10QSB 1 q063001.txt 10-QSB ENDED JUNE 30, 2001 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 ================ ================
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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 =============== =============== =============== ===============
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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. 7 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