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Inuvo, Inc. – ‘10QSB’ for 3/31/04

On:  Tuesday, 5/4/04, at 7:56am ET   ·   For:  3/31/04   ·   Accession #:  829323-4-37   ·   File #:  33-19980-D

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  As Of                Filer                Filing    For·On·As Docs:Size

 5/04/04  Inuvo, Inc.                       10QSB       3/31/04    1:49K

Quarterly Report — Small Business   —   Form 10-QSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10QSB       For the Quarter Ended March 31, 2004                  19±    87K 


Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Item 1. Financial Statements
"Item 2. Managements Discussion and Analysis of Financial Conditions and Results of Operations
"Item 3. Controls and Procedures
"Item 1. Legal Proceedings
"Item 2. Changes in Securities
"Item 3. Defaults Upon Senior Securities
"Item 4. Submission of Matters to a Vote of Securities Holders
"Item 5. Other Information
"Item 6. Exhibits and Reports on Form 8-K
10Item 4. Submission of Matters to A Vote of Security Holders
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [Mark One] [x] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended : March 31, 2004 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 33-19980-D CGI HOLDING CORPORATION ----------------------- (Exact name of small business issuer as specified in its charter) Nevada 87-0450450 ----------------------------- --------------------------- State or other jurisdiction of I.R.S. Employer I.D. No. incorporation or organization 520 LAKE COOK ROAD, DEERFIELD, ILLINOIS 60015 ------------------------------------------ -------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code (847) 282-5005 ----------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Yes [ ] No[x] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 22,587,639 shares of its $0.001 par value common stock as of May 3, 2004. Transitional Small Business Disclosures Format (check one) Yes [ ] No [x] CGI HOLDING CORPORATION FORM 10-QSB For the quarter ended March 31, 2004 INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Item 2. Managements Discussion and Analysis of Financial Conditions and Results of Operations Item 3. Controls and Procedures PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Securities Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signature 906 Certification 302 Certification PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
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CGI HOLDING CORPORATION, INC. CONSOLIDATED BALANCE SHEET MARCH 31, 2004, DECEMBER 31, 2003 AND MARCH 31, 2003 3/31/2004 12/31/2003 3/31/2003 ------------ ------------ ----------- CURRENT ASSETS Cash 891,420 303,144 97,916 Accounts Receivable 5,320,889 3,907,331 825,048 Allowance for Bad Debts (132,160) (116,185) (22,498) Other Current Assets 30,702 76,932 180,000 Note Receivable 350,075 368,870 265,884 Refundable Corporate Taxes 4,202 4,202 4,202 Deferred Tax Asset 1,213,854 340,000 90,954 ------------ ------------ ----------- Total Current Assets 7,678,982 4,884,294 1,441,506 ------------ ------------ ----------- PROPERTY AND EQUIPMENT Property, Plant and Equipment 372,763 118,512 127,727 Less:Accumulated Depreciation (42,993) (37,622) (28,376) ------------ ------------ ----------- NET PROPERTY AND EQUIPMENT 329,770 80,890 99,351 ------------ ------------ ----------- OTHER ASSETS Deferred Tax Asset 361,448 1,494,611 1,017,924 Other Assets 71,250 97,500 156,415 ------------ ------------ ----------- TOTAL OTHER ASSETS 432,698 1,592,111 1,174,339 ------------ ------------ ----------- TOTAL ASSETS 8,441,450 6,557,295 2,715,196 ============ ============ =========== CURRENT LIABILITIES Current Portion of Long Term Debt - 1,315,079 824,871 Notes Payable-Line of Credit - - 15,485 Accounts Payable 238,197 303,918 142,050 Accrued Income Taxes 61,469 67,894 Deferred Revenue 3,258,130 2,688,550 925,254 Accrued Liabilities 158,856 148,683 120,578 ------------ ------------ ----------- TOTAL CURRENT LIABILITIES 3,716,651 4,524,124 2,028,238 ------------ ------------ ----------- LONG TERM LIABILITIES Long-Term Debt, Net of Current Portion - 697,064 41,556 Loan Payable-Shareholder - - 48,276 ------------ ------------ ----------- TOTAL LONG TERM LIABILITIES - 697,064 89,832 ------------ ------------ ----------- STOCKHOLDERS' EQUITY Preferred Stock, $0.001 par value, 5,000,000 shares authorized; no shares issued or outstanding - - - Common Stock, $0.001 par value, 100,000,000 shares authorized, 25,020,239 shares issued and 22,520,239 outstanding 25,020 23,289 19,089 Additional Paid In Capital 8,374,130 5,625,860 5,210,060 Retained Earnings (3,134,351) (3,773,042) (4,092,023) Treasury Stock (540,000) (540,000) (540,000) ------------ ------------ ----------- TOTAL STOCKHOLDERS' EQUITY 4,724,799 1,336,107 597,126 ------------ ------------ ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 8,441,450 6,557,295 2,715,196 ============ ============ ===========
