have been allocated only generally.
Proceeds from the offering have been allocated generally to legal
and accounting, and working capital. Accordingly, investors will
entrust their funds with management in whose judgment investors may
depend, with only limited information about management's specific
intentions with respect to a significant amount of the proceeds of
this offering.
Limited Public Market for Company's Securities.
There has been only a limited public market for the shares of
common stock of the company. There can be no assurance that an
active trading market will develop or that purchasers of the shares
will be able to resell their securities at prices equal to or
greater than the respective initial public offering prices. The
market price of the shares may be affected significantly by factors
such as announcements by the company or its competitors, variations
in the company's results of operations, and market conditions in
the retail, electronic commerce, and Internet industries in
general. The market price may also be affected by movements in
prices of stock in general. As a result of these factors,
investors in the company may not be able to liquidate an investment
in the shares readily, or at all.
No Assurance of Continued Public Trading Market; Risk of Low Priced
Securities.
There has been only a limited public market for the
common stock of the company. The common stock of the company is
currently quoted on the Over the Counter Bulletin Board. As a
result, an investor may find it difficult to dispose of, or to
obtain accurate quotations as to the market value of the company's
securities. In addition, the common stock is subject to the low-
priced security or so called "penny stock" rules that impose
additional sales practice requirements on broker-dealers who sell
such securities. The Securities Enforcement and Penny Stock Reform
Act of 1990 requires additional disclosure in connection with any
trades involving a stock defined as a penny stock (generally,
according to recent regulations adopted by the U.S. Securities and
Exchange Commission, any equity security that has a market price of
less than $5.00 per share, subject to certain exceptions),
including the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks
associated therewith. The regulations governing low-priced or
penny stocks sometimes limit the ability of broker-dealers to sell
the company's common stock and thus, ultimately, the ability of the
investors to sell their securities in the secondary market.
Effects of Failure to Maintain Market Makers.
If the company is unable to maintain a National Association of
Securities Dealers, Inc. member broker/dealers as market makers,
the liquidity of the common stock could be impaired, not only in
the number of shares of common stock which could be bought and
sold, but also through possible delays in the timing of
transactions, and lower prices for the common stock than might
otherwise prevail. Furthermore, the lack of market makers could
result in persons being unable to buy or sell shares of the common
stock on any secondary market. There can be no assurance the
company will be able to maintain such market makers.
Shares Eligible For Future Sale.
All of the 26,623,057 shares of common stock which are currently
held, directly or indirectly, by management have been issued in
reliance on the private placement exemption under the Securities
Act of 1933. Such shares will not be available for sale in the
open market without separate registration except in reliance upon
Rule 144 under the Securities Act of 1933. In general, under Rule
144 a person (or persons whose shares are aggregated) who has
beneficially owned shares acquired in a non-public transaction for
at least one year, including persons who may be deemed affiliates
of the company (as that term is defined under that rule) would be
entitled to sell within any three-month period a number of shares
that does not exceed the greater of 1% of the then outstanding
shares of common stock, or the average weekly reported trading
volume during the four calendar weeks preceding such sale, provided
that certain current public information is then available. If a
substantial number of the shares owned by these shareholders were
sold pursuant to Rule 144 or a registered offering, the market
price of the common stock could be adversely affected.
USE OF PROCEEDS
The amount of proceeds from this offering will depend on the
offering price per share and the number of shares sold for cash
under the form of common stock purchase agreement. The proceeds of
the offering, less the expenses of the offering (estimated at ),
will be used to provide working capital for the company. The net
proceeds of this offering that are not expended immediately may be
deposited in interest or non-interest bearing accounts, or invested
in government obligations, certificates of deposit, commercial
paper, money market mutual funds, or similar investments.
DETERMINATION OF OFFERING PRICE
The cash offering price of the shares will be determined, from time
to time, based on the current market price of the shares on the
Over the Counter Bulletin Board, under the terms of a form of
common stock purchase agreement.
PLAN OF DISTRIBUTION
Registration under this Offering.
8,450,000 shares of common stock of the company will be sold on a
delayed basis under a shelf registration under Rule 415 (shares
outstanding prior to this offering: 41,541,467) (shares to be
outstanding after this offering, assuming a full subscription:
49,991,467), for cash sales under and pursuant to a form of common
stock purchase agreement.
The amount of proceeds from this offering will depend on the
offering price per share and the number of shares sold. The
initial offering price of the shares will be based on the price per
share determined under the terms of the form of common stock
purchase agreement. The proceeds of the offering, less the
expenses of the offering (estimated at $63,675), will be used to
provide working capital for the company.
There can be no assurance that all of these shares will be issued
or that any of them will be sold for cash. No commissions or other
fees will be paid, directly or indirectly, by the company, or any
of its principals, to any person or firm in connection with
solicitation of sales of the shares. These securities are offered
by the company subject to prior issue and to approval of certain
legal matters by counsel.
Opportunity to Make Inquiries.
The company will make available to each offeree, prior to any sale
of the shares, the opportunity to ask questions and receive answers
from the company concerning any aspect of the investment and to
obtain any additional information contained in this prospectus, to
the extent that the company possesses such information or can
acquire it without unreasonable effort or expense.
Execution of Documents.
Each person desiring to be issued shares, either as a conversion of
a debenture, or an exercise of a warrant, must complete, execute,
acknowledge, and deliver to the company certain documents. By
executing these documents, the subscriber is agreeing that such
subscriber will be, a shareholder in the company and will be
otherwise bound by the articles of incorporation and the bylaws of
the company in the form attached to this prospectus.
LEGAL PROCEEDINGS
Other than as set forth below, the company is not a party to any
material pending legal proceedings and, to the best of its
knowledge, no such action by or against the company has been
threatened.
In a Form 8-K filed on March 24, 2000, the company disclosed
an action and its settlement:
(a) A vendor of the company, Storage Area Network, who was
allegedly owed $2,211,048 at June 30, 1999, filed suit to attempt
to attach the company's assets for the collection of that
liability. A settlement agreement was reached in March 2000.
Storage Area Network received 6,460,137 shares of restricted
company common stock, and the liability to SAN was discharged. No
gain or loss was recorded upon this settlement.
After the company pays off another vendor in August 2000, these
shares will be subject to redemption under the following terms:
All subsequent contingent receipts from the May 1999 sale of the
systems integration business will be used to redeem these shares.
In addition, the company will use 50% of any capital investment or
loans, and 50% of subsequent net income, to redeem these shares
shares. For redemption payments through September 2000, these
shares will be transferred back to the company at $0.35 per share.
For subsequent redemption payments, these shares shall be
transferred back to the company at $0.52 per share, or the then
current market price, whichever is higher. At the point Storage
Area Network has received redemption payments totaling $2,211,048,
the company will have the right, but not the obligation, to
continue purchasing these shares.
A $50,000 escrow account was established by the company under the
settlement agreement for the company to use to cover the expenses
of registering these shares during the year ended June 30, 2001.
Interest expense of $182,749 and $19,603 for the years ended June
30, 2000 and 1999, respectively, was incurred and paid to Storage
Area Network prior to the settlement.
(b) Information has recently come to the attention of the
company's management that Storage Area Network may have may engaged
in fraudulent behavior in connection with the funds allegedly owed
to it, as set forth above, as well as in connection with the
settlement agreement. The company has consulted with counsel and
intends to file an action against that company, alleging fraud and
misrepresentation in connection with such behavior.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
AND CONTROL PERSONS
Directors and Executive Officers.
The names, ages, and respective positions of the directors and
executive officers of the company are set forth below; there are no
other promoter or control persons of the company. The directors
named below will serve until the next annual meeting of the
company's stockholders or until their successors are duly elected
and have qualified. directors are elected for a one-year term at
the annual stockholders' meeting. Officers will hold their
positions at the will of the board of directors, absent any
employment agreement, of which none currently exist or are
contemplated. There are no arrangements, agreements or
understandings between non-management shareholders and management
under which non-management shareholders may directly or indirectly
participate in or influence the management of the company's
affairs. The directors and executive officers of the company are
not a party to any material pending legal proceedings and, to the
best of their knowledge, no such action by or against them has been
threatened.
(a) Frank W. Backes, President/Chief Executive Officer/Director.
Mr. Backes, age 39, was appointed President and Chief
Executive Officer of 3Si Holdings, Inc. in June 1999. Mr. Backes
previously served as Executive Vice President and Chief
Technologist of 3Si since August 1993. Prior to 1993, he served as
a computer industry analyst with Digital Equipment Corporation.
Mr. Backes also serves as a Director of 3Si Holdings, Inc.
(b) Frederick J. Slack, Executive Vice President/Director.
Mr. Slack, age 45, was appointed Executive Vice President in
June 1999 of KEWi.net and is responsible for sales and marketing.
From 1993 to June 1999, he served as President and Chief Executive
Officer of 3Si. Prior to joining 3Si in 1993, Mr. Slack served as
project manager for government customers at Digital Equipment
Corporation. Mr. Slack also serves as a Director of 3Si Holdings,
Inc.
(c) Felipe L. Valdez, Secretary/Director.
Felipe L. Valdez, 47, was appointed Secretary of 3Si Holdings,
Inc. in June 1999. From August 1993 to June 1999, he served as
Chief Operating Officer of 3Si. Prior to 1993, Mr. Valdez spent 17
years as a manager with Digital Equipment Corporation. Mr. Valdez
also serves as a Director of 3Si Holdings, Inc.
(d) Tom N. Richardson, Director.
Mr. Richardson, age 50, has served as a Director of 3Si
Holdings, Inc. since July 1986. Mr. Richardson has been an
independent oil operator since December 1997. From March 1994 to
December 1997, he served as President and Chief Financial Officer
of Tyrex Oil Co. Mr. Richardson joined Tyrex Oil Co. in 1980 as
Land Manager.
(e) Doris K. Backus, Director.
Doris K. Backus, 46, has served as a Director of 3Si Holdings,
Inc. since December 1991. She previously served as Secretary of
the company and was employed by the company from 1983 to 1999.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of shares of the company's common stock as of December 1,
2000 (41,541,467 issued and outstanding) by (i) all stockholders
known to the company to be beneficial owners of more than 5% of the
outstanding common stock; and (ii) all officers and directors of
the company, individually and as a group:
Title of Name and Address of Amount and Percent
Class Beneficial Owner Nature of of
Beneficial class
Owner (1)
Common Felipe L. Valdez 8,970,545 21.59%
Stock 6886 South Yosemite Street
Englewood, Colorado 80112
Common Frederick J. Slack 8,932,444 21.50%
Stock 6886 South Yosemite Street
Englewood, Colorado 80112
Common Frank W. Backes 8,477,777 20.41%
Stock 6886 South Yosemite Street
Englewood, Colorado 80112
Common Storage Area Network 6,460,137 15.51%
Stock 10691 East Tomich Drive
Franktown, Colorado 80116
Common Tom Richardson 188,721 0.45%
Stock 777 North Overland Trail, #101
Casper, Wyoming 82601
Common Doris K. Backus 53,570 0.13%
Stock 1315 East 24th Street
Casper, Wyoming 82601
Common Shares of all 26,623,057 64.09%
Stock directors and executive officers
as a group (5 persons)
(1) Each person has sole voting power and sole dispositive power
as to all of the shares shown as beneficially owned by him or her.
None of these security holders has the right to acquire any amount
of the shares within sixty days from options, warrants, rights,
conversion privilege, or similar obligations.
DESCRIPTION OF SECURITIES
General Description.
The securities being offered are shares of common stock. The
authorized capital of the company consists of 150,000,000 shares of
common stock, $0.01 par value per share (there is no preferred
stock authorized in the articles of incorporation). The holders of
common stock:
have equal ratable rights to dividends from funds legally available
therefore, when, as, and if declared by the board of directors of
the company
are entitled to share ratably in all of the assets of the company
available for distribution upon winding up of the affairs of the
company
are entitled to one cumulative vote per share on all matters on
which shareholders may vote at all meetings of shareholders.
The shares of common stock do not have any of the following
rights:
special voting rights
preference as to dividends or interest
preemptive rights to purchase in new issues of Shares
preference upon liquidation, or
any other special rights or preferences.
In addition, the Shares are not convertible into any other
security. There are no restrictions on dividends under any loan
other financing arrangements or otherwise. As of December 1, 2000,
the company had 41,541,467 shares of common stock issued and
outstanding.
Non-Cumulative Voting.
The holders of shares of common stock of the company do not have
cumulative voting rights, which means that the holders of more than
50% of such outstanding shares, voting for the election of
directors, can elect all of the directors to be elected, if they so
choose. In such event, the holders of the remaining shares will not
be able to elect any of the company's directors.
Dividends.
The company does not currently intend to pay cash dividends. The
company's proposed dividend policy is to make distributions of its
revenues to its stockholders when the company's board of directors
deems such distributions appropriate. Because the company does not
intend to make cash distributions, potential shareholders would
need to sell their shares to realize a return on their investment.
There can be no assurances of the projected values of the shares,
nor can there be any guarantees of the success of the company.
A distribution of revenues will be made only when, in the judgment
of the company's board of directors, it is in the best interest of
the company's stockholders to do so. The board of directors will
review, among other things, the investment quality and
marketability of the securities considered for distribution; the
impact of a distribution of the investee's securities on its
customers, joint venture associates, management contracts, other
investors, financial institutions, and the company's internal
management, plus the tax consequences and the market effects of an
initial or broader distribution of such securities.
