As filed with the Securities and Exchange Commission on March 29, 2000
Registration No. ____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 SB
Amendment No. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(g) of
The Securities Exchange Act of 1934
LSI COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0627349
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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)
Copies to:
David Hunt
Wangsgard & Associates, LLC
5252 N. Edgewood, Dr. Ste 210A
Provo, UT 84604
(801) 852-8452
Securities to be registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which
to be registered: each class is to be registered:
----------------- -------------------------------
Common Stock Nasdaq Bulletin Board OTC
Securities to be registered pursuant to Section 12(b) of the Act: None
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FORWARD-LOOKING STATEMENTS
This Registration Statement contains forward-looking statements,
including statements regarding, among other items, the availability of supplies,
our ability to retain our competitive position, expected realization of our
business strategy and costs associated therewith, governmental regulation, the
sufficiency of cash flow and other sources of liquidity to fund our debt service
requirements, working capital needs and other significant expenditures and
anticipated trends in our business, including with respect to industry capacity,
product demand and pricing. Forward-looking statements typically are identified
by the words "believe," "expect," "anticipate," "intend," "seek," "estimate,"
"project" and similar expressions. These forward-looking statements involve
risks and uncertainties that are beyond our control. These risks and
uncertainties include unanticipated trends in the software and personal coaching
businesses, and economic, competitive, legal, governmental, and technological
factors. These factors could include global economic conditions, currency
fluctuations, product demand and industry capacity, competitive products and
pricing, manufacturing efficiencies, availability and cost of critical
materials, new product development and commercialization, manufacturing
capacity, facility expansion costs, the effect of regulatory and legal
developments, capital resource and cash flow activities and interest costs.
Actual results could differ from those contemplated by these forward-looking
statements. In light of these risks and uncertainties, there can be no assurance
that the results and events contemplated by the forward-looking information
contained in this Registration Statement will in fact transpire. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates.
BUSINESS
General
LSI Communications, Inc. (OTC Non-BB: LSIM) is a technology
development, sales and training company based in Draper, Utah, just outside of
Salt Lake City. We were incorporated as TPI, Inc., under the laws of the State
of Utah on April 26, 1983. In 1985, the Corporation changed its situs from Utah
to Nevada and changed its name to Connections Marketing Corp. In July, 1992, our
shareholders voted to change our name to LSI Communications, Inc. (LSI). We held
mineral properties in Beaver County, Utah; however, no extraction operations
ever commenced and the properties were distributed to the shareholders through a
subsidiary spinoff.
On November 20, 1998, we entered a Plan of Reorganization and
Acquisition agreement with Warever, Inc., a Utah Corporation, wherein we issued
3,000,000 shares of common stock for 85% of Warever's outstanding common stock.
The agreement provides for us to acquire the remaining 15% of Warever for
2,500,000 shares of LSI through option agreements which are exercisable for a
period of 60 days following January 1, 2000 for no consideration. The
acquisition is recorded as a reverse acquisition, with Warever being the
accounting survivor, therefore all historical financial information prior to
November 20, 1998 in this registration statement is that of Warever.
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Warever is in the business of developing, programming, selling, and
marketing computer software packages. Its primary product, Action Plus, is a
management assistance software tool. Warever was organized in the State of Utah
on May 13, 1992 under the name of Action Plus Software, Inc. On January 17, 1995
the name Action Plus Software was changed to Warever, Inc.
We operate two distinct, but complementary subsidiaries, Warever
Corporation and Coaching Institute, Inc.
Warever Corporation currently is focused primarily on the development
of sales automation, personal productivity and Internet-based software products.
It is involved in the contact management industry and has been involved since
the industry's formative years in the late 1980s and early 1990s. The majority
of Warever Corporation's applications are focused in development of sales force
automation and personal productivity arenas.
Coaching Institute Inc., 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 create a strong platform for
personal development for each client, build an additional profit center, create
client loyalty, and enhance long-term revenue possibilities.
We lost money in each of the last fiscal years and our net losses have
been significant. Our continued operations have depended, to some extent, on
loans from a family member of one of our directors. Despite the fact that
revenues from coaching are increasing and we are about to release a new software
program, there is no assurance that we will ever make a profit.
This Registration Statement is being filed on a voluntary basis to
re-establish our real-time quotations on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. (the "NASD").
NASD OTC Bulletin Board Quotations
Our common stock has been quoted on the OTC Bulletin Board of the NASD
under the symbol "LSIM." For information concerning these stock quotations
during the past two years, see the caption "Market Price of and Dividends on the
Company's Common Equity and Other Stockholder Matters," Part II Item I. The
quotations presented do not represent actual transactions or broker/dealer
markups, markdowns or commissions.
Effective January 4, 1999, the NASD adopted rules and regulations
requiring that prior to any issuer having its securities quoted on the OTC
Bulletin Board of the NASD that such issuer must be a "reporting issuer" which
is required to file reports under Section 13 or 15(d) of the Securities and
Exchange Act of the 1934, as amended (the "1934 Act"). The Company is not
currently a "reporting issuer," but this Registration Statement will bring the
Company into compliance with these listing provision of the OTC Bulletin Board.
The NASD has "delisted" quotations of our common stock. Under the "phase-in"
schedule of the NASD, we had until
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January 19, 2000, within which to become a "reporting issuer." Our stock will
again be quoted on the OTC Bulletin Board once we satisfy all comments of the
Securities and Exchange Commission with respect to this Registration Statement.
Merger and Business Combinations
Effective November 20, 1998, we entered into an agreement and Plan of
Reorganization with Warever, Inc., a private company. The agreement provided for
our merger into Warever to be treated as a reverse merger, with Warever as the
surviving business. Pursuant to the agreement we issued 3,000,000 shares of
common stock to the shareholders of Warever for 85% of the shares of Warever. We
have the option to acquire the remaining 15% of Warever for 2,500,000 shares of
our Common Stock. The option is exercisable for a period of sixty days following
January 1, 2000. Our management resigned and the management and board of Warever
filled the vacancy. LSI Communications, Inc. had no assets or liabilities at the
time of the merger, but was only a public shell.
During November and December of 1998, we sold 1,000,000 shares of
Common Stock at $.05 per share to "accredited investors" pursuant to Rule 504.
On June 21, 1999, we acquired 85% of Coaching Institute, Inc.,
(hereafter, "Coaching Institute") a Utah corporation. Common stock in the
Company was issued and delivered to the shareholders of Coaching Institute as
set forth below, such certificates to bear a restrictive
legend in compliance with Rule 144 promulgated by the Securities and Exchange
Commission under the Securities Act of 1933 as amended:
o Craig R. Hendricks, 1,062,500 shares
o Steven E. Carlson, 1,062,500 shares
o Lona J. Hendricks, 175,000 shares
o Richard A. McAllister, 150,000 shares
o Roger G. Williams, 50,000 shares
Operations
We are a technology development, sales, and training company comprised
of two distinct, but complementary subsidiaries, Warever Corporation and
Coaching Institute, Inc. These two subsidiaries provide complementary products,
services and contacts to each other. Our products assist personal and business
betterment, through organization and training.
Warever Corporation ("Warever"), since its founding in 1987, has
primarily developed sales force automation and personal productivity software.
Sales force automation software is designed to improve the efficiency of the
sales process by tracking customer information, such as names and addresses,
correspondence, and scheduling. Warever intends to expand more heavily into
developing software that interacts more fully with the Internet.
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Coaching Institute, Inc. ("Coaching Institute") was founded in June,
1998. Personal Coaching is an emerging industry where clients are assisted in
reaching goals, implementing real, long-term change. Our coaches work with
individuals one-on-one to:
o facilitate change
o motivate the individual
o promote creativity
o demand accountability
o channel energy and desire
o Implement skills and habits
Industry Background
Warever is in the software development industry. People and businesses
increasingly rely on the Internet to access and share information. Businesses
utilize the Internet to market and sell their products and streamline business
operations. The Internet's growth creates market opportunities for companies
that connect people and businesses to the Internet, provide applications for
these users or distribute content over the Internet. The market for
internet-based software is increasing as businesses and consumers increasingly
rely on the Internet as a communications and transactional medium. Further, as
small business and home based industries continue to grow, the need for multiple
tasking software packages and applications becomes increasingly important to the
success of those companies.
Coaching Institute provides personal development coaching services.
Personal development coaching is a new and evolving training methodology that is
growing in popularity and is commonly referred to as "coaching." Coaching is
primarily a service where an individual is assisted in implementing information
learned at the seminar. Normally the coach telephones the customer at designated
times, such as once a week. During the phone conference the coach will answer
questions, help the customer set goals, assess the customer's progress in
implementing the principles taught at the seminar. The coaching relationship
will commonly continue for 8 to 12 weeks. Coaching may also be used by
purchasers of products, such as durable office equipment and software to assist
the purchaser in effectively implementing the equipment and software in their
business operations. Coaching supports a variety of topics. Such as:
o Sales;
o sales management;
o personal development;
o professional speaking;
o network marketing;
o anxiety and stress management;
o business growth and development;
o real estate sales;
o real estate investment; and
o areas where personal change would be a benefit
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o areas where use of new products is to be implemented
Coaching is used as a format of employee training for major businesses
including Fortune 500 Companies such as Ameritech, Merrill Lynch,
Amoco, Northwestern Mutual Life and Arthur Anderson. We do not
currently provide coaching services to any of these companies. Many
members of the National Speakers Association, as well as such notables
as Zig Ziglar, Ron LeGrand, A.D. Kessler, Roger Butcher, Denis Waitley,
Tom Hopkins, Brian Tracy, Peter Lowe, Stephen R. Covey, Les Brown, and
Omar Periu have personal coaching programs. Many more National Speakers
Association members are coaches themselves as well as professional
speakers. We do not have a relationship with the National Speakers
Association, but we do have relationships with many of its members. A
list of vendors with whom we have relationships is listed in the
section entitled "Customers."
Competition in the Market
Competition in the software market has increased dramatically in recent
years. Software products are sold through mail, seminars, over the Internet,
through telemarketing and retail. Software is also given away as a promotion to
sell other software programs. Warever faces competition from software
manufacturers that are positioned to capture the small and home based business
markets in a variety of industries ranging from real estate and insurance sales
to multilevel marketing. Hundreds of companies including Act, Goldmine and Top
Producer develop software products.