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CGI HOLDING CORPORATION, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD ENDED MARCH 31, 2004 COMMON COMMON PAID-IN ACCUMULATED TREASURY SHARES STOCK CAPITAL DEFICITS STOCK ---------- ---------- ---------------------- --------- BALANCE:JANUARY 1, 2003 16,512,573 19,012 5,209,368 (4,092,609)(540,000) 76,901 Options Exercised at $0.01 Per Share 76,901 77 692 1,000,000 Options Exercised on April 1, 2003 at $.10 Per Option 1,000,000 1,000 99,000 Issued 3,200,000 Shares as a Stock Bonus on July 31, 2003 3,200,000 3,200 316,800 Net Profit 2003 319,567 ---------- ---------- --------- ------------ --------- BALANCE:DECEMBER 31,2003 20,789,474 23,289 5,625,860 (3,773,042) (540,000) Issued 12,015 Shares to Joseph Hale on February 24 as part of a cashless option 12,015 12 (12) Sold 1,718,750 Shares on March 9, 2004 for $1.60 per share 1,718,750 1,719 2,748,282 Net Profit, March 31, 2004 638,691 ---------- ---------- --------- ------------ --------- BALANCE: MARCH 31, 2004 22,520,239 25,020 8,374,130 (3,134,351) (540,000) ========== ========== ========= ============ =========
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CGI HOLDING CORPORATION, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 2004 2003 ------------- ------------ SALES 3,825,431 1,185,361 COST OF GOODS SOLD 1,460,525 496,830 ------------- ------------ GROSS PROFIT 2,364,905 688,531 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,465,240 665,435 ------------- ------------ INCOME FROM OPERATIONS 899,665 23,096 ------------- ------------ OTHER INCOME (EXPENSES) Impairment of Assets (25,000) - Other Income(Expense) 112,905 - Interest Income - 65 Interest Expense (28,100) (22,575) ------------- ------------ TOTAL OTHER INCOME (EXPENSE) 59,805 (22,510) ------------- ------------ INCOME BEFORE INCOME TAX PROVISION 959,469 586 ------------- ------------ INCOME TAX PROVISION Current Tax Expense 61,469 - Deferred Tax Expense 259,309 - ------------- ------------ TOTAL INCOME TAX PROVISION 320,778 - ------------- ------------ NET INCOME 638,691 586 ============= ============ NET INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS $0.024 $0.000 ============= ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 26,886,223 16,922,808 ============= ============
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CGI HOLDING CORPORATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2004 AND 2003 2004 2003 ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Profit 638,691 586 Non-Cash Items Included in Net Profit Depreciation 5,371 4,724 Allowance for Bad Debts 15,975 (67,368) Deferred Income Taxes 259,309 - Impairment of Assets 25,000 - OTHER CHANGES: Change in Accounts Receivable (1,413,558) (270,155) Change in Other Current Assets 46,230 15,644 Change in other Assets 26,250 768 Change in Accounts Payable (65,721) (37,998) Change in Accrued Expenses 3,748 96,869 Change in Deferred Revenue 569,580 219,860 ------------- ----------- NET CASH CHANGE FROM OPERATING ACTIVITIES 110,875 (37,070) ------------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Fixed Assets Acquired (254,251) - Change in Notes Receivable (6,205) 61,000 ------------- ----------- NET CASH CHANGE FROM INVESTING ACTIVITIES (260,456) 61,000 ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Principal Payments Made (2,152,143) (35,728) Change in Line of Credit - (10,000) Proceeds from Loans 140,000 50,000 Proceeds from Sale of Stock 2,750,000 769 ------------- ----------- NET CASH CHANGE FROM FINANCING ACTIVITIES 737,857 5,041 ------------- ----------- NET CASH CHANGE 588,276 28,971 CASH BALANCE:JANUARY 1 303,144 68,945 ------------- ----------- CASH BALANCE: MARCH 31 891,420 97,916 ============= ============ Supplemental Information Interest Paid 28,100 22,575 Income Taxes Paid 24,827 -
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CGI HOLDING CORPORATION, INC. FOOTNOTES TO FINANCIAL STATEMENTS MARCH 31, 2004 AND 2003 PRESENTATION OF FINANCIAL STATEMENTS The financial statements reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the results for the three months ended March 31, 2004 and 2003. DEFERRED INCOME TAXES Deferred income taxes are the result of timing differences between book and tax depreciation and book and tax amortization of goodwill, allowance for doubtful accounts and net operating loss carryforwards. The components of the deferred tax liability at March 31, 2004 and 2003 were: 2004 2003 ------------ ------------ Deferred Tax Assets Net Operating Loss Carryforwards $910,545 $999,951 Valuation Allowance - (601,251) ------------ ------------ Subtotal $910,545 $398,700 Timing Difference relating to Goodwill Amortization 625,254 679,624 Timing difference relating to bad debt recognition 39,503 30,554 ------------ ------------ Total Deferred Tax Assets $1,575,302 $1,108,878 ============ ============ The Company has a net operating loss carryforward in the amount of $3,440,747. According to the internal revenue code, these losses can be carried forward twenty years. The expiration dates of the available net operating losses are: Year ended December 31, 2019 $208,336 Year ended December 31, 2021 1,757,721 Year ended December 31, 2022 974,974 Year ended December 31, 2022 499,716 Total Net Operating Loss Carryforward $3,440,747 PROVISION FOR INCOME TAXES The provision for income taxes consists of the following: 2004 2003 --------- -------- Current Tax Provision $61,469 $0 Deferred Tax Provision 259,309 - --------- -------- TOTAL TAX PROVISION $320,778 $0 ========= ========
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ITEM II CGI HOLDING CORPORATION, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS Financial Condition Total assets of the Company at March 31, 2004 were $8,441,450, compared to March 31, 2003 of $2,715,196. This is an increase of $5,726,254. The increase in total assets is mainly attributable to the increase in Accounts Receivable due to the increased business associated with the Company's WebSourced, Inc. division. Other factors contributing to this increase are the increase in the Company's cash position resulting from the sale of stock in the first quarter of 2004 and the purchase of additional equipment associated with the Company's relocation in March 2004. Total debt at March 31, 2004 was $0 compared to $930,188 at March 31, 2003 and $2,012,143 at December 31, 2003. The Company paid off all of its existing debt during the first quarter of 2004 using a portion of the proceeds from the sale of the Company's common stock. Liquidity and Capital Resources The Company experienced positive cash flow for the three months ended March 31, 2004 in the amount of $588,276, which resulted in a cash balance on March 31, 2004 of $891,420. The Company's cash balance on March 31, 2003 was $97,916. The Company's working capital at March 31, 2004 was $3,962,331. The working capital increased during the three months ended March 31, 2004 by $3,602,161 from December 31, 2003 when it was $360,170. Current assets at March 31, 2004 were $7,678,982 compared to December 31, 2003 of $4,884,294, an increase of $2,794,688. Conversely, the current liabilities decreased during the same period by $807,473 resulting in the improved working capital position of the Company. Results of Operations Sales for the three months ended March 31, 2004 were $3,825,431, an increase of 42% over the prior quarter, and an increase of 223% over the first quarter of last year when they were $2,690,473 and $1,185,361 respectively. The gross profit for the three months ended March 31, 2004 was $2,364,905 compared to the same period last year of $688,531. The Company's gross profit percentage for the three months ended March 31, 2004 was 62%, compared to 58% for the same period last year. General and administrative expenses were $1,465,240(38% of sales) for the first three months of 2004, compared to $665,435(56% of sales) for the same period last year, an increase of 120%. The percentage decrease in relation to sales is due to the Company's general and administrative expenses being comprised of many fixed costs which do not increase proportionately to the increased sales volume. Interest expense for the first three months of 2004 was $28,100 compared to $22,575 in 2003. The Company's earnings from continuing operations before taxes in the first quarter of 2004 were $959,469 or $.0357 per share, compared to $531,808 or $.0249 per share in the prior quarter, an increase of 80%. The pre tax income from continuing operations was $586 or $0.00 per share for the same period last year, an increase of $958,883, or 163,631%. As the Company's operations became profitable during the second half of 2003, the Company's after-tax earnings for the fourth quarter of 2003 reflected a $275,166 or $.012 per share increase due to a reduction of a previously recorded valuation allowance related to the deferred tax asset created by the Company's past net operating losses. Had the Company not recognized this gain during the fourth quarter of 2003, the Company's profit from continuing operations after taxes for the fourth quarter of 2003 would have been $356,311, compared to the Company's profit from continuing operations after taxes for the fourth quarter of 2004 of $638,691, a 79% increase. Income after taxes from continuing operations for the three months ended March 31, 2003 was $586 or $0.00, an increase of 108,892%.