Possible Anti-Takeover Effects of Authorized but Unissued Stock.
Upon the completion of this offering, assuming the maximum
offering of 50,000,000 shares is sold, the company's authorized
but unissued common capital stock will consist of 58,458,533 shares
of common stock (based on the issued and outstanding shares of
41,541,467 as of December 1, 2000). One effect of the existence of
authorized but unissued capital stock may be to enable the board of
directors to render more difficult or to discourage an attempt to
obtain control of the company by means of a merger, tender offer,
proxy contest, or otherwise, and thereby to protect the continuity
of the company's management. If, in the due exercise of its
fiduciary obligations, for example, the board of directors were to
determine that a takeover proposal was not in the company's best
interests, such shares could be issued by the board of directors
without stockholder approval in one or more private placements or
other transactions that might prevent, or render more difficult or
costly, completion of the takeover transaction by diluting the
voting or other rights of the proposed acquirer or insurgent
stockholder or stockholder group, by creating a substantial voting
block in institutional or other hands that might undertake to
support the position of the incumbent board of directors, by
effecting an acquisition that might complicate or preclude the
takeover, or otherwise.
Transfer Agent.
The company has engaged the services of Computershare Investor
Services, 12039 West Alameda Parkway, Suite Z-2, Lakewood, Colorado
80228 to act as transfer agent and registrar.
INTEREST OF NAMED EXPERTS AND COUNSEL
Other than as set forth below, no named expert or counsel was hired
on a contingent basis, will receive a direct or indirect interest
in the small business issuer, or was a promoter, underwriter,
voting trustee, director, officer, or employee of the company.
Brian F. Faulkner, A Professional Law Corporation, counsel for
the company named in this registration statement as giving an
opinion on the validity of the securities, has received a total of
147,005 shares of common stock pursuant to the company's Non-
Qualified Stock Plan registered under a Form S-8 filed on August
28, 2000 in exchange for legal services to be rendered to the
company. These legal services consist of advice and preparation
work in connection with reports of the company filed under the
Securities Exchange Act of 1934, and other general corporate and
securities work for the company.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Articles of Incorporation.
The articles of incorporation of the company provide the following
with respect to indemnification:
"The corporation shall indemnify each director and each officer,
his or her heirs, executors, and administrators against expenses
reasonably incurred or liability incurred by him or her in
connection with any action, suit or proceeding to which he or she
may be made a party by reason or his or her being or having been a
director or officer of the corporation, except in relation to
matters as to which he or she shall finally be adjudged in such
action, suit or proceedings to be liable for fraud or misconduct.
In the event of a settlement before or after action or suit,
indemnification shall be provided only in connection with such
matters covered by the settlement as to which the corporation is
advised by counsel that the person to be indemnified was not guilty
of such fraud or misconduct. The foregoing right of
indemnification shall not exclude other rights to which a person
indemnified may be entitled."
There are no provisions in the Bylaws of the company which provide
for indemnification.
Wyoming Business Corporation Act.
"17-16-851. Authority to indemnify.
(a) Except as otherwise provided in this section, a corporation
may indemnify an individual who is a party to a proceeding because
he is a director against liability incurred in the proceeding if:
(i) He conducted himself in good faith; and
(ii) He reasonably believed that his conduct was in or at least
not opposed to the corporation's best interests; and
(iii) In the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful; or
(iv) He engaged in conduct for which broader indemnification has
been made permissible or obligatory under a provision of the
articles of incorporation, as authorized by W.S. 17-16-202(b)(v).
(b) A director's conduct with respect to an employee benefit plan
for a purpose he reasonably believed to be in the interests of the
participants in and beneficiaries of the plan is conduct that
satisfies the requirement of paragraph (a)(ii) of this section.
(c) The termination of a proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent is not, of itself, determinative that the director did
not meet the standard of conduct described in this section.
(d) Unless ordered by a court under W.S. 17-16-854(a)(iii) a
corporation may not indemnify a director under this section:
(i) In connection with a proceeding by or in the right of the
corporation, except for reasonable expenses incurred in connection
with the proceeding if it is determined that the director has met
the standard of conduct under subsection (a) of this section; or
(ii) In connection with any proceeding with respect to conduct for
which he was adjudged liable on the basis that he received a
financial benefit to which he was not entitled.
17-16-852. Mandatory indemnification.
A corporation shall indemnify a director who was wholly successful,
on the merits or otherwise, in the defense of any proceeding to
which he was a party because he was a director of the corporation
against reasonable expenses incurred by him in connection with the
proceeding.
17-16-853. Advance for expenses.
(a) A corporation may, before final disposition of a proceeding,
advance funds to pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding because he is
a director if he delivers to the corporation:
(i) A written affirmation of his good faith belief that he has met
the standard of conduct described in W.S. 17-16-851 or that the
proceeding involves conduct for which liability has been eliminated
under a provision of the articles of incorporation as authorized by
W.S. 17-16-202(b)(iv); and
(ii) His written undertaking to repay any funds advanced if he is
not entitled to mandatory indemnification under W.S. 17-16-852 and
it is ultimately determined that he has not met the standard of
conduct described in W.S. 17-16-851.
(b) The undertaking required by paragraph (a)(ii) of this section
shall be an unlimited general obligation of the director but need
not be secured and may be accepted without reference to the
financial ability of the director to make repayment.
(c) Authorizations under this section shall be made:
(i) By the board of directors:
(A) If there are two (2) or more disinterested directors, by a
majority vote of all the disinterested directors (a majority of
whom shall for such purpose constitute a quorum) or by a majority
of the members of a committee of two (2) or more disinterested
directors appointed by such a vote; or
(B) If there are fewer than two (2) disinterested directors, by
the vote necessary for action by the board in accordance with W.S.
17-16-824(c), in which authorization directors who do not qualify
as disinterested directors may participate; or
(ii) By the shareholders, but shares owned by or voted under the
control of a director who at the time does not qualify as a
disinterested director may not be voted on the authorization.
17-16-854. Court-ordered indemnification and advance for expenses.
(a) A director who is a party to a proceeding because he is a
director may apply for indemnification or an advance for expenses
to the court conducting the proceeding or to another court of
competent jurisdiction. After receipt of an application and after
giving any notice it considers necessary, the court shall:
(i) Order indemnification if the court determines that the
director is entitled to mandatory indemnification under W.S. 17-16-
852;
(ii) Order indemnification or advance for expenses if the court
determines that the director is entitled to indemnification or
advance for expenses pursuant to a provision authorized by W.S. 17-
16-858(a); or
(iii) Order indemnification or advance for expenses if the court
determines, in view of all the relevant circumstances, that it is
fair and reasonable:
(A) To indemnify the director; or
(B) To advance expenses to the director, even if he has not met
the standard of conduct set forth in W.S. 17-16-851(a), failed to
comply with W.S. 17-16-853 or was adjudged liable in a proceeding
referred to in W.S. 17-16-851(d)(i) or (ii), but if he was adjudged
so liable his indemnification shall be limited to reasonable
expenses incurred in connection with the proceeding.
(b) If the court determines that the director is entitled to
indemnification under paragraph (a)(i) of this section or to
indemnification or advance for expenses under paragraph (a)(ii) of
this section, it shall also order the corporation to pay the
director's reasonable expenses incurred in connection with
obtaining court-ordered indemnification or advance for expenses.
If the court determines that the director is entitled to
indemnification or advance for expenses under paragraph (a)(iii) of
this section, it may also order the corporation to pay the
director's reasonable expenses to obtain court-ordered
indemnification or advance for expenses.
17-16-855. Determination and authorization of indemnification.
(a) A corporation may not indemnify a director under W.S. 17-16-
851 unless authorized for a specific proceeding after a
determination has been made that indemnification of the director is
permissible because he has met the standard of conduct set forth in
W.S. 17-16-851.
(b) The determination shall be made:
(i) If there are two (2) or more disinterested directors, by the
board of directors by majority vote of all the disinterested
directors (a majority of whom shall for such purpose constitute a
quorum), or by a majority of the members of a committee of two (2)
or more disinterested directors appointed by such a vote;
(ii) Repealed By Laws 1997, ch. 190, Section 3.
(iii) By special legal counsel:
(A) Selected in the manner prescribed in paragraph (i) of this
subsection; or
(B) If there are fewer than two (2) disinterested directors,
selected by the board of directors (in which selection directors
who do not qualify as disinterested directors may participate); or
(iv) By the shareholders, but shares owned by or voted under the
control of a director who at the time does not qualify as a
disinterested director may not be voted on the determination.
(c) Authorization of indemnification shall be made in the same
manner as the determination that indemnification is permissible,
except that if there are fewer than two (2) disinterested
directors, authorization of indemnification shall be made by those
entitled under paragraph (b)(iii) of this section to select special
legal counsel.
17-16-856. Officers.
(a) A corporation may indemnify and advance expenses under this
subarticle to an officer of the corporation who is a party to a
proceeding because he is an officer of the corporation:
(i) To the same extent as a director; and
(ii) If he is an officer but not a director, to such further
extent as may be provided by the articles of incorporation, the
bylaws, a resolution of the board of directors or contract, except
for:
(A) Liability in connection with a proceeding by or in the right
of the corporation other than for reasonable expenses incurred in
connection with the proceeding; or
(B) Liability arising out of conduct that constitutes:
(I) Receipt by him of a financial benefit to which he is not
entitled;
(II) An intentional infliction of harm on the corporation or the
shareholders; or
(III) An intentional violation of criminal law.
(iii) A corporation may also indemnify and advance expenses to a
current or former officer, employee or agent who is not a director
to the extent, consistent with public policy, that may be provided
by its articles of incorporation, bylaws, general or specific
action of its board of directors or contract.
(b) The provisions of paragraph (a)(ii) of this section shall
apply to an officer who is also a director if the basis on which he
is made a party to the proceeding is an act or omission solely as
an officer.
(c) An officer of a corporation who is not a director is entitled
to mandatory indemnification under W.S. 17-16-852, and may apply to
a court under W.S. 17-16-854 for indemnification or an advance for
expenses, in each case to the same extent to which a director may
be entitled to indemnification or advance for expenses under those
provisions.
17-16-857. Insurance.
A corporation may purchase and maintain insurance on behalf of an
individual who is a director or officer of the corporation, or who,
while a director or officer of the corporation, serves at the
corporation's request as a director, officer, partner, trustee,
employee or agent of another domestic or foreign corporation,
partnership, joint venture, trust, employee benefit plan, or other
entity, against liability asserted against or incurred by him in
that capacity or arising from his status as a director or officer
whether or not the corporation would have power to indemnify or
advance expenses to him against the same liability under this
subarticle."
Undertaking.
The company undertakes the following:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has
been advised that in the opinion of the U.S. Securities and
Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
The names of the officers and directors as disclosed elsewhere
in this Form SB-2. None of these individuals, as promoters, have
received anything of value from the company.
DESCRIPTION OF BUSINESS
The Company.
3Si Holdings, Inc. is a Wyoming corporation formed in 1979. The
company is comprised of two entities:
KEWi.net, Inc., a Colorado corporation, with 69% owned by the
company, which was formed to provide Internet-based knowledge
management, community portal and support capabilities, commonly
known as iSupport.
3Si, Inc., a Colorado corporation and wholly-owned subsidiary
serves as a master reseller and application service provider for
the company's family of products.
Prior to June 1999, 3Si, Inc. (solution, system and service
integration) provided comprehensive computer hardware and software
solutions for over 19 years to clients throughout the continent.
3Si, Inc. was originally founded in 1978 as Kimbrough Computer
Sales. The company was bought by its current majority shareholders
in 1993 and its efforts were focused on integration services and
product development. In May 1997, 3Si merged with a publicly
traded company.
In June 1998, 3Si, Inc. announced the first of an intended
family of Internet-based products designed to further integrate a
client's information technology systems through the Internet. The
first product, an Internet-based customer support and knowledge
management solution, is being sold under the name KEWi, an acronym
for "knowledge and experience bringing you wisdom over the
Internet." It currently shares network facilities with 3Si, Inc.
in Denver, Colorado.
In its effort to focus on the iSupport market, 3Si Holdings sold
its computer reseller division to PC Specialists of San Diego,
California in May 1999.
Business of the Company.
(a) Company Overview.
Through its KEWi family of products, the company and its
subsidiaries are in the unique position to enhance and expand the
way users create, manage and exchange information as they
participate and compete in the global marketplace. The company's
mission is to refine and provide the technology to capture the
knowledge base and experience of the user, empower the user to
deliver this information in a meaningful way through the Internet
to audiences, and do so whenever and wherever needed, in a simple,
streamlined process. The KEWi family of products is suited for any
business organization, internal or independent, that must
communicate different messages to different audiences expediently
through the Internet.
(b) Industry Background.
As more and more businesses compete using the Internet as a tool,
it becomes increasingly critical to retain existing customers.
Businesses can be very selective in choosing software solutions
that are available from a growing number of companies competing for
the online customer support market.
With over 90 million people accessing the Internet today, and
estimates of an additional 1 million new Internet users per month,
clearly the Internet provides an ideal vehicle for manufacturers
and service providers. Companies and organizations of all sizes
are looking to technology to provide business-rich applications for
their customers to access 24 hours a day, 7 days a week. The
Internet has emerged as the premier method of delivery.
