UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
-OR-
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to________________________
Commission File No. 0-30786
LSI COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0627349
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
112 West Business Park Drive
Draper, Utah 84020
(801) 572-2555
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [X] No [ ]
At June 30, 2001, there were 12,756,541 shares of common stock, par value $.001
per share, of the registrant outstanding.
Transitional small business disclosure format: Yes [ ] No [X]
LSI COMMUNICATIONS, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets:
June 30, 2001 and December 31, 2000 .......................3
Consolidated Statements of Operations:
Six Month Periods Ended
June 30, 2001 and June 30, 2000 ...........................5
Consolidated Statements of Operations:
Three Month Periods Ended
June 30, 2001 and June 30, 2000 ...........................5
Consolidated Statements of Cash Flows
Six Month Periods Ended
June 30, 2001 and June 30, 2000............................6
Note to Consolidated Financial Statements....................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................8
PART II. OTHER INFORMATION
ITEM 1 - Legal Proceedings ...........................................12
ITEM 2 - Changes in Securities .......................................12
ITEM 3 - Defaults upon Senior Securities..............................12
ITEM 4 - Submission of Matter to Vote of Security Holders ............12
ITEM 5 - Other Information............................................12
ITEM 6 - Exhibits and Reports on Form 8-K Page........................12
SIGNATURES ................................................................13
2
LSI Communications, Inc.
Consolidated Balance Sheet
Unaudited
ASSETS
June 30, December 31,
2001 2000
---------------- ----------------
CURRENT ASSETS
Cash & Cash Equivalents $ (11,223) $ 5,270
Inventory - 11,445
Accounts Receivable (Net of allowance of $7,000) 24,604 113,884
Deposits - 26,500
---------------- ----------------
Total Current Assets 13,381 157,099
---------------- ----------------
PROPERTY & EQUIPMENT
(Net of Accumulated Depreciation) 45,784 56,736
---------------- ----------------
OTHER ASSETS
Deposits & Prepaids 6,076 6,076
Investment Available for Sale 1,128,750 -
---------------- ----------------
Total Other Assets 1,134,826 6,076
---------------- ----------------
TOTAL ASSETS $ 1,193,991 $ 219,911
================ ================
3
LSI Communications, Inc.
Consolidated Balance Sheet
Unaudited
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2001 2000
---------------- ----------------
CURRENT LIABILITIES
Accounts payable $ 98,499 $ 36,290
Accrued expenses 72,263 41,269
Current portion of long-term liabilites 79,696 102,686
Deferred Compensation 134,200 91,000
---------------- ----------------
Total Current Liabilities 384,658 271,245
---------------- ----------------
LONG TERM LIABILITIES
Capital lease obligation 21,065 23,472
Notes payable - -
Notes payable-related party 79,696 103,874
Less current portion (79,696) (102,686)
---------------- ----------------
Total long term Liabilities 21,065 24,660
---------------- ----------------
TOTAL LIABILITIES 405,723 295,905
---------------- ----------------
STOCKHOLDERS' EQUITY
Common stock, authorized 50,000,000 shares of $.001
par value, issued and outstanding 14,461,086 and
11,415,632 shares, respectively 14,461 11,416
Additional Paid-in capital 1,323,906 731,598
Retained Earnings (812,599) (819,008)
Accumulated Comprehensive Income 262,500 -
---------------- ----------------
Total Stockholders' Equity 788,268 (75,994)
---------------- ----------------
TOTAL LIABILITIES & STOCKHOLDERS EQUITY $ 1,193,991 $ 219,911
================ ================
4
LSI Communications, Inc.