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Cautionary Statement Regarding Forward-Looking Statements Statements made in this document that express the Company's or management's intentions, plans, beliefs, expectations or predictions of future events, are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are made pursuant to and in reliance on the safe harbor provisions of such sections. The words "believe", "expect", "intend", "estimate", "anticipate", "will", and similar expressions are intended to further identify such forward-looking statements, although not all forward-looking statements contain these identifying words. Those statements are based on many assumptions and are subject to many known and unknown risks, uncertainties and other factors that could cause the Company's actual activities, results or performance to differ materially from those anticipated or projected in such forward-looking statements, including risk factors summarized below. The Company cannot guarantee future results, levels of activity, performance or achievements and investors should not place undue reliance on the Company's forward-looking statements. The forward-looking statements contained herein represent the judgment of the Company as of the date of this document, and the Company expressly disclaims any intent, obligation or undertaking to update or revise such forward-looking statements to reflect any change in the Company's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statements are based. Risk Factors You should carefully consider the risks described below before purchasing our common stock. Some of our most significant risks and uncertainties are described below; however, they are not the only risks we face. If any of the following risks actually occur, our business, financial condition, or results or operations could be materially adversely affected, the trading of our common stock could decline, and you may lose all or part of your investment therein. We may be subject to litigation in regard to the activities of our former subsidiaries. Our former subsidiaries were involved in a wide variety of activities, including general contracting, asbestos abatement, and demolition activities. These activities may result in litigation of some nature against us. We have previously been sued and have settled a lawsuit by paying $1,000,000 in regard to an indemnity agreement signed by us in connection with a construction project in O'Fallon, Missouri, the general contractor of which was originally one of our former subsidiaries. We have signed an indemnity agreement in regard to performance and payment bonds issued by a surety covering a construction project in St. Ann, Missouri, the general contractor of which is one of our former subsidiaries. Although our management does not currently anticipate litigation in regard to the St. Ann construction project, we cannot guarantee that litigation of some type will not occur. In addition, during October 2003, we were threatened with a lawsuit by the St. Louis Construction Laborers Benefit Funds (the "Funds"). The Funds are attempting to collect employee fringe benefit contributions in regard to employees of Safe Environment Corporation of Missouri. We have denied having any obligation in regard to such employee fringe benefit contributions. The Funds have filed a lawsuit entitled Greater St. Louis Construction Laborers Welfare Fund, et al., Plaintiffs, v. Barry Ash, et al., Defendants, Case No. 4:02CV01180 ERW in the United States District Court for the Eastern District of Missouri. One of the defendants in the lawsuit is John Giura, our Vice Chairman and Vice President and our former President and Chief Executive Officer. It is our understanding that this lawsuit has been settled by John Giura, so we do not expect to be added to this lawsuit as an additional defendant. If we are added to this lawsuit as an additional defendant, we intend to vigorously defend the lawsuit. In light of this threatened litigation, we and John Giura have entered into an Indemnification Agreement dated October 22, 2003, pursuant to which John Giura has agreed to indemnify and hold harmless us in regard to any losses arising in connection with this lawsuit. Other litigation relating to our former subsidiaries is possible. We have lost money historically. We had net losses for the years ended December 31, 2002 and 2001. Our future operations may not be profitable. If we are not profitable in the future, the value of our common stock may fall and we could have difficulty obtaining funds to continue our operations. We are unlikely to collect all of the money owed to us by GMP, LLC. On August 31, 2002, we sold the stock of Safe Environment Corporation of Indiana ("SECO") and our interest in Acadian Builders, LLC to GMP, LLC ("GMP"), a limited liability company of which John Giura, our Vice Chairman and Vice President, is a member. In consideration for this sale: (1) GMP was obligated to pay us an aggregate of $175,000 by November 30, 2002, plus certain additional amounts (collectively, the "GMP Contract Payments"); and (2) GMP signed and delivered to us a promissory note for $470,000, which note was payable in the amount of $35,000 per quarter beginning on December 31, 2002 (the "GMP Note"). As security for the obligations of GMP to pay us the GMP Contract Payments and the GMP Note, GMP pledged to us all of the common stock of SECO. Although GMP made partial payments to us on the GMP Contract Payments, GMP defaulted on the remaining GMP Contract Payments owed to us and on the entire GMP Note owed to us. On April 1, 2003 we entered into an agreement (the "GMP Note Restructuring Agreement") with GMP, SECO and John Giura. Pursuant to the GMP Note Restructuring Agreement, among other things: (1) GMP and SECO agreed to use their best efforts to cause certain parties to sign agreements pursuant to which an aggregate of $300,000 will be paid to us out of a certain escrow account established in regard to a SECO construction project located in St. Ann, Missouri (the "$300,000 From St. Ann Escrow Agreement"); (2) GMP and SECO agreed to use their best efforts to cause certain parties to