10KSB/A 1 cgi200310ksba2.txt FOR THE PERIOD ENDED DECEMBER 31, 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB/A [Mark One] [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended : December 31, 2003 [ ] 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 of other jurisdiction of I.R.S. Employer I.D. No. incorporation or organization 5 Revere Drive, Suite 510, Northbrook, Illinois 60062 -------------------------------------------------- -------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code (847) 562-0177 ----------------- 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] Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State issuer's revenue for its most recent fiscal year: $7,095,101 State the aggregate market value of the voting and nonvoting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and ask prices of such common equity, as of a specified date within the past 60 days: Based on the average bid and ask price of $1.27 per share for the issuer's common stock at February 26, 2004, the market value of the issuer's common stock held by non-affiliates would be $17,129,693. A list and description of affiliates can be found in Item 11. State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 20,789,474 shares of its $0.001 par value common stock as of February 26, 2004. CGI Holding Corporation, a Nevada corporation (the "Company") is filing this Current Report on Form 10-KSB/A in order to amend its Form 10-KSB filed on March 1, 2004 (SEC File No. 33-19980-D), to 1) provide a correction to the audit letter adding a reference to the Public Accounting Oversight Board, 2) to include the title of Chief Financial Officer to the signature of Gerard M. Jacobs, 3)amend Item 14 to provide the necessary disclosures for Item 307 and 308 of regulation S-B, and 4) to expand certain footnotes to comply with disclosure requirements. PART I ITEM 1. DESCRIPTION OF BUSINESS HISTORY AND ORGANIZATION We are a Nevada corporation. Our principal executive offices are located at 520 Lake Cook Road, Suite 690, Deerfield, Illinois 60015. Our telephone number is 847-282-5005. The address of our website is www.cgiholding.com. Information on our website is not part of this Form 10-KSB. CGI Holding Corporation (formerly known as North Star Petroleum, Inc.) was incorporated under the laws of the State of Nevada in October of 1987. From 1993 until July 1997, we had essentially no operations. We again became operational on August 4, 1997, when we completed an agreement to acquire two private companies. Under this agreement, we issued 4,961,056 shares of our common stock to shareholders of the private companies resulting in 8,272,779 shares issued and outstanding. On March 27, 2001, we acquired the common stock of WorldMall.com. Pursuant to this acquisition all the issued and outstanding shares of common stock of WorldMall.com, which consisted of 9,331,903 shares of WorldMall.com common stock, were converted into 6,186,515 shares of voting common stock of CGI Holding Corporation. The market value of our common stock on the date of this transaction was $0.30 per share. The transaction was accounted for using the purchase method of accounting. WorldMall.com was reincorporated in the state of North Carolina as Websourced, Inc. in June 2002. We sold the stock of our wholly owned Safe Environment Corporation division effective August 31, 2002. WEBSOURCED, INC. Websourced, Inc., d/b/a KeywordRanking.com and ProRanking.com, was reincorporated in June 2002 in the State of North Carolina. It is primarily engaged in providing search engine enhancement services to web sites, under the names KeywordRanking.com and ProRanking.com. KeywordRanking.com and ProRanking.com assist their clients' websites in obtaining top twenty positioning on search engines worldwide. The websites benefit from top twenty positioning, which typically results in a significantly higher number of visits from potential customers. WebSourced, Inc. also owns Cherish.com, an online dating service. Cherish.com was launched in the Fall of 2003 and became operational in January of 2004. The Company hopes to grow to become a leader in its highly competitive industry. Websourced, Inc. currently employs 78 people. Websourced, Inc. is headquartered in Morrisville, North Carolina. ITEM 2. DESCRIPTION OF PROPERTIES CGI Holding Corporation rents approximately 579 square feet of office space in Deerfield, Illinois, for $1,150 per month, under an oral arrangement expiring in August 2004. Our current space is adequate for our current daily operations. Our wholly-owned subsidiary, WebSourced, Inc. has signed a lease for 30,970 square feet of office space in Morrisville, North Carolina, under a ten-year lease expiring in 2014. The target commencement date of the lease is March 19, 2004. The rent for the first 12 months is free. The rent for the second 12 months is $19,949.84 per month, plus a percentage of certain building operating expenses. The rent increases each 12 months thereafter through the end of the lease. This space is adequate for WebSourced, Inc.'s needs. WebSourced, Inc. currently also remains obligated to pay rent on its current office space in Morrisville, North Carolina, until the lease of that office space expires on December 31, 2005. The rent on that space is $13,322.29 per month until December 31, 2004, and is expected to be approximately $14,000 per month for the remainder of the leased term, in each case plus a percentage of certain building operating expenses. WebSourced is attempting to either sublease this space or to buy-out the lease by making a one time, lump sum payment to the lessor. ITEM 3. LEGAL PROCEEDINGS We entered into a Settlement Agreement (the "Settlement Agreement") dated November 4, 2003, with Statewide Insurance Company ("Statewide") in regard to the lawsuit entitled Statewide Insurance Company, Plaintiff, vs. ACS Construction Services, LLC, CGI Holding Corporation, Barry Ash, and Sheri Ash, Case No. 03CC-003006 S CV, in the Circuit Court of St. Louis County, Missouri. That lawsuit concerned an indemnity agreement signed by us in regard to performance and payment bonds issued by a surety, Statewide, covering a construction project in O'Fallon, Missouri, the general contractor of which was originally one of our former subsidiaries. Pursuant to the Settlement Agreement, we currently owe Statewide an aggregate of $971,967. Against that settlement amount, we are obligated to pay Statewide $100,000 per quarter at the beginning of each calendar quarter, plus 25% of our "working capital" as defined in the Settlement Agreement, until the settlement amount is paid in full. However, if we prepay on or prior to April 30, 2004, all outstanding amounts due and owing to Statewide, then our aggregate remaining payments to Statewide will be reduced by $200,000. We and our WebSourced, Inc. subsidiary are plaintiffs in a lawsuit entitled CGI Holding Corporation and WebSourced, Inc., Plaintiffs, v. Global Payments Direct, Inc., Defendant, Case No. 03A10759-5, in the State Court of DeKalb County, Georgia. The lawsuit was filed in August, 2003. We cannot guarantee the outcome of this litigation. 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. The lawsuit was served upon John Giura in October, 2003. We cannot predict whether we will 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. We and our Websourced, Inc. subsidiary are either a plaintiff or a defendant in certain other lawsuits, none of which is considered by our management to be material. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our authorized capital stock consists of 100,000,000 shares of common stock, $0.001 par value, and 10,000,000 shares of preferred stock, $0.001 par value. As of February 11, 2004, there were 20,789,474 shares of common stock outstanding that were held of record by 206 stockholders. As of February 11, 2004, there were 6,645,377 shares of our common stock subject to outstanding options and warrants, 5,954,413 of which are currently exercisable. The exercise prices of such options and warrants range from a low of $0.10 per share to a high of $2.00 per share. The holders of our common stock are entitled to one vote per share on all matters to be voted on by our stockholders. The holders of our common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by our Board of Directors out of funds legally available therefor. In the event of the liquidation, dissolution, or winding up of our company, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. Our common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to our common stock. All outstanding shares of our common stock are fully paid and nonassessable. We have no preferred stock issued or outstanding. Our Board of Directors adopted resolutions and a majority of our stockholders 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 post-split each stockholder will own one share of common stock for each 5 shares of common stock held by such stockholder. The reverse split will be effected on a date not later than June 30, 2004. No fractional shares will be issued in connection with such recapitalization and fractional shares will be rounded down to the nearest whole number, not to be reduced below one share. Under the recapitalization, the 20,789,474 issued and outstanding shares of our common stock will be reverse split resulting in 4,157,895 shares of common stock being issued and outstanding after the recapitalization. In order to effectuate the reverse split, each stockholder will be entitled to submit his or her old stock certificate (any certificate issued prior to the effective date of the reverse split), to our transfer agent, Colonial Stock Transfer Company, 66 Exchange Place, Salt Lake City, Utah 84111, and be issued in exchange therefor, one new certificate representing one share for each five shares reflected in the old certificates, rounded down to the nearest share. Our common stock is quoted on the National Association of Securities Dealers Electronic Bulletin Board under the symbol "CGIH.OB" (the common stock formerly traded under the symbol "CGIH"). The transfer agent and registrar for our common stock is Colonial Stock Transfer Co. Inc., Salt Lake City, Utah. Set forth below are the high and low bid prices for the common stock for each quarter during the last two years. Period Ended High Bid Low Bid Quarter Ended December 31, 2003 0.59 0.20 Quarter Ended September 30, 2003 0.39 0.15 Quarter Ended June 30, 2003 0.25 0.10 Quarter Ended March 31, 2003 0.31 0.07 Quarter Ended December 31, 2002 0.16 0.03 Quarter Ended September 30, 2002 0.17 0.12 Quarter Ended June 30, 2002 0.25 0.05 Quarter Ended March 31, 2002 0.40 0.15 At February 11, 2004, the bid and asked price for our common stock were $1.05 and $1.09, respectively. All prices listed herein reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. Since our inception, we