Explosive growth and countless new technologies have characterized
support applications in recent years. Now, users are in search of
ways to maximize and streamline their online experience. The
challenge resides in providing a robust application that can meet
the demands of many concurrent users and can be distributed
geographically around the world.
According to Boston-based AMR Research, Inc., a highly respected
industry trend-spotting source, Internet-based support strategies
". . . are becoming the hub of many companies' marketing
strategies." AMR predicts that the total Customer Relations
Management (CRM) will jump to $16.8 billion by 2003 from $2.3
billion in 1998.
Datamonitor expects this market to grow from $150 million in 1998
to $2 billion by 2003. While new technologies may reduce the
manpower costs, they often increase technical development expenses.
Exceptional customer service is what time and again makes the
difference between loyal customers and abandoned shopping carts and
businesses are in search of new and more efficient ways to offer
that customer service.
Global dependence on the Internet has exploded in sufficient volume
for the type of applications needed to bring about a natural,
logical redefinition of business communication and distribution.
By the year 2000, according to Forrester Research Inc., a leading
independent research firm that analyzes the future of technology
change and its impact on businesses, consumers and society,
Internet-based call center solutions may reduce labor costs by 43
percent as compared to an estimated labor cost increase of 3
percent without Internet-based solutions.
Organizational Infrastructure Support Market
Information technology groups comprise the organizational
infrastructure support market. Internal support issues range from
supporting desktop and shared hardware, third party software
applications, corporate information systems, corporate networks and
central data center functions. Information technology departments,
regardless of size of audience or organization served, are becoming
overwhelmed by the proliferation of services and personnel required
to support internal infrastructures. Rather than having to support
more hardware and/or software, the Information technology industry
is seeking more efficient ways to manage the information and data
they are tasked to coordinate and distribute to a variety of
audiences (including associates, vendors and customers). They are
seeking to place as much power into the hands of the end user as
possible.
Proprietary Product Support Market
The proprietary product support market is characterized as an end-
user customer support function. External support markets include
product support, installation/configuration support, account
information, and call center management.
Gartner Group, a world leader in providing business technology
research, consumer and market intelligence, consulting, conferences
and decision-making tools, estimates that revenues from software
applications including sales management, telesales, and customer
service solutions, will grow from $900 million in 1997 to
$4 billion in 2002 (an annual growth rate of 35 percent).
Proprietary software products provide a clear value-add to computer
hardware manufacturers, which has led to the current trend of major
tier-1 manufacturers aggressively seeking value-added partners with
industry specific products and services.
Looking specifically at the help-desk market, IDC, a global leader
in providing technology intelligence, industry analysis, market
data, and strategic and tactical guidance to the builders,
providers and users of information technology, has estimated that
this market will grow to approximately $2.5 billion in the year
2000 and $3.5 billion by the year 2002.
Person-to-Person Internet Support Market
Frustrated by long wait times on phone support lines, users in
increasing numbers are migrating to a more convenient and diverse
form of help: newsgroups. Person-to-person "chat" and unregulated
Internet newsgroups define this market. For almost any topic
imaginable, a user can ask questions and get information from
others registered in the newsgroup. Newsgroups are one of the most
useful, information-rich parts of the Internet. They are also the
most unpredictable and can be unreliable.
Unlike typical help desk environments where a user has interaction
with a single phone support person, a newsgroup allows interactions
with many people each with their own skill set, expertise and
perspective. For that reason, some groups are officially
sponsored; others are not. Microsoft has gone as far as to certify
and compensate some independent support engineers to monitor and
provide quality support to certain newsgroup forums.
The Paging Market
More data is sent over the paging infrastructure than by all other
forms of mobile data communications combined. Today, the paging
industry is making a move that will change the way the public
thinks about paging and impact the way people communicate for years
to come. The advent of two-way paging technology will open an
entirely new arena for the development and expansion of wireless
messaging. The term "paging" as it is used today will practically
become obsolete.
One out of every seven people will carry a wireless device by the
year 2000, which translates into nearly 70 million subscribers.
Demand for word messaging is growing at twice the rate of numeric
paging. Demand for wide-area coverage is growing at twice the rate
as local coverage. Nearly 75 percent of United States
professionals now spend more than 20 percent of their time away
from the office. There are more than 600 wireless messaging
companies operating in the United States, of which the top 30
companies constitute 95 percent of the business.
(c) Strategy.
The KEWi family of products has been designed to provide maximum
distribution, ease of use, accessibility, immediate response time,
scalability, and a rapid development cycle. Through the
integration of the KEWi family of products and services, a complete
web presence can be created and deployed in less time for less
money and less manpower, and can offer more functionality than can
more traditional approaches.
The company's strategy is to continue to expand the KEWi family of
products and includes the following key points:
Leverage technical expertise in software support over the Internet.
The company has designed its products to provide immediate access
support to Internet-based customers and to provide a self-help
knowledge management solutions.
Expand product offering to a broader customer base. By partnering
with companies to market the company's products to government
agencies and companies with large distribution channels, the
company intends to increase the company's penetration into the
Internet-based support market. The agreements with Qwest
Cyber.Solutions, Mobilitylink, and SMI International are examples
of this strategy.
Utilize network of two-way wireless messaging. We intend to
integrate business applications with a two-way paging system.
(d) Products And Services.
Each product in the KEWi family can be sold independently,
distributed through an ASP model, or integrated with the others to
provide a complete Internet business strategy:
Knowledge Management
Customer Support (iSupport)
Wireless Device Management
Crack The Books
Comprehensive integration of these components results in a
capability labeled Internet Management for the Enterprise.
Knowledge Management
The term "at the speed of business" has taken on a new meaning in
this world of instantaneous communication. Those with access to
knowledge in real time have a distinct competitive advantage.
KEWi's knowledge management capability captures knowledge at the
source of expertise allowing controlled distribution and access by
anyone, anywhere, and at anytime. KEWi's search capability is a
unique combination of natural language, key words, proprietary
algorithms, and techniques allowing each customer to define their
own language.
Each business uses a unique language to communicate with customers
and employees. KEWi's Knowledge Management has the ability to
incorporate the unique language of each business to provide fast,
reliable information and answers to user requests. KEWi thus
becomes a system capable of providing information at the speed of
thought.
Customer Support
The Internet has opened the door to a new dimension in delivering
customer support. Customers today expect and demand to have access
to information, answers and support 24 hours a day, 7 days a week.
KEWi integrates capabilities directly targeted at meeting and, in
many cases, exceeding these customer expectations. Unlike other
customer support products on the market, KEWi has been designed
from the ground up to be delivered over the Internet and through
wireless devices. The most inefficient use of call centers
resources is the "status call." Requests for status information on
the resolution of a previous inquiry can be as high as 15 percent
to 20 percent of the total call volume. KEWi has a call status
feature allowing the customer to access status information
instantaneously from the Internet.
Wireless Paging Management
With a two-way pager and KEWi's Wireless Paging Management, an
organization can easily and conveniently manage and track critical
pager communications interfacing business applications with a
nationwide paging network. Immediate benefits include:
Maximizing support personnel productivity
Confirmation that the page was received and when
Sending and managing pages through a browser interface
Allocation of support personnel dynamically
Interaction with business applications through a pager
Greater control of paging expenses
Wireless Paging Management allows a user's business application(s)
to interact electronically with a paging network. The service
includes two primary interfaces (a) a 3Si developed generic
application interface that allows communication between the
customer network and the 3Si service; and (b) a site-specific
interface that passes two-way paging data to the business
application. The site-specific interface may be developed by 3Si
or other systems integrator as is deemed most appropriate. Two-way
paging management allows users to increase customer satisfaction
and reduce overall support costs.
CrackThe BooksT
CrackTheBooksT is a scheduling and support service for schools and
other similarly-run organizations. It facilitates and streamlines
sharing of knowledge and support to students, their families, and
other user groups. Some of the information shared through
CrackTheBooksT is homework, testing schedules, sporting events,
questions for teachers, daily cafeteria menus, practice schedules
and many other options.
Internet Management for the Enterprise
Internet Management for the Enterprise comprehensively integrates
all the components in the KEWi family of support products,
providing the following capabilities: search engine, portal
management, access control, content filtering, content creation and
management, press releases, news articles, product and services
information, sales tools, careers and job postings, self-help
knowledge, sales lead routing, customer support system, and
integration with business applications.
(e) Sales And Marketing.
The KEWi suite of Internet-based customer support products is based
on three fundamental philosophies:
capturing the creation of knowledge at the source;
aggregating that knowledge; and
controlled and systematic distribution through the Internet and
wireless devices.
3Si Application Service Provider
In this subscription-based environment, the customer is billed
monthly for access to the KEWi service. All of the software,
hardware and networking systems are maintained from the company's
data center. This business model has the advantage of minimal
startup expense time and does not require any expertise from the
customer. Currently over 500 customers access KEWi products and
services through the ASP business model. These users include SMI
International, Evolving Systems, and Cable Labs.
Customer Installed
KEWi software and hardware may also be implemented directly on the
customer's network. The software is licensed to customers and an
annual maintenance fee is charged for software support and updates.
The KEWi family of products can be deployed in both Intranet and
Internet environments. Currently, Qwest Cyber.Solutions uses KEWi
technology as the infrastructure behind their new corporate web
site. The United States Air Force has selected KEWi as a problem
and status tracking tool for the support of satellites.
Rebranding and Distribution
Rebranding of KEWi products and services will produce the most
dramatic impact on gaining market share. This distribution model
is an ideal model for companies that would like to get into the web
services and knowledge delivery market quickly and efficiently.
The "Powered by KEWi" branding will generate recurring revenue for
the company through royalty licensing.
In August 1999, the company partnered with SMI International, a
Colorado Springs-based management group (formerly Space Mark Inc.),
by signing a master reseller agreement in the ordinary course of
business. The agreement gives SMI exclusive rights to market
KEWi.net products to all local, state and federal government
agencies in the United States, including the State of Alaska, as
well as all government and commercial customers in Australia, New
Zealand.
A joint marketing and warrant agreement between KEWi.net and Qwest
Cyber.Solutions has been signed in the ordinary course of
business with the goal of developing a Qwest Cyber.Solutions
branded suite of KEWi-based products. As of October 2000, the
company has expanded its agreement with QCS to develop and maintain
the QCS web site.
MobilityLink is in the process of creating a rebranded version of
the KEWi products and services under an agreement entered into with
the company in the ordinary course of business.
Wireless Paging Management
Wireless paging management has the ability to generate revenue by
developing customer specific business application interface, sale
of the pager devices, reselling the paging service, and service
fees for access through the KEWi data center to the wireless paging
network.
(f) Strategic Alliances.
KEWi.net is at a crossroads in company growth. As the company
identifies qualified individuals with the skills, expertise and
vision to expand the organization, it relies on several significant
partnerships to guide us along the way as the company transitions
from utilizing outsourcing to building a solid infrastructure. At
this time, KEWi's wireless product interfaces with SkyTelr network.
The company has also signed a technology alliance agreement in the
ordinary course of buinsess with with Weblink Wirelessr to
integrate business applications.
The company's strategy is to continue to expand the offering of the
KEWi family of products to a broader customer base. By partnering
with application service providers and other distribution partners,
the company intends to increase its penetration into the Internet-
based software market. The agreements with Qwest Cyber.Solutions
are an example of this strategy.
The addition of document management and portal management to the
family of KEWi products, along with the expansion of capabilities
in the knowledge management and request tracking products, has
increased the size of the potential market for KEWi products and
services.
(g) Competition
With the proliferation of Internet-based customer support
systems, the competition, at first glance, may look intimidating.
For the most part, these companies have done a terrific job of
raising money and creating a presence in the financial markets.
However, the products are focused primarily on a small segment of
the overall requirements. Most of the Internet-based support
products require the purchase of new servers, related software and
integration services in order to deploy the system over the
Internet.
The company believes there are significant opportunities for
differentiation of the KEWi products and services due to its focus
on the entire enterprise: knowledge management, distribution and
support requirements. Competitors in this market are: Silknet,
Ask Jeeves, Inc., Brightware, and Motive.
Employees.
As of December 1, 2000, the company had six employees, 5 of whom
are in the area of sales and marketing and software development and
customer service, and 1 of whom is in administration.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements of the company and notes thereto contained
elsewhere in this report.
Financial Condition at June 30, 2000.
(a) General.
As of June 30, 2000, the company had a working capital deficit
of approximately $138,000, and had negative working capital from
operations of $784,000 for the year then ended. The overall
decreases in both current assets and liabilities reflect the down-
sizing of the company subsequent to the May 1999 sale of the
systems integration business.
(b) Vendor Settlements.
As of June 30, 1999, accounts payable balances owed to two vendors
were approximately $650,000 and $2,200,000. The company has made
payments throughout the current year, and made the final payment on
the $650,000 balance as of August 2000. A settlement was reached
with the other vendor, Storage Area Network ("SAN"), whereby SAN
received 6,460,137 shares ("the SAN Shares") of the company's
common stock and the liability was discharged. The SAN shares will
be subject to redemption at a predetermined price under the
following terms. All contingent proceeds received after August
2000, from the May 1999 sale of the systems integration business
will be used to redeem the SAN shares. In addition, the company
will use 50% of any capital investment or loans, and 50% of net
income, realized after August 2000, to redeem SAN shares. At the
point SAN has received redemption payment totaling $2,200,000, the
company will have the right, but not the obligation, to continue
purchasing the SAN Shares.