sign agreements pursuant to which an aggregate of up to $200,000 will be paid to us in regard to a certain housing development in St. Charles, Missouri (the "$200,000 From St. Charles Housing Development Agreement"); (3) GMP agreed that the remaining GMP Contract Payments would be paid by GMP to us as soon as practicable but in any event no later than July 31, 2003; and (4) we agreed that if GMP and SECO were to deliver the fully signed $300,000 From St. Ann Escrow Agreement and the fully signed $200,000 From St. Charles Housing Development Agreements, and if GMP were to timely make the remaining GMP Contract Payments, and if GMP and John Giura were not in default of any of certain other obligations to us, then the principal amount of the GMP Note to us would be reduced from $470,000 down to $337,495.09, of which $37,495.09 would be paid by GMP to us as soon as practicable but in any event no later than July 31, 2003. To date, the following events have occurred in regard to the GMP Note Restructuring Agreement: (1) On May 7, 2003, we received a fully signed $300,000 From St. Ann Escrow Agreement; (2) On May 5, 2003, we received all but one of the $200,000 From St. Charles Housing Development Agreements; (3) As of March 31, 2004, the remaining unpaid GMP Contract Payments equal $75,074.73; and (4) GMP has failed to make any payments on the GMP Note. We have become aware that GMP and SECO have had severe financial difficulties, including but not limited to restricted access to credit, liquidity problems in regard to non-collection of various receivables, delays in completion of certain projects, delays in the awarding of certain projects, and generally weak conditions within their industry. It is the opinion of our management that GMP does not have the resources to pay all of the remaining unpaid GMP Contract Payments and the GMP Note. Moreover, an insolvency or bankruptcy of either GMP and/or SECO, or a delay or failure by SECO in the completion of the SECO construction project in St. Ann, Missouri, might significantly adversely affect our ability to collect the $300,000 payable to us under the $300,000 From St. Ann Escrow Agreements, the $200,000 payable to us under the $200,000 From St. Charles Housing Development Agreements, the remaining unpaid GMP Contract Payments, or payments due from GMP to us under the GMP Note and, in addition, such an insolvency or bankruptcy could subject us to liability under an indemnity agreement which we signed in regard to the surety bonds issued in regard to the SECO construction project in St. Ann, Missouri. We expect to attempt to negotiate a settlement with GMP regarding its payment obligations to us following the completion of the SECO construction project in St. Ann, Missouri, and the completion of all payments by John Giura in regard to his settlement of the lawsuit by the Funds discussed above. We may not be able to collect all of the money owed to us by The Voice and Data Group, Inc. We terminated our merger agreement with The Voice and Data Group, Inc., among other things, because certain conditions to the consummation of the merger could not be met. There is no guarantee that The Voice and Data Group, Inc. will be able to repay the $100,000 unsecured loan made by us to The Voice and Data Group, Inc. in connection with the merger agreement. As of March 31, 2004, we have written off $25,000 of that $100,000 unsecured loan to The Voice and Data Group, inc. The market price of our common stock is highly volatile. The market price of our common stock has been and is expected to continue to be highly volatile. Many factors beyond our control -- including announcements of changes in search engine algorithms; technological innovations by other companies; government regulations; marketing, pricing or other actions by competitors; emergence of new competitors; new products or procedures; concerns about our financial position or operating results; litigation; disputes relating to agreements, patents or proprietary rights; loss of key employees; and many other factors -- may have a significant negative impact on the market price of our stock. In addition, the potential dilutive effects of future sales of shares of common stock by stockholders and by us, and the exercise of outstanding warrants and options and subsequent sales of our common stock, could have a material adverse effect on the price of our common stock. The 1-for-5 reverse split of our stock which our Board of Directors and shareholders have authorized to be effected on or prior to June 30, 2004 may have adverse effects on our stock price and our stockholders. Our Board of Directors has adopted resolutions and a majority of our stockholders has approved such resolutions providing for a recapitalization pursuant to which the issued and outstanding shares of our common stock are to be reverse split, or consolidated, on a 1-for-5 basis, so that stockholders will own one share of common stock for each 5 shares of common stock held by the stockholder, such reverse split to be effected on a date not later than June 30, 2004. It is possible that this reverse split may have an adverse effect on our stock price, in that after the reverse split one share of our stock possibly may trade for less than 5 shares of our stock prior to the reverse split. It is also possible that this reverse split may have an adverse on our stockholders. For example, after the reverse split stockholders holding less than 100 shares of our common stock may have larger commissions charged to sell such shares, possibly even commissions that are larger than the value of the shares being sold. We may not be able to identify, negotiate, finance or close acquisitions. We intend to pursue one or more acquisitions of companies engaged in businesses that may or may not be similar to our WebSourced, Inc. subsidiary. We may not be able to identify or negotiate such acquisitions on acceptable terms or at all. If such acquisitions are successfully identified and negotiated, the terms thereof may require us to incur additional indebtedness or issue equity. We may not be able to obtain such financing on acceptable terms or at all. The terms and