have not paid any dividends on our common stock, and we do not anticipate that we will pay dividends in the foreseeable future. RECENT SALES OF UNREGISTERED SECURITIES The following sets forth securities sold by us in the recent past, including any during the period covered by this registration statement. These securities were shares of our common stock, they were sold for cash unless otherwise noted, they were sold in private transactions to persons believed to be of a class of "accredited investors" not affiliated with us unless otherwise noted, and purchasing the shares with an investment intent, and we relied upon, among other possible exemptions, Section 4(2) of the Securities Act of 1933, as amended. Its reliance on said exemption was based upon the fact that no public solicitation was used by us in the offer or sale, and that the securities were legend shares, along with a notation at the respective transfer agent, restricting the shares from sale or transfer as in customary with reference to Rule 144 of the U.S. Securities and Exchange Commission ("SEC"). We did not use underwriters for any of the transactions described below; therefore, these transactions did not involve underwriter discounts or commissions. On December 1, 2001, we sold 200,000 shares of our common stock at a price of $0.15 per share. On December 17, 2001, we sold 333,333 shares of our common stock at a price of $0.15 per share. On December 31, 2001, we sold 50,000 shares of our common stock at a price of $0.15 per share. On January 2, 2002, we sold 100,000 shares of our common stock at a price of $0.15 per share. On September 11, 2002, we sold 744,000 shares of our common stock at a price of $0.16 per share. On January 31, 2003, we sold 76,901 shares of our common stock at a price of $0.01 per share (upon the exercise of outstanding warrants). On April 11, 2003, we sold 1,000,000 shares of our common stock at a price of $0.10 per share (upon the exercise of outstanding warrants). ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Liquidity and Capital Resources Our total assets from continuing operations at December 31, 2003 were $6,557,295, an increase over the same period last year of $4,126,457. This increase was attributable to the increase of accounts receivable resulting from the substantial growth our sales volume in 2003 over 2002. Our liabilities from continuing operations at December 31, 2003, were $5,221,189, representing an increase from the prior year in the amount of $3,386,122. Debt from continuing operations increased from $925,916 at December 31, 2002 to $2,012,143 at December 31, 2003, or $1,086,227. Our deferred revenue increased from $705,394 on December 31, 2002 to $2,688,550 on December 31, 2003, an increase of $1,983,156. Our working capital from continuing operations at December 31, 2003 was $360,169, compared to December 31, 2002 of ($568,510). Our cash flows from operations for 2003 were $217,983 compared to a negative cash flow in 2002 of ($468,232). Our cash flows from financing provided $61,487 and $720,782 for the years ended December 31, 2003 and 2002, respectively. Our cash position on December 31, 2003 was $303,144. Results of Operations Our sales for the year 2003 were $7,095,101, compared to sales in 2002 of $4,053,222, an increase of $3,041,879 or 75%. This increase is entirely attributable to our WebSourced, Inc. subsidiary. Our cost of sales in 2003 was $2,806,531 compared to the prior year of $1,841,083, which resulted in an increase of gross profit in 2003 of $2,076,431 over the year 2002. The gross profit percentage increased from 55.6% in 2002 to 60.4% in 2003. This was a direct result of the restructuring of the sales forces commission rates. Selling, general and administrative expenses were $3,405,109 in 2003 as compared to $2,165,381 in 2002, a increase of $1,239,728; this increase is attributable to additional support personnel. Additionally, the increase reflects compensation paid to the chief executive officer who was not compensated in 2002. The Company's revenue in the fourth quarter of 2003 was $2,690,473, compared to revenue in the third quarter of 2003 of $2,084,230, an increase of 29%. The Company's earnings from continuing operations before taxes in the fourth quarter of 2003 was $531,808 or $0.0249 per share, compared to earnings from continuing operations before taxes in the third quarter of 2003 of $255,428 or $0.0114 per share, an increase of 118%. The Company's earnings from continuing operations after taxes in the fourth quarter of 2003 was $785,276 or $0.0358 per share. Our interest expense decreased in 2003 from 2002 by $19,076. Our net gain for the year from continuing operations was $1,062,402, $.05 per share in 2003 compared to ($2,068,406) or ($0.013) per share in 2002. We face liquidity problems in regard to several matters. Pursuant to a Settlement Agreement, we currently owe Statewide an aggregate of $971,967. Against that settlement amount, we are obligated to pay Statewide $100,000 per quarter at the beginning of each calendar quarter, plus 25% of our "working capital" as defined in the Settlement Agreement, until the settlement amount is paid in full. We also currently owe CIB Bank $103,805. The cost of relocating our Websourced, Inc. subsidiary to larger offices also will involve significant expenses. We may decide to raise additional capital during the next six months to assist in meeting these payment obligations. We also face balance sheet issues in regard to several matters. As of December 31, 2003, our assets included approximately $268,870 of notes receivable from GMP, LLC, the entity which purchased our Safe Environment Corporation of Indiana subsidiary and our interest in Acadian Builders, LLC effective August 31, 2002. GMP, LLC is an affiliate of John Giura, our Vice Chairman. GMP, LLC is currently in default on those notes. Our management cannot guarantee that GMP, LLC will complete the payment of all or any significant portion of its remaining obligations. In addition, as of December 31, 2003, our assets included a $100,000 note receivable from The Voice and Data Group, Inc. The Voice and Data Group, Inc. is currently in default on this note. Our management cannot guarantee that The Voice and Data Group, Inc. will complete the payment of all of any significant portion of its $100,000 obligation under this note. We may decide to raise additional capital during the next six months to strengthen our balance sheet. Cautionary Note Regarding Forward-Looking Statements This document contains forward-looking statements. These forward-looking statements may be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations", as well as in this document generally. Such forward-looking statements may include statements regarding, among other things, our intentions, our plans, our beliefs, our expectations or predictions of future events, our growth and acquisition strategies, our future financing plans, and our anticipated needs for and plans for raise capital. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend," or "project" or the negative of these words or other variations on these words or comparable terminology, although not all forward-looking statements contain these identifying words. These forward-looking statements are based on many assumptions and are subject to many known and unknown risks, uncertainties, and other factors that may cause our actual activities, results, performance, or achievements to be materially different from the future activities, results, performance, or achievements expressed or implied by any forward-looking statements. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" and matters described in this document generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Prospectus will in fact occur or prove to be correct, accurate or complete. We cannot guarantee future results, levels of activity, performance or achievements and investors should not place undue reliance on our forward-looking statements. The forward-looking statements contained herein represent our judgment as of the date of this document, and we expressly disclaim any intent, obligation or undertaking to update or revise such forward-looking statements to reflect any change in our 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 owe $971,967 under a litigation settlement. We entered into a Settlement Agreement dated November 4, 2003, with Statewide Insurance Company ("Statewide") in regard to the lawsuit entitled Statewide Insurance Company, Plaintiff, vs. ACS Construction Services, LLC, CGI Holding Corporation, Barry Ash, and Sheri Ash, Case No. 03CC-003006 S CV, in the Circuit Court of St. Louis County, Missouri. That lawsuit concerned an indemnity agreement signed by us in regard to performance and payment bonds issued by a surety, Statewide, covering a construction project in O'Fallon, Missouri, the general contractor of which was originally one of our former subsidiaries. Pursuant to the Settlement Agreement, we currently owe Statewide an aggregate of $971,967. Against that settlement amount, we are obligated to pay Statewide $100,000 per quarter at the beginning of each calendar quarter, plus 25% of our "working capital" as defined in the Settlement Agreement, until the settlement amount is paid in full. Our payment obligations under the Settlement Agreement have created liquidity problems for us. We may be subject to additional 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. As discussed above, we have already been sued and have settled a lawsuit by agreeing to pay a large amount to Statewide; that lawsuit concerned an indemnity agreement signed by us in regard to performance and payment bonds issued by a surety, Statewide, covering a construction project in O'Fallon, Missouri, the general contractor of which was originally one of our former subsidiaries. We have also 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. The lawsuit was served upon John Giura in October, 2003. We cannot predict whether we will 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. Our balance sheet is weak. We lack the capital to compete aggressively. Our growth is capital constrained. We may not generate sufficient cash flow from operations to meet our current and future obligations. Our leverage is significant, and significant interest and principal payments will become due and payable during the next 12 months. In addition, we owe Statewide $971,967. Our corporate overhead is also significant. We may not be able to generate sufficient free cash flow from our operations to meet all of our current and future payments obligations. We cannot provide any assurance that our cash flow from operations will continue at current levels. Any debt incurred to finance acquisitions will increase our future payment obligations. If our cash flow from operations is insufficient to meet our current and future obligations, we may be required to seek additional financing in the debt or equity markets, to refinance or restructure all or a portion of our indebtedness, to sell the stock of our Websourced, Inc. subsidiary or other assets, or to reduce or delay planned capital expenditures, growth or business strategies. We can provide no assurance that any such measures would be sufficient to enable us to service our debt and to pay our other obligations, nor that any of these measures could be effected on satisfactory terms, if at all. 