Our software is tailored to a fairly narrow market. We have attempted
to direct product sales and product development toward businesses in specific
industries, such as real estate. Our market position is turning toward the
Powerbase series which, like our software Action Plus, will consist of functions
that can assist in the primary components of a company's day to day operations
such as data-base maintenance, marketing using the database, time management,
word processing, and accounting. However, Powerbase has not yet been fully
tested or released and there can be no assurances as to its success.
Coaching Institute faces competition from other businesses offering
coaching services such as Franklin Covey Coaching, and dozens of new companies
which are being formed around the country. Coaching is a form of self-help,
which has traditionally been provided in books, tapes, seminars, and speakers.
Competition in the coaching industry is difficult to assess because of the
infancy of the industry. The apparent trend is for self-help providers, such as
public speakers, motivators and organizers to expand or modify their services
into the area of coaching. A common method of competition is for self-help
providers to use their existing sales and customer contacts to sell coaching
services. Well known self-help providers have an advantage due to their
familiarity to customers and potential outside vendors. The competition from
self-help providers is intense.
We are attempting to gain notoriety and to establish relationships with
outside vendors. We do not have a large market share. We currently have
relationships with about a dozen
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outside vendors. However, there is no assurance that we will be able to gain
notoriety or continue to establish or maintain relationships with outside
vendors.
General Operations
Warever must adjust to the changing nature of the software industry.
There is a shift to more industry specific software applications. Warever is
attempting to tailor software programs to cover all of a small business' needs
for certain particular industries. For example, Powerhouse, a software program
currently under development for real estate agents and brokers, has contact
management, calendaring, property management, presentations, and internet
marketing. Currently, we are not aware of other software programs that have all
of these functions. A real estate agent would need to purchase three different
software packages to achieve the same function provided by Powerhouse. Further,
Warever Corporation will continue to add functions to Powerhouse and its sister
program, Powerbase, such as, full accounting, financial analysis, IRS reports,
and networking. We intend to distribute our products through relationships with
SDI LeGrand, RE Marketing, and others. Currently, we have oral agreements with
SDI Marketing and RE Marketing to sell Powerbase and its sister software
programs, however, we have no formal written agreements. We anticipate that they
will be paid 30% from the proceeds of sales that they refer to us. They will
likely be paid approximately 50% for sales of our software that they completely
facilitate. We anticipate written agreements with SDI and RE Marketing this
year. We anticipate relationships with other entities that can sell or
facilitate sales of our software. We do not anticipate contracts that will
require minimum sales by our outside vendors. The companies provide us with
attendance rosters from their seminars. In return, when we sell products to the
attendees, we give them a percentage of the revenues. In some cases these
companies will sell our software directly and be paid a percentage of the
revenues. These companies are not bound to provide us with names or sell our
products and there is no assurance that these companies will produce for us.
Coaching Institute must have a flow of clients because each coaching
arrangement usually lasts only 8-12 weeks. We are actively seeking referral
relationships with professional speakers and seminar companies. Coaching
Institute attends the National Speakers Association convention on an annual
basis for the purpose of acquiring new speakers, and increase the visibility of
Coaching Institute in the speaking and seminar community. We have also begun to
expand into coaching purchasers of complex products, such as office equipment.
We have formed a relationship with Automation Quest for us to assist their
customers with implementing newly purchased products. We have no contracts
binding anyone to provide us with coaching leads or to sell our services. Our
agreements focus on outside vendors' compensation for referrals and sales, but
do not create binding assurances that such vendors will perform on our behalf.
Coaching Institute is actively recruiting and training coaches and sales
professionals. Our management believes that quality coaching personnel are key
to the competitiveness of a coaching services provider, because Coaching
consumers will be unwilling to recommend or purchase coaching services from
coaches with substandard interpersonal and coaching skills.
Sales and Marketing
Warever has a three tiered sales strategy.
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o Direct sales to end users and corporate clients through an
internal sales force.
o Arrangements with outside vendors to sell our software
o Sales through regional distributors.
Warever utilizes outside vendors as our main marketing strategy. For
example, American Greetings has licensed a customized version of our software
called "Pocket-it" Software. Pocket-it Software is a product designed to be the
electronic companion to a paper-based planner called Pocket-it for which
American Greetings has acquired retail distribution rights. The software will
print schedules, notes, and lists onto the patented Pocket-it paper for
insertion into the planner. We delivered the software source codes to American
Greetings which is solely responsible for replication of the software, including
all associated costs. In return for developing the software, Warever will
receive a $5.00 royalty per unit sold by American Greetings. We have not
received any royalties from the sales of "Pocket-it", nor are we aware of any
sales of the software. Moreover, American Greetings has informed us that they
may not distribute Pocket-it. Warever currently has two regional distributors,
both of whom work on straight commission. Their sales are a minor portion of our
software sales.
Coaching Institute's sales are conducted in two ways. Similar to
Warever's software, Coaching Institute's sales are primarily made through
follow-up telephone calls to individuals who have attended a seminar held by an
organization with which we have sales agreements. Our agreements with outside
vendors both for the sale of our software and coaching services do not require
outside vendors to sell our products and services. The arrangements set out a
percentage of the revenue for the sale of the product or service that will be
given to the outside vendor as compensation for selling the product or service.
Secondly, sales are made directly by our outside vendors in a seminar
environment. The outside vendor can pitch our software during a presentation and
have a table set up in the seminar room from which our software is sold.
Coaching Institute's coaching services are marketed primarily through
direct mail followed by an outbound telephone campaign to the direct mail
recipients. Outside vendor seminars are the source of the names, numbers, and
addresses in our direct mailing and outbound telephone campaigns. We intend for
marketing and sales responsibilities to be increasingly performed by outside
vendors. One of our outside vendors, Automation Quest, for example, sells
technology packages to real estate agents. The packages include office
technology items useful to real estate agents, such as a laptop computer,
digital camera, web site, and software. Our coaching services are also sold by
Automation Quest as part of these technology packages. Automation Quest is
compensated for selling our coaching services by payment of approximately half
of the sale price. The total price of Automation Quest's technology package is
about $6,500. Automation Quest sales account for several hundred coaching
programs annually. In addition to outside vendors, Coaching Institute plans to
utilize print media and radio and other traditional forms of marketing and
advertising in the future.
Customers
Warever's relationship with outside vendors allows mutual profit from
the sale of our products and services to the outside vendor's clients. This
relationship is beneficial because of
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the outside vendor's distribution channels and their ability to set up a table
and sell products at seminars. Warever has similar sales relationships with
network marketing companies such as
o SDI / LeGrand
o RE Marketing
o American Greetings
Over the past several years, Warever Corporation has sold to
approximately 30,000 individuals and businesses, ranging from home-based
businesses to Fortune 1000 companies. Our customers have included:
Radisson Hotels International Franklin Quest Corporation
Bank of New York Blue Cross/Blue Shield
United Technologies (Carrier) Bank One
Nu Skin International Canadian Government
Fruit of the Loom American Home Business Assoc.
Zions Bank Paragon Trade Brands
California Steel SKF
Library of Congress Imall
Coaching Institute has sales arrangements with well known people or
organizations that have distribution channels or that speak in front of large
audiences, such as, motivational speakers, sales trainers, seminar companies,
and network marketing organizations. These people and organizations that act as
outside vendors are not bound to sell our products or services. Pursuant to
written agreement filed as Exhibits 10.4, 10.5 and 10.6, these people and
organizations are paid a pre-designated percentage of sales that they generate.
However, there is no assurance that they will continue to sell our products.
Currently we have sales arrangements with:
Omar Periu A.D. Kessler
RE Marketing Automation Quest
Complete Cyber Solutions SDI Ron LeGrand Publishing
Rory Aplanalp Skin Secrets
Xtax - Jim Burton
Automation Quest is the source of 67% of our coaching customers.
SDI/LeGrand is responsible for 23%, and RE Marketing is the source of 7% or our
coaching customers. The remaining outside vendors supply only 3% of our coaching
customers. A reduction in sales generated by Automation Quest would have a
detrimental impact on our coaching sales. Products and Services
Warever has several products currently available.
o Action Plus ($395.00) - The flagship product of Warever
Corporation, is a database program for businesses that
includes a time manager, word processor and sales module that
creates sales invoices, tracks inventory and performs certain
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accounting functions. Action Plus has received recognition
from PC Computing Magazine and Portable Computing Magazine.
o Legion ($29.00)- An internet product specifically designed to
increase the speed of your internet connection (up to a factor
of 10). It essentially bypasses all intermediary connections,
taking you directly to the URL of the site you specify.
o Powerbase Financial Advisor ($99.00)- This program tracks
personal financial information, including assets, liabilities,
and net worth. It also tracks cash flow and debt, giving
different methods of debt reduction. Financial calculators are
included.
o Idea Bank ($99.00)- This multimedia product is ideal for
motivation speakers and other professional speakers, trainers
or anyone who needs to reference large amounts of text data.
Idea Bank stores, sorts and facilitates the retrieval of
information such as quotes and anecdotes. Users can listen to
audio or watch video presentations of the speaker.
We have sold approximately 30,000 units of Action Plus. Our other
software programs have been used as incentives, promotions and giveaways, and
direct revenues from these programs have been minute as we have sold less than
100 total units. Sales of Action Plus have decreased in recent years leaving
Warever with dramatically reduced revenues. We hope to revive our software sales
with the release of Powerbase and its sister programs.
Warever has several products currently in production:
o Powerbase - In 2000, we plan to release Powerbase, a brand-new
32-bit, internet-enabled business automation product.
Powerbase allows those that market products on the internet to
download customer inquiries directly into their marketing
database for follow-up. Powerbase includes the following:
o powerful, customizable database
o enterprise-wide time management and scheduling system
o full-featured word processor with high-end graphics
capabilities
o Excel(R) compatible spreadsheet for financial
analysis
o Customizable label/envelope and forms generator for
marketing activities
o Integrated e-mail client with "e-merge" capabilities
for internet marketing
After Powerbase is released, we intend to commence development of upgrades of
Powerbase, for release in the future that will include some of the following
features:
o networking capability
o full accounting (see Powerbase Accounting below)
o sales action plans and forecasting
o Powerhouse (under development) - Is a software program for
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real estate agents and Brokers that has contact management, calendaring,
property management, presentations and internet marketing functions. Powerhouse
is a sister program to Powerbase.
o Action Accounting (under development) - Powerbase Accounting,
coupled with the Powerbase base modules, is for small to medium-sized
businesses. Action Accounting includes such standardized accounting modules as
general ledger, accounts payable, accounts receivable, inventory, and sales. It
will also directly integrate with the internet for order placement, fulfillment,
and customer interaction.
o Powerbase Dashboard (under development) - This product gives
company CEOs, presidents and department heads an immediate and real-time view
into the operations of their business through graphs and charts, alerting them
to areas of concern within each department at a moment's notice, whether it be
in sales, accounting, fulfillment, customer service, or web integration.