conditions of acquiring businesses could adversely affect the price of our common stock. In order to consummate acquisitions, we may be required to take action that could adversely affect the price of our stock, such as issuing common stock, convertible preferred stock, convertible subordinated debt, or other equity-linked securities, potentially resulting in the dilution of existing shareholders or having other adverse effects upon existing shareholders; undertaking a reverse stock split; changing the name, Board of Directors, or officers of our company; entering into new lines of business; forming business combinations or strategic alliances with potential business partners; or taking other actions. Any one or more of these actions may adversely affect our company and our common stock. We may be unable to successfully integrate acquired businesses. We may acquire other businesses in the future, which may significantly complicate the management of our company. We may need to integrate widely dispersed operations with different corporate cultures, operating margins, competitive environments, computer systems, compensation schemes, business plans and growth potential. Such integration efforts may not succeed, or may distract our management from servicing our existing clients. Any failure to manage acquisitions successfully could seriously harm our operating results. Also, the acquisition costs could cause our quarterly operating results to vary significantly. We may experience difficulty in handling growth. We expect to grow both by hiring new employees and by servicing new business and geographic markets. Our growth will place a significant strain on our management and on our operating and financial systems. Our personnel may be inadequate to support our future operations. In order to accommodate the increased size of our operations, we will need to hire, train and retain appropriate personnel to manage our operations. We depend on the availability of skilled labor, which is difficult to attract and retain. The success of our growth strategy will depend to a significant extent upon our ability to attract, train and retain skilled operational, technical, financial, management, sales and marketing personnel. Competition for skilled personnel is intense. We may not be successful in attracting and retaining the personnel necessary to conduct our business successfully. If we are unable to attract, hire, assimilate, and retain such personnel, it could have a material adverse effect on our business, financial condition and results of operations. Moreover, even if we are to expand our employee base, the resources required to attract and retain such employees may adversely affect our operating margins. Our growth heavily depends on our key personnel, the loss of whom would materially adversely affect our business. We believe that our success will depend on the continued employment of certain key personnel, including Gerard M. Jacobs, our President and Chief Executive Officer, and S. Patrick Martin, the President and Chief Executive Officer of our WebSourced, Inc. subsidiary. If one or more of our key management personnel were unable or unwilling to continue their present positions, such persons would be very difficult to replace and our business could be seriously harmed. In addition, we expect that we will find it necessary to offer such key personnel and the independent members of our Board of Directors compensation in the form of stock options and warrants. In addition, if any of WebSourced, Inc.'s key employees joins a competitor or forms a competing company, some of our clients might choose to use the services of that competitor or new company instead of ours. Weak general economic and business conditions may adversely affect our revenues and operating margins. Weak general economic and business conditions, international tension and wars, terrorism and epidemics, globally, nationally, regionally or locally, may have a significant adverse effect on our revenues and operating margins. We face competition from many small and various large companies worldwide, some of whom are more established and better capitalized than we are. Competition in technology service markets is intense. If we fail to compete successfully against current or future competitors, our business, financial condition and operating results would be seriously harmed. Because relatively low barriers to entry characterize our current and many prospective markets, we expect other companies to enter our markets. In addition, some of our competitors may develop services that are superior to, or have greater market acceptance than, the services that we offer. Also, if our market sectors appear attractive, then numerous existing companies that have greater financial and human resources may be expected to enter those markets. The superior financial and marketing resources of those potential competitors may provide a substantial advantage to those competitors over us. We lack long-term contracts with clients. Few if any of our clients retain us under contracts longer than 12 months. As a result, our revenues may be difficult to predict. Because we sometimes incur costs based on expectations of future revenues, our failure to predict future revenues accurately may seriously harm our financial condition and results of operations. There is a lack of brand awareness of our services. Due to lack of marketing resources, we have not been able to develop any widespread awareness of our brand name. Any increase in our advertising and marketing expenditures could cause our operating margins to decline. In addition, our WebSourced, Inc. subsidiary has recently hired a public relations firm and we have in the past and may in the future retain an investor relations firm. The cost of such firms will harm our results of operations. Moreover, our brand may be closely associated with the business success or failure of some of our Internet clients, some of who are pursuing unproven business models in competitive markets. As a result, the failure or difficulties of one of our clients may damage our reputation. If we fail to successfully promote and maintain our