(c) Contingent Sales Proceeds.
The agreement for the May 1999 sale of the systems integration
business provides for contingent payments to the company of 75% of
the profits in excess of contract renewal payments from the sold
business for the first year (April 2000), and 50% of the profits in
excess of contract renewal payments for the second and third years
(April 2001 and 2002).
Contract renewal payments of $302,000 and $250,000 were received in
June 1999 and March 2000, respectively. Profits from the sold
business have not exceeded $552,000 through April 2000 and no
additional contingent payments are due to the company through April
2000.
The final contract renewal payment of $75,000 was received by the
company in August 2000. The company will share in 50% of the
profits in excess of $75,000 for the year ended April 2000. The
first $158,000 of additional contingent payments earned by the
company will be retained by the buyer to pay for compensated
absences for former 3SI employees.
(d) Credit Facilities.
The company currently has no line of credit facility in place. The
provision in the SAN settlement agreement, requiring that 50% of
loan proceeds will be used to redeem the SAN shares, may impact the
company's ability to obtain additional short-term financing.
(e) Financial Condition Summary.
All trade payables are current as of June 30, 2000, with the
exception of the one significant vendor balance, which was paid off
in August 2000. The working capital deficit has been reduced
substantially, down to $138,000 at June 30, 2000. This $138,000
deficit includes $158,000 of accrued compensation payable that is
being deferred, and is anticipated to be offset against additional
contingent sales proceeds. The company can now move forward
without the debt burdens of the prior years.
Management believes that, with the agreements in place to provide
services to customers for FY 2001, (see discussion below) it has
the ability to generate sufficient cash to support its operations
for the next twelve months.
Financial Condition at September 30, 2000.
(a) Working Capital.
As of September 30, 2000, the company had working capital of
approximately $31,000. Working capital provided by operations was
$96,000 for the quarter ended September 30, 2000.
(b) Commitments.
The company has an obligation as of September 30, 2000, to
redeem $75,000 of its common stock subject to redemption.
(c) Other Sources of Working Capital.
Management is anticipating that the $50,000 escrow account
(held to register the common stock subject to redemption) will be
released since the company has entered into an agreement with a law
firm to prepare the registration statements in exchange for shares
of the company's stock.
The May 1999 sale of the systems integration business provides
for contingent payments based on subsequent profits of the business
sold. The company will share in 50% of the profits in excess of
$75,000 for the year ended April 2001. The first $158,000 of these
contingent payments earned will be retained by the buyer to pay for
compensated absences for former company employees. Profits from
the sold business (unaudited) were $109,000 for the six months
ended April 30, 2000. Similar profits for the six months ended
October 31, 2000, would be shared by the company, and reduce the
liability for compensated absences.
(d) Credit Facilities.
The company currently has no line of credit facility in place.
The provision in the SAN common stock redemption agreement,
requiring that 50% of loan proceeds will be used to redeem the SAN
shares, may impact the company's ability to obtain additional
short-term financing.
(e) Cash Requirements.
Management believes that, with the agreements already in place
to provide services for FY2001, it has the ability to generate
sufficient cash to support its operations for the next twelve
months.
Results of Operations.
In May 1999, 3Si sold its computer reseller, consulting, and
government sales divisions for the purpose of focusing its efforts
on the marketing, sales, and integration of KEWi.net products.
The company's principal services provided during FY 2000 were web
site development using the KEWi.net products, and the licensing of
the KEWi.net Internet-based customer support system.
The company has also entered into an agreement to develop and
maintain a web site for a large Colorado corporation. Revenues of
$80,000 under this agreement were reported in FY 2000. Completion
of the first two phases of this project, and all of the training,
would provide $545,000 of revenue during FY 2001.
The company has also entered into an agreement to maintain and
operate the Internet-based customer support system for FY 2001, for
the entity that owns the 26% minority interest in KEWi. The
$129,600 fee for the annual agreement was received in July 2000.
(a) Year Ended June 30, 2000 with Comparison to Year Ended June
30, 1999
The operations reported for FY 1999 included net revenues and
net loss attributable to both the company's new KEWi product focus
and the systems integration business that was sold in May 1999 as
follows:
Old Systems New KEWi
Integration Products
Business Focus Total
(000's) (000's) (000's)
Net revenues $ 16,445 $ 33 $ 16,478
Cost of operations 18,527 630 19,157
(Loss) from
operations (2,082) (597) (2,679)
Other (454) 4 (450)
Net loss before
Taxes (2,536) (593) (3,129)
Income tax (69) - (69)
Net loss (2,605) (593) (3,198)
The FY 2000 loss is $444,742. The FY 1999 loss (exclusive of the
$2,605,000 from the systems integration business) was $593,000.
This $593,000 FY 1999 loss represented two months of operations
under the company's new focus.
The operations reported for FY 2000 reflect the company's new
focus, with $104,000 of revenues from consulting and services
related to the KEWi.net products. The FY 2000 operations also
reported $28,000 of revenues from the licensing of the KEWi.net
Internet-based customer support system. Revenues of $33,000 were
reported related to the KEWi.net products in FY 1999. Operating
costs (exclusive of the systems integration business) have been
significantly reduced in FY 2000. Operating costs (cost of revenue
and selling and administrative expense) of $795,000 were reported
for FY 2000. Operating costs (exclusive of the systems integration
business) of $630,000 were reported for FY 1999. This included
only two months of operations in FY 1999 under its new KEWi.net
products focus. Compensation costs of $371,000 are reflected in
the FY 2000 results of operations. A significant portion of the
company's FY 2000 compensation costs was related to non-billable
functions. The technical staff devoted significant time to
research, its "Crack-the-Books" promotional software, and the
unsuccessful development of paging system software. A significant
portion of management's time during FY 2000 was also diverted from
revenue producing functions to legal issues that are now settled.
Legal expenses of $86,000, related to the settlement of two
lawsuits against the company, are also reflected in the FY 2000
results of operations. Interest expense of $183,000 was incurred
and paid to SAN in FY 2000 prior to the settlement agreement
reached on the $2.2 million debt owed by the company. The
company's only debt subject to interest at June 30, 2000, is a
$17,000 capital lease.
The FY 2000 operations include a $27,000 write-off of paging system
software and $32,000 amortization of other software development
costs. All capitalized software has been fully amortized at June
30, 2000.
(b) Year Ended June 30, 1999 with Comparison to Year Ended June
30, 1998
During FY 1999 the company exited out of the computer selling
and consulting business. The company sold its field services
division just prior to FY 1999. The company assigned its government
sales contract effective January 1, 1999, and sold the balance of
its computer selling and consulting business as of May 1, 1999.
The FY 1999 loss is due to the decline in sales (as the
company exited out of the computer selling and consulting business)
combined with declining margins. The company incurred a net loss
of $3,197,545 in FY 1999 compared to a net loss of $62,918 in FY
1998.
Net sales decreased approximately $12.9 million, or 44.0% in
FY 1999 compared to FY 1998. This change is primarily the result
of the company exiting out of the computer selling and consulting
business. Revenue from consulting and services (excluding the
United States Postal Service ("USPS") sub-contract) decreased
approximately $2.1 million. Revenues from the "USPS" sub-contract
(which was part of the May 1, 1999 sale) decreased approximately
$700,000. Revenues from the licensing of the KEWi.net Internet-
based customer support system were approximately $8,000 in FY 1999.
Cost of goods sold in total decreased approximately $9.6
million or 39% in FY 1999 compared to FY 1998. The company's gross
profit percent on product sales dropped dramatically in FY 1999.
The gross profit on product sales dropped to 4.9% in FY 1999. This
decrease is attributed to declining margins on commercial sales due
primarily to stiff competition and extremely low margins on sales
under its government contract. The direct costs of consulting and
Internet security assessments approximately equaled the revenues
due in part to customer dissatisfaction with these services.
Selling and administrative expenses decreased approximately
$700,000 or 13% in FY 1999 compared to FY 1998. This decrease is
due to $1.4 million in reductions in compensation costs as the
company exited out of the computer selling and consulting business.
Other selling and administrative costs increased, as the company
was unable to start reducing these costs until after the May 1,
1999, sale. Bad debts, depreciation, amortization, and lease costs
associated with an unsuccessful conversion of the internal
accounting system all increased in FY 1999 compared to FY 1998.
Interest expense increased as a result of increased use of the
company's revolving line of credit to finance its working capital
needs.
(c) Quarter Ended September 30, 2000 with Comparison to Quarter
Ended September 30, 1999.
Revenues increased by approximately $267,000 for the quarter
ended September 2000 compared to September 1999. This primarily
reflects the new agreements with QCS and SMI International.
The September 2000 revenues include a non-recurring $100,000
licensing fee for the use of KEWi software.
Selling and administrative expenses decreased by approximately
$69,000 for the quarter ended September 2000 compared to September
1999. This is primarily attributable to decreased legal fees
related to litigation settled in the prior year. Salaries also
decreased for these comparable periods related to employees
temporarily retained through September 1999 after the sale of the
systems integration business.
Interest expense decreased by approximately $62,000 for the
quarter ended September 2000 compared to September 1999. The
September 1999 interest expense was related to debt to SAN. This
debt was settled in March 2000 in exchange for common stock subject
to redemption.
Miscellaneous income increased by $75,000 for the quarter
ended September 2000 compared to September 1999. This represents
the contingent contract renewal payment from the May 1999 sale of
the systems integration business.
The company has also entered into an agreement in 1999 in the
ordinary course of business with SMI International to maintain and
operate an Internet-based customer support system for FY 2001, for
the U.S. Air Force Operational Space and Support Program. The
$129,600 fee for the annual agreement was received in July 2000.
As of October 2000, the company has expanded its agreement with QCS
to develop and maintain the QCS web site. Projected revenues (net
of subcontractor fees) for FY 2001 under this expanded agreement
are $805,000.
DESCRIPTION OF PROPERTY
The Company currently rents 900 square feet of space for our data
center at 6886 S. Yosemite St., Englewood, Colorado. The Company
is also leasing 300 square feet of sales office space in Colorado
Springs, Colorado. It is believed that our facilities are adequate
for the present level of business through fiscal year 2001.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two years, there have not been any transaction that
have occurred between the company and its officers, directors, and
five percent or greater shareholders, except as follows:
Amounts due from company stockholders were $162,395 and $162,395
at June 30, 2000 and 1999, respectively. Due to the uncollateralized
nature of these receivables and the going concern consideration in the
financial statements, the $162,395 June 30, 1999, balance has been
fully reserved and recorded as an expense.
Certain of the officers and directors of the company are engaged in
other businesses, either individually or through partnerships and
corporations in which they have an interest, hold an office, or
serve on a board of directors. As a result, certain conflicts of
interest may arise between the company and its officers and
directors. The company will attempt to resolve such conflicts of
interest in favor of the company. The officers and directors of
the company are accountable to it and its shareholders as
fiduciaries, which requires that such officers and directors
exercise good faith and integrity in handling the company's
affairs. A shareholder may be able to institute legal action on
behalf of the company or on behalf of itself and other similarly
situated shareholders to recover damages or for other relief in
cases of the resolution of conflicts is in any manner prejudicial
to the company.
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
Market Information.
The company's common stock is traded on the Over-the-Counter
Bulletin Board (symbol "TSIH"), having commenced trading on January
2, 1987 (on September 16, 1998, the name of the company was changed
from Tyrex Oil Company). The range of closing bid prices shown
below is as reported by this market. The quotations shown reflect
inter-dealer prices, without retail mark-up, markdown or commission
and may not necessarily represent actual transactions.
Per Share Common Stock Prices by Quarter
For the Fiscal Year Ending on June 30, 2001
High Low
Quarter Ended September 30, 2000 0.25 0.11
Per Share Common Stock Prices by Quarter
For the Fiscal Year Ended on June 30, 2000
High Low
Quarter Ended September 30, 1999 0.20 0.10
Quarter Ended December 31, 1999 0.18 0.07
Quarter Ended March 31, 2000 0.94 0.12
Quarter Ended June 30, 2000 0.50 0.19
Per Share Common Stock Prices by Quarter
For the Fiscal Year Ended June 30, 1999
High Low
Quarter Ended September 30, 1998 0.41 0.06
Quarter Ended December 31, 1998 0.31 0.15
Quarter Ended March 31, 1999 0.31 0.19
Quarter Ended June 30, 1999 0.25 0.12
Holders of Common Equity.
As of December 1, 2000, there were approximately 1,700 shareholders
of record of the company's common stock.
Dividend Information.
The company has previously paid dividends in the fiscal year
ended December 31, 1996 and the six months ended June 30, 1997.
The Board of Directors presently intends to retain any earnings to
finance company operations and does not expect to authorize cash
dividends in the foreseeable future. Any payment of cash dividends
in the future will depend upon the company's earnings, capital
requirements and other factors.
EXECUTIVE COMPENSATION
Summary Compensation Table
Annual compensation Long-term
compensation
Awards Payouts
Other Securi All
Annual ties other
Name and compen Restrict under compen
Principal Year Salary Bonus sation stock lying LTIP sation
Position (1) (2) award options payouts
SARs
($) ($) ($) ($) (#) ($) ($)
Frank W.
Backes,
President
CEO 2000 $114,800 0 0 0 0 0 0
1999 $110,000 0 0 0 0 0 0
1998 $110,000 0 0 0 0 0 0
Frederick
J. Slack,
Ex. Vice
President 2000 $110,000 0 0 0 0 0 0
1999 $110,000 0 0 0 0 0 0
1998 $110,000 0 0 0 0 0 0
Felipe L.