Coaching Institute provides the following services:
o Personal Coaching - Personal Coaching is conducted over the
telephone, offering the client the greatest opportunity to utilize their own
environment to make needed changes. Sessions last one half hour each over a
period of 8-12 weeks with up to a year of follow up.
o Telesales - Coaching Institute is equipped with advanced phone
systems and provides telesales services to our outside vendors.
o Data Base Management - Utilizing some of Warever Corporation's
core technologies, Coaching Institute is able to manage outside vendor
databases. We use our software and knowledge to operate and organize Omar Periu
and RE Marketing's customer databases. We benefit because they provide us with
names in the database to whom we market our coaching services. Database
management is not currently a source of direct revenues for Warever.
o Seminar Management - Seminars allow Coaching Institute to
control lead flow from start to finish as well as provide needed structure to
beginning speakers and fledgling organizations such as Xtax run by our outside
vendor Jim Burton.
Intellectual Property and Proprietary Rights
We rely on a combination of copyright, trade secret, and trademark law
to protect our technology, although we believe that other factors such as the
technological and creative skills of our personnel, new product developments,
frequent product and feature enhancements, and reliable product support and
maintenance are more essential to maintaining a technology leadership position.
We currently do not have any patents issued or pending.
We generally enter into confidentiality and nondisclosure agreements
with our employees, consultants, prospective customers, licensees, and corporate
partners. In addition, we control access to and distribution of our software,
coaching programs, documentation, and other
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proprietary information. Despite our efforts to protect our intellectual
property and proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology. Effectively policing the
unauthorized use of their products is time-consuming and costly, and there can
be no assurance that the steps we take will prevent misappropriation of our
technology.
We attempt to avoid infringing known proprietary rights of third
parties in our product development efforts. However, we do not regularly conduct
comprehensive patent searches to determine whether the technology used in our
products infringes on patents held by third parties. There are many issued
patents as well as patent applications in the electronic messaging field.
Because patent applications in the United States are not publicly disclosed
until the patent is issued, applications may have been filed which relate to our
software products. If we were to discover that our products violated or
potentially violated third party proprietary rights, we might not be able to
obtain licenses to continue offering those products without substantial
reengineering. Any reengineering effort may not be successful, nor can we be
certain that any licenses would be available on commercially reasonable terms.
Substantial litigation regarding intellectual property rights exists in
the software industry, and it is expected that software products may be
increasingly subject to third-party infringement claims as the number of
competitors in the industry segments grows and the functionality of software
products in different industry segments overlaps. Any third-party infringement
claims could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product and service delays or
require us to enter into royalty or licensing agreements. Any royalty or
licensing arrangements, if required, may not be available on acceptable terms,
if at all. A successful claim of infringement against us and our failure or
inability to license the infringed or similar technology could have a material
adverse effect on our business, financial condition, and results of operations.
We may find defects in our sales automation and internet-based software
that may require us to incur substantial product liability costs and significant
redesign costs. Warever Corporation's product types often contain errors or
defects, particularly when first introduced or when new versions or enhancements
are released. Defects or errors in Warever Corporation's products could result
in a loss of customers, reduced revenues and higher sales automation and
internet-based software development costs, which would seriously harm our
business.
Acquisitions
We may seek to expand through acquisitions which are not currently
identified and which therefore may entail risks which cannot be evaluated at
this time. We may seek to expand our operations by acquiring companies in
businesses that we believe will complement or enhance our business, particularly
in the seminar or internet-related industries. We cannot be assured that we will
be able to ultimately effect any acquisition, successfully integrate any
acquired business in our operations or otherwise successfully expand our
operations. We have not established any minimum criteria for any acquisition and
our management may have complete discretion in determining the terms of any
acquisition.
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Supplies
The principal materials and components used in our software products
include computer media, including disks and CD-ROMs, and user manuals. For each
product, we prepare a master software disk or CD-ROM, user manuals, which may be
in printed form or distributed on a CD-ROM, and packaging. Substantially all of
our disk and CD-ROM duplication is performed by third-party vendors, using disks
and blank CD-ROMs acquired from various sources. Outside sources print Warever
Corporation's packaging and related materials to its specifications. Portions of
the completed packages are assembled by third-party vendors. To date, Warever
Corporation has not experienced any material difficulties or delays in the
manufacture and assembly of its products, or material returns due to product
defects. We do not have any contracts with our suppliers. We believe that we
could replace our current suppliers without great expense, although such a
replacement may slow down our operation and negatively impact our profits.
Software is not a raw materials intensive product. The floppy disks, computer
disks, and paper for manuals that we produce could be purchased from a number of
suppliers.
R&D
We spent $39,433 in 1998 on salaries for our software development
personnel. In 1999, we spent $76,348 on salaries for personnel and independent
contractors involved in the development of our software. These costs are not
directly borne by our customers.
Employees
We currently have a total of twenty-six full time employees, ten of
whom are in our sales department, six are coaches, four are programmers and six
are in administration. We do not have employment contracts that guarantee a term
or salary or grant stock options. We estimate our number of employees to
increase to about sixty-five by the end of 2000. We cannot be certain of the
number of employees that we will have by this years end, but the increase may
resemble the following:
Warever 1Q Warever 2Q Warever 3Q Warever 4Q
-------------------------------------------------------------------
Admin: 2 Admin: 3 Admin: 3 Admin: 3
Programming: 3 Program: 4 Program: 5 Program: 6
Sales: 2 Sales: 4 Sales: 6 Sales: 7
Support: 2 Support: 3 Support: 3 Support: 4
Total: 9 14 17 20
Coaching 1Q Coaching 2Q Coaching 3Q Coaching 4Q
-------------------------------------------------------------------
Officers: 3 Officers: 3 Officers: 3 Officers: 3
Admin Mgmt: 4 Admin Mgmt: 5 Admin Mgmt: 5 Admin Mgmt: 5
Coaches: 8 Coaches: 10 Coaches: 12 Coaches: 15
Sales: 12 Sales: 15 Sales: 18 Sales: 20
Support: 1 Support: 2 Support: 2 Support: 2
Total: 28 35 40 45
-------------------------------------------------------------------
LSI Total: 37 49 57 65
13
<PAGE>
Offices
We operate from an office building in a business park where we have
leased and occupy approximately 3,100 square feet of usable office space and
1,100 square feet of warehouse space. We own thirty computers, fax, phones and
copiers, printers, typewriters, desks, a conference table, cabinets and other
general office equipment. The monthly rental/lease rate is approximately $4,000
per month. We believe that as we expand the business, and cultivate additional
relationships with outside vendors, we will need to relocate our executive
offices to a nearby location or expand into our connected warehouse space which
is currently part of our lease.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following discussion and analysis should be read in conjunction
with LSI Communications' Financial Statements and the Notes thereto included
elsewhere in this Registration Form. The results of operations prior to July 1,
1999 are solely based on the operations of Warever. The discussion of results,
causes and trends should not be construed to imply any conclusion that such
results or trends will necessarily continue in the future.
Liquidity
LSI's liquidity and capital resources as of December 31, 1998 were
$24,418, and as of December 31, 1999 were $18,393. LSI's current assets exceed
current liabilities. Neither Warever nor Coaching Institute has significant
payables balances outstanding.
Coaching Institute's debt payments and liabilities due in next 12
months arise from three outstanding promissory notes issued to Lona Hendricks
involving principal loans totaling $190,000, with a total balance as of December
31, 1999 of $163,453. Interest and principal due on these notes in the next
twelve months is $145,400. Warever's debt payments and liabilities due in next
12 months arise from one outstanding promissory note issued to Utah Technology
Finance Corporation involving principal loans totaling $102,000, with interest
and principal due on these notes in the next twelve months of $21,418. Sale of
Karl Malone project in October 1999 netted $378,000 in cash, $226,800 of which
was still due to Coaching Institute as of December 31. During the first two
months of 2000, we received the remaining $226,800 due from the sale of the Karl
Malone contract. The proceeds were used to pay off long term debt.
We had negative cash flow from operations in 1999, due in large part to
investment in Karl Malone Fitness video, which has now been sold, and the
expansion of Coaching Institute.
14
<PAGE>
We had no material investments in 1999 with the exception of upgrading telephone
system in October 1999 which cost $18,000.
We do not have any financing transactions pending. We plan to explore
financing alternatives during the first quarter of 2000 to fund additional
growth, but do not believe that additional outside funding to be necessary in
the next year for the continuation of our business. Coaching Institute is
self-funding through profits generated. Warever's potential cash demands may be
available from Coaching Institute's surpluses. There is a seasonal impact on our
sales. Generally, the slower months are during the Summer and during the
Christmas Holiday season.
We issued stock on February 1, 2000 in order to purchase the 15% of
Warever not yet owned by LSI. We also intend to purchase the remaining 15% of
Coaching Institute by issuance of stock in the first quarter of 2001.
Results of Operations - Twelve month Periods Ended December 31, 1998 and 1999
The results of operations for the twelve-month period ended December
31, 1999 contain financial information for Coaching Institute from the time of
its acquisition on June 21, 1999.
Sales Revenues
Sale revenues for the twelve months ended December 31, 1999 were
$533,047, an increase of $119,038, or 28.8% from $414,009 for the twelve months
ended December 31, 1998. Despite our overall sales increase, Warever's software
sales, which prior to 1999 was our only source of revenues, decreased 71.7% to
$117,316 from $414,009 in 1998. The overall increase in sales was due to
$415,731 in revenues from Coaching Institute. The decrease in Warever's software
sales is due to the fact that our limited resources were spent on developing new
software programs rather than marketing and sales efforts that may have
increased sales. Sales of our existing software is decreasing as the products
enter the declining phase of their product life cycle. Action plus was our only
source of meaningful income from software sales. The majority of consumers that
are within reach of our current marketing strategy have either purchased the
software or never will. This downward sales trend caused us to focus on
development of new software. Management anticipates that future software sales
will be dependent upon our introduction of new software products with long life
cycles and our ability to sell software through our outside vendors.