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 December 31, 2003, the remaining unpaid GMP Contract Payments equal $68,870.15; and (4) GMP has failed to make any payments on the GMP Note. We have become aware that GMP and SECO are having 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 are currently negotiating with GMP regarding its payment obligations to us. 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. We may need to raise additional capital, which capital may not be available on acceptable terms or at all. We may need to raise additional funds, for operating capital and/or for acquisitions. We may not be able to obtain the needed additional financing on favorable terms if at all. If we cannot raise capital on acceptable terms, we may not be able to: meet all of our current and future payment obligations; expand our existing Websourced, Inc. business; expand Cherish.com; pursue acquisition opportunities; enhance our infrastructure and leveragable assets; open new offices; hire, train and retain employees; or respond to competitive pressures or unanticipated requirements. Our failure to do any of these things could seriously harm our company and our stock. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences would be a material adverse effect on our business, operating results, financial condition and prospects. 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 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 until we are in a financial position to provide our key personnel with adequate cash compensation, we will find it necessary to offer such key personnel and the independent members of our Board of Directors compensation in the form of our common stock and stock options and warrants. During 2003 this compensation has included 3,200,000 shares of our common stock and warrants to purchase an additional 3,200,000 shares of our common stock at purchase prices (exercise prices) between $0.13 and $0.16 per share. The issuance of these shares of our common stock and warrants has diluted existing stockholders and could adversely affect the price of our common stock. 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 infrastructure; 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 websites; 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. SEGMENT ANALYSIS Our operations are divided into operating segments using individual products or services or groups of related products and services. Each segment has separate management that reports to a person that makes decisions about performance assessment and resource allocation for all segments. We have one operating segment at the end of 2003, search engine enhancement. We disposed of our Asbestos Abatement division in August of 2002 and it is included as discontinued operations. Our On-Line dating became operational in 2004. We evaluate the performance of each segment using before-tax income or loss from continuing operations. There are no sales transactions between segments. Listed below is a presentation of sales, operating profit and total assets for all reportable segments. The "other" category consists of assets that the Company owns that are not otherwise allocated to a particular segment. NET SALES BY INDUSTRY SEGMENT 2003 2002 INDUSTRY SEGMENT AMOUNT PERCENT AMOUNT PERCENT -------------------- ------------------------ WEBSOURCED, INC. $7,095,101 100.00% $4,053,222 100.00% OTHER 0 0.00% 0 0.00% ----------- -------- ----------- --------- TOTAL SALES $7,095,101 100.00% $4,053,222 100.00% =========== ======== =========== ========= OPERATING PROFIT BY INDUSTRY SEGMENT INDUSTRY SEGMENT 2003 2002 -------------------- ------------------------ WEBSOURCED, INC. $1,379,217 ($1,910,726) OTHER (591,981) (642,353) -------------------- ------------------------ TOTAL SALES $787,236 ($2,553,079) ==================== ======================== TOTAL ASSETS BY INDUSTRY SEGMENT 2003 2002 INDUSTRY SEGMENT AMOUNT PERCENT AMOUNT PERCENT -------------------- ------------------------ WEBSOURCED, INC. $4,344,510 61.23% $943,589 23.28% OTHER 2,212,785 31.19% 1,487,249 36.69% ----------- -------- ----------- --------- TOTAL SALES $6,557,295 92.42% $2,430,838 59.97% =========== ======== =========== ========= ITEM 7. FINANCIAL STATEMENTS Our financial statements are set forth immediately following the signature page to this Form 10-KSB. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Our articles of incorporation and by-laws authorize a Board of Directors comprised of a number of not less than one. Each Director holds office until his successor is elected and qualifies. Our executive officers are elected by our Board of Directors. Set forth below for each of our Directors and executive officers, based upon information supplied by him which has not been independently verified by our management, are his name, age, any presently held positions with us, his principal occupation now and for the past five years, other directorships in publicly traded companies, and his tenure of service with us as a Director, all as of February 11, 2004: Name Age Position Gerard M. Jacobs(1) 48 Director, President, Chief Executive Officer, Treasurer and Secretary T. Benjamin Jennings(1),(2),(3),(4)40 Chairman of the Board of Directors John Giura(1) 70 Vice Chairman of the Board of Directors, Vice President James N. Held(2),(3),(4) 51 Director S. Patrick Martin 43 Director Vincent J. Mesolella(2),(3),(4) 54 Director Patrick W. Walsh(2),(3),(4) 39 Director (1) Member of the Executive Committee of our Board of Directors. The Executive Committee is authorized to act on behalf of our Board of Directors between meetings of the Board of Directors. (2) Member of the Nominating Committee of our Board of Directors. The Nominating Committee recommends to the Board of Directors a slate of nominees for election as Directors at the next annual meeting of stockholders. (3) Member of the Audit Committee of our Board of Directors. The Audit Committee reviews, acts on and reports to the Board of Directors with respect to various auditing and accounting matters, including the recommendations of our independent auditors, the scope of the annual audits, fees to be paid to the independent auditors, the performance of our independent auditors and our accounting practices. All members of the Audit Committee are "independent" as defined in the listing standards of the National Association of Securities Dealers, Inc. and all are financially literate. T. Benjamin Jennings has past employment experience in finance, whereby he qualifies as the Audit Committee financial expert. (4) Member of the Compensation Committee of our Board of Directors. The Compensation Committee recommends to the Board of Directors the salaries and benefits for our employees, consultants, Directors and other individuals compensated by our Company. Gerard M. Jacobs has served as a member of our Board of Directors since December 2001. Since December 2001, Mr Jacobs has served as our President, Chief Executive Officer, Secretary and Treasurer. From March 1999 until December 2001, Mr. Jacobs was involved as an officer and Director of several privately held companies. From 1995 until March 1999, Mr. Jacobs served as the Chief Executive Officer of Metal Management, Inc., Chicago, Illinois. Mr. Jacobs is a graduate of Harvard University, where he was elected to Phi Beta Kappa, and of The University of Chicago Law School, which he attended as a Weymouth Kirkland Law Scholar. Mr. Jacobs was elected twice to the Board of Education of District 200, Oak Park and River Forest High School, Oak Park, Illinois. T. Benjamin Jennings has served as a member of our Board of Directors since December 2001, and as Chairman of our Board of Directors since April 2003. Since May 2003, Mr. Jennings has served as the Chairman of Ceira Technologies, Inc., located in Irvine, California. Mr. Jennings previously served as the Chief Executive Officer of Ceira Technologies, Inc., which he joined in 1999. From 1995 until 1999, Mr. Jennings served as the Chairman and Chief Development Officer of Metal Management, Inc., Chicago, Illinois. Mr. Jennings was the Chairman of the Chicago Inner City Games from 1996 through 1999. Mr. Jennings serves on the Board of Directors of the Kohl's Children's Museum, Wilmette, Illinois. Mr. Jennings is a graduate of Rice University. John Giura has served as Vice Chairman of our Board of Directors since April 2003, and previously served as Chairman of our Board of Directors from 1997 until April 2003. Since December 2001, Mr. Giura has served as our Vice President. From 1997 until 2001, Mr. Giura served as our President and Chief Executive Officer. Mr. Giura graduated from the University of Naples, Italy, and received an MA in economics from The University of Chicago. James N. Held has served as a member of our Board of Directors since April 2003. Since November 2003, Mr. Held has been a private investor. From 2001 until November 2003, Mr. Held served as the Managing Director of Business Development for Ceira Technologies, Inc., Irvine, California. From 1998 until 2001, Mr. Held served as Senior Vice President of Marketing for Metal Management, Inc., Chicago, Illinois. Mr. Held is a graduate of Xavier University. S. Patrick Martin has served as a member of our Board of Directors since April 2003. Since 1999, Mr. Martin has served as the President and Chief Executive Officer of WebSourced, Inc., formerly known as WorldMall.com. Prior to 1999, Mr. Martin worked as an independent telecommunications consultant. Mr. Martin attended the State University of New York at Oswego, New York. Vincent J. Mesolella has served as a member of our Board of Directors since July 2003. Since 1978, Mr. Mesolella has served as the President of REI, Inc., North Providence, Rhode Island. Mr. Mesolella has served as the Chairman of the Narragansett Bay Commission, located in Providence, Rhode Island, since 1991. Mr. Mesolella was elected 10 times to the Rhode Island House of Representatives, serving as the Deputy Majority Whip for 8 years, retiring in 1999. Mr. Mesolella has served as a Director of The imPossible Dream since 2001, and served as the first Chairman of the Rhode Island Underground Storage Tank Financial Review Board starting in 1998. Mr. Mesolella attended Rhode Island Junior College and the University of Rhode Island Extension