Valdez,
Secretary 2000 $ 4,230 0 0 0 0 0 0
1999 $ 91,667 0 0 0 0 0 0
1998 $110,000 0 0 0 0 0 0
(1) 3Si was a subchapter S corporation prior to its acquisition by
Tyrex Oil Company in September 1998. Amounts paid prior to that
time to the three officers of 3Si named above were made to them in
their capacities as shareholders.
(2) Perquisites and other personal benefits or property did not, in
aggregate, exceed $50,000 or 10% of the total compensation.
Advances to officers/stockholders of $162,395 that were fully
reserved and recorded as an expense as of June 30, 1999, are not
considered compensation.
Employment Agreements.
Separate employment agreements have been signed with Mr.
Backes, Mr. Slack, and Mr. Valdez on May 28, 1997. These
agreement all expired on May 31, 2000; no new employments
agreements have been entered into.
Other Compensation.
(a) There are no annuity, pension or retirement benefits
proposed to be paid to executive officers or directors of the
company in the event of retirement at normal retirement date as
there was no existing plan provided for or contributed to by the
company.
(b) No remuneration is proposed to be paid in the future directly
or indirectly by the company to any executive officer or director
since there was no existing plan which provides for such payment.
(c) The company has stock option plans in place, both in 1998 and
2000, and certain employees have been granted options under these
plans; however, none of the executive officers or directors and
have been granted any options under these plans.
FINANCIAL STATEMENTS
Independent Accountants' Report
Board of Directors
3Si Holdings, Inc.
We have reviewed the accompanying consolidated balance sheet of 3Si
Holdings, Inc. as of September 30, 2000, and the related statements
of earnings, and cash flows for the quarter then ended. These
financial statements are the representation of the management of
3Si Holdings, Inc.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying consolidated financial
statements in order for them to be in conformity with generally
accepted accounting principles.
/s/ Balogh and Tjornehoj, LLP
Balogh and Tjornehoj, LLP
October 31, 2000
Denver, Colorado
Independent Accountants' Report
Board of Directors
3Si Holdings, Inc.
The accompanying statements of earnings and cash flows of 3Si
Holdings, Inc. for the quarter ended September 30, 1999, were not
audited by us, and, accordingly, we do not express an opinion on
them.
/s/ Balogh and Tjornehoj, LLP
Balogh and Tjornehoj, LLP
November 17, 1999
Denver, Colorad
3SI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 246,108
Accounts receivable - trade 104,821
Other current assets 12,536
Total current assets 363,465
Equipment At Cost
Computer systems and software 82,647
Less accumulated depreciation and amortization (20,172)
Net equipment 62,475
Other Assets 50,290
Total assets 476,230
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current Liabilities
Current portion of long-term debt 7,696
Accounts payable - trade 60,031
Customer deposits 9,396
Accrued liabilities (Note 3) 157,708
Unearned revenue 97,200
Total current liabilities 332,031
Long-Term Debt 15,935
Minority Interest 27,592
Common Stock Subject To Redemption (Note 4) 2,211,048
Stockholders' (Deficit) Equity
Common stock 417,565
Additional paid in capital 3,282,963
Accumulated (deficit) (3,561,672)
Treasury stock (38,184)
Common stock subject to redemption (2,211,048)
Total stockholders' (deficit) equity (2,110,376)
Total liabilities and stockholders' (deficit) equity 476,230
See independent accountants' reports and notes to interim
consolidated financial statement
3SI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months
Ended
September 30 September 30
2000 1999
Consulting, service, and license fees $ 293,346 $ 26,489
Contract labor and other costs 59,150 16,628
Gross profit 234,196 9,861
Selling and administrative expenses 143,704 212,985
Earnings (loss) from operations 90,492 (203,124)
Other income (expense)
Interest income 2,010 11,328
Interest expense (1,284) (63,171)
Miscellaneous income (Note 3) 75,162 -
Total other income (expense) 75,888 (51,843)
Net earnings (loss) before minority
Interest 166,380 (254,967)
Minority interest (21,570) 27,900
Earnings (loss) before income taxes 144,810 (227,067)
Income taxes (Note 5) - -
Net earnings (loss) 144,810 (227,067)
Basic and diluted earnings (loss) per
common share (Note 2) nil (.01)
Weighted average shares outstanding
Basic 41,541,467 34,216,845
Diluted 41,745,932 34,216,845
See independent accountants' reports and notes to interim
consolidated financial statement
3SI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months
Ended
September 30 September 30
2000 1999
Operating activities
Net earnings (loss) $ 144,810 $ (227,067)
Reconciling adjustments
Depreciation and amortization 4,955 9,429
Gain on disposition of assets (75,000) -
Income (loss) attributable to minority
Interest 21,570 (27,900)
Change in operating assets and
Liabilities
Accounts receivable (50,216) 319,697
Other assets (11,320) 93,032
Accounts payable (96,610) (361,703)
Unearned revenue 97,200 -
Other liabilities - (135,183)
Total adjustments (109,421) (102,628)
Net cash provided by (used for)
operating activities 35,389 (329,695)
Investing activities
Proceeds from sale of assets 75,000 -
Interest accrued on savings (290) -
Software development costs - (15,756)
Net cash provided by (used for)
investing activities 74,710 (15,756)
Financing activities
Payments on capital lease (1,689) -
Proceeds from exercise of stock options - 11,500
Net cash (used for) provided by
financing activities (1,689) 11,500
Net change in cash and cash equivalents 108,410 (333,951)
Cash and cash equivalents, beginning 137,698 1,372,293
Cash and cash equivalents, ending 246,108 1,038,342
Supplemental disclosures of cash
flow information
Interest paid 1,284 63,171
Income tax paid - -
See independent accountants' reports and notes to interim
consolidated financial statements
3SI HOLDINGS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(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. ("TSIH") at September 30, 2000, and
the results of operations and cash flows for quarters ended
September 30, 2000, and September 30, 1999. The Notes to the
Consolidated Financial Statements which are contained in the June
30, 2000, Form 10-KSB should be read in conjunction with these
Interim Consolidated Financial Statements.
NOTE 2. EARNINGS (LOSS) PER SHARE
Basic earnings per share for the quarter ended September 30, 2000,
was calculated by dividing net earnings by the average number of
common shares outstanding during the year. Diluted earnings per
common share for the quarter ended September 30, 2000, was
calculated by adjusting outstanding shares, assuming conversion of
all potentially dilutive stock options.
Net (loss) earnings per share for the quarter ended September 30,
1999, was computed on the basis of the weighted average number of
common shares only, as shares subject to stock options would have
an anti-dilutive effect.
NOTE 3. CONTINGENCIES
TSIH sold the assets of its systems integration business effective
as of May 1, 1999. The asset purchase agreement provided for
additional contingent payments to TSIH when key contracts were
renewed. The final contract renewal payment of $75,000 was
received in September 2000.
The asset purchase agreement also provided for contingent payments
to TSIH of 75% of the profits in excess of contract renewal
payments from the sold business for the first year (April 2000),
and 50% of the profits in excess of contract renewal payments for
the second and third years (April 2001 and 2002). Profits from the
sold business did not exceed contract renewal payments through
April 2000. No additional contingent payments are estimated to be
due to TSIH at September 30, 2000. There is currently no assurance
as to when or if any contingent payments will be earned.
The first $157,708 of additional contingent payments earned by TSIH
will be retained by the buyer to pay for compensated absences for
former TSIH employees. This amount is included under accrued
liabilities in the September 30, 2000 balance sheet.
NOTE 4. COMMON STOCK SUBJECT TO REDEMPTION
TSIH has issued 6,460,137 shares of common stock ("the SAN shares")
that are subject to redemption under the following terms. All
contingent payments received after August 2000 from the May 1999
sale of the systems integration business will be used to redeem the
SAN shares. In addition, TSIH will use 50% of any capital
investment or loans, and 50% of subsequent net income, to redeem
SAN shares. For redemption payments after September 2000, the SAN
shares shall be transferred back to TSIH at $.52 per share, or the
then current market price, whichever is higher. At the point SAN
has received redemption payment totaling $2,211,048, TSIH will have
the right, but not the obligation, to continue purchasing the SAN
shares.
TSIH has received a contingent payment of $75,000 in September 2000
(see Note 3) which must be used to redeem SAN shares under the
terms of the redemption agreement.
NOTE 5. INCOME TAXES
TSIH has sufficient net operating loss carryforward to offset the
current taxable income. There is no income tax liability as of
September 30, 2000.
NOTE 6. SUBSEQUENT EVENT
TSIH ENTERED INTO AN AGREEMENT WITH A LAW FIRM IN OCTOBER 2000.
THE LAW FIRM HAS AGREED TO PREPARE REGISTRATION STATEMENTS WITH THE
SECURITIES AND EXCHANGE COMMISSION IN EXCHANGE FOR 207,373 SHARES
OF TSIH COMMON STOCK, VALUED AT $45,000.
INDEPENDENT AUDITORS' REPORT
Board of Directors
3Si Holdings, Inc.
We have audited the accompanying consolidated balance sheets
of 3Si Holdings, Inc. as of June 30, 2000 and 1999, and the related
consolidated statements of operations, changes in stockholders'
(deficit), and cash flows for the years ended June 30, 2000, 1999,
and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that the Company plan
and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentations. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
3Si Holdings, Inc. as of June 30, 2000 and 1999, and the results of
its operations and its cash flows for the years ended June 30,
2000, 1999, and 1998, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. At June 30,
2000, current liabilities exceed current assets by $138,282. Also
at June 30, 2000, the Company had a deficit in stockholders' equity
of $2,255,186. These factors, discussed at Note R, 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.
/s/ Balogh and Tjornehoj, LLP
Balogh and Tjornehoj, LLP
September 15, 2000
Denver, Colorado
3SI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30
2000 1999
Current assets
Cash and cash equivalents (Note B) $137,698 $1,372,293
Accounts receivable - trade (Note D) 54,605 437,221
Other current assets 1,216 11,000
Total current assets 193,519 1,820,514
Property and equipment at cost (Notes B And G)
Computer systems and software 82,647 28,575
Accumulated depreciation and amortization (15,217) (7,500)
Net equipment 67,430 21,075
Other assets
Software development costs (Notes B and K) - 42,827
Deposit - 50,000
Escrow account (Note G) 50,000 -
Total other assets 50,000 92,827
Total assets $310,949 $1,934,416
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities
Current portion of long-term debt (Note G) $ 7,622 $ -
Accounts payable - trade (Note G) 157,075 3,301,354
Customer deposits 9,396 -
Accrued liabilities (Notes F and G) 157,708 427,845
Total current liabilities 331,801 3,729,199
Non-current liabilities
Long-term debt (Note G) 17,264 -
Commitments and contingencies (Note G) - -
Minority interest (Note I) 6,022 149,932
Common stock subject to redemption (Notes B
and G) 6,460,137 shares issued at
June 30, 2000 2,211,048 -
Stockholders' (deficit) (Note J)
Common stock - authorized 50,000,000
shares of $.01 par value; 41,756,467 issued
at June 30, 2000; 40,084,156 issued at
June 30, 1999 417,565 400,842
Additional paid-in capital 3,282,963 2,773,536
Accumulated (deficit) (3,706,482) (3,261,740)
Treasury stock at cost - 215,000 shares at
June 30, 2000, and 6,050,626 shares at
June 30, 1999 (38,184) (1,857,353)
Common stock subject to redemption (2,211,048) -
Total stockholders' (deficit) (2,255,186) (1,944,715)
Total liabilities and stockholders'
(deficit) 310,949 1,934,416
The accompanying notes are an integral part of these statement
3SI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30
2000 1999 1998
Product sales $ - $10,741,248 $20,816,550
Consulting and other service revenue 131,708 5,737,080 8,567,957
Net revenues 131,708 16,478,328 29,384,507
Cost of revenues 172,293 14,729,567 24,267,452
Gross profit (40,585) 1,748,761 5,117,055
Selling and administrative expenses 622,400 4,428,157 5,138,499
(Loss) from operations (662,985) (2,679,396) (21,444)
Other income (expense)
Miscellaneous income 33,665 19,021 74,815
Settlement of litigation (Note G) - (224,688) -
Interest expense (182,749) (230,424) (180,124)
Net gain (loss) on disposition of
assets (Note P) 223,417 (71,867) 9,835
Total other income (expense) 74,333 (507,958) (95,474)
Net (loss) before minority interest (588,652) (3,187,354) ( 116,918)
Minority interest (Note I) 143,910 58,809 -
Net (loss) before income taxes (444,742) (3,128,545) (116,918)
Income tax (expense) benefit (Note L) - (69,000) 54,000
Net (loss) (444,742) (3,197,545) (62,918)
Basic and diluted (loss) per common share
Net (loss) (.01) (.09) nil
Weighted average shares outstanding
(Note B) 36,553,493 33,944,332 36,571,766
The accompanying notes are an integral part of these statement
3SI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Number Add'l Common Total
Common Common Paid Accumu Treasury Stock Stock
Shares Stock in lated Stock Subject Holders
capital (Deficit) to Deficit)
Redemp Equity
tion
Balance
June 30, 1997 39,293,424 392,934 2,322,902 (1,277) (5,987) - 2,708,572
Merger costs - - (8,278) - - - (8,278)
Exercise of
options at
$.14 per share 469,000 4,690 60,970 - - - 65,660
Shares acquired
in self-
tender;
6,005,626
at $.30 per
share (net of
offering costs
of $49,678) - - - -(1,851,366) - (1,851,366)
Shares issued
For
compensation at
$.03 per share 222,500 2,225 4,450 - - - 6,675
Net loss for
the year ended
June 30, 1998
Restated - - - (62,918) - - (62,918)
Balance
June 30 1998 39,984,924 399,849 2,380,044 (64,195) (1,857,353) - 858,345
Shares issued
for services
at $.16 per
share 99,232 993 14,507 - - - 15,500
Stock option
grants and
revisions - - 52,726 - - - 52,726
Minority
Interest
proceeds in
excess of
carrying value - - 326,259 - - - 326,259
Net loss for
the year ended
June 30, 1999 - - - (3,197,545) - -(3,197,545)
Balance
June 30 1999 40,084,156 400,842 2,773,536 (3,261,740)(1,857,353)-(1,944,715)
Shares
reacquired;
60,000 at
$.186 per
share - - - - (11,169)- (11,169)
Shares
reacquired;
110,000 at
$.191 per
share - - - - (21,028)- (21,028)
Common stock
subject to
redemption;
6,460,137
shares issued
in settlement
of litigation
net of
6,005,626
shares from
treasury 454,511 4,545 355,137 - 1,851,366(2,211,048)-
Exercise of
options at
$.10 per
share 117,800 1,178 10,602 - - - 11,780
Shares issued
in settlement
of litigation
(Note G) 1,100,000 11,000 143,688 - - - 154,688
Net loss
for the
year ended
June 30
2000 - - - (444,742) - - (444,742)
Balance
June 30
2000 41,756,467 417,565 3,282,963(3,706,482) (38,184)(2,211,048) $(2,255,186)
See Note G related to 6,460,137 shares of common stock, subject to redemption
which are presented separately from stockholders' deficit on the balance sheet.