brand name or incur significant related expenses, our operating margins and our growth may decline. A failure by us to meet client expectations could result in losses and negative publicity. Any failure to meet our clients' expectations could result in: delayed or lost revenues due to adverse client reactions; requirements to provide additional services to clients at no charge; negative publicity regarding our services, which could adversely affect our ability to attract or retain clients; and claims for damages against us, regardless of our responsibility for such failure. We cannot be sure that our contracts will protect us from liability for damages in the event we are sued. Also, if we are sued, the legal fees involved in defending a lawsuit may exceed the amount of the claim in question. Our success depends upon increased adoption of the Internet and the use of search engines as a means for commerce. Our success depends heavily on the continued use and acceptance of the Internet and of search engines as a means for commerce. The widespread acceptance and adoption of the Internet and search engines for conducting business is likely only in the event that the Internet and search engines provide businesses with greater efficiencies and improvements. If commerce on the Internet and on search engines does not continue to grow, or grows more slowly than expected, our business would be seriously harmed. Consumers and businesses may reject the Internet or search engines as a viable commercial medium or marketing tool for a number of reasons, including: taxes; potentially inadequate network infra structure; difficulties or dissatisfaction with search engine algorithms; delays in the development of Internet and search engine enabling technologies and performance improvements; delays in the development or adoption of new standards and protocols required to handle increased levels of Internet and search engine activity; delays in the development of security and authentication technology necessary to effect secure transmission of confidential information over the Internet; changes in, or insufficient availability of, telecommunications services to support the Internet and search engines; problems associated with computer hackers and viruses; decreased use of search engines; increased popularity of alternative Internet marketing techniques and strategies; and failure of companies to meet their customers' expectations in delivering goods and services over the Internet. Increasing government regulations or taxation could adversely affect our business. We are affected not only by regulations applicable to businesses generally, but also by laws, regulations and taxes directly applicable to eBusiness. Although there are currently few such laws, regulations and taxes, state, federal and foreign governments may adopt a number of these laws, regulations and taxes. Any such legislation, regulation or tax could dampen the growth of the Internet and decrease its acceptance as a communications and commercial medium. If such a decline occurs, companies may decide in the future not to use our services. This decrease in the demand for our services would seriously harm our business and operating results. Any new laws, regulation and taxes may govern, restrict, tax or affect any of the following issues: user privacy; the pricing and taxation of goods and services offered over the Internet; the content of web sites; consumer protection; and the characteristics and quality of products and services offered over the Internet. We may be unable to protect our intellectual property. We cannot guarantee that we can safeguard or deter misappropriation of our intellectual property. In addition, we may not be able to detect unauthorized use of our intellectual property and take appropriate steps to enforce our rights. If former employees or third parties infringe or misappropriate our trade secrets, copyrights, trademarks or other proprietary information or intellectual property, our business could be seriously harmed. In addition, although we believe that our proprietary rights do not infringe the intellectual property rights of others, other parties may assert infringement claims against us or claim that we have violated their intellectual property rights. Such claims, even if not true, could result in significant legal and other costs and may be a distraction to our management. A significant portion of our stock is owned by insiders. Our current Directors and officers and those of our subsidiary WebSourced, Inc., as a group, together with their affiliates, beneficially own a significant percentage of our outstanding shares of common stock. Accordingly, these stockholders will have substantial influence over our policies and management. Voting control over a significant portion of these stockholders' shares has been transferred, pursuant to irrevocable proxies, to Gerard M. Jacobs, our President and Chief Executive Officer. We have not paid dividends since our inception and do not expect to do so in the foreseeable future. As a result, our stockholders will not be able to receive any return on their investment without selling their shares. We presently anticipate that all earnings, if any, will be retained for development of our business. Any future dividends will be subject to the discretion of the Board of Directors and will depend on, among other things, our future earnings, operating and financial condition, capital requirements and general business conditions. Nevada laws may discourage investor purchases of, or mergers or other transactions involving, our stock. Certain Nevada laws limit the circumstances under which a person or entity may acquire a controlling interest in the stock of a Nevada corporation or may cause a merger, consolidation or other "combination" to occur involving a Nevada corporation. These laws may discourage companies or persons interested in acquiring a significant interest in or control of our company, or delay or make such an acquisition or transaction more difficult or expensive to consummate, regardless of whether such an acquisition or transaction may be in the interest of a our stockholders.