Increased software sales for Warever in 2000 are possible due to the
release of Powerbase during 2000. However, we have performed no market tests and
have insufficient information to assess the potential demand, if any, for
Powerbase. We also hope to maintain and increase coaching revenues from Coaching
Institute. We cannot ensure that we will be able to maintain or increase
revenues from coaching services, but there appears to be a trend toward stable
and possibly increased demand for our coaching services.
15
<PAGE>
Cost of Sales
Cost of sales increased by $7,637, or 563.2%, to $8,993 in the 1999
twelve-month period from $1,356 in the 1998 twelve-month period. The addition of
Coaching Institute alone would have more than doubled our cost of sales in the
1999 twelve-month period as compared to the 1998 period. However, cost of sales
related to Coaching Institute were less than 1% of revenues from coaching
services. Cost of sales related to software sales increased by 321.8% or $4,363
to $5,719 in the 1999 twelve-month period from $1,356 in the 1998 twelve-month
period. The dollar amount of the increased cost of sales related to software was
not significant and the reason for the increase was primarily due to the sale of
some computer hardware which had a much higher cost of goods than our software.
The costs of sales as a percentage of our software sales reflects that the bulk
of our software sales price is derived from its intellectual property value and
not included in cost of sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $621,472, or
145.5%, to $1,048,738 in the 1999 twelve-month period from $427,266 in the 1998
twelve-month period. This increase is generally due to several factors. A
primary reason is the acquisition of Coaching Institute in 1999. We now have
Selling, General and Administrative expenses for two subsidiaries where we only
had one in 1998. Increased expenses resulting from the acquisition of Coaching
Institute will continue indefinitely. We also paid a total of $95,500 in
deferred compensation to Craig Hendricks and Steve Carlson. Another ongoing
cause of increased Selling, General and Administrative Expenses is amortization
of our goodwill, which was $67,274 in the 1999 twelve-month period. The final
cause of increased Selling, General and Administrative Expenses for the 1999
twelve-month period was approximately $135,000 related to the consulting
agreements with Noble House of Boston, Inc. and National Capital. Noble House
agreed to act as a liaison between potential investors and underwriters. Our
management believes that Noble House no longer provides any services and that we
are not bound to pay additional consideration under our contract. Our agreement
with National Capital was related to registration of our common stock. Our
obligations to National Capital have been satisfied.
Depreciation
Depreciation increased by $68,029, or 666.4%, to $78,238 in the 1999
twelve-month period from $10,209 in the 1998 twelve-month period. This increase
is primarily due to the amortization of goodwill.
Interest Expense
Interest expense increased by $7,452, or 90.9%, to $14,230 in the 1999
twelve-month period from $6,778 in the 1998 twelve-month period. The increase
was primarily due to $280,000 in loans in 1999.
16
<PAGE>
Net Loss
Our net loss for the 1999 twelve-month period increased by $381,504, or
2,119.6%, to a net loss of ($399,503) in the 1999 twelve-month period from a net
loss of ($17,999) in the 1998 period. This increased net loss is due to selling,
general and administrative expenses that increased by 145.5%, as discussed
above, coupled with a gross revenue increase of only 28.8%. We do not expect
other significant reductions in our operating costs during 2000.
DESCRIPTION OF PROPERTY
Our corporate headquarters are located in Draper, Utah where we have a
lease for approximately 3,100 square feet of office space and 1,100 square feet
of warehouse space in a typical business park. We believe that as we expand the
business, we will need to lease additional space or add to the currently leased
square footage. We believe that suitable additional or substitute space will be
available on commercially reasonable terms.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of the date of this registration
statement, the aggregate number of shares of common stock owned of record or
beneficially by each person who owned of record, or is known by us to own
beneficially, more than 5% of our common stock, and the name and holdings of
each officer and director and all officers and directors as a group:
-------------- -------------------------- -------------------- ------------
Title of Class Name and Address Amount and Nature Percent of
of Beneficial Owner Beneficial Owner Class
-------------- -------------------------- -------------------- ------------
Officers and Directors:
Common Stock Craig R. Hendricks 2,894,604 26.1%
112 W. Business Park Drive
Draper, Utah 84020
Common Stock Steven E. Carlson 2,894,604 26.1%
112 W. Business Park Drive
Draper, Utah 84020
5% Shareholders:
Common Stock Lona Hendricks 1,186,340 10.7%
4103 205th Ave. S.E.
Issaquah, WA 98029
-------------- -------------------------- -------------------- ------------
The following table sets forth, as of the date of this registration
statement, the aggregate number of shares of common stock warrants held by each
person who owned of record, or is
17
<PAGE>
known by us to own beneficially, more than 5% of our common stock, and the name
and holdings of each officer and director.
<TABLE>
<CAPTION>
- ------------------------- ------------------------------ ------------------------- ------------------------
Name of Warrant Holder Title and Amount of Securities Exercise Price Date of Exercise
Called for by Warrants
<S> <C> <C> <C>
Craig R. Hendricks 869,318 shares of common stock. .0073 shares of Coaching For a period of 60 days
112 W. Business Park Drive Institute, Inc stock per after January 1, 2001.
Draper, Utah 84020 share.
Steven E. Carlson 869,318 shares of common stock. .0073 shares of Coaching For a period of 60 days
112 W. Business Park Drive Institute, Inc stock per after January 1, 2001.
Draper, Utah 84020 share.
Lona Hendricks 143,182 shares of common stock. .0073 shares of Coaching For a period of 60 days
4103 205th Ave. S.E. Institute, Inc stock per after January 1, 2001.
Issaquah, WA 98029 share.
- ------------------------- ------------------------------ ------------------------- ------------------------
</TABLE>
DIRECTORS, EXECUTIVE OFFICERS
PROMOTERS AND CONTROL PERSONS
Officers and Directors
The following table sets forth the names, age, and position of each of
our directors and executive officers.
Name Age Position and Office Held
---- --- ------------------------
Craig R. Hendricks 33 President, Chief Executive Officer
Chief Accounting Officer,
Chief Financial Officer, Director
18
<PAGE>
Steven E. Carlson 30 Vice President, Director
Each of the above individuals became an officer and director in
connection with our re-organization on December 8, 1998. The term of office of
each officer and director is until his successor is elected and qualified.
Biographical Information
Set forth below is biographical information for each officer and
director. No person other than officers and directors will currently perform any
of our management functions.
Craig R. Hendricks
Mr. Craig R. Hendricks has been with Warever Corporation since 1992. In
1993, he orchestrated and led the buyout of Warever Corporation from its
founding owners. Prior to joining Warever Corporation in 1992, Mr. Hendricks
began his career at WordPerfect Corporation. He served on the Board of CMS
Casuals, Inc., a manufacturing company based in Bellevue, Washington with
approximately 40 employees, which was sold to a group of Microsoft employees in
1990. He received a Bachelor of Science in accounting and a Master of Business
Administration Degree, graduating with distinction from Brigham Young University
in 1992.
Steven E. Carlson
Mr. Steven E. Carlson helped create Warever Corporation as one of the
original founders while attending the University of Utah. Mr. Carlson has been a
member of the board of directors since Warever's inception and the vice
president of sales and marketing since 1995. Mr. Carlson has been involved in
the productivity and sales automation industries since the late 1980's. For the
past five years, Mr. Carlson has focused on day to day operations related to
Warever's software sales and on-site implementation of Warever's automation
system software.
EXECUTIVE COMPENSATION
We have no written employment agreements with any officer or director.
The President and Vice President do not have set compensation and defer their
compensation from time to time. Commencing January 1, 2000, the President and
Vice President will be paid annual salaries of $100,000 each.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATON TABLE
- -------------------------------------------------------------------------------------------------------------------------------
Name and Principal Long-Term Compensation
Position (a) Year
(b)
- ----------------------- -------- ------------------------------------------ ------------ ------------------------ -------------
Annual Compensation Awards Payouts
- ----------------------- -------- ------------- --------------- ------------ ------------ ------------ ----------- -------------
Salary (c) Bonus (d) Other Restricted Securities LTIP All
Annual Stock Under- Payouts Other
Compen- Award (f) Lying (h) Compen-
sation (e) Options/ sation (i)
SARs (g)
- ----------------------- -------- ------------- --------------- ------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Craig Hendricks 1998 $ 50,250 $0.0 $0.0 $0.0 0 $0.0 $0.0
Chairman, CEO, 1999 $ 49,500 $0.0 $45,500 $0.0 0 $0.0 $0.0
President
- ----------------------- -------- ------------- --------------- ------------ ------------ ------------ ----------- -------------
Steven Carlson 1998 $ 50,250 $0.0 $0.0 $0.0 0 $0.0 $0.0
Vice President 1999 $ 49,500 $0.0 $45,500 $0.0 0 $0.0 $0.0
- ----------------------- -------- ------------- --------------- ------------ ------------ ------------ ----------- -------------
</TABLE>
19
<PAGE>
There are no other agreements or arrangements, express or implied,
between us and any other officer or director, regarding any other form of
compensation, including stock options, warrants, employment incentives, or the
like.
No deferred compensation or long-term incentive plan awards were issued
or granted to our management during the year ended December 31, 1998. Deferred
compensation totaling $90,000, or $45,500 for each Steve Carlson and Craig
Hendricks was booked for the year ended December 31, 1999.
Compensation of Directors.
There are no standard arrangements pursuant to which our directors are
compensated for any services provided as a director. No additional amounts are
payable to our directors for committee participation or special assignments.
Employment Contracts and Termination of Employment and Change in Control
Arrangements.
There are no employment contracts, compensatory plans or arrangements,
including payments to be received from us, with respect to any of our directors
or executive officers which would in any way result in payments to any such
person because of his or her resignation, retirement or other termination of
employment with us, any change in control of our organization, or a change in
the person's responsibilities following a change in control of our organization.