Division. Patrick W. Walsh has served as a member of our Board of Directors since April 2003. Since 1999, Mr. Walsh has been an executive of Avatar Systems Ltd., Chicago, Illinois. From 1997 until 1999, Mr. Walsh served as Vice President of Marketing and Business Development for Metal Management, Inc., Chicago, Illinois. Mr. Walsh graduated from Miami University (Ohio). Mr. Jacobs, a member of our Board of Directors and our President, Chief Executive Officer, Secretary and Treasurer, and Mr. Jennings, the Chairman of our Board of Directors, both served as Directors and officers of Metal Management, Inc., Chicago, Illinois, within the two year period prior to the time that Metal Management, Inc. filed a petition under the federal bankruptcy laws. Mr. Jacobs also served as a Director of Superior Forge, Inc., Huntington Beach, California, within the two year period prior to the time that Superior Forge, Inc. filed a petition under the federal bankruptcy laws. Except as set forth above, to the knowledge of our management, during the past five years, no present or former Director or executive officer of our company: (1) filed a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which such person was an executive officer at or within two years before the time of such filing; (2) was convicted in a criminal proceeding or named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining such person from or otherwise limiting, the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, associated person of any of the foregoing, or as an investment advisor, underwriter, broker or dealer in securities, or as an affiliate person, director or employee of any investment company, or engaging in or continuing any conduct or practice in connection with such activity; (ii) engaging in any type of business practice; or (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws; (4) was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days the right of such person to engage in any activity described above, or to be associated with persons engaged in any such activity; (5) was found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the Securities and Exchange Commission has not been subsequently reversed, suspended, or vacated; or (6) was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT We are not subject to the requirements of Section 16(a) of the Exchange Act. ITEM 10. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth all compensation awarded to, earned by or paid to our Chief Executive Officer and the other executive officers of our Company whose annual salary and bonus exceeded $100,000 in 2003 for services rendered in all capacities to us during 2003. In accordance with the rules of the Securities and Exchange Commission, other compensation in the form of perquisites and other personal benefits has been omitted for the named executive officers because the aggregate amount of such perquisites and other personal benefits was less than the lesser of $50,000 or 10% of the total of annual salary and bonuses for each of the named executive officers in 2003. Long-Term Compensation ----------- Annual Compensation Restricted All Other Stock Name and Principal Position Year Salary($) Bonus($) Other Awards Compensation -------------------- ----- ------------------------- Gerard M. Jacobs 2003 30,000 0 0 320,000 0 President and Chief 2002 0 0 0 0 0 Executive Officer 2001 0 0 0 0 0 John Giura 2003 0 0 0 0 0 Vice President 2002 113,000 0 7,200 0 0 2001 90,000 0 7,200 0 0 S. Patrick Martin 2003 182,897 20,625 0 CEO,WebSourced, Inc.2002 132,836 17,164 0 0 0 2001 103,899 0 0 0 0 Cash Compensation Gerard M. Jacobs was paid by us for the year ended December 31, 2003. Gerard M. Jacobs received no compensation from us during the years 2002 or 2001. We are currently paying Gerard M. Jacobs a salary at the rate of $10,000 per month. Gerard M. Jacobs does not have an employment contract with us. John Giura received no compensation from us during the year 2003. We paid $78,000 of Mr. Giura's salary in 2002 and $35,000 was paid by Safe Environment Corp. of Indiana, one of our subsidiaries at the time. We paid $45,000 of John Giura's salary in 2001 and $45,000 was paid by Safe Environment Corp. of Indiana, one of our subsidiaries at the time. John Giura does not have an employment contract with us and no set compensation arrangement has been set for John Giura for 2004. Our subsidiary WebSourced, Inc. paid S. Patrick Martin a base of $182,897 and a bonus of $20,625 for 2003, a base salary of $132,836 and a bonus of $17,164 for 2002, and a base salary of $103,899 for 2001. Our subsidiary Websourced, Inc. is currently paying S. Patrick Martin a salary at the rate of $240,000 per year under an employment contract which expires on December 31, 2004. Bonuses and Deferred Compensation Our subsidiary WebSourced, Inc. paid S. Patrick Martin a bonus of $20,625 for 2003 and a bonus of $17,164 for 2002. Compensation Pursuant to Plans None. Pension Table None. Other Compensation We granted 3,200,000 restricted shares of our stock in 2003 to the Roberti Jacobs Family Trust, which acquired the rights to these shares from Gerard M. Jacobs in a litigation settlement. We valued these shares at $320,000 on the date of the grant. Compensation of Directors Prior to November 2003, we did not provide our Directors with cash compensation for their services as members of the Board of Directors. Beginning in November, 2003, our Directors will receive $750 for each meeting of our Board of Directors attended in person plus reimbursement for travel and lodging expenses associated therewith, and $250 for each meeting of our Board of Directors and for each meeting of any committee of the Board of Directors attended by telephone. Our Directors are eligible for grants of warrants or options to purchase our common stock as determined from time to time by our Board of Directors in its discretion. During 2003, we granted warrants to purchase 510,000 shares of our stock at $0.13 per share to T. Benjamin Jennings, our Chairman, and warrants to purchase 200,000 shares of our stock at $0.13 per share to each of James N. Held, a Director, Vincent J. Mesolella, a Director, Patrick W. Walsh, a Director, and Carol Schmidt, the widow of Leonard Schmidt, a Director who died during 2003. Employment Contracts and Termination of Employment, and Change-In-Control Arrangements There are no compensatory plans or arrangements, including payments to be received from our Company, with respect to any person named in the Executive Compensation section set out above which would in any way result in payments to any such person because of his resignation, retirement, or other termination of such person's employment with us or our subsidiaries, or any change in control of our Company, or a change in the person's responsibilities following a change in control, excepting only as described below in regard to S. Patrick Martin. Pursuant to an Employment Agreement dated as of January 1, 2004, between S. Patrick Martin and WebSourced, Inc.: (1) In the event that Websourced, Inc. terminates said Employment Agreement for any reason, Websourced, Inc. will pay S. Patrick Martin all of the base and bonus compensation earned by him up to the date of termination; (2) In the event that Websourced, Inc. terminates said Employment Agreement without cause, Websourced, Inc. will pay S. Patrick Martin on the date of termination a severance amount equal to all amounts of his base compensation that would have become due and owing to him through December 31, 2008, as if his employment with Websourced, Inc. had not been terminated prior thereto. Option Grants in Last Fiscal Year The following table sets forth information regarding options and warrants granted to each of the named executive officers during the year ended December 31, 2003. Individual Grants Percentage of Number of Total Warrants Securities Granted to Underlying Employees Exercise or Warrants in Fiscal Base Price Expiration Name Granted Year(1) ($/Share)(2) Date Gerard M. Jacobs 1,000,000 41.14% $0.13 7/31/2013 John Giura 210,000 8.64% $0.13 7/31/2013 S. Patrick Martin 510,000 20.98% $0.13 7/31/2013 (1) Based on a total of 2,430,964 shares subject to warrants granted to employees of our Company and our subsidiary WebSourced, Inc., and includes all our stock option plans in the year ended December 31, 2003, including options granted to the named executive officers. (2) All warrants were granted at an exercise price at or in excess of the fair market value of our common stock at the date of grant. Value of Securities Underlying Unexercised Options The following table sets forth information regarding the number and value of securities underlying unexercised options held by each of the named executive officers at December 31, 2003. Number of Securities Shares Underlying Unexercised Value of Unexercised Acquired Warrants at In-the-Money Warrants On Value December 31, 2003 (1) at December 31, 2003 (2) Name Exercise Realized ExerciseableUnexercisable ExercisableUnexercisable Gerard M. Jacobs --- --- --- --- $ --- $ --- John Giura --- --- 210,000(3) --- $67,200 $ --- S. Patrick Martin --- --- 743,147(4) --- $199,200 $ --- (1) These amounts represent the total number of shares subject to warrants held by the named executive officers at December 31, 2003. (2) These amounts represent the difference between the exercise price of warrants and the closing bid price of our common stock on December 31, 2003. (3) These warrants were granted in 2003 at an exercise price of $0.13 per share. (4) Among these warrants, 33,417 were granted in 2000 at an exercise price of $2.00 per share which was reduced to $.45 per share in 2003, 200,000 in 2002 at an exercise price of $0.27 per share, and 510,000 in 2003 at an exercise price of $0.13 per share. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth specified information with respect to the beneficial ownership of our outstanding common stock as of February 26, 2004, for: - each person or group that we know beneficially owns more than 5% of our common stock; - each of our Directors; - each named executive officers; and - all of our Directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting and investment power with respect to shares. Unless otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares beneficially owned. The number and percentage of shares beneficially owned are based on 20,789,474 shares of common stock outstanding as of February 26, 2004. The number and percentage of shares beneficially owned also assumes that shares of common stock subject to options and other rights that are currently exercisable or exercisable within 60 days of February 26, 2004 are deemed to be outstanding and beneficially owned. The address for those individuals for which an address is not otherwise indicated is: c/o CGI Holding Corporation, 520 Lake Cook Road, Suite 690, Deerfield, Illinois 60015. Number of Shares of Percent of Common Stock Shares Beneficially of Common Owned Stock Beneficial Owner As of February Outstanding(1) 11, 2004 ------------- ---------------- T. Benjamin Jennings(2),(3) 647,500 3.04% John Giura(2),(4),(5) 1,599,394 7.69% James N. Held(2),(6) 285,000 1.37% S. Patrick Martin(2),(5),(7) 2,893,891 13.92% Vincent J. Mesolella(2),(8) 255,556 1.23% Patrick W. Walsh(2),(9) 200,000 * Roberti Jacobs Family Trust(10) 6,488,333 31.21% All current Directors and executive officers as a group (6 persons) 12,369,674 59.50% * Less than 1%. (1) Includes shares of common stock subject to warrants currently exercisable or convertible within 60 days of February 26, 2004, which are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. (2)Officer and/or Director (3) Includes 137,500 shares of common stock owned by Mr. Jennings and warrants to purchase 510,000 shares at $0.13 per share. (4)Includes 1,389,394 shares of common stock owned by Mr. Giura, of which 135,300 shares are held jointly by Mr. Giura and Mr. James Spachman, and warrants to purchase 210,000 shares at $0.13 per share. (5) John Giura and S. Patrick Martin have each executed irrevocable Proxies granting Gerard M. Jacobs the right to vote all of his shares in favor of Gerard M. Jacobs' slate of nominees for our Board of Directors, so long as Gerard M. Jacobs is serving as our chief executive officer and so long as John Giura and S. Patrick Martin are included in such slate of nominees. (6) Includes 85,000 shares of common stock owned by Mr. Held and warrants to purchase 200,000 shares at $0.13 per share. (7)Includes 1,825,744 shares of common stock owned by Mr. Martin and warrants to purchase 33,147 shares at $0.45 per share, warrants to purchase 200,000 shares at $0.27 per share, warrants to purchase 510,000 shares at $0.13 per share, and proxy to vote 325,000 shares of common stock owned by Negin Martin. (8) Includes 55,556 shares of common stock owned by Mr. Mesolella and warrants to purchase 200,000 shares at $0.13 per share. (9) Mr. Walsh owns no common stock, but owns warrants to purchase 200,000 shares at $0.13 per share. (10) Includes 3,808,333 shares of common stock owned by the Roberti Jacobs Family Trust, 3,200,000 of which shares were acquired from Gerard M. Jacobs pursuant to a litigation settlement, warrants to purchase 1,000,000 shares at $0.10 per share, warrants to purchase 680,000 shares at $0.10 per share, and warrants to purchase 1,000,000 shares at $0.13 per share also acquired from Gerard M. Jacobs pursuant to a litigation settlement. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS TRANSACTIONS WITH MANAGEMENT AND OTHERS 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 December 31, 2003, the remaining unpaid GMP Contract Payments equal $68,870.15; and (4) GMP has failed to make any payments on the GMP Note. 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. We are currently negotiating with GMP regarding its payment obligations to us. John Giura and S. Patrick Martin have each executed irrevocable Proxies granting Gerard M. Jacobs the right to vote all of his shares in favor of Mr. Jacobs' nominees for our Board of Directors, so long as Gerard M. Jacobs is serving as our Chief Executive Officer and so long as John Giura and S. Patrick Martin are included among Mr. Jacobs' nominees. During 2001 we entered into an arms length transaction with a related party to lease their employees. Employee leasing is utilized to bring a large number of employees under one workers compensation insurance policy to receive a better rate from the insurance carrier. For each pay period we were billed by Nexus Management Solutions (NMS), then an affiliate of John Giura, for the employees' wages, payroll tax liabilities, workers compensation premiums and a management fee. The total amount paid to NMS in 2001 was $2,098,431. This agreement was discontinued January 1, 2002. During 2001, we leased our corporate headquarters from a partnership which is owned and controlled by John Giura, then Chairman and currently Vice Chairman of our company, and James Spachman, a major shareholder of ours. The lease was on a month-to-month term and the rental amount was $700.00 per month. We moved out of the building in February of 2002. The arrangement has been terminated and we have no liabilities remaining in connection with it. Over the past 10 years, Gerard M. Jacobs, one of our Directors and our President and Chief Executive Officer, and T. Benjamin Jennings, our Chairman, have had a substantial number of business relationships. We expect these close business ties to continue indefinitely. Gerard M. Jacobs and T. Benjamin Jennings are both members of J&J Investments LLC, and otherwise frequently engage in common business enterprises and common investments. We have, along with our subsidiary WebSourced, Inc., also borrowed funds from the Roberti Jacobs Family Trust, a stockholder of ours. The Roberti Jacobs Family Trust is an irrevocable trust. Gerard M. Jacobs is neither a trustee nor a beneficiary of the Roberti Jacobs Family Trust. Gerard M. Jacobs disclaims any beneficial ownership of any of the securities owned by the Roberti Jacobs Family Trust. The details of these loans as of December 31, 2003, is as follows: Lender Borrower Amount Repayment Terms Roberti Jacobs Family Trust Us $250,000 13% interest, payable upon demand(1) Roberti Jacobs Family Trust Us $170,000 13% interest, payable upon demand(2) Roberti Jacobs Family Trust Us $200,000 18% interest, payable upon demand Roberti Jacobs Family Trust WebSourced, Inc. $90,000 15% interest, due 6/30/2004 (1) We granted the Roberti Jacobs Family Trust warrants to purchase 1,000,000 shares of our stock at $0.10 per share in connection with this loan. (2) We granted the Roberti Jacobs Family Trust warrants to purchase 680,000 shares of our stock at $0.10 per share in connection with this loan. The Roberti Jacobs Family Trust has acquired 3,200,000 shares of our common stock and warrants to purchase 1,000,000 shares of our common stock at $0.13 per share from Gerard M. Jacobs pursuant to a litigation settlement. James N. Jennings, our assistant secretary and general legal counsel, is the brother of T. Benjamin Jennings. Jeffrey S. Martin, an employee of WebSourced, Inc., is the brother of S. Patrick Martin. TRANSACTIONS WITH PROMOTERS Not applicable. INDEMNIFICATION OF DIRECTORS AND OFFICERS None of our Directors will have personal liability to us or any of our stockholders for monetary damages for breach of fiduciary duty as a Director involving any act or omission of any such Director since provisions have been made in our Articles of Incorporation limiting such liability. The foregoing provisions shall not eliminate or limit the liability of one of our Directors (i) for any breach of such Director's duty of loyalty to us or our stockholders, (ii) for acts or omissions not in good faith or, which involve intentional misconduct or a knowing violation of law, (iii) under applicable Sections of the Nevada Revised Statutes, (iv) for the payment of dividends in violation of Section 78.300 of the Nevada Revised Statutes, or (v) for any transaction from which such Director derived an improper personal benefit. Our Bylaws provide for indemnification of our Directors, officers, and employees in most cases for any liability suffered by them or arising out of their activities as Directors, officers, and employees of our company if they were not engaged in willful misfeasance or malfeasance in the performance of his or her duties; provided that in the event of a settlement the indemnification will apply only when our Board of Directors approves such settlement and reimbursement as being for the best interests of our Company. Our Bylaws, therefore, limit the liability of our Directors to the maximum extent permitted by Nevada law. We have entered into indemnification agreements with each of our directors and officers, indemnifying them against expenses, settlements, judgments and fines incurred in connection with any threatened, pending or completed action, suit, arbitration or proceeding, where the individual's involvement is by reason of the fact that he or she is or was a director or officer of our company or served at our request as a director of another organization (except that indemnification is not provided against judgments and fines in a derivative suit unless permitted by Nevada law.) An individual may not be indemnified if he or she is found not to have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of our company, except to the extent Nevada law shall permit broader contractual indemnification. The indemnification agreements provide procedures, presumptions and remedies designed to substantially strengthen the indemnity rights beyond those provided by our Articles of Incorporation, our Bylaws, and by Nevada law. ITEM 13. EXHIBITS AND REPORTS (a)(1) FINANCIAL STATEMENTS. The following financial statements are filed as part of this report: Independent Auditor's Report To the Audit Committee of CGI Holding Corporation 520 Lake Cook Road, Suite 690 Deerfield, Illinois 60015 We have audited the accompanying consolidated balance sheet of CGI Holding Corporation as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholder's equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion of these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit 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 statements presentation. 