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Segment Analysis INDUSTRY SEGMENT THREE MONTHS ENDED MARCH 31, 2004 WEBSOURCED CGI CONSOLIDATED SALES 3,825,431 - 3,825,431 COST OF SALES 1,460,525 - 1,460,525 ------------ ---------- ----------- GROSS PROFIT 2,364,905 - 2,364,905 SELLING AND ADMINISTRATION 1,322,078 143,162 1,465,240 ------------ ---------- ----------- INCOME FROM OPERATIONS 1,042,827 (143,162) 899,665 ------------ ---------- ----------- OTHER INCOME (EXPENSE) IMPAIRMENT OF ASSETS - (25,000) (25,000) OTHER INCOME - 112,905 112,905 INTEREST INCOME - - - INTEREST EXPENSE (8,455) (19,645) (28,100) ------------ ---------- ----------- TOTAL (8,455) 68,260 59,805 ------------ ---------- ----------- INCOME BEFORE TAXES 1,034,372 (74,903) 959,469 ============ ========== =========== INDUSTRY SEGMENT THREE MONTHS ENDED MARCH 31, 2003 WEBSOURCED CGI CONSOLIDATED SALES 1,185,361 - 1,185,361 COST OF SALES 496,830 - 496,830 ------------ ---------- ----------- GROSS PROFIT 688,531 - 688,531 SELLING AND ADMINISTRATION 623,767 41,668 665,435 ------------ ---------- ----------- INCOME FROM OPERATIONS 64,764 (41,668) 23,096 ------------ ---------- ----------- OTHER INCOME (EXPENSE) OTHER INCOME - - - INTEREST INCOME - 65 65 INTEREST EXPENSE (7,360) (15,215) (22,575) ------------ ---------- ----------- TOTAL (7,360) (15,150) (22,510) ------------ ---------- ----------- INCOME BEFORE TAXES 57,404 (56,818) 586 ============ ========== ===========
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PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS (1) The Company and its WebSourced subsidiary are plaintiffs in a lawsuit entitled CGI Holding Corporation and WebSourced, Inc., Plaintiffs, v. Global Payments, Inc., Defendant, Case No. 03A10759-5, in the State Court of DeKalb County, Georgia. The Defendant has answered the Company's and WebSourced, Inc.'s Complaint, and has denied any liability, Discovery is currently in progress. Reference is hereby made to the Company's Form 8-K filed on September 2, 2003. The lawsuit was filed in August, 2003. The Company cannot guarantee the outcome of this litigation. ITEM 2. CHANGES IN SECURITIES (1) On January 20, 2004, the Company issued to the Roberti Jacobs Family Trust a Warrant to purchase 40,000 shares of the Company's common stock at a price a $0.50 per share, in conjunction with a borrowing by the Company from that Trust. (2) On February 24, 2004, the Company issued 12,015 shares of common stock to Joseph H. Hale as part of a cashless exercise of an option. (3) On February 25, 2004, the Company issued to Paul W. Doll a Warrant to purchase 12,000 shares of the Company's common stock at a price of $1.00 per share, in conjunction with a borrowing by the Company from Paul W. Doll. (4) On March 3, 2004, the Company issued to two employees of its WebSourced, Inc. subsidiary Warrants to purchase a total of 12,000 shares of the Company's common stock at a price of $1.51 per share. (5) On March 9, 2004, the Company completed a private placement of 1,718,750 unregistered shares of the Company's common stock to a group of investors at a price of $1.60 per share, thereby raising a total of $2.75 million for the Company. (6) On March 15, 2004, the Company issued to twenty-three employees of its WebSourced, Inc. subsidiary Warrants to purchase a total of 27,000 shares of the Company's common stock at a price of $2.75 per share. (7) As of May 3, 2004, the Company has 25,087,639 shares of its common stock issued and 22,587,639 outstanding, and the Company has issued options and warrants to purchase a total of 6,693,217 shares of the Company's common stock at exercise prices ranging from $0.001 to $2.75 per share. ITEM 3. DEFAULTS UPON SENIOR SECURITIES NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE ITEM 5. OTHER INFORMATION NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS NONE (B)REPORTS ON FORM 8-K NONE SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 3rd day of May, 2004. CGI Holding Corporation By: /s/ Gerard M. Jacobs ---------------------------------- Gerard M. Jacobs President, Chief Executive Officer, Treasurer, Secretary
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906 CERTIFICATION Certification pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Form 10-QSB of CGI Holding Corporation (the "Company") for the quarter ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned certifies, pursuant to 18 U.S.C. paragraph 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of their knowledge and belief, that: 1) the Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended; and 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is made solely for purpose of 18 U.S.C. paragraph 1350 and not for any other purpose. A signed original of this written statement required by section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to Poulos & Bayer and will be retained by Poulos & Bayer and furnished to the Securities and Exchange Commission or its staff upon request CGI Holding Corporation May 3, 2004 By: /s/ Gerard M. Jacobs --------------------------------------------- Gerard M. Jacobs President, Chief Executive Officer, Treasurer, Secretary 302 CERTIFICATION I, Gerard M. Jacobs, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of CGI Holding Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which statements were made, not misleading with respect to the period covered by the quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. May 3, 2004 /s/ Gerard M. Jacobs ------------------------------ Gerard M. Jacobs President, Chief Executive Officer, Treasurer and Secretary

Dates Referenced Herein   and   Documents Incorporated by Reference

Referenced-On Page
This ‘10QSB’ Filing    Date First  Last      Other Filings
12/31/196
6/30/04810QSB,  10QSB/A
Filed on:5/4/04
5/3/04111
For Period End:3/31/0411110QSB/A
3/15/04104
3/9/0431010KSB/A,  4/A,  8-K
3/3/0410
2/25/0410
2/24/0410
1/20/0410
12/31/032710KSB,  10KSB/A
10/22/038
9/2/03108-K
7/31/038
5/7/038
5/5/038
4/1/0338
3/31/032910QSB,  8-K
12/31/02810KSB
11/30/028
8/31/028
12/31/01810KSB
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