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
Loan From 5% Stockholder
There have been several transactions between members of management,
nominees to become a director or executive officer, 5% stockholders or
promoters. During 1995, Lona Hendricks, an immediate family member of Craig
Hendricks, one or our officers and directors, advanced $39,000 for working
capital. As of December 31, 1999 $35,866 in payments were made to him with a
balance due at December 31, 1999 and 1998, of $ 3,134 and $3,593, respectively.
During 1999, Craig Hendricks also advanced $5,000 for working capital. As of
December 31, 1999, $5,000 in payments were made to him removing the balance due
from our books. During 1999, Lona Hendricks has loaned us a total of $190,000 in
a series of three similar transactions. As of December 31, 1999, $26,547 was
paid to her with a balance due at December 31, 1999 of $163,453. The loans and
terms are as follows:
20
<PAGE>
<TABLE>
<CAPTION>
-------------------- -------------------- -------------- -------------- ----------------------------------------------
Date of Loan Principal Amount Interest Rate Term Payment Terms
-------------------- -------------------- -------------- -------------- ----------------------------------------------
<S> <C> <C> <C> <C>
April 1, 1999 $40,000 9.75% 3 years Monthly payments of principal and interest
amortized over 36 months
-------------------- -------------------- -------------- -------------- ----------------------------------------------
July 1, 1999 $50,000 9.75% 1 year Monthly payments of interest only with
balloon payment due on or before month 12.
-------------------- -------------------- -------------- -------------- ----------------------------------------------
August 1, 1999 $100,000 9.75% 1 year Monthly payments of interest only with
balloon payment due on or before month 12.
-------------------- -------------------- -------------- -------------- ----------------------------------------------
</TABLE>
DESCRIPTION OF SECURITIES
General
LSI Communications is authorized to issue 50,000,000 shares of common
stock, par value $0.01 per share, of which 11,096,054 shares are issued and
outstanding. We have no preferred stock.
Common Stock
Holders of common stock are entitled to one vote per share on each
matter submitted to a vote at any meeting of stockholders. Shares of common
stock do not carry cumulative voting rights and, therefore, holders of a
majority of the outstanding shares of common stock will be able to elect the
entire board of directors, and, if they do so, minority stockholders would not
be able to elect any members to the board of directors. Our board of directors
has authority, without action by the stockholders, to issue all or any portion
of the authorized but unissued shares of common stock, which would reduce the
percentage ownership of the stockholders and which may dilute the book value of
the common stock.
Shareholders have no pre-emptive rights to acquire additional shares of
common stock. The common stock is not subject to redemption and carries no
subscription or conversion rights. In the event of liquidation, the shares of
common stock are entitled to share equally in corporate assets after
satisfaction of all liabilities.
Holders of common stock are entitled to receive dividends as the board
of directors may from time to time declare out of funds legally available for
the payment of dividends. We have not paid dividends on common stock and do not
anticipate that we will pay dividends in the foreseeable future.
PART II
MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
21
<PAGE>
Market Information.
Our common stock is quoted on the OTC Bulletin Board of the NASD. No
assurance can be given that any established market for our common stock will
develop or be maintained. For any market that develops for our common stock, the
sale of "restricted securities" (common stock) pursuant to Rule 144 of the
Securities and Exchange Commission by members of management or any other person
to whom any such securities may be issued in the future may have a substantial
adverse impact on any such public market. Information about the date when
current holders' holding period of "restricted securities" commenced can be
found under the caption "Recent Sales of Unregistered Securities." A minimum
holding period of one year is required for resales under Rule 144, along with
other pertinent provisions, including publicly available information concerning
our operations (this requirement will be satisfied by the filing and
effectiveness of this Registration Statement), limitations on the volume of
"restricted securities" which can be sold in any 90 day period; the requirement
of unsolicited broker's transactions; and the filing of a Notice of Sale on Form
144. We have 11,096,054 shares of common stock outstanding of which all but
4,768,700 are freely traded or can be currently sold under Rule 144, subject to
its limitations. There are currently outstanding options to purchase 2,420,205
shares of our common stock. The majority of these options are held by our two
directors and will require issuance of new stock which will dilute the ownership
interest of our shareholders.
Our common stock can be defined as a "penny stock" pursuant to Rule
3a51-1 under the Securities and Exchange Act of 1934 because our shares are
traded at a price less than $5 per share, we do not yet meet certain financial
size and volume levels, and our shares are not registered on a national
securities exchange or quoted on the NASDAQ system. A "penny stock" is subject
to rules 15g-1 through 15g-10 of the Securities and Exchange Commission. Those
rules require securities broker-dealers, before effecting transactions in any
"penny stock," to (a) deliver to the customer and obtain a written receipt for a
disclosure document set forth in Rule 15g-10 (Rule 15g-2), (b) disclose certain
price information about the stock (Rule 15g-3), (c) disclose the amount of
compensation received by the broker-dealer (Rule 15g-4) or any "associated
person" of the broker-dealer (Rule 15g-5), and (d) send monthly statements to
customers with market and price information about the "penny stock" (Rule
15g-6). Our common stock could also become subject to Rule 15g-9, which requires
the broker-dealer, in some circumstances, to approve the "penny stock"
purchaser's account under certain standards and deliver written statements to
the customer with information specified in the rules. (Rule 15g-9) These
requirements discourage broker-dealers form effecting transactions in "penny
stocks" and may limit the ability of our shareholders to sell their shares into
any secondary market for our common stock.
The following quotations were provided by Dreyfus Brokerage Services,
Inc. and represent historical pricing of our common stock by quarter over the
past two years on the over the counter bulletin board, but do not represent
actual transactions; these quotations do not reflect dealer markups, markdowns
or commissions.
Stock Quotations
22
<PAGE>
CLOSING BID
no trades
December 31, 1998 4 3/4 25/32
March 31, 1999 4 3/4 1 /78
June 30, 1999 3 5/16 1 3/8
September 30, 1999 1 7/8 7/8
December 31, 1999 1 3/4 7/16
Holders.
The number of record holders of our securities as of the date of this
Registration Statement is approximately 125.
Dividends.
We have not declared any cash dividends with respect to our common and
do not intend to declare dividends in the foreseeable future. Our future
dividend policy cannot be ascertained with any certainty, and if and until we
become profitable, no such policy will be formulated. There are no material
restrictions limiting, or that are likely to limit, our ability to pay dividends
on our securities.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings, or governmental
agency proceedings, and no such action by or, to the best of our knowledge,
against us has been threatened.
CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS
None.
RECENT SALES OF
UNREGISTERED SECURITIES
23
<PAGE>
Common Stock
<TABLE>
<CAPTION>
--------------------------------------- ------------- ------------------ ---------------------------------------------
Name Date Number of Shares Aggregate Consideration
Acquired
--------------------------------------- ------------- ------------------ ---------------------------------------------
<S> <C> <C> <C>
Bismark Mining 6/11/98 96,000 80,000 shares of Ferber stock.(1)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Steven E. Carlson 12/8/98 999,330 85,000 shares of Warever, Inc. stock.(2)
Steven E. Carlson 6/28/99 1,062,500 36,125 shares of Coaching Institute
Steven E. Carlson 2/1/00 832,775 stock.(3)
15,000 shares of Warever, Inc. stock.(9)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Chartlight Corp. 12/2/98 10,000 $500 in 1998 private placement(4)
--------------------------------------- ------------- ------------------ ---------------------------------------------
DFT Consultants, LTD 12/2/98 243,600 $12,180 in 1998 private placement(4)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Eastern Forest Resources, Inc. 12/2/98 20,000 $1,000 in 1998 private placement(4)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Helena Silver Mines, Inc. 6/11/98 132,000 110,000 shares of Ferber stock.(1)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Craig R. Hendricks 12/8/96 999,330 85,000 shares of Warever, Inc. stock.(2)
Craig R. Hendricks 6/28/99 1,062,500 36,125 shares of Coaching Institute
Craig R. Hendricks 2/1/00 832,775 stock.(3)
15,000 shares of Warever, Inc. stock.(9)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Lona Hendricks 12/8/98 551,640 46,921 shares of Warever, Inc. stock. (2)
Lona Hendricks 6/28/99 175,000 5,950 shares of Coaching Institute (3)
Lona Hendricks 2/1/00 459,700 8,280 shares of Warever, Inc. stock.(9)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Hercules Extension, Inc. 6/11/98 108,000 90,000 shares of Ferber stock.(1)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Karl A. Malone 10/7/99 137,931 Services(5)
--------------------------------------- ------------- ------------------ ---------------------------------------------
M.B. Resources, Inc. 6/11/98 120,000 100,000 shares of Ferber stock.(1)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Richard A. McAllister 6/28/99 150,000 6,000 shares of Coaching Institute stock.
(3)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Mark McKown 8/30/99 5,519 Services(5)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Northpost Operating Co. 6/11/98 120,000 100,000 shares of Ferber stock.(1)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Don Robinson 12/8/98 299,800 25,500 shares of WEarever, Inc.(2)
Don Robinson 2/1/00 249,834 4,500 shares of Warever, Inc. stock.(9)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Savoy Industries, Inc. 6/11/98 96,000 80,000 shares of Ferber stock.(1)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Scejon Investments, Inc. 12/2/98 225,000 $11,250 in 1998 private placement(4)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Starboard Financial Corp. 12/2/98 310,000 $15,500 in 1998 private placement(4)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Washington Mining Corp. 6/29/98 120,000 100,000 shares of Ferber stock.(1)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Roger G. Williams 6/28/99 50,000 2,000 shares of Coaching Institute stock.
(3)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Wide West, Inc. 6/11/98 144,000 120,000 shares of Ferber stock.(1)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Windlass Investments, Inc. 12/2/98 191,400 $9,570 in 1998 private placement(4)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Ross Wolfley 12/6/98 149,900 12,750 shares of Warever, Inc. stock. (2)
Ross Wolfley 2/1/00 124,916 2,250 shares of Warever, Inc. stock.(9)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Security Insurers, Inc. 6/11/98 144,000 120,000 shares of Ferber stock.(1)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Silverton Mines, Inc. 6/11/98 120,000 100,000 shares of Ferber stock.(1)
--------------------------------------- ------------- ------------------ ---------------------------------------------
Noble House of Boston, Inc. 4/99 200,000 Services(6)
--------------------------------------- ------------- ------------------ ---------------------------------------------
National Capital 4/99 35,000 Services(7)
--------------------------------------- ------------- ------------------ ---------------------------------------------
National Capital 4/99 50,000 Exercise of Options(8)
--------------------------------------- ------------- ------------------ ---------------------------------------------
</TABLE>
(1) LSI Communications, Inc., acquired all of the shares of Ferber
Corporation in June 1997 where the shareholders of Ferber exchanged
1,000,000 Ferber shares for 1,200,000 shares of LSI Communications,
Inc.