Consolidated Statements of Operations
Unaudited
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
REVENUES
Software Sales $ (3,958) $ 6,053 $ 21,300 $ 19,706
Training Sales 175,142 324,248 306,686 596,672
--------------- --------------- --------------- ---------------
TOTAL REVENUES 171,184 330,301 327,986 616,378
--------------- --------------- --------------- ---------------
COST OF SALES
Software (212) 23 327 199
Training 53,391 90,695 149,314 154,069
--------------- --------------- --------------- ---------------
TOTAL COST OF GOODS SOLD 53,179 90,718 149,641 154,268
--------------- --------------- --------------- ---------------
GROSS PROFIT 118,005 239,583 178,345 462,110
--------------- --------------- --------------- ---------------
SELLING EXPENSES 45,955 96,475 99,588 205,636
PAYROLL 89,334 87,515 146,409 148,791
RESEARCH & DEVELOPMENT - 1,200 - 2,905
TRAVEL & TRADE SHOW EXPENSE 40,696 4,648 59,511 15,648
GENERAL & ADMINISTRATIVE EXPENSES 97,254 84,604 163,175 175,130
--------------- --------------- --------------- ---------------
TOTAL OPERATING EXPENSES 273,239 274,442 468,683 548,110
--------------- --------------- --------------- ---------------
OPERATING INCOME (LOSS) (155,234) (34,859) (290,338) (86,000)
--------------- --------------- --------------- ---------------
OTHER INCOME AND (EXPENSES)
Forgiveness of Debt - - - 13,368
Gain on Sale of Warever 761,250 - 761,250
Miscellaneous income (expense) (2,060) (1,828) (4,732) (5,275)
Interest expense (3,620) (2,722) (6,699) (5,266)
--------------- --------------- --------------- ---------------
Total Other Income and (Expenses) 755,570 (4,550) 749,819 2,827
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) BEFORE INCOME TAXES 600,336 (39,409) 459,481 (83,173)
--------------- --------------- --------------- ---------------
PROVISION FOR INCOME TAXES - - - -
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) 600,336 (39,409) 459,481 (83,173)
=============== =============== =============== ===============
NET INCOME (LOSS) PER SHARE 0.044 (0.003) 0.03 (0.008)
=============== =============== =============== ===============
WEIGHTED AVERAGE OUTSTANDING SHARES 13,702,844 11,415,632 13,233,564 10,989,808
=============== =============== =============== ===============
5
LSI Communications, Inc.
Consolidated Statements of Cash Flows
Unaudited
For the Period Ended
June 30, June 30,
2001 2000
---------------- ----------------
Cash Flows From Operating Activities
Net income (loss) $ 459,481 $ (83,173)
Non-cash items:
Depreciation 10,952 7,504
Bad Debt 35,236 7,000
Issuance of stock 2,045 2,500
Recognition of Deferred Revenue - (980)
Deferred Compensation 43,200 -
Gain on Sale of Warever (761,250) -
(Increase)/decrease in currents assets:
Accounts receivable 89,280 98,186
Inventory 11,445 199
Deposits (Current) 26,500 -
Increase/(decrease) in currents liabilities:
Accounts payable 62,209 (610)
Accrued expense 30,994 (14,438)
Customer Deposits - 11,442
---------------- ----------------
Net Cash Provided (Used) by Operating Activiities 10,092 27,630
---------------- ----------------
Cash Flows From Investing Activities
Cash received in sale of contract - 226,800
Cash paid for property, equipment and software technology - (19,437)
---------------- ----------------
Net Cash Provided (Used) by Investing Activiities - 207,363
---------------- ----------------
Cash Flows From Financing Activities
Factoring Fees - (13,000)
Increase in long-term debt 9,600 -
Principal payments on long-term debt (36,185) (94,036)
---------------- ----------------
Net Cash Provided (Used) by Financing Activiities (26,585) (107,036)
---------------- ----------------
Increase/(decrease) in Cash (16,493) 127,957
Cash and Cash Equivalents at Beginning of Period 5,270 18,393
Cash and Cash Equivalents at End of Period $ (11,223) $ 146,350
Supplemental Cash Flow Information:
Cash paid for interest $ 3,620 $ (5,266)
Cash paid for income taxes - -
6
LSI COMMUNICATIONS, INC.
NOTE TO FINANCIAL STATEMENTS
JUNE 30, 2001 AND JUNE 30, 2000
(UNAUDITED)
1. Basis of presentation:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-QSB and Item 310 of Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the Six Month ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001. The unaudited financial statements should be read in
conjunction with the financial statements for the year ended December 31, 2000
and footnotes thereto included in the Company's annual report on Form 10KSB,
which are incorporated herein by reference.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL AND RESULTS OF
OPERATIONS
This discussion contains forward-looking statements made by the Company
pursuant to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements reflect our current views with
respect to such future events. Actual results may vary materially and adversely
from those anticipated, believed, estimated or otherwise indicated. Factors that
could cause actual results to differ adversely include, without limitation,
inability to maintain sources of coaching customers, and lack of consumer demand
for new products. We do not undertake to update any forward-looking statement
that may be made from time to time by or on our behalf.
(a) Introduction
We are a technology sales and training company based in Draper, Utah.
Our primary subsidiary is Coaching Institute, Inc., which offers fully
integrated "coaching" programs designed specifically for sales trainers, seminar
leaders, motivational speakers and network marketers who are interested in
extending their programs to seminar attendees through one-on-one training. By
implementing an after-market program such as one-on-one coaching, companies are
able to assist clients' personal development, create additional profits, and
increase client loyalty.
On July 7, 2001, we sold our computer software developing and sales
subsidiary, Warever Corporation, in a stock transaction. During the last couple
of years, Warever developed PowerHouse, a sales force automation and personal
productivity software program designed for the real estate industry. PowerHouse
was designed to replace Action Plus, a management assistance software which was
the flagship product of Warever, and had been phased out in recent years after
nearing the end of its product life-cycle. Software sales, which once was the
source of nearly all of our revenues, fell to 1.4% of our overall revenues in
the Year ended 2001. We expected sales of Powerhouse to be solid, but due to
several factors we were unable to meet our sales targets.