The accompanying notes are an integral part of these statement
3SI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30 2000 1999 1998
Operating activities:
Net (loss) $ (444,742) $(3,197,545) $ (62,918)
Reconciling adjustments:
Depreciation and amortization 39,717 228,242 161,498
Software impairment - 57,400 -
(Recovery of) provision for
doubtful accounts (11,169) 272,615 106,435
Reserve for stockholders' loans
(Note M) - 162,395 -
Stock option compensation - 52,726 -
Net (gain) loss on disposition of
assets (Note P) (223,417) 71,867 (9,835)
Loss attributable to minority
interest (143,910) (58,809) -
Stock issued for services - 15,500 6,675
Changes in operating assets and
liabilities:
Accounts receivable 382,616 5,432,554 (2,917,257)
Inventory - 18,098 417,733
Other assets 59,784 51,403 (62,841)
Accounts payable and accrued
liabilities (1,039,718) (451,298) 976,751
Income tax payable - (15,000) 15,000
Deferred taxes - 69,000 (69,000)
Total adjustments (936,097) 5,906,693 (1,374,841)
Net cash (used for) provided by
operating activities (1,380,839) 2,709,148 (1,437,759)
Investing activities:
Proceeds from sale of assets 250,000 802,167 12,500
Proceeds from assignment of
government contracts - 500,000 -
Purchases of equipment (26,949) (215,263) (243,075)
Software development costs (15,756) (10,827) (239,082)
Loans to stockholders - (82,513) (77,020)
Cost of merger - - (8,278)
Escrow account (50,000) - -
Net cash provided by (used for)
investing activities 157,295 993,564 (554,955)
Financing activities:
(Payments on) note payable - (2,858,337) (1,264,271)
Revolving line of credit, net - - 2,858,337
Payments on notes payable and
capital lease (1,803) (20,925) (20,948)
Proceeds from exercise of
options (Note J) 11,780 - 65,660
Minority interest investment
(Note I) - 535,000 -
Purchase of treasury stock (21,028) - (1,851,366)
Net cash (used for) financing
activities (11,051) (2,344,262) (212,588)
Net change in cash and cash
equivalents (1,234,595) 1,358,450 (2,205,302)
Cash and cash equivalents at
beginning of period 1,372,293 13,843 2,219,145
Cash and cash equivalents at
end of period 137,698 1,372,293 13,843
Summary of noncash investing and financing activity:
3Si sold substantially all of its assets effective as of May 1,
1999 (See Note P).
The Company issued 1,100,000 shares of its common stock to settle
litigation with a leasing company in the year ended June 30, 2000
(See Note G).
The Company issued 6,460,137 shares of its common stock, subject to
redemption, in settlement of a liability to a vendor (See Note G).
The Company reacquired 60,000 shares of its common stock in
satisfaction of an obligation from a former employee.
The Company also entered into a capital lease agreement in the year
ended June 30, 2000 (See Note G).
Interest paid $ 182,749 $ 230,424 $ 180,124
Income tax paid - 15,000 -
The accompanying notes are an integral part of these statement
3SI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
3Si, Inc.
3Si, Inc. ("3Si") was incorporated in Colorado in 1979. 3Si is a
wholly owned subsidiary of 3Si Holdings, Inc., a publicly traded
company ("TSIH" or the "Company"), with a controlling ownership in
KEWi.net, Inc. In May 1999, 3Si sold its interest in its computer
reseller, consulting, and government sales divisions (See Note P)
for the purpose of focusing its efforts on the marketing, sales,
and integration of KEWi.net products. 3Si is an integration
partner and master reseller for KEWi.net.
3Si focuses on the sales, marketing, integration and distribution
of KEWi.net products. While KEWi.net focuses its efforts on the
development of Internet-based customer support products, 3Si
specializes in the business application of these products.
3Si's principal services provided during the year ended June 30,
2000, were web site development using the KEWi.net products, and
the licensing of the KEWi.net Internet-based customer support
system. The principal markets for 3Si's services are large
corporations located in Colorado.
The corporate offices are located in Englewood, Colorado.
KEWi.net, Inc.
KEWi.net, Inc. ("KEWi") was incorporated as a TSIH subsidiary in
Colorado in February 1999. TSIH owns 69% of the outstanding common
stock of KEWi as of June 30, 2000 and 1999.
Principals of Consolidation
The accounts of 3Si and KEWi are consolidated into the TSIH
financial statements. All intercompany balances and transactions
have been eliminated. A minority interest is presented in the TSIH
financial statements for the 31% interest of KEWi not owned by TSIH
(See Note I).
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Prior Period Adjustments
The accompanying financial statements for the year ended June 30,
1998, have been restated to correct an error in not recording all
accounts payable at that date. The effect of the restatement was
to decrease net earnings for the year ended June 30, 1998, by
$232,058 ($.00 per share). The 1998 current income tax effect of
this correction was offset by an increase in the 1998 deferred tax
valuation allowance.
Business Segments
The Company operated in only one business segment as a systems
integrator until May 1999. Subsequently TSIH operated in only one
business segment related to its KEWi.net products. Revenues are
all attributed to operations within the United States. Long-lived
assets are all located within the United States. See Note O for
information on major customers.
Use of Estimates
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported
in these financial statements and accompanying notes. Actual
results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments with an original maturity of
three months or less to be cash equivalents.
Depreciation and Amortization
Depreciation and amortization have been provided in amounts
sufficient to allocate the costs of depreciable assets to
operations over their estimated useful lives of five to seven years
using the straight-line method. Equipment acquired under capital
leases is amortized on a straight-line basis over the lease period.
Amortization of capitalized software development costs has been
provided over a period of two years.
Depreciation and amortization expense is as follows:
Equipment Software
and Capital Development
Year ended Leases Costs Goodwill
6/30/98 $ 130,248 $ - $ 31,250
6/30/99 112,800 89,400 26,042
6/30/00 7,717 32,000 -
Revenue Recognition
The Company's revenue recognition policies are in compliance with
all applicable accounting regulations, including American Institute
of Certified Public Accountants ("AICPA") Statements of Position
("SOP") 97-2 and 98-4, "Software Revenue Recognition". These
statements provide criteria to be met in order for revenue to be
recognized. The criteria applicable to web site development
include determinability of the amount of revenue, measuring
progress-to-completion, and probability of collection. Maintenance
and support revenues are recognized ratably over the term of the
related agreements. Revenues from other contract services are
generally recognized under the percentage-of-completion method, as
measured by achievement of the milestones specified in the
agreements. The KEWi software is licensed to the user on a monthly
subscription basis. License revenue is recognized monthly as the
service is provided.
Advertising Costs
Advertising costs are charged to operations as incurred.
Advertising expense is as follows:
Year ended
6/30/98 $ 58,000
6/30/99 38,000
6/30/00 1,000
(Loss) Earnings Per Share
The basic (loss) earnings per share (EPS) is computed by dividing
income available to common stockholders by the weighted-average
number of common shares outstanding for the year. Diluted EPS, if
any, reflects the potential dilution that could occur if dilutive
securities were exercised or converted into common stock that then
shared in the earnings.
Net loss per share for the years ended June 30, 2000, 1999, and
1998, was computed on the basis of the weighted average number of
common shares outstanding, which includes common stock subject to
redemption. Shares subject to warrants and stock options would
have an anti-dilutive effect.
Fair Value of Financial Instruments
Estimated fair values of the Company's financial instruments (all
of which are held for non-trading purposes) are as follows:
2000 1999
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents $137,698 $137,698 $1,372,293 1,372,293
Capital lease obligations (24,886) (24,886) - -
The fair value of debt is based on current rates at which the
Company could borrow funds with similar remaining maturities. The
carrying amounts approximate fair value.
Statements of Financial Accounting Standards ("SFAS") No. 133, 137,
and 138, "Accounting for Derivative Instruments and Hedging
Activities" will become effective during the year ended June 30,
2001. These statements require that entities recognize all
derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value provided certain
conditions are met. The new standards are expected to have no
effect on the financial statements of TSIH. The Company currently
has no derivative instruments, and does not expect to engage in
hedging activities.
Computer Software Costs Developed For Internal Use Only
Expenditures related to the Company's acquisition and
implementation of a new information management software were
capitalized as computer systems during the years ended June 30,
1999 and 1998, in accordance with the American Institute of
Certified Public Accountants ("AICPA") Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". Capitalized costs as of
June 30, 1998, included $187,514 paid to outside consultants and
$35,301 of internal costs.
Long-Lived Assets Including Software Costs
Software costs are subject to impairment evaluation in accordance
with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". The
information management software was never placed in service, and a
loss of $222,815 was reported for the year ended June 30, 1999 (See
Note P).
Computer Software Costs Developed For Sale to Customers
The Company capitalizes certain software development and
implementation costs. Development and implementation costs are
expensed as research costs until the Company has determined that
the software has achieved technological feasibility, will result in
probable future economic benefits, and management has committed to
funding the project. Thereafter, the costs to develop the software
are capitalized and amortized using the straight-line method over
the remaining estimated useful lives (See Note K).
Common Stock Subject to Redemption
Common stock subject to redemption (See Note G) is presented
separately from stockholders' deficit since the Company does not
control the redemption. These securities are initially recorded at
their fair value. No accretion to the redemption amount is recorded
at the balance sheet date, since the date of future redemptions is
not determinable at this time. Future redemptions for consideration
that exceeds the carrying amount of the security will be treated as
a reduction of income applicable to common shareholders.
NOTE C - BUSINESS COMBINATIONS
3Si executed a License and Royalty Agreement in 1993 with former
stockholders of 3Si. Under the terms of the agreement, 3Si was
obligated to pay 1.5% of the gross revenues as a royalty expense to
the former stockholders through July 1999. As part of a merger in
May 1997, the Company satisfied this royalty agreement with a
payment of $625,000. The buy out of this agreement was recorded as
goodwill and was being amortized using the straight-line method
over twenty years, until April 30, 1999. Upon the sale of
substantially all assets of 3Si effective May 1, 1999 (See Note A),
the remaining $565,104 balance of goodwill (which was associated
with the systems integration business) was written off and grouped
with other income (expense) (See Note P).
NOTE D - ACCOUNTS RECEIVABLE
The detail of accounts receivable is as follows:
2000 1999
Trade receivables $ 54,605 $ 437,221
Allowance for doubtful accounts - -
Net 54,605 437,221
NOTE E - SHORT-TERM BORROWING
The Company used a revolving line of credit facility with a
financial institution from September 1997 to June 1999. The
weighted average interest rate on the credit facility for the years
ended June 30, 1999 and 1998 was 10.28% and 9.82% respectively.
The weighted average interest rate on vendor debt (Note G) was
11.75% for both years ended June 30, 2000 and 1999.
NOTE F - ACCRUED LIABILITIES
3Si entered into commitments for monthly lease and training
payments related to a new information management software system
(See Note B). The software was never placed in service. The
future commitments through September 2000 of $95,108 were reported
as an accrued liability as of June 30, 1999, and a loss recorded.
These lease and training commitments were paid off early during
the year ended June 30, 2000.
The detail of accrued liabilities is as follows:
2000 1999
Legal settlement (Note G) $ - $ 224,688
Compensation (Note G) 157,708 103,323
Loss on software lease commitments - 95,108
Other - 4,726
Total 157,708 427,845
NOTE G - COMMITMENTS AND CONTINGENCIES
Leases
The Company had operating leases for office space in Englewood and
Colorado Springs, Colorado and Albuquerque, New Mexico until May 1,
1999. The rent expense was net of sublease income for the
Englewood office. From May 1, 1999 to June 30, 2000, the Company
was provided a small amount of space at its Englewood location by
the purchaser of its systems integration business. TSIH currently
has no agreement for the continued use of this space.