(2) Warever, Inc. merged into LSI Communications, Inc., which acquired 85%
of the shares of Warever, Inc. by issuing 2,500,000 shares of its stock
in exchange for 85%, or 255,171, shares of Warever, Inc. stock pursuant
to a November 20, 1998 transaction.
(3) LSI Communications, Inc., acquired 85% of the shares of Coaching
Institute by issuing 2,500,000 shares of stock in exchange for 85%, or
85,000, of the shares of Coaching Institute stock pursuant to a June
21, 1999 transaction.
24
<PAGE>
(4) In November and December 1998 the company raised $50,000 in a private
offering pursuant to a Regulation D, Rule 504 exemption.
(5) Services related to the production of a fitness video project.
(6) Payment in stock for services related to public relations and funding.
(7) Payment in stock for services related to registration of securities.
(8) Payment for services related to funding.
(9) LSI Communications, Inc., acquired the remaining 15% of Coaching
Institute by issuing 2,500,000 shares of stock in exchange for 15%, or
15,000, of the shares of Coaching Institute stock in a February 1, 2000
transaction.
We believe that each of the foregoing persons or entities was either an
"accredited investor," or "sophisticated investor" as defined in Rule 506 of
Regulation D of the Securities and Exchange Commission. Each had access to all
material information regarding LSI Communications prior to the offer, sale or
issuance of these "restricted securities." We believe these shares were exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "1933 Act"), pursuant to Section 4(2) and applicable exemptions thereunder.
We have taken the following factors into account in determining the
valuations of the above-referenced shares:
o the fact that the shares are "restricted"
o our history of limited revenues
o the limited market for our common stock on the OTC Bulletin
Board of the NASD
o the low book value per share
Transfer and Warrant Agent
Our transfer agent is Interwest Transfer Company, Inc., 1981 East
Murray-Holladay Road, Holladay, UT 84117.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.7502 of the Nevada Revised Statutes provides in relevant part as
follows:
1.A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the
25
<PAGE>
corporation and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
2.A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense of
any claim, issue or matter therein, the corporation shall indemnify him against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection with the defense. Our articles of incorporation do not contain a
specific indemnification provision for its officers, directors and employees.
Insofar as indemnification by LSI Communications for liabilities
arising under the Securities Act may be permitted to our officers and directors
we are aware that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by LSI Communications of
expenses incurred or paid by an officer or director in the successful defense of
any action, suit, or proceeding) is asserted by such officer or director in
connection with the securities being registered hereby, LSI Communications will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
26
<PAGE>
LSI Communications, Inc.
Consolidated Financial Statements
December 31, 1999 and 1998
C O N T E N T S
Accountants' Report .................................................. F-2
Consolidated Balance Sheets .......................................... F-3
Consolidated Statements of Operations ................................ F-5
Consolidated Statements of Stockholders' Equity....................... F-6
Consolidated Statements of Cash Flows ................................ F-7
Notes to the Consolidated Financial Statements ....................... F-8
27
<PAGE>
[letterhead of Crouch Bierwolf & Chisholm]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of LSI Communications, Inc.
We have audited the accompanying consolidated balance sheets of LSI
Communications, Inc. as of December 31, 1999 and 1998 and the related statements
of operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LSI Communications,
Inc. as of December 31, 1999 and 1998 and the results of its consolidated
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.
Salt Lake City, Utah
January 28, 2000
28
<PAGE>
<TABLE>
<CAPTION>
LSI Communications, Inc.
Consolidated Balance Sheets
ASSETS
December 31,
1999 1998
------------------------------------------
CURRENT ASSETS
<S> <C> <C>
Cash & Cash Equivalents (Note 1) $ 18,393 $ 24,418
Inventory 4,546 5,286
Accounts Receivable (Net of allowance
of $13,000 and $8,500, respectively) 157,829 7,252
Notes Receivable (Note 3) 226,800 -
------------------ ------------------
Total Current Assets 407,568 36,956
------------------ ------------------
PROPERTY & EQUIPMENT (Note 2) 26,135 15,093
------------------ ------------------
OTHER ASSETS
Goodwill (Note 1) 1,278,207 -
Deposits & Prepaids 6,076 6,076
------------------ ------------------
Total Other Assets 1,284,283 6,076
------------------ ------------------
TOTAL ASSETS $ 1,717,986 $ 58,125
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements
29
<PAGE>
<TABLE>
<CAPTION>
LSI Communications, Inc.
Consolidated Balance Sheets continued
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
CURRENT LIABILITIES 1999 1998
------------------------------------------
<S> <C> <C>
Accounts payable $ 22,858 $ 13,891
Accrued expenses 34,410 5,216
Current portion of long-term
liabilities (Note 4) 195,081 23,392
Deferred Revenues (Note 1) 1,962 5,000
Deferred Compensation 91,000 -
------------------ ------------------
Total Current Liabilities 345,311 47,499
------------------ ------------------
LONG TERM LIABILITIES (Note 4)
Notes payable 37,368 37,121
Notes payable-related party 166,587 3,593
Capital lease obligations - -
Less current portion (195,081) (23,392)
------------------ ------------------
Total long term Liabilities 8,874 17,322
------------------ ------------------
TOTAL LIABILITIES 354,185 64,821
------------------ ------------------
MINORITY INTEREST - -
------------------ ------------------
STOCKHOLDERS' EQUITY
Common stock, authorized 50,000,000 shares of
$.001 par value, issued and outstanding
8,915,632, and 5,959,697 shares,
respectively 8,916 5,960
Additional Paid-in capital 2,077,079 310,035
Retained earnings (722,194) (322,691)
------------------ ------------------
Total Stockholders' Equity 1,363,801 (6,696)
------------------ ------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,717,986 $ 58,125
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements
30
<PAGE>
<TABLE>
<CAPTION>
LSI Communications, Inc.
Consolidated Statements of Operations
For the Year ended
December 31,
1999 1998
------------------ ------------------
REVENUES
<S> <C> <C>
Software Sales $ 117,316 $ 414,009
Training Revenues 415,731 -
------------------ ------------------
TOTAL REVENUES 533,047 414,009
------------------ ------------------
COST OF SALES
Software 5,719 1,356
Training 3,274 -
------------------ ------------------
TOTAL COST OF SALES 8,993 1,356
------------------ ------------------
GROSS PROFIT 524,054 412,563
------------------ ------------------
SELLING EXPENSES 320,242 152,289
DEPRECIATION & AMORTIZATION 78,238 10,209
PRODUCTION FEES 126,100 -
CONSULTING FEES 135,000 -
PAYROLL 174,851 138,000
GENERAL &
ADMINISTRATIVE EXPENSES 187,107 90,968
RESEARCH & DEVELOPMENT 27,200 35,800
------------------ ------------------
TOTAL OPERATING EXPENSES 1,048,738 427,266
------------------ ------------------
OPERATING LOSS (524,684) (14,613)
------------------ ------------------
OTHER INCOME AND (EXPENSES)
Minority interest (5,209) -
Miscellaneous income 1,620 3,392
Interest expense (14,230) (6,778)
Gain on sale of contract 143,000 -
------------------ ------------------
Total Other Income and (Expenses) 125,181 (3,386)
------------------ ------------------
LOSS BEFORE INCOME TAXES (399,503) (17,999)
PROVISION FOR INCOME TAXES (Note 1) - -
------------------ ------------------
NET INCOME/(LOSS) $ (399,503) $ (17,999)
================== ==================
NET INCOME/(LOSS) PER SHARE $ (.05) $ (.02)
================== ==================
WEIGHTED AVERAGE OUTSTANDING SHARES 7,444,168 1,135,100
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements
31
<PAGE>
<TABLE>
<CAPTION>
LSI Communications, Inc.
Consolidated Statements of Stockholders' Equity
From December 31, 1996 through December 31, 1999
Common Stock Additional Retained
---------------------- Paid-in Treasury Earnings
Shares Amount Capital Stock (Deficit)
------------ -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance on December 31, 1997 1,959,697 1,960 298,535 (29,000) (304,692)
October 12, 1998 - Purchase
of Treasury Stock - - - (500) -
November 98 - Reverse acquisition
and reorganization adjustment
(Note 1) 3,000,000 3,000 (32,500) 29,500 -
November 98 - Stock issued for
cash at $.05 per share 1,000,000 1,000 49,000 - -
Offering Costs - - (5,000) - -
Net Loss for the year
ended December 31, 1998 - - - (17,999)
----------- -------- ---------- -------- ----------
Balance on December 31, 1998 5,959,697 5,960 310,035 - (322,691)
March 3, 1999 - shares issued in
Shareholder settlement at
$.001 per share 27,485 27 (27) - -
April 1, 1999 - shares issued for
consulting agreement at
$1.00 per share 85,000 85 84,915 - -
June 28, 1999 - shares issued in
acquisition of Coaching Institute,
Inc. 2,500,000 2,500 1,372,500 - -
July 1, 1999 - shares issued for
consulting agreement at
$.25 per share 200,000 200 49,800 - -
August 30, 1999 - shares issued for
royalty agreement at $1.825
per share 143,450 144 259,856 - -
Net Loss for the year ended
December 31, 1999 - - - - (399,503)
----------- -------- ---------- -------- ----------
Balance on December 31, 1999 8,915,632 $ 8,916 $2,077,079 $ - $ (722,194)
=========== ======== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
32
<PAGE>
<TABLE>
<CAPTION>
LSI Communications, Inc.