We are continuing to change the marketing strategy for our coaching
services by sourcing coaching clients from internal sources rather than from
third parties. We organized and hosted 31 real estate seminars in dozens of
cities during the three month period ended June 30, 2001. We were able to enter
into training contracts with many of the seminar attendees. However, our
extremely limited operating capital cause our prospects to be subject to risks.
There can be no assurances that we can successfully address these risks and
difficulties.
Our operating results may fluctuate significantly in the future as a
result of several factors, many of which are not within our control. These
factors include, but are not limited to, demand for, and acceptance of, our
products and services, seasonal trends in the demand for coaching services, need
for capital expenditures and costs relating to our expansion, introduction of
new services or products, competitive forces, price changes in the coaching
industry, and general and industry-wide economic conditions. As a result of
changes to the coaching industry, we may make certain service changes or
8
acquisitions, including a possible acquisition of LSI Communications, Inc., or
Coaching Institute by another entity, that could materially affect our business,
operations, and financial condition. We also expect certain seasonal effects, as
they relate to our coaching revenues, due to lower demand during the Summer and
other vacation periods and holidays. Due to all of the aforementioned factors,
in some future interim periods, our operating results may be adversely affected
and fall below the expectations of our management and investors. We may also may
never emerge from our current development stage. In such case, the trading price
of our common stock would likely be materially and adversely affected.
(b) Results of Operations
(i) Six Month Ended June 30, 2001 and June 30, 2000
Sales Revenues
Sale revenues for the Six Month ended June 30, 2001 were $327,986, a
decrease of $288,392, or 46.8% from $616,378 for the Six Month ended June 30,
2000. The decrease in revenues is due to decreases in training sales, which
accounted for 98.6% of our gross sales revenues in the Year ended December 31,
2000. Coaching Institute's revenues decreased by $289,986 or 48.6% to $306,686
from $596,674 during the Six Month period ended June 30, 2000. Through mid to
late 2000 we focused on creating and maintaining relationships with third party
companies and individuals, such as Homes.com and SDI Wealth Institute ("SDI"),
to market and sell our coaching and training packages, which were fulfilled by
our wholly owned subsidiary, Coaching Institute. In 2000, we became increasingly
concerned that commissions paid to third parties consumed much of our training
related profit margins and that the stability of our coaching revenues were
precariously reliant on a small number of third parties that supply clients. In
an effort to contend with our vulnerability, we began planning and developing
methods to create leads independent of third parties by sourcing clients through
seminars and events sponsored and promoted by Coaching Institute in the last
half of 2000. Consistent with our concerns, Homes.com, which accounted for over
30% of Coaching Institute revenues during 2000, ceased to provide coaching
clients early in January 2001, and subsequently declared bankruptcy in March
2001, leaving Coaching Institute holding a balance of unpaid receivables in
excess of $25,000. SDI, another significant customer of Coaching Institute,
dramatically decreased the number of coaching clients referred to Coaching
Institute during the three month period ended March 31, 2001, however, SDI's
fulfillment orders noticeably improved during the latter half of the Six Month
period ended June 30, 2001.
Despite our change of focus toward creating coaching leads internally,
we have not wholly abandoned using third parties as coaching client referral
sources. In February 2001, Success Events International (formerly "Peter Lowe
International) began selling a program entitled "Peter Lowe" during seminars and
has agreed to have Coaching Institute fulfill the coaching sessions. Similar to
9
past relationships with third party referral sources, Success Events
International will receive a referral fee for each coaching client it refers to
Coaching Institute, but is not contractually bound to supply Coaching Institute
with a minimum number of referrals. The result is that our relationship with
Success Events International may not result in any significant revenues and any
revenues which do result from our relationship with Success Events International
could end at any time.
During the coming months, we intend to continue to organize and host
seminars. We believe that these seminars will lead to coaching service contracts
that will be fulfilled by Coaching Institute.
Warever, our former software sales and development subsidiary, which
accounted for 1.4% of our revenues in the Year ended December 31, 2000, had
revenues increase by $1,594 or 8.1% to $21,300 during the Six Month period ended
June 30, 2001 from $19,706 during the comparable period ended June 30, 2000.
However, Warever's revenue increase did not meet our expectations or
requirements. As a result, we determined that it was in our best interest to
sell Warever in order to focus on coaching and other activities.