Net Rent Sublease
Year ended Expense Income
6/30/98 $ 114,000 $ 87,000
6/30/99 98,000 63,500
6/30/00 14,000 -
During 1995, 3Si acquired $120,332 of furniture and fixtures under
a capital lease. Accumulated amortization was $62,172 at June 30,
1998. The capital lease was assumed by the purchaser of
substantially all assets of 3Si (See Note A). The Company has a
contingent liability for the $45,363 of minimum lease payments
through October 2000 should the purchaser fail to make the required
lease payments. Management currently believes the Company will
incur no liability for these payments; however, the ultimate
outcome of this matter cannot be determined at this time.
In June 2000, 3Si acquired $27,123 of computer equipment under a
capital lease. The equipment was not placed in service until July
2000.
2000 1999
Minimum capital lease payments of $901
per month through April 2003; net of
deferred interest $5,760 at June 30, 2000 $ 24,886 $ -
Less current portion 7,622 -
Long-term debt 17,264 -
Long-term debt matures as follows:
Second year $8,835
Third year 8,429
Subsequent years -
Long-term debt 17,264
Self-Insured Medical Program
3Si adopted a self-insured medical program for its employees and
their dependents in 1998. The Company was liable for annual
medical expenses up to $35,000 for each individual. The Plan was
discontinued upon the sale of substantially all assets of 3Si (See
Note A). No significant future liability is anticipated.
Litigation - Leasing Company
During the year ended June 30, 1999, a leasing company filed suit
against 3Si to recover damages under a government lease agreement.
A settlement was reached in September 1999. 3Si paid the
plaintiffs $75,000, and issued 1,100,000 shares of TSIH restricted
common stock (valued at $154,688, the remaining amount of debt) to
the plaintiffs during the year ended June 30, 2000. The $224,688
combined amount of settlement (which is net of the $5,000 value of
inventory recovered) was accrued as a loss at June 30, 1999.
Litigation - Vendor / Common Stock Subject to Redemption
A vendor, Storage Area Network ("SAN"), who was owed $2,211,048 at
June 30, 1999, had filed suit to attempt to attach the Company's
assets for the collection of that liability. A settlement
agreement was reached in March 2000. SAN received 6,460,137 shares
("the SAN shares") of TSIH common stock, and the liability to SAN
was discharged. No gain or loss was recorded upon this settlement.
After 3Si pays off another vendor in August 2000, the SAN shares
will be subject to redemption under the following terms. All
subsequent contingent receipts from the May 1999 sale of the
systems integration business (See Contingent Sales Proceeds below)
will be used to redeem the SAN shares. In addition, TSIH will use
50% of any capital investment or loans, and 50% of subsequent net
income, to redeem SAN shares. For redemption payments through
September 2000, the SAN shares shall be transferred back to TSIH at
$.35 per share. For subsequent redemption payments, the SAN shares
shall be transferred back to TSIH at $.52 per share, or the then
current market price, whichever is higher. At the point SAN has
received redemption payment totaling $2,211,048, TSIH will have the
right, but not the obligation, to continue purchasing the SAN
shares.
A $50,000 escrow account was established by TSIH under the
settlement agreement for TSIH to use to cover the expenses of
registering the SAN shares during the year ended June 30, 2001.
Interest expense of $182,749 and $19,603 for the years ended June
30, 2000 and 1999, respectively, was incurred and paid to SAN prior
to the settlement.
Contingent Sales Proceeds
3Si received $500,000 for asset sales, and $302,167 contract
renewal payment, upon the sale of its systems integration business
effective as of May 1, 1999. 3Si 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 provided
for additional contingent payments to 3Si of $325,000 when key
contracts were renewed. A contract renewal payment of $250,000 was
received in March 2000 (See Note P), and a contract renewal payment
of $75,000 was received in September 2000. The $75,000 payment
will be recorded as revenue in the year ended June 30, 2001.
The asset purchase agreement also provided for contingent payments
to 3Si of 75% of the profits in excess of contract renewal payments
from the sold business for the first year (April 2000), and 50% of
the profits in excess of contract renewal payments for the second
and third years (April 2001 and 2002). Profits from the sold
business did not exceed contract renewal payments of $552,167
through April 2000, and no additional contingent payments are due
to 3Si at this time. There is currently no assurance as to when or
if any contingent payments will be earned.
The first $157,708 of additional contingent payments earned by 3Si
will be retained by the buyer to pay for compensated absences for
former 3Si employees. This amount is included under accrued
liabilities in the June 30, 2000 balance sheet.
Other Commitments
See Note I related to commitment for additional ownership interest
in KEWi.
NOTE H - PROFIT SHARING PLAN
3Si established a 401(k) profit-sharing plan during 1995. The
Company contributions were at the discretion of the Board of
Directors. The plan was discontinued as of May 1999. For the
years ended June 30, 1999 and 1998, no Company contributions were
made to the plan.
NOTE I - MINORITY INTEREST
TSIH owns a 69% interest in KEWi.net, Inc. (See Note A) summarized
as follows:
2000 1999
Minority interest beginning of year $ 149,932 $ -
Net proceeds from sale of stock in KEWi
subsidiary attributable to minority interest - 208,741
(Loss) attributable to minority interest (143,910) (58,809)
Minority interest end of year 6,022 149,932
KEWi raised $535,000 (net of expenses) through a private offering
for 26% of KEWi's common stock during the year ended June 30, 1999.
Net proceeds, in excess of TSIH's carrying value of the interest
sold, of $326,259 were accounted for as additional paid in capital
in the consolidated balance sheet. KEWi also issued 5% of its
common stock to an entity that assisted in the private offering.
As of June 30, 2000 and 1999, TSIH owns 69% of the outstanding
common stock of KEWi.
TSIH has agreed to give an additional 5% ownership interest in KEWi
to a consulting firm if KEWi sales and earnings in the years ended
March 2000, 2001 or 2002 meet certain goals. No additional
ownership interest has been earned through June 30, 2000. If
additional ownership interests in the KEWi subsidiary are
subsequently issued, they will be accounted for as an operating
expense and additional minority interest.
In connection with a web-site development agreement, KEWi has
granted its customer the irrevocable right for ten years to acquire
211,212 common shares of KEWi stock (10% of the current shares
outstanding) at $1.89 per share.
NOTE J - STOCK OPTIONS AND WARRANTS
Tyrex Stock Option Plan
TSIH had a previous option plan for former employees (the "Tyrex
Plan"). Changes in the status of options outstanding under the
Tyrex Plan for the year ended June 30, 1998, were as follows:
End of period, June 30, 1997 469,000
Granted -
Terminated -
Exercised (469,000)
End of period, June 30, 1998 -
Option price .14
TSIH Stock Option Plan
On June 18, 1998, the TSIH stockholders approved the Company's 1998
Stock Option Plan (the "1998 Plan"). Under the terms of the 1998
Plan, the Company may grant options for employees and directors of
the Company to acquire up to 5,000,000 shares of TSIH's common
stock. No options were granted prior to June 30, 1998. The
options vested over a period of four years except 1,345,000 shares
granted during the year ended June 30, 1999, which vested
immediately upon grant to two officers of TSIH.
Upon the sale of substantially all assets of the Company (See Note
A), a) the exercise period for terminated employees became one year
from date of termination, and b) the options held by terminated
employees became 100% vested.
# Shares Exercise
Under Option Price*
End of period, June 30, 1998 - $ -
Granted 1,910,100 .125
Forfeited (647,600) .125
Exercised - -
End of period, June 30, 1999 1,262,500 .125
Granted 1,000,000 .128
Forfeited (1,045,700) .131
Exercised (117,800) .100
End of period, June 30, 2000
(all exercisable) 1,099,000 .126
Option price .10 .156
* weighted average
The Company continues to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Compensation cost for stock options, if any, is measured as the
excess of the quoted market price of the Company's stock at the
date of grant over the amount an employee must pay to acquire the
stock. Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," established
accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation plans.
The Company has elected to remain on its current method of
accounting as described above, and has adopted the disclosure
requirements of SFAS No. 123.
Compensation cost charged to operations was $0 and $52,726 for the
years ended June 30, 2000 and 1999, respectively. No additional
compensation cost was recorded during the year ended June 30 1999,
related to the change in terms for the options upon the sale of
substantially all assets of the Company.
Had compensation cost been determined on the basis of fair value
pursuant to SFAS No. 123, net loss would have increased as follows:
2000 1999 1998
Net (loss)
As reported $ (444,742) $(3,197,545) $ (62,918)
Pro forma (495,328) (3,246,683) (62,918)
Basic and diluted (loss) per share
As reported (.01) (.09) -
Pro forma (.01) (.10) -
The weighted average fair value of options granted during the years
ended June 30, 2000 and 1999, is $.125 and $.149 respectively.
The fair value of each option granted is estimated on the date of
the grant or modification of the plan terms using the Black Scholes
model. The following assumptions were made in estimating fair
value:
Assumption 2000 1999
Dividend yield 0% 0%
Risk-free interest rate 6% 6%
Expected life 3 years 1 year
Expected volatility 212.63% 94.09%
Warrants
On May 28, 1997, TSIH granted warrants to purchase 750,000 shares
of the Company's common stock at a price of $.30 per share. These
warrants became exercisable 90 days after May 28, 1997, and were
effective until August 27, 1999.
On October 22, 1997, the Company granted warrants to purchase up to
350,000 shares of the Company's common stock at a price of $.16 per
share. These warrants became exercisable 90 days after October 22,
1997, and were effective until June 30, 1999. The Company also
extended the exercise date on warrants previously issued to
purchase up to 400,000 shares of the Company's common stock at
$.225 per share from December 31, 1998, to December 31, 1999.
No compensation expense has been recognized related to warrants.
All warrants have expired unexercised as of June 30, 2000.
NOTE K - RESEARCH AND DEVELOPMENT/SOFTWARE DEVELOPMENT COSTS
During the year ended June 30, 1998, 3Si conducted research and
development on its first two proprietary software products - a
contact management data base program and automated help desk
services. Both programs operate via the Internet. During the
years ended June 30, 2000 and 1999, KEWi conducted research and
development on an upgraded version of its automated help desk
services software and a new paging software system.
The contact management database program was deemed not to be
commercially viable and capitalized costs were written off as a
loss during the year ended June 30, 1999. The original paging
software system was deemed to be inadequate and written off as a
loss in the year ended June 30, 2000. (See Note P).
As of June 30, 1999, the automated help desk services software was
deemed to be impaired and written down to its fair value. Fair
value, which was determined by reference to the present value of
the estimated future cash inflows of such asset, exceeded their
carrying value by $57,400. An impairment loss of that amount
(included in selling and administrative expenses) was charged to
operations in the year ended June 30, 1999.
Software Development Costs 2000 1999
Beginning of year $ 42,827 $ 239,082
Costs capitalized 15,756 10,827
58,583 249,909
Contact management
database loss - (60,282)
Paging system loss (26,583) -
32,000 189,627
Amortization (32,000) (89,400)
Net cost before impairment - 100,227
Impairment - (57,400)
End of year - 42,827
Research Costs Expensed
Year Ended
6/30/98 $ 70,000
6/30/99 13,000
6/30/00 19,000
NOTE L - INCOME TAXES
The Company provides for income taxes under the provisions of SFAS
No. 109 "Accounting for Income Taxes". SFAS No. 109 requires an
asset and liability based approach in accounting for income taxes.
Deferred income tax assets and liabilities are recorded to reflect
the tax consequences on future years of temporary differences of
revenue and expense items for financial statement and income tax
purposes. Valuation allowances are provided against deferred tax
assets which are not likely to be realized.
The 1999 distribution of assets to KEWi was accomplished in a tax-
free transaction.
KEWi is excluded from the filing of a consolidated income tax
return. Net operating loss carryforwards are available at June 30,
2000, expiring as follows:
TSIH/3Si KEWi
2012 $ 111,000 $ -
2013 509,000 -
2019 1,886,000 109,000
2020 196,000 420,000
2,702,000 529,000
The Company's deferred tax assets and liabilities are comprised of
the following:
2000 1999
Non-current:
Tax benefit of net operating loss carryforward $1,130,000 $ 954,000
Deferral of tax deduction for goodwill 197,000 209,000
Acceleration of tax deductions for software costs - (16,000)
Other 120,000 136,000
1,447,000 1,283,000
Valuation allowance (1,447,000) (1,283,000)
Net non-current - -
Net deferred tax assets - -
The Company may not have sufficient taxable income in future years
to obtain the benefits of the net operating loss carryforward and
reversal of timing differences. Valuation allowances of $1,447,000
and $1,283,000 are provided at June 30, 2000 and 1999 respectively,
for the benefits which the Company may not be able to use.