Consolidated Statements of Cash Flows
For the
Year Ended
December 31,
1999 1998
------------- -------------
Cash Flows From Operating Activities
<S> <C> <C>
Net income (loss) $ (399,503) $ (17,999)
Non-cash items:
Consulting fee paid with stock issues 135,000 -
Depreciation & amortization 78,238 10,209
Account payable forgiveness 25,000 -
Bad Debt 17,593 4,400
Minority Interest 5,209 -
Gain on sale of contract (143,000) -
(Increase)/decrease in current assets:(net of acquisition)
Accounts receivable (43,023) 46,814
Inventory 740 2,442
Increase/(decrease) in current liabilities:
Accounts payable (7,752) (18,784)
Accrued expenses 19,277 (5,548)
Deferred revenues (3,038) 5,000
Deferred compensation 91,000 5,000
------------- -------------
Net Cash Provided (Used)
by Operating Activities (224,259) 26,534
------------- -------------
Cash Flows from Investing Activities
Cash from acquisition of
Coaching Institute, Inc. 14,448 -
Cash paid for property, equipment
and software technology (19,902) (1,769)
Cash paid for Treasury Stock - (500)
Cash received from sale of contract 151,200 -
------------- -------------
Net Cash Provided (Used)
by Investing Activities 145,746 (2,269)
------------- -------------
Cash Flows from Financing Activities
Proceeds from long term debt 120,000 -
Cash received from stock issuance - 45,000
Principal payments on long-term debt (47,512) (67,512)
------------- -------------
Net Cash Provided (Used)
by Financing Activities 72,488 (22,512)
------------- -------------
Increase/(decrease) in Cash (6,025) 1,753
Cash and Cash Equivalents
at Beginning of Period 24,418 22,665
------------- -------------
Cash and Cash Equivalents
at End of Period $ 18,393 $ 24,418
============= =============
(continued)
</TABLE>
The accompanying notes are an integral part of these financial statements
33
<PAGE>
<TABLE>
<CAPTION>
LSI Communications, Inc.
Consolidated Statements of Cash Flows
(continued)
Supplemental Cash Flow Information:
<S> <C> <C>
Cash paid for interest $ 14,230 $ 21,697
Cash paid for income taxes $ - $ -
Non-Cash Investing Activities:
In 1999, the Company issued 2,500,000 shares of common stock for 85,000 shares (85%) of common stock
of Coaching Institute, Inc.
In 1998, the Company issued 3,000,000 shares of common stock for 85% of the outstanding common stock of
Warever.
Non-Cash Financing Activities:
In 1999, the Company issued 285,000 shares of common stock for services valued at $135,000.
In 1999, the Company issued 143,450 shares of common stock for a royalty agreement valued at $260,000.
</TABLE>
The accompanying notes are an integral part of these financial statements
34
<PAGE>
LSI Communications, Inc.
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - Summary of Significant Accounting Policies
a. Organization
The Company was incorporated as TPI, Inc., under the laws of
the State of Utah on April 26, 1983. In 1985, the Corporation changed
its situs from Utah to Nevada and its name to Connections Marketing
Corp. In July, 1992, the shareholders of the Corporation voted to
change the name to LSI Communications, Inc. (LSI). The Company held
mineral properties in Beaver County, Utah; however, no extraction
operations ever commenced and the properties were distributed to the
shareholders through a subsidiary spin-off.
On November 20, 1998, the Company entered a Plan of
Reorganization and Acquisition agreement with Warever, Inc. (Warever) a
Utah Corporation, wherein the Company issued 3,000,000 shares of common
stock for 85% of the outstanding common stock of Warever. The agreement
provides for the Company to acquire the remaining 15% of Warever for
2,500,000 shares of LSI through option agreements which are exercisable
for a period of 60 days following January 1, 2000 for no consideration.
Warever was organized in the State of Utah on May 13, 1992
under the name of Action Plus Software, Inc. On January 17,1995 the
company changed the name of the company to Warever, Inc.
Warever is in the business of developing, programming, selling
and marketing a computer software package named Action Plus, a
management assistance software tool.
The acquisition is recorded as a reverse acquisition, with
Warever being the accounting survivor, therefore all historical
financial information prior to November 20, 1998 in these statements
are those of Warever.
On June 21, 1999, the Company entered into a Plan of
Acquisition with Coaching Institute, Inc., a Utah corporation, wherein
the Company issued 2,500,000 shares of common stock for 85,000 shares,
85%, of the outstanding common stock of Coaching Institute, Inc. The
agreement provides for the Company to receive options to acquire the
remaining 15% of the issued and outstanding common stock of Coaching
Institute, Inc. in exchange for 2,045,455 shares of the Company's
common stock. After the acquisition, both companies are surviving with
Coaching Institute, Inc. being a majority-owned subsidiary of LSI
Communications, Inc.
35
<PAGE>
LSI Communications, Inc.
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
a. Organization (continued)
The acquisition of Coaching Institute, Inc. has been recorded
using the purchase method of a business combination. Operating
activities have been included from Coaching Institute in the
consolidated financials since June 21, 1999. The Company valued the
acquisition of Coaching Institute at $1,375,000 which was the market
value of the common stock less a 60% discount for the restriction on
the stock.
b. Recognition of Revenue/Deferred Revenue
The Company recognizes income and expense on the accrual basis
of accounting. The Company receives revenues from services provided for
custom program conversions and training. Pursuant to SOP 97-2, revenue
is recorded when the services are completed. The Company also generates
revenues from the sale of their Action Plus software technology. This
product is sold separately without future performance such as upgrades
or maintenance, and is not sold with PCS services, therefore according
to SOP 97-2 revenue is recorded upon the sale and delivery of the
product once an agreement exists, the price is fixed and collectability
is probable.
The Company sells post contract support services separately
for one year. The Company defers the revenue and recognizes it over the
contract term as required by SOP 97-2. The deferred revenue at December
31, 1999 and 1998 on contracts sold during 1999 and 1998 total $1,962
and $5,000, respectively.
c. Earnings (Loss) Per Share
The computation of earnings per share of common stock is based
on the weighted average number of shares outstanding at the date of the
financial statements.
d. Provision for Income Taxes
In 1997, Warever, Inc. elected to file federal and state
income taxes under the provisions of Subchapter S of the Internal
Revenue Code. Under those provisions, the Company does not pay
corporate income taxes on its taxable income during that period of
time. Instead, the stockholders are liable for individual income taxes
on their respective shares of the Company's net operating income in
their individual income tax returns. Effective December 1, 1998, the
Company will file a consolidated return with it's parent and will lose
it's S-Corp status.
No provision for income taxes has been recorded due to net
operating loss carry forwards totaling approximately $722,000 that will
be offset against future taxable income. These NOL carry forwards begin
to expire in 2013. No tax benefit has been reported in the financial
statements because the Company has not yet proven it can generate
taxable income.
36
<PAGE>
LSI Communications, Inc.
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
d. Provision for Income Taxes (continued)
Deferred tax assets and the valuation account is as follows at
December 31, 1999 and 1998:
December 31
1999 1998
----------------------------
Deferred tax asset:
NOL carry forward $ 244,000 $ 6,800
Valuation allowance (244,000) (6,800)
----------- ------------
Total $ - $ -
=========== ============
e. Cash and Cash Equivalents
The company considers all highly liquid investments with
maturities of three months or less to be cash equivalents.
f. Property and Equipment
Expenditures for property and equipment and for renewals and
betterments, which extend the originally estimated economic life of
assets or convert the assets to a new use, are capitalized at cost.
Expenditures for maintenance, repairs and other renewals of items are
charged to expenses. When items are disposed of, the cost and
accumulated depreciation are eliminated from the accounts, and any gain
or loss is included in the results of operations.
The provision for depreciation is calculated using the
straight-line method over the estimated useful lives of the assets.
Depreciation expense for the period ended December 31, 1999 and 1998 is
$9,586 and $10,209, respectively.
g. Goodwill
The Company recorded $1,345,331 in connection with the
acquisition of Coaching Institute, Inc. Goodwill will be amortized over
10 years on the straight line method. Amortization expense for the
years ended December 31, 1999 and 1998 is $67,274 and $0, respectively.
37
<PAGE>
LSI Communications, Inc.
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
h. Inventory
Inventory consists primarily of software manuals and disks.
i. Advertising Costs
Advertising costs are charged to operations when incurred. The
cost for direct response advertising is also expensed because the
future benefit is only three days, therefore capitalization is
ineffective.
j. Consolidation Policy
These financial statements include the books of LSI
Communications, Inc., a public shell company, Warever Corporation, a
software sales and marketing company, and Coaching Institute, Inc.
(December 31, 1999 only), a training and consulting firm. All
intercompany accounts and transactions have been eliminated in the
consolidation.
NOTE 2 - Property & Equipment
Property and equipment consists of the following at December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Computer equipment $ 41,002 $ 20,195
Leased equipment 15,075 15,075
Furniture and fixtures 1,769 6,769
Software technology 916 2,847
--------- ---------
58,762 44,886
Less: Accumulated depreciation - equipment (18,557) (18,738)
Accumulated depreciation - leased equipment (14,070) (11,055)
--------- ---------
Total Property & Equipment $ 26,135 $ 15,093
========= =========
</TABLE>
NOTE 3 - Contract
In 1999, the Company acquired a contract for a video
production. The amount capitalized as the cost of the contract is the
value of the participation in the video by Karl Malone and others. For
their participation, 143,450 shares of common stock were issued at a
valuation of $1.825 per share or $260,000. The stock was valued at the
average market price at the time of issue. This cost is to be amortized
over three years.
38
<PAGE>
LSI Communications, Inc.
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 3 - Contract (Continued)
On October 26, 1999, the contract for the video series
featuring Karl Malone was sold. On the date of the sale, the buyer
executed a $100,000 promissory note to the production company in order
to terminate the agreement with Coaching Institute, Inc. In addition,
the buyer executed an agreement with the production company to forgive
the $25,000 principal balance due from Coaching Institute, Inc.
Besides the above agreements, the buyer agreed to pay cash in
the amount of $378,000 to Coaching Institute, Inc. according to the
following schedule:
At Closing $ 75,600
November 15, 1999 75,600
December 15, 1999 75,600
January 15, 2000 75,600
February 15, 2000 75,600
--------
$378,000
========
At December 31, 1999, the balance due Coaching Institute was
$226,800.
NOTE 4 - Long-Term Liabilities
Long Term Liabilities are detailed in the following schedules as of
December 31, 1999 and 1998:
Note payable-related party is detailed as follows:
December 31
1999 1998
---------- ----------
Note payable to a relative of
an officer of the Company,
bears interest at 12%, with
principal due April 1999,
unsecured note $ 3,134 $ 3,593
Note payable to a relative of
an officer of the Company,
bears interest at 9.75%
payments due monthly of $1,286
through April 1, 2002,
unsecured 33,453 -
39
<PAGE>
LSI Communications, Inc.
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 4 - Long-Term Liabilities (Continued)
Note Payable to a relative of
an officer of the Company,
bears interest at 9.75% with
principal due of $50,000 at
July 1, 2000, unsecured 50,000 -
Note Payable to a relative of
an officer of the Company,
bears interest at 9.75% with
principal of $100,000 due at
August 1, 2000, unsecured 80,000 -
--------- --------
Total notes payable - related
party 166,587 3,593
--------- --------
Notes payable are detailed as
follows:
Note payable to a corporation
for working capital, payments
due monthly of $698 through
June 2000, bears interest at
11%, uncolateralized. $ 10,821 $ 11,531
Note payable to a corporation
for working capital, payments
due monthly of $830 through
October 1998, bears interest at
12%, unsecured. 118 105
Note payable to a corporation
for working capital, payments
due monthly of $1,087 through
January 2000, bears interest at
11%, unsecured. 26,429 25,485
--------- --------
Total Note Payable 37,368 37,121
--------- --------
Total long term liabilities 203,955 40,714
--------- --------
Less current portion of:
Notes payable - related party 158,567 3,593
Notes payable 36,514 19,799
--------- --------
Total current portion 195,081 23,392
--------- --------
Net Long Term Liabilities $ 8,874 $ 17,322
========= ========
40
<PAGE>
LSI Communications, Inc.
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
Future minimum principal payments on notes payable are as follows:
2000 $ 195,081
2001 8,874
---------------
Total $ 203,955
===============
41
<PAGE>
LSI Communications, Inc.
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 5 - Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. In these financial statements, assets and liabilities
involve reliance on management's estimates. Actual results could differ
from those estimates.
NOTE 6 - Commitments and Contingencies
The Company is committed for their office facilities. Monthly
lease payments are due of $4,000 for a 24 month period beginning May 1,
1999.
Future minimum lease payments are as follows at December 31,
1999:
2000 $ 48,000
2001 20,000
------------
$ 68,000
============
NOTE 7 - Related Party Transactions
During 1995, a shareholder relative of Craig Hendricks, an
officer and director of the Company, advanced $39,000 for working
capital. As of December 31, 1999 $35,866 in payments were made to this
related party with a balance due at December 31, 1999 and 1998, of $
3,134 and $3,593, respectively.
During 1999, a shareholder relative of Craig Hendricks, an
officer and director of the Company, advanced $190,000 for working
capital. As of December 31, 1999 $26,547, was paid to this related
party with a balance due at December 31, 1999 of $163,453.
During 1999, Craig Hendricks, an officer and director of the
Company, advanced $5,000 for working capital. As of December 31, 1999
$5,000 in payments were made to this related party removing the balance
due from the Company's books.
42
<PAGE>
LSI Communications, Inc.
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 8 - Software Technology
Pursuant to FASB 86, the Company expensed all costs associated
with the development of its software product until technological
feasibility is reached. At such time the Company capitalizes costs
associated with producing the master files. The Company also
capitalizes software purchased for internal use.
NOTE 9 - Reverse Merger
Effective November 20, 1998, LSI Communications, Inc. (a
public company) entered into an agreement and Plan of Reorganization
with Warever, Inc., (a private company). The agreement provides for the
merger of the Company into Warever to be treated as a reverse merger,
thus making Warever the accounting survivor. Pursuant to the agreement
the Company issued 3,000,000 shares of common stock to the shareholders
of Warever for 85% of the shares of their Company. Because the
historical financial information in these financial statements prior to
the reverse merger (November 20, 1998) is that of the accounting
acquirer (Warever), a forward stock split of 6.528 for 1 has been
retroactively applied to show the effects of the reverse merger. The
management of the Company resigned and the management and board of
Warever filled the vacancy. LSI Communications, Inc. had no assets or
liabilities at the time of the merger, but was only a public shell.
NOTE 10 - Subsequent Event
During the first two months of 2000, the Company received the
remaining $226,800 due from the sale of the Karl Malone contract. The
proceeds were used to pay off long term debt.
43
<PAGE>
LSI Communications, Inc.
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 11 - Segment Data
For the year ended December 31, 1999, the Company had two
reportable industry segments: (i) Software Sales and (ii) Training
Services.
Sales (Net of Accounts)
Software $ 117,316
Training 415,731
----------------
Consolidated $ 533,047
================
Operating Income (Loss)
Software $ (411,703)
Training (112,981)
--------------
Consolidated (524,684)
Other Income/(expense) (3,589)
Gain on Sale of Contract 143,000
Interest expense (14,230)
--------------
Net (Loss) before Income Taxes $ (399,50)
==============
Accounts Receivable
Software $ 3,240
Training 154,389
--------------
Consolidated $ 157,629
==============
Identifiable Assets
Software $ 248,782
Training 190,997
--------------
Consolidated 439,779
Goodwill 1,278,207
--------------
Total $ 1,717,986
==============
NOTE 12 - Fair Value of Financial Statements
Unless otherwise indicated, the fair values of all reported
assets and liabilities which represent financial instruments (none of
which are held for trading purposes) approximate the carrying values of
such instruments.
44
<PAGE>
L.S.I. Communications, Inc.
Pro Forma Consolidated Statement of Operations
December 31, 1999 and 1998
45
<PAGE>
<TABLE>
<CAPTION>
L.S.I. Communications, Inc.
Pro forma Statement of Operations
L.S.I. Communications Coaching Institute Proforma
For January 1, 1999 For January 1, 1999 Proforma Consolidated
through through Adjustments Balance
December 31, 1999 December 31, 1999 dr cr December 31, 1999
--------------------- ------------------- --------- --------- -----------------
(audited) (audited)
<S> <C> <C> <C> <C> <C>
Revenues 117,316 563,596 680,912
-------- -------- -------
Cost of Goods Sold 5,719 13,118 18,837
-------- -------- -------
Gross Profit 111,597 550,478 662,075
Selling Expenses 16,609 443,680 460,290
General & Administrative 517,671 325,508 843,179
-------- -------- -------
Total Operating Expenses 534,280 769,188 1,303,469
-------- -------- -------
Income/(Loss) from Operations (422,684) (218,710) (641,394)
Other income/(expenses) 1,738 128,556 130,294
-------- -------- -------
Net (Loss) (420,946) (90,154) (511,100)
======== ======== =======
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
L.S.I. Communications, Inc.
Proforma Statement of Operations
Coaching Institute
L.S.I. Communications From Inception on Proforma
For January 1, 1998 June 11, 1998 Proforma Consolidated
through through Adjustments Balance
December 31, 1998 December 31, 1998 dr cr December 31, 1998
--------------------- ------------------- --------- --------- -----------------
(audited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues 414,009 260,137 674,146
-------- -------- -------
Cost of Goods Sold 1,356 7,079 8,435
-------- -------- -------
Gross Profit 412,653 253,058 665,711
Selling Expenses 152,289 75,325 227,614
General & Administrative 276,639 37,584 314,223
-------- -------- -------
Total Operating Expenses 428,928 112,909 541,837
-------- -------- -------
Income/(Loss) from Operations (16,275) 140,149 123,874
Other income/(expenses) (3,386) (240) (3,626)
-------- -------- -------
Net (Loss) (19,661) 139,909 120,248
======== ======== =======
</TABLE>
47
<PAGE>
L.S.I. Communications, Inc.
NOTES TO PRO FORMA UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1: SUMMARY OF TRANSACTION
The Company completed an Agreement and Plan of Reorganization between L.S.I.
Communications, Inc. a public Utah corporation (L.S.I.)(the Company) and
Coaching Institute, Inc. a private Utah Corporation (Coaching). Thereby Coaching
became a wholly owned subsidiary of L.S.I. The transaction was recorded using
the purchase method of accounting..
NOTE 2: MANAGEMENT ASSUMPTIONS
The pro forma statements of operations assumes that the entities were together
as of the beginning of the year being January 1, 1998. No adjustments to the
statement of operations are necessary.
48
<PAGE>
ITEM 1. INDEX TO EXHIBITS
Copies of the following documents are included as exhibits to this
Registration Statement pursuant to Item Part III of Form I-A and Item 6 of Part
II.
- ----------------- ------------------------ -------------------------------------
Exhibit No. SEC Reference No. Title of Document
- ----------------- ------------------------ -------------------------------------
2.1* Plan of Acquisition by which LSI
Communications, Inc. shall acquire
Warever, Inc.
- ----------------- ------------------------ -------------------------------------
2.2* Plan of Acquisition by which LSI
Communications, Inc. shall acquire
Coaching Institute, Inc.
- ----------------- ------------------------ -------------------------------------
3.1* Articles of Incorporation of
Connections Marketing Corp.
- ----------------- ------------------------ -------------------------------------
3.2* Articles of Amendment to the
Articles of Incorporation of
Connections Marketing Corp.
- ----------------- ------------------------ -------------------------------------
3.3* Bylaws of Connections Marketing
Corp.
- ----------------- ------------------------ -------------------------------------
10.1* Promissory Note to Lona J. Hendricks
($100,000)
- ----------------- ------------------------ -------------------------------------
10.2* Promissory Note to Lona J. Hendricks
($40,000)
- ----------------- ------------------------ -------------------------------------
10.3* Promissory Note to Lona J. Hendricks
($50,000)
- ----------------- ------------------------ -------------------------------------
10.4* Coaching and Strategic
Agreement-8/25/99
- ----------------- ------------------------ -------------------------------------
10.5* Coaching and Strategic
Agreement-1/6/99
- ----------------- ------------------------ -------------------------------------
10.6* Coaching and Strategic
Agreement-6/5/99
- ----------------- ------------------------ -------------------------------------
10.7* Standard Distribution
Provisions--Columbia House Co., and
Warever, Inc.
- ----------------- ------------------------ -------------------------------------
10.8* License Agreement
- ----------------- ------------------------ -------------------------------------
21.1* Subsidiaries of the Company
- ----------------- ------------------------ -------------------------------------
* Previously filed
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the company has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
REGISTRANT:
By: /s/ Craig Hendricks
----------------------------------
Craig Hendricks
Chief Executive Officer, President
Date 3/24/00
50