Cost of Sales
Cost of Sales decreased by $4,627, or 3.0%, to $149,641 in the 2001 Six
Month period from $154,268 in the comparable 2000 Six Month period. The decrease
was attributable to decreased coaching sales and the corresponding reduction in
referral commissions. Salaries paid to the coaches who perform the coaching are
also included in Costs of Sales. We anticipate that coaching related commissions
will decrease as internally sourced coaching clients from our direct marketing
efforts increase. However, until we implement an effective method to expand our
direct sales, we must continue to rely on commission based referrals.
Selling, General and Administrative Expenses
General and Administrative expenses decreased by $11,955, or 6.8%, to
$163,175 in the 2001 Six Month period from $175,130 in the 2000 Six Month
period. Selling expenses decreased by $106,048, or 51.6% to $99,588 in the Six
Month period ended June 30, 2001 from $205,636 in the comparable 2000 Six Month
period. A primary reason for the 2001 Six Month period decrease is the decreased
Coaching Institute sales and the corresponding reduction in salaries and
commissions
Payroll related expenses remained steady, increasing by $2,382, or
1.6%, to $146,409 in the Six Month period ended June 30, 2001 from $148,791 in
the comparable 2000 Six Month period. The Payroll line item of our Statement of
Operations includes all salaries, primarily administrative, not related to
selling, marketing or actual coaching.
10
Interest Expense
Interest expense increased by $1,433, or 27.2%, to $6,699 in the 2001
Six Month period from $5.266 in the 2000 Six Month period. The increase was
primarily due to interest paid on loans from 2000. The loans were required to
continue our operations.
Net Income
Our net income for the 2001 Six Month period increased by $542,654 to a
net profit of $459,481 from a net loss of ($83,173) in the comparable 2000
period. This transformation to net income from years of net loss is due almost
exclusively to the sale of Warever being booked as income, which was a one-time
event. Moreover, the income from the sale of Warever was restricted stock in
Success Financial Services Group, Inc. (US OTC: "SFSG") a company traded on the
"pink sheets", that does not report to the SEC and has extremely low trading
volume for its securities. It is very possible that the price of the stock could
be dramatically reduced due to a sell-off by one or more shareholders. In
addition, we were issued restricted securities which cannot be sold into the
market for at least one year. In the event we are unable to sell our stock at or
near its current listed price, the entire amount we show as income could be
transformed into a loss.
Due to the abrupt loss of coaching and training referrals from
Homes.com and SDI in the early part of the 2001, our general business operations
have been relatively weak during the Six Month period ended June 30, 2001. In
addition, we expect net losses to return in upcoming three-month periods.
However, it appears that we are recovering from the shock caused by the loss of
Homes.com's business and we believe that we will continue to source coaching
leads and clients from internally sponsored seminars to decrease quarterly
net-losses in coming quarters.
(ii) Three Month Periods Ended June 30, 2001 and June 30, 2000
Revenue decreased to $171,184 during the three-month period ended June
30, 2001 compared to $330,301 of revenue recorded during the same period of the
prior year. This represented a decrease of 48.2% compared to the prior year
quarter. The loss of revenues resulted from the bankruptcy of our customer
Homes.com and the sale of Warever Also consistent with the description in the
year-to-date comparison above, the sale of Warever created a net profit of
$6,336 in the current quarter compared to $39,409 in the prior year period. As
discussed, this net profit in the three-month period is due to the sale of
Warever for restricted stock. Any loss in the value of the restricted stock
prior to the time we sell it could wholly erase our net profit.
(c) Liquidity and Capital Resources
Our liquidity and capital resources as of June 30, 2001 were ($11,223),
and as of June 30, 2000 were $146,350, a decrease of $157,573 or 107.7%. The
cause of this decrease was due to funds being used for operations during the
latter half of the Year ended December 31, 2000 and the Six Month period ended
June 30, 2001.
11
At June 30, 2001, our current liabilities exceeded our current assets
by approximately $371,277, with a ratio of current liabilities to current assets
of approximately 28.7 to 1. Inventory levels decreased by $11,445 or 100% to
$0.00 on June 30, 2001 compared to $11,445 on December 31, 2000. The reason for
this decrease was the sale of Warever along with all units of PowerHouse.
Accounts receivable were lower due to collection from SDI.
Due to the dramatic decrease in referrals from SDI and Homes.com, we do
not expect to satisfy our cash requirements during the next 12 months from cash
on hand and revenues. We are considering raising money through a stock offering
or loans fund our operations. Our inability to raise cash through debt or equity
could adversely affect our ability to continue as a going concern. We have no
commitments for significant capital expenditures over the next 12 months.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
not applicable
ITEM 2. CHANGES IN SECURITIES
not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
not applicable
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
not applicable
ITEM 5. OTHER INFORMATION
not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
not applicable
(b) 8-K Reports
not applicable
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LSI COMMUNICATIONS, INC.
By: /s/ Craig Hendricks
------------------------------
Craig Hendricks
Chief Executive Officer, President
Date 8/14/01
13