U.S. Securities and Exchange Commission
Washington D.C. 20549
Form 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended December 31, 1997 Commission File Number 333-16031
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Litigation Economics, Inc.
(Name of small business issuer as specified in its charter)
Nevada 86-0793960
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
227 South Ninth Avenue, Pocatello, ID 83201
(Address of principal executive offices)
Registrant's telephone number, including area code: 208-233-8001
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No _____
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of the Issuer's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The Issuer's revenues for its most recent fiscal year. $19,534
The number of shares outstanding of the Issuer's common stock at December 31,
1997: 1,600,000
Transitional Small Business Disclosure Format:
Yes _____ No X -
<PAGE>
PART I
Item 1. Description of Business
(a) Business Development.
The Company was incorporated in the State of Nevada on April 27, 1995,
under the name of Landmark Leasing, Corp. The Company planned on operating as
a leasing company of residential property, commercial property, vehicles, and
related activities. The Company has discontinued pursuing any of these
activities and accordingly remains a development stage company. The Company
changed its name to Litigation Economics, Inc. on December 22, 1996. On
December 22, 1996, the Company acquired all of the outstanding stock of GEC,
Inc., (the Subsidiary) for 1,000,000 shares of the Company's common stock
valued at $.001 per share or $1,000 which represented the capital contributed
to the subsidiary. The acquisition of the Subsidiary was recorded as a
recapitalization of the Subsidiary, whereby the acquired company is treated as