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 consolidated position of CGI Holding Corporation as of December 31, 2003 and 2002 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. By: /s/ Poulos & Bayer Poulos & Bayer Chicago, Illinois February 26, 2004 CGI HOLDING CORPORATION, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 2003 AND 2002 2003 2002 ------------- ------------ CURRENT ASSETS Cash 303,144 68,945 Accounts Receivable 3,907,331 554,894 Allowance for Bad Debts (116,185) (89,866) Other Current Assets 76,932 195,644 Note Receivable 368,870 326,884 Refundable Corporate Taxes 4,202 4,202 Deferred Tax Asset 340,000 90,954 ------------- ------------ Total Current Assets 4,884,294 1,151,657 ------------- ------------ PROPERTY AND EQUIPMENT Property, Plant and Equipment 118,512 127,727 Less:Accumulated Depreciation (37,622) (23,652) ------------- ------------ NET PROPERTY AND EQUIPMENT 80,890 104,075 ------------- ------------ OTHER ASSETS Deferred Tax Asset 1,494,611 1,017,924 Other Assets 97,500 157,182 ------------- ------------ TOTAL OTHER ASSETS 1,592,111 1,175,106 ------------- ------------ TOTAL ASSETS 6,557,295 2,430,838 ============= ============= CURRENT LIABILITIES Current Portion of Long Term Debt 1,315,079 785,531 Notes Payable-Line of Credit - 25,485 Accounts Payable 303,917 180,048 Accrued Income Taxes 67,894 - Deferred Revenue 2,688,550 705,394 Accrued Liabilities 148,683 23,709 ------------- ------------ TOTAL CURRENT LIABILITIES 4,524,124 1,720,167 ------------- ------------ LONG TERM LIABILITIES Long-Term Debt, Net of Current Portion 697,064 51,624 Loan Payable-Shareholder - 63,276 ------------- ------------ TOTAL LONG TERM LIABILITIES 697,064 114,900 ------------- ------------ 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, 23,289,474 shares issued and 20,789,474 outstanding 23,289 19,012 Additional Paid In Capital 5,625,860 5,209,368 Retained Earnings (3,773,042) (4,092,609) Deferred Compensation - - Treasury Stock (540,000) (540,000) ------------- ------------ TOTAL STOCKHOLDERS' EQUITY 1,336,107 595,771 ------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 6,557,295 2,430,838 ============= ============= The accompanying notes are an integral part of these financial statements CGI HOLDING CORPORATION, INC. STATEMENT OF STOCKHOLDERS' EQUITY PERIOD ENDED DECEMBER 31, 2003 COMMON COMMON PAID-IN RETAINED TREASURY SHARES STOCK CAPITAL EARNINGS STOCK ----------- ------- --------- ------------ -------- COMMON SHARES $0.001 PAR VALUE BALANCE: JANUARY 1, 2002 16,499,627 17,999 5,056,067 (1,623,868) (400,000) SOLD 100,000 SHARES AT $0.15 PER SHARE ON 1/02/02 100,000 100 14,900 PURCHASED 1,000,000 SHARES ON APRIL 29, 2002 FOR $0.14 PER SHARE (1,000,000) (140,000) SOLD 744,000 SHARES ON 9/11/02 AT $0.16 PER SHARE 744,000 744 118,296 ISSUED 168,946 SHARES OF STOCK ON 12/31/02 FOR AN EMPLOYEE STOCK BONUS 168,946 169 20,105 NET LOSS - 2002 (2,468,741) ----------- ------- --------- ------------ -------- BALANCE: DECEMBER 31, 2002 16,512,573 19,012 5,209,368 (4,092,609) (540,000) 76,901 OPTIONS WERE EXERCISED AT 76,901 77 692 $0.01 PER SHARE 1,000,000 OPTIONS EXERCISED ON APRIL 1, 2003 AT $0.10 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, DECEMBER 31, 2003 319,567 ----------- ------- --------- ------------ -------- BALANCE: DECEMBER 31, 2003 20,789,474 23,289 5,625,860 (3,773,042) (540,000) =========== ======= ========= ============ ======== The accompanying notes are an integral part of these financial statements CGI HOLDING CORPORATION, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002 2003 2002 ------------ ----------- SALES 7,095,101 4,053,222 COST OF GOODS SOLD 2,806,531 1,841,083 ------------ ----------- GROSS PROFIT 4,288,570 2,212,139 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,405,109 2,165,381 ------------ ----------- INCOME FROM OPERATIONS 883,461 46,758 ------------ ----------- OTHER INCOME (EXPENSES) Impairment of Goodwill - (2,154,052) Other Income(Expense) (8,125) (333,000) Interest Income 6,254 645 Interest Expense (94,354) (113,430) ------------ ----------- TOTAL OTHER INCOME (EXPENSE) (96,225) (2,599,837) ------------ ----------- INCOME BEFORE CORPORATE INCOME TAXES 787,236 (2,553,079) INCOME TAX PROVISION (275,166) (484,673) ------------ ----------- NET INCOME FROM CONTINUING OPERATIONS 1,062,402 (2,068,406) ------------ ----------- DISCONTINUED OPERATIONS Income from operations of discontinued operations(less applicable tax - See Notes) - 119,044 Loss on disposal of discontinued operations(less applicable tax - See Notes) - (519,379) ------------ ----------- TOTAL DISCONTINUED OPERATIONS - (400,335) ------------ ----------- INCOME BEFORE EXTRAORDINARY EVENT 1,062,402 (2,468,741) EXTRAORDINARY ITEM(less applicable tax-See Notes) (742,835) - ------------ ----------- NET INCOME 319,567 (2,468,741) ============ =========== NET INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS $0.05 ($0.13) ============ =========== NET INCOME PER COMMON SHARE FROM DISCONTINUED OPERATIONS $0.00 ($0.02) ============ =========== NET INCOME PER COMMON SHARE FROM EXTRAORDINARY ITEMS ($0.03) $0.00 ============ =========== NET INCOME PER COMMON SHARE $0.01 ($0.15) ============ =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 22,559,971 16,401,801 ============ =========== The accompanying notes are an integral part of these financial statements CGI HOLDING CORPORATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002 2003 2002 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Profit(Loss) 319,567 (2,468,741) Non-Cash Items Included in Net Profit/(Loss) Depreciation 26,470 129,109 Allowance for Bad Debts 26,319 81,995 Allowance for Impaired Assets - 2,717,041 Loss on Disposition of Assets - 646,386 Stock Bonus Expensed 320,000 20,274 Insurance Settlement 1,125,508 - Deferred Taxes (725,733) (579,578) OTHER CHANGES: Change in Accounts Receivable (3,352,437) (1,546,320) Change in Other Current Assets 118,712 (255,677) Change in refundable income taxes - (4,202) Change in other Assets 59,682 357,427 Change in Accounts Payable 123,868 56,912 Change in Accrued Expenses 124,977 6,295 Change in Accrued Income Taxes 67,894 (29,712) Change in Deferred Revenue 1,983,156 400,559 ------------ ----------- NET CASH CHANGE FROM OPERATING ACTIVITIES 217,983 (468,232) ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES Fixed Assets Acquired (3,285) (39,174) Proceeds from Notes Receivable 58,014 - Note Receivable-Voice and Data (100,000) - Escrow Deposit - (400,000) Proceeds from sale of assets, Net of cash transferred - (27,549) Received from ACS Construction - 210,000 ------------ ----------- NET CASH CHANGE FROM INVESTING ACTIVITIES (45,271) (256,723) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES Principal Payments Made (198,797) (404,204) Change in Line of Credit (25,485) 126,472 Proceeds from Loans 185,000 1,004,474 Purchase of Treasury Stock - (140,000) Proceeds from Sale of Stock 100,769 134,040 ------------ ----------- NET CASH CHANGE FROM FINANCING ACTIVITIES 61,487 720,782 ------------ ----------- NET CASH CHANGE 234,199 (4,173) CASH BALANCE:JANUARY 1 68,945 73,118 ------------ ----------- CASH BALANCE: DECEMBER 31 303,144 68,945 ============ =========== Supplemental Information Interest Paid 94,354 62,565 Income Taxes Paid - 29,712 Supplemental Schedule of Non-Cash Investing and Financing Activities During the first quarter of 2002, the Company received equipment in the amount of $697,460, and assumed liabilities totalling $76,752 from ACS Construction Company in lieu of part of their outstanding obligations to the Company. The Company received notes receivable in the amount of $845,000 relating to its sale of its subsidiary 'SECO of Indiana' during the third quarter of 2002. The accompanying notes are an integral part of these financial statements CGI HOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 HISTORY AND ORGANIZATION We are a Nevada corporation. Our principal executive offices are located at 520 Lake Cook Road, Suite 690, Deerfield, Illinois 60015. Our telephone number is 847-282-5005. The address of our website is www.cgiholding.com. Information on our website is not part of this Form 10-KSB. CGI Holding Corporation (formerly known as North Star Petroleum, Inc.) was incorporated under the laws of the State of Nevada in October of 1987. From 1993 until July 1997, we had essentially no operations. We again became operational on August 4, 1997, when we completed an agreement to acquire two private companies. Under this agreement, we issued 4,961,056 shares of our common stock to shareholders of the private companies resulting in 8,272,779 shares issued and outstanding. On March 27, 2001, we acquired the common stock of WorldMall.com. Pursuant to this acquisition all the issued and outstanding shares of common stock of WorldMall.com, which consisted of 9,331,903 shares of WorldMall.com common stock, were converted into 6,186,515 shares of voting common stock of CGI Holding Corporation. The market value of our common stock on the date of this transaction was $0.30 per share. The transaction was accounted for using the purchase method of accounting. WorldMall.com was reincorporated in the state of North Carolina as Websourced, Inc. in June 2002. We sold the stock of our wholly owned Safe Environment Corporation division effective August 31, 2002. WEBSOURCED, INC. Websourced, Inc., d/b/a KeywordRanking.com and ProRanking.com, was reincorporated in June 2002 in the State of North Carolina. It is primarily engaged in providing search engine enhancement services to web sites, under the names KeywordRanking.com and ProRanking.com. KeywordRanking.com and ProRanking.com assist their clients' websites in obtaining top twenty positioning on search engines worldwide. The websites benefit from top twenty positioning, which typically results in a significantly higher number of visits from potential customers. WebSourced, Inc. also owns Cherish.com, an online dating service. Cherish.com was incorporated in the fourth quarter of 2003 and had no income in 2003. The Company hopes to grow Cherish into a leader in its highly competitive industry. Websourced, Inc. currently employs 78 people. Websourced, Inc. is headquartered in Morrisville, North Carolina. SIGNIFICANT ACCOUNTING POLICIES A. Revenue Recognition WEBSOURCED, INC. The Company recognizes revenues in the period that they are deemed to be earned and collectible under the accrual method of accounting using the proportional performance model. In the proportional performance model revenue is recognized using the pattern in which obligations to the customer are fulfilled over the term of the contract. B. BASIS OF PRESENTATION The consolidated statements include the accounts of the Company and its subsidiaries. All intercompany transactions have been eliminated. The financial statements are prepared in accordance with generally accepted accounting principles and include amounts based on management's prudent judgments and estimates. Actual results may differ from estimates. C. PROPERTY AND EQUIPMENT All assets are depreciated over their estimated useful life using the straight line method. Property and Equipment consists of the following 2003 2002 ------------- ------------- Furniture and Fixtures $118,512 $115,227 Vehicles 0 12,500 ------------- ------------- Total $118,512 $127,727 ============= ============= D. INCOME TAXES The Company provides for federal and state income taxes on items included in the Consolidated Statements of Operations regardless of the period when such taxes are payable. Deferred taxes are recognized for temporary differences between financial and income tax reporting based on enacted tax laws and rates. E. GOODWILL WRITE DOWN The results reflect the write down of the company's' goodwill according to FASB 142. FASB 142 is required for fiscal years beginning after December 15, 2001. The new FASB requires an annual valuation of the goodwill as opposed to the periodic amortization under old rules. The Company, in conjunction with the implementation of Statement of Financial Accounting Standards 142, has valued its goodwill associated with certain operating segments at zero and has therefore taken a charge to income in 2002, reflected as "Impairment of Asset" in the