The provision for income taxes consists of the following:
2000 1999 1998
Current expense $ - $ - $ 15,000
Deferred expense (credit) - 69,000 (69,000)
Income tax expense (benefit) - 69,000 (54,000)
Reconciliation of income taxes to Federal statutory rates is as
follows:
2000 1999 1998
Income taxes (benefit) at
statutory rates $(151,000) $(1,064,000) $ (40,000)
Non-deductible expenses - - 11,000
Minimum tax - - 15,000
State taxes and other (13,000) (111,000) (4,000)
Valuation allowance 164,000 1,244,000 (36,000)
Income tax expense (benefit) - 69,000 (54,000)
NOTE M - RELATED PARTY TRANSACTIONS
Amounts due to TSIH from TSIH stockholders are $162,395 at June 30,
2000 and 1999. Due to the uncollateralized nature of these
receivables and the going concern considerations at June 1999, the
$162,395 balance was fully reserved and recorded as an expense
during the year ended June 30, 1999.
See Note R also.
NOTE N - DISCONTINUED OPERATIONS
The sale of substantially all assets effective as of May 1, 1999,
is not considered the discontinuation of a business segment.
NOTE O - MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
With the sale of its systems integration business effective as of
May 1, 1999 (See Note A), 3Si also transferred its agreement to
provide information systems support to the U.S. Postal Service
(USPS), which was a major customer. For the year ended June 30,
2000, two customers accounted for 79% of the consulting and service
revenue. Net revenues (in thousands) are summarized as follows:
2000 1999 1998
Product sales $ - $ 10,741 $ 20,817
USPS agreement - 4,810 5,550
KEWi license fees 28 8 -
Other consulting and service revenue 104 919 3,018
Net revenues 132 16,478 29,385
Financial instruments, which potentially subject the Company to
credit risk, consist primarily of cash, cash equivalents, and trade
receivables.
Generally, the Company does not require collateral or other
security to support customer receivables. At June 30, 2000, two
customers owed approximately 98% of the trade receivables. At June
30, 1999, one customer owed approximately 52% of the trade
receivables.
NOTE P - SALE OF ASSETS
Net gain (loss) on disposition of assets is summarized as follows:
2000 1999 1998
Gain on assignment of government
Contracts $ - $ 500,000 $ -
Gain on sale of substantially
all assets (Note G) 250,000 276,334 -
Capitalized internal software
costs not placed into service
(Note B) - (222,815) -
Capitalized software development
costs written off (Note K) (26,583) (60,282) -
Goodwill charged against earnings
(Note C) - (565,104) -
Other - - 9,835
Net gain (loss) on disposition
of assets 223,417 (71,867) 9,835
3Si sold substantially all of its assets effective as of May 1,
1999. The following is a summary of this sale:
Sales proceeds $802,167
Net property and equipment sold 331,480
Inventory and other assets sold 239,716
Capital lease obligation assumed
by purchaser (45,363) 525,833
Gain on sale $276,334
See Note G also related to contingent sales proceeds.
NOTE Q -OPERATIONS OF PORTION OF BUSINESS SOLD
Effective as of May 1, 1999, 3Si sold its systems integration
business. The Company's continuing business is the marketing,
sales and integration of KEWi.net products. The following are the
summarized pro forma (unaudited) results of operations of the sold
systems integration business for the year ended June 30, 1999:
Unaudited
Net revenues $16,445,000
Cost of revenues 14,590,000
Gross profit 1,855,000
Selling and administrative expenses 3,937,000
(Loss) from operations (2,082,000)
Other income expense (454,000)
Net (loss) before taxes (2,536,000)
Income taxes (69,000)
Net (loss) (2,605,000)
Basic and diluted (loss) per share (.08)
NOTE R - GOING CONCERN
Financial Condition at June 30, 2000
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. At June 30,
2000, the Company has a deficit in stockholders' equity of
$2,255,186. At June 30, 2000, the Company also has a deficit in
working capital (current assets minus current liabilities) of
$138,282. The working capital deficit was substantially reduced
during the year ended June 30, 2000, upon the conversion of $2.2
million of trade payables to common stock subject to redemption
(See Note G). These deficits 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.
Operations for the Subsequent Year (Unaudited)
KEWi has entered into an agreement to maintain and operate the
Internet-based customer support system for the year ended June 30,
2001, for the entity that owns the 26% minority interest in KEWi.
The $129,600 fee for the annual agreement was received in July
2000. KEWi has also entered into an agreement to develop and
maintain a web site for a large Colorado corporation. Revenues of
$80,000 under this agreement were reported in the year ended June
30, 2000. Completion of the first two phases of this project, and
all of the training, would provide KEWi with $545,000 of revenue
during the year ended June 30, 2001. The customer has the right to
cancel the project at any point. There is currently no assurance
that the entire amount of fees under this agreement will be earned.
Fees totaling $150,000 have been collected on this agreement from
June 30, 2000 to September 15, 2000.
NOTE S - FOURTH QUARTER RESULTS
Aggregate year-end adjustments, which increased the net loss by
$34,000 were recorded in the quarter ended June 30, 2000. These
adjustments were attributable to prior quarters.
In addition, unusual or infrequent items recognized in the quarter
ended June 30, 2000, are as follows:
Loss recorded on paging system software $26,583
CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
AVAILABLE INFORMATION
The company has filed with the U.S. Securities and Exchange
Commission, Washington, D.C. 20549, a Registration Statement on
Form SB-2 under the Securities Act of 1933 with respect to the
shares of common stock offered by this prospectus. This prospectus
does not contain all of the information set forth in the
registration statement and the exhibits and schedules filed with
the registration statement. Certain items are omitted in accordance
with the rules and regulations of the Commission. For further
information with respect to the company and the common stock
offered by this prospectus, reference is made to the registration
statement and the exhibits and schedules filed with the
registration statement. Statements contained in this prospectus as
to the contents of any contract or any other document referred to
are not necessarily complete, and in each instance, reference is
made to the copy of such contract or other document filed as an
exhibit to the registration statement, each such statement being
qualified in all respects by such reference.
A copy of the registration statement, and the exhibits and
schedules filed with it, may be inspected without charge at the
public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Commission's regional offices located at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago Illinois 60661
and Seven World Trade Center, 13th Floor, New York, New York 10048,
and copies of all or any part of the registration statement may be
obtained from such offices upon the payment of the fees prescribed
by the Commission. The public may obtain information on the
operation of the public reference room by calling the Commission at
1 (800) SEC-0330. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission, including the company. The address of the site is
http://www.sec.gov. The registration statement, including all its
exhibits and any amendments, has been filed electronically with the
Commission.
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Information on this item is set forth in the propsectus under the
heading "Disclosure of Commission Position on Indemnification for
Securities Act Liabilities."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses in connection
with the issuance and distribution of the securities being
registered hereunder, all of which are being paid by the Company:
Securities and Exchange Commission registration fee $ 1,675
Transfer agent's fees 1,000
Printing and engraving expenses 1,000
Legal fees and expenses 45,000
Accounting fees and expenses 5,000
State blue sky fees 10,000
Total 63,675*
* All fees, except the Securities and Exchange Commission
registration fee, are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Other than as set forth below, during the last three years
there have not been any sales of unregistered securities of the
company. No commissions or fees were paid in connection with
these sales. All of the these sales were undertaken pursuant to
the limited offering exemption from registration under the
Securities Act of 1933 as provided in Regulation D as promulgated
by the U.S. Securities and Exchange Commission. In addition, all
the sales were made to the following class of persons:
sophisticated investors; that is, investor either alone or with
their purchaser representative(s) have such knowledge and
experience in financial and business matters that they are capable
of evaluating the merits and risks of the prospective investment,
or the issuer reasonably believes immediately prior to making any
sale that such purchasers comes within this description.
Fiscal Year 1998.
During the fiscal year ended June 30, 1998 the following
transaction was completed:
The company issued a total of 222,500 shares of common stock
(valued at $0.03 per share) in lieu of compensation to certain
employees of the company (not the executive officers or directors).
Fiscal Year 1999.
During the fiscal year ended June 30, 1999 the following
transaction was completed:
The company issued 99,232 shares of common stock for services
rendered to the company valued at $15,500 ($0.16 per share).
Fiscal Year 2000.
During the fiscal year ended June 30, 2000, the following
transactions were completed:
(a) During the year ended June 30, 1999, a leasing company filed
suit against the company to recover damages under a government
lease agreement. A settlement was reached in September 1999. The
company paid the plaintiffs $75,000, and issued 1,100,000 shares of
company restricted common stock (valued at $154,688, the remaining
amount of debt) to the plaintiffs during the year ended June 30,
2000.
(b) A vendor of the company, Storage Area Network, who was
allegedly owed $2,211,048 at June 30, 1999, filed suit to attempt
to attach the company's assets for the collection of that
liability. A settlement agreement was reached in March 2000.
Storage Area Network received 6,460,137 shares of restricted
company common stock, and the liability to SAN was discharged. No
gain or loss was recorded upon this settlement. The company is
currently contesting this settlement agreement.
After the company pays off another vendor in August 2000, these
shares will be subject to redemption under the following terms:
All subsequent contingent receipts from the May 1999 sale of the
systems integration business will be used to redeem these shares.
In addition, the company will use 50% of any capital investment or
loans, and 50% of subsequent net income, to redeem these shares
shares. For redemption payments through September 2000, these
shares will be transferred back to the company at $0.35 per share.
For subsequent redemption payments, these shares shall be
transferred back to the company at $0.52 per share, or the then
current market price, whichever is higher. At the point Storage
Area Network has received redemption payments totaling $2,211,048,
the company will have the right, but not the obligation, to
continue purchasing these shares.
A $50,000 escrow account was established by the company under the
settlement agreement for the company to use to cover the expenses
of registering these shares during the year ended June 30, 2001.
Interest expense of $182,749 and $19,603 for the years ended June
30, 2000 and 1999, respectively, was incurred and paid to Storage
Area Network prior to the settlement.
ITEM 27. EXHIBITS
The Exhibits required by Item 601 of Regulation S-B, and an index
thereto, are attached.
ITEM 28. UNDERTAKINGS
The undersigned company hereby undertakes to:
(a) (1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and Notwithstanding the
forgoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation From the low or high
end of the estimated maximum offering range may be reflected in the
form of prospects filed with the U.S. Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act of 1933,
treat each post-effective amendment as a new registration statement
of the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(d) Provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has
been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of
the small business issuer in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion
of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-8 and has
duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorize, in the City of
Englewood, State of Colorado, on December 21, 2000.
3Si Holdings, Inc.
By: /s/ Frank Backes
Frank Backes, President
Special Power of Attorney
The undersigned constitute and appoint Frank Backes their true and
lawful attorney-in-fact and agent with full power of substitution,
for him and in his name, place, and stead, in any and all
capacities, to sign any and all amendments, including post-
effective amendments, to this Form SB-2 Registration Statement, and
to file the same with all exhibits thereto, and all documents in
connection therewith, with the U.S. Securities and Exchange
Commission, granting such attorney-in-fact the full power and
authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that such attorney-in-fact may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in
the capacities and on the date indicated:
Signature
Title
Date
/s/ Frank Backes
Frank Backes
President/Director
December 21, 2000
/s/ Fred Slack
Fred Slack
Vice President/Director
December 21, 2000
/s/ Felipe L. Valdez
Felipe L. Valdez
Secretary/Treasurer (principal financial and accounting
officer)/Director
December 21, 2000
EXHIBIT INDEX
Number Exhibit Description
2.1 Agreement and Plan of Reorganization between the company,
Kimbrough Computer Sales, Inc. d.b.a. 3Si, Inc., Fred Slack, Frank
Backes and Larry Valdez, dated May 28, 1997 (incorporated by
reference to Exhibit 10.1 of the Form 8-K filed on June 9, 1997).
2.2 Transition Agreement between the company, Kimbrough
Computer Sales, Inc. d.b.a. 3Si, Inc., Fred Slack, Frank Backes and
Larry Valdez, dated May 28, 1997 (incorporated by reference to
Exhibit 10.2 of the Form 8-K filed on June 9, 1997).
3.1 Articles of Incorporation, and amendments thereto
(incorporated by reference to Exhibit 3.1 of the filed Registration
Statement on Form S-2).
3.2 Certificate of Amendment to Articles of Incorporation
(incorporated by reference to Exhibit 3.2 of the Form 10-KSB/A
filed on December 19, 2000).
3.3 Bylaws, as amended (incorporated by reference to Exhibit
3.2 of the filed Registration Statement on Form S-2).
4.1 Warrant Agreement between the company and One Capital
Corporation, dated October 22, 1997 (incorporated by reference to
Exhibit 1 of the Form S-8 filed on July 27, 1998).
4.2 1998 Omnibus Stock Option Plan, dated June 18, 1998
(incorporated by reference to Exhibit 1 of the Form S-8 filed on
February 3, 2000).
4.3 2000 Non-Qualified Stock Plan, dated June 18, 2000
(incorporated by reference to Exhibit 4 of the Form S-8 filed on
June 18, 2000).
4.4 Form of Common Stock Purchase Agreement between the company
and institutional investors (see below).
5 Opinion Re: Legality (see below).
10.1 Asset Purchase Agreement between the company, 3Si, Inc.,
and PC Specialists, Inc., dated May 7, 1999 (see below).
10.2 Settlement Agreement between the company and Storage Area
Network, Inc., dated March 16, 2000 (incorporated by reference to
Exhibit 99.1 of the Form 8-K filed on March 24, 2000).
21 Subsidiaries of the company (incorporated by reference to
Exhibit 21 of the Form 10-K filed on October 13, 1999).
23.1 Consent of Accountant (see below).
23.2 Consent of Counsel (see below).
27 Financial Data Schedules (see below).