amount of $2,367,041. This goodwill was associated with the Company's acquisitions of Worldmall.Com in March of 2001 and Safe Environment Corporation in August of 1997. Management valued its goodwill acquired in the purchase of Worldmall.com and Safe Environment Corporation at zero in the first quarter of 2002 in light of their current operating results. The total recorded cost of the goodwill at the time of acquisition of Worldmall.com was $2,534,179 and the amount amortized through 2001 was $380,127. The original amount of goodwill associated with the Safe Environment Corporation was $301,924 with $88,935 being recognized through 2001 SALE OF SAFE ENVIRONMENT CORPORATION OF INDIANA The Company sold its wholly-owned subsidiary, Safe Environment Corporation of Indiana and certain other assets effective August 31, 2002. This transaction resulted in a pre-tax loss of ($646,386). NOTES RECEIVABLE The Company's Form 8-K filed April 7, 2003 in regard to GMP, L.L.C. is hereby incorporated by reference. On April 1, 2003, the Company entered into an Agreement (the "GMP Note Restructuring Agreement") with GMP, L.L.C. ("GMP"), Safe Environment Corp. of Indiana ("SECO") and John Giura ("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 an agreement pursuant to which an aggregate of $300,000 will be paid to the Company 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 the Company in regard to a certain housing development in St. Charles, Missouri (the "$200,000 From St. Charles Housing Development Agreements"); (3) GMP agreed that the remaining monies due from GMP to the Company in regard to the purchase of the stock of SECO shall be paid by GMP to the Company as soon as practicable but in any event no later than July 31, 2003 (the "Remaining SECO Stock Payments"); and (4) the Company 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 timely makes the Remaining SECO Stock Payments, and if GMP and Giura are not in default of any of certain other obligations to the Company, then the principal amount of GMP's Promissory Note payable to the Company shall be reduced from $470,000 down to $337,495.09, of which $37,495.09 shall be paid by GMP to the Company 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, the Company received the fully signed $300,000 From St. Ann Escrow Agreement; (2) On May 5, 2003, the Company received all but one of the $200,000 From St. Charles Housing Development Agreements; (3) As of September 30, 2003, the Remaining SECO Stock Payments equal $68,870; and (4) GMP has failed to make any payments on its Promissory Note payable to the Company. See the Risk Factor below in regard to the financial viability of GMP and SECO. EXTRAORDINARY EVENT - SETTLEMENT WITH STATEWIDE INSURANCE COMPANY We entered into a Settlement Agreement (the "Settlement Agreement") dated November 4, 2003, with Statewide Insurance Company ("Statewide") in regard to the lawsuit entitled Statewide Insurance Company, Plaintiff, vs. ACS Construction Services, LLC, CGI Holding Corporation, Barry Ash, and Sheri Ash, Case No. 03CC-003006 S CV, in the Circuit Court of St. Louis County, Missouri. Statewide Insurance Company ("Statewide") sued the the Company, ACS Construction Services, LLC ("ACS"), Barry Ash, and Sheri Ash (collectively, the "Defendants"), for $2,200,000 in connection with the construction of a Comfort Inn & Suites located in O'Fallon, Missouri (the "Project"). In the lawsuit, Statewide claims among other things: that Statewide issued a Payment Bond and a Performance Bond in the amount of $2,681,111, pursuant to which Statewide was the surety, ACS was the principal, and RAMA, L.L.C. ("RAMA") was the obligee; that in order to induce the issuance of such Payment Bond and Performance Bond, the Defendants each executed and delivered to Statewide a General Agreement of Indemnity; that RAMA terminated ACS from the Contract for Construction with respect to the Project, and made a demand upon Statewide to fulfill its obligations under such Performance Bond. We were originally named as a defendant in this suit in August of 2003. Pursuant to the Settlement Agreement, we currently owe Statewide an aggregate of $971,967 as of the date of the audit report and $1,023,563 as of December 31, 2003. Under the Settlement Agreement with Statewide Insurance Company, the Company was required to pay $100,000 per quarter for twelve quarters, plus 25% of the its "working capital" as defined in the Settlement Agreement, until the settlement amount was paid in full; provided that if the full amount was paid on or prior to April 30, 2004, then the Company's aggregate remaining payments to Statewide will be reduced by $200,000. The Company imputed interest at a rate of 4.00% for financial reporting purposes resulting in an extraordinary loss on a pre-tax basis of $1,125,508. The tax effect of this loss was $382,673 leaving an extraordinary loss, net of taxes, of $742,835. The Company believes there is no possibility for any additional loss associated with this or any related matter. According to APB 30, paragraph 20(a) the Company believes this transaction is unusual in nature as it possesses a high degree of abnormality and is of a type clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the Company, taking into account the environment in which the Company operates. The Company also believes that the underlying event is not reasonably expected to recur in the foreseeable future as the environment in which the Company operates is not conducive to this type of event. 2003 2002 NOTES PAYABLE ---------- ---------- M & T Bank 0 25,485 This was a demand loan due 3/23/02. The maximum amount available was $100,000. Interest is paid at prime plus one floating. It was secured by the general assets of Websourced, Inc. The Thomas More Association 0 50,000 Note payable was due June 30, 2002 with an interest rate of 8.5%. The note was unsecured. Audrey Love 70,000 70,000 Note payable due October 30, 2002 with an interest rate of 8.25%. This note is unsecured. PAUL DOLL 28,000 28,000 Note payable due June 1, 2002 with interest at 10.00%. This note is unsecured CIB Bank 98,750 200,000 This note has a due date of November 2, 2003 and is guaranteed by John Giura, a shareholder of the Company. The note provides for interest at 13% plus a 1.0% per month mezzanine fee. Note Payable- Unicyn - 26,671 Note was dated 2/14/01 and was for 36 months at $2,196.19 principal plus interest per month. Note Payable- American Express - 9,643 Note was dated August 2000 with an interest rate of 14.5%. Note had a 36 month term. High Falls Development 81,830 118,291 This note carries an interest rate of 11.50% and payments are being made in the amount of $4,292.06 per month. This note matures in August 2005 Roberti Jacobs Family Trust - 28,871 Note is dated October 31, 2002 with a interest rate of 15.0% per month. This note was due on April 28, 2003. Roberti Jacobs Family Trust - 55,680 Note is dated November 7, 2002 with a interest rate of 18.0% per month. This note was due on April 28, 2003. Roberti Jacobs Family Trust 200,000 - Note is dated November 5, 2003 with a interest rate of 18.0% per month. This note is a demand note. Roberti Jacobs Family Trust 250,000 250,000 Note dated December 15, 2002, interest at 13% monthly. 1,000,000 warrants were issued with this note. This note is a demand note. Roberti Jacobs Family Trust 170,000 - Note is dated November15, 2003 with a interest rate of 13.0% per month. This note is a demand note. Roberti Jacobs Family Trust 90,000 - Noted dated November 20, 2003. Interest rate is 15%. Note is interest only for 7 months with a balloon payment on June 30, 2004 Statewide Insurance Company 1,023,563 - This note is payable quarterly in the amount of $100,000 for 12 quarters. The note will expire in October 2006. ---------- ---------- TOTALS 2,012,143 862,640 ========== ========== Principal payments for the next five years are as follows: 2004 $1,315,079 2005 416,165 2006 280,899 2007 0 2008 0 ------------ Totals $2,012,143 ============ DEFERRED REVENUE The Company enters into long term contracts with clients in which they make a down payment for the portion of the contract and are invoiced monthly for the balance. The Company then recognizes this revenue over the period of the contract. The contracts are usually for a one year period and therefore all deferred revenue is recorded as a current obligation. ADVERTISING COSTS Advertising costs are expenses when incurred, and were $222,086 in 2003 and $107,801 in 2002. Included on the balance sheet at December 31, 2003 are prepaid advertising costs of $76,932 resulting from two advertising contracts in the amounts of $78,220 and $300,000. These contracts began on January 1, 2002 and July 1, 2002 and are for 60 and 20 months respectively. The related expense is being recognized over the terms of the contract. LEASING COMMITMENTS CGI Holding Corporation has an oral lease at $1,150.00 per month for its space requirements. The Company's current space is adequate for its daily operations. Websourced, Inc. rents space in Morrisville, North Carolina for $13,600 per month. The lease expires February 01, 2006. The rental amount is adjusted yearly for expenses. The current rent payment of $13,600 runs through February 01, 2004. Websourced, Inc.'s deposit on their office space of $90,875 is being used to reduce their yearly rental payments. On February 01 of each year, Websourced, Inc. will receive a credit of $20,000 toward its rental payments until the end of the lease on February 01, 2006, at which time the remaining deposit of $20,000 will be refunded. This space is adequate for Websourced, Inc.'s needs. On November 25, 2003, Websourced entered into a lease agreement with Duke Realty Limited Partnership for new office space. The property is located at 300 Perimeter Park Drive, Morrisville, North Carolina. The rentable area of space is approximately 30,970 square feet. The lease commencement date is March 1, 2004 and extends through February 28, 2014. The lease provides that Websourced shall contribute $30,000 towards the cost of tenant improvements. The security deposit is a letter of credit in the amount of $11,304 drawn on RBC Centura Bank. Rent expense was $177,520 and $178,069 for the years ended December 31, 2003 and 2002 respectively. Minimum lease payments for the next five years are: 2004 $143,200 2005 342,698 2006 258,931 2007 252,715 2008 260,148 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 not operating loss carryforwards The following is a schedule of the deferred tax assets and liabilities. The components of the deferred tax liability at December 31, 2003 and 2002 were: 2003 2002 Deferred Tax Assets ---------- ---------- Net Operating Loss Carryforwards $1,169,854 $999,951 Valuation Allowance - (601,251) ---------- ---------- Subtotal $1,169,854 $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 $1,834,611 $1,108,878 ========== =========== The Company has a net operating loss carryforward in the amount of $3,497,712. 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 556,681 ----------- Total Net Operating Loss Carryforward $3,497,712 =========== PROVISION FOR INCOME TAXES The provision for income taxes consists of the following: 2003 2002 ----------- ----------- Current Tax Provision $67,894 ($4,202) Deferred Tax Provision (725,733) (579,578) ----------- ----------- TOTAL TAX PROVISION ($657,839) ($583,780) =========== =========== The provision for income taxes was allocated as follows: 2003 2002 -------------------- ------------------- Allocated to continuing operations Current Tax Expense $67,894 $0 Deferred Tax Expense (343,060) (484,673) ---------- --------- Total Allocated to Continuing Operations ($275,166) ($484,673) Allocated to discontinued operations Current Tax Expense $0 ($4,202) Deferred Tax Expense 0 (94,905) ---------- --------- Total Allocated to Discontinued Operations 0 (99,107) Allocated to Extraordinary Event Current Tax Expense $0 $0 Deferred Tax Expense (382,673) 0 ---------- --------- Total Allocated to Extraordinary Event (382,673) 0 ---------- ---------- TOTAL TAX PROVISION ($657,839) ($583,780) ========== ========== DISCONTINUED OPERATIONS-SAFE ENVIRONMENT CORP OF INDIANA In accordance with APB 30, the financial statement activities of Safe Environment Corporation of Indiana is reported as discontinued operations. The following summarizes the results and tax consequences of the sale of this Division in 2002. 2003 2002 ------------------ -------------------- Net Profit from operations of Discontinued Operations $0 $146,944 Tax Related to operations of discontinued operations - 27,900 --------- ---------- Net Profit from discontinued operations $0 $119,044 Net Gain(Loss) on Disposition of Discontinued Operations $0 ($646,386) Tax Related to disposition of Discontinued Operations - (127,007) --------- ---------- Net Loss on disposition of Discontinued Operations - (519,379) ------- ---------- Total Profit(Loss) from discontinued operations $0 ($400,335) ======= ========== Total Sales from Discontinued Operations Were $0 $2,105,240 ======= ========== TREASURY STOCK The Company has 2,500,000 shares of stock in its treasury at a combined total cost of $540,000. SEGMENT ANALYSIS Our operations are divided into operating segments using individual products or services or groups of related products and services. Each segment has separate management that reports to a person that makes decisions about performance assessment and resource allocation for all segments. We have one operating segment at the end of 2003, search engine enhancement. We disposed of our Asbestos Abatement division in August of 2002 and it is included as discontinued operations. Our On-Line dating became operational in 2004. We evaluate the performance of each segment using before-tax income or loss from continuing operations. There are no sales transactions between segments. Listed below is a presentation of sales, operating profit and total assets for all reportable segments. The "other" category consists of assets that the Company owns that are not otherwise allocated to a particular segment. NET SALES BY INDUSTRY SEGMENT 2003 2002 INDUSTRY SEGMENT AMOUNT PERCENT AMOUNT PERCENT -------------------- ------------------------ WEBSOURCED, INC. $7,095,101 100.00% $4,053,222 100.00% OTHER 0 0.00% 0 0.00% ----------- -------- ----------- --------- TOTAL SALES $7,095,101 100.00% $4,053,222 100.00% =========== ======== =========== ========= OPERATING PROFIT BY INDUSTRY SEGMENT INDUSTRY SEGMENT 2003 2002 -------------------- ------------------------ WEBSOURCED, INC. $1,379,217 ($1,910,726) OTHER (591,981) (642,353) -------------------- ------------------------ TOTAL SALES $787,236 ($2,553,079) ==================== ======================== TOTAL ASSETS BY INDUSTRY SEGMENT 2003 2002 INDUSTRY SEGMENT AMOUNT PERCENT AMOUNT PERCENT -------------------- ------------------------ WEBSOURCED, INC. $4,344,510 61.23% $943,589 23.28% OTHER 2,212,785 31.19% 1,487,249 36.69% ----------- -------- ----------- --------- TOTAL SALES $6,557,295 92.42% $2,430,838 59.97% =========== ======== =========== ========= (a)(2) FINANCIAL STATEMENT SCHEDULES. The following financial statement schedules are included as part of this report: None. (a)(3) EXHIBITS. The following exhibits are filed as part of this report: EXHIBIT NO. DOCUMENT DESCRIPTION 1. Powers of Attorney (included herein on signature page) 2. Certification of Gerard Jacobs, Chief Executive Officer, Chief Financial Officer under section 906 3. Certification of Gerard Jacobs, Chief Executive Officer, Chief Financial Officer under section 302 (b) REPORTS ON FORM 8-K (1) We filed a Form 8-K during the second quarter of 2001 in reference to the purchase of the assets of WorldMall.com. (2) We filed a Form 8-K during the fourth quarter of 2001 in reference to the sale of the assets of Trifinity, Inc. (3) We filed a Form 8-K during the third quarter of 2002 in reference to the sale of the stock of Safe Environment Corporation of Indiana. (4) We filed a Form 8-K during the second quarter of 2003 in reference to a restructuring of the debts owed to us by GMP, LLC. (5) We filed a Form 8-K during the third quarter of 2003 in reference to a lawsuit filed against us by Statewide Insurance Company, and in reference to a lawsuit filed by our subsidiary Websourced, Inc. against Global Payments Direct, Inc. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, we caused this report to be signed on our behalf by the undersigned, thereunto duly authorized on this 27th day of April, 2005. CGI HOLDING CORPORATION By: /s/ Gerard M. Jacobs ---------------------------------- Gerard M. Jacobs President,Chief Executive Officer and, Chief Financial Officer EXHIBIT 1. POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Gerard M. Jacobs as his true and lawful attorney-in-fact, with full power of substitution, for him, in any and all capacities, to sign, pursuant to the requirements of the Securities and Exchange Act of 1934, the Annual Report on Form 10-KSB for CGI Holding Corporation for the fiscal year ended December 31, 2003 and to file the same with the Securities and Exchange Commission and National Association of Securities Dealers, Inc., together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments to said Annual Report, incorporating such changes as said attorney-in-fact deems appropriate, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Form 10-KSB has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ GERARD M. JACOBS President, Chief Executive Officer, February 26, 2004 Gerard M. Jacobs Chief Financial Officer, Secretary, Treasurer and Director s/ T. BENJAMIN JENNINGS Chairman February 26, 2004 T. Benjamin Jennings /s/ JOHN GIURA Vice President and Vice Chairman February 26, 2004 John Giura /s/ JAMES N. HELD Director February 26, 2004 James N. Held /s/ S. PATRICK MARTIN Director February 26, 2004 S. Patrick Martin /s/ VINCENT J. MESOLELLA Director February 26, 2004 Vincent J. Mesolella /s/ PATRICK W. WALSH Director February 26, 2004 Patrick W. Walsh INDEX OF EXHIBITS EXHIBIT NO. DOCUMENT DESCRIPTION 1. Powers of Attorney (included herein on signature page) 2. Certification of Gerard Jacobs, Chief Executive Officer, Chief financial officer under section 906 3. Certification of Gerard Jacobs, Chief Executive Officer, Chief financial officer under section 302 EXHIBIT 2. 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-KSB of CGI Holding Corporation (the "Company") for the year ended December 31, 2003, 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 April 27, 2005 By: /s/ Gerard M. Jacobs --------------------------------------------- Gerard M. Jacobs President, Chief Executive Officer, Chief Financial Officer Treasurer, Secretary EXHIBIT 3. 302 CERTIFICATION I, Gerard M. Jacobs, certify that: 1. I have reviewed this annual report on Form 10-KSB of CGI Holding Corporation; 2. Based on my knowledge, this annual 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 annual 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 annual report. 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures 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 annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of the annual report ("Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosures controls and procedures based on our evaluation as of the Evaluation Date; 5. I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; 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; and 6. I have indicated in this annual report whether or not there were significant changed in the internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. April 27, 2005 /s/ Gerard M. Jacobs ------------------------------ Gerard M. Jacobs President, Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary Item 14. Controls and Procedures The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods. As of the end of the period covered by this report, the Company's principal executive and financial officer evaluated the effectiveness of the Company's disclosure controls and procedures. Based on the evaluation, which disclosed no significant deficiencies or material weaknesses, the Company's principal executive and financial officer concluded that the Company's disclosure controls are effective. There were no changes in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Item 15 PRINCIPAL ACCOUNTANT FEES AND SERVICES The Audit Committee and the Board of Directors of our Company have approved the creation of an Internal Financial Controls Committee and a Disclosure Committee, and have instructed such Committees to develop and implement internal financial controls and disclosure policies and procedures as required by the Sarbanes-Oxley Act. The Audit Committee and the Board of Directors of our Committee have pre-approved the retention of our outside auditors to audit our financial statements, and to perform such review, testing and approval of our internal financial controls policies and procedures as may be deemed appropriate by them in regard to compliance with the Sarbanes-Oxley Act. Required Disclosure for Fees Paid to Our Company's Registered Public Accountant Category 1. Audit Fees. Amount paid to our Company's registered public accountant for annual audit and quarterly review: $37,758 2003 $35,276 2002 Category 2. Audit-related Fees. Amount paid to our Company's registered public accountant for assistance in our electronic submission requirements: $ 1,200 2003 $ 1,090 2002 Category 3. Tax Fees. Amount paid to our Company's registered public accountant for the preparation of federal and state corporate income tax returns: $ 2,598 2003 $ 3,300 2002 Category 4. All Other Fees. Amount paid to our Company's registered public accountant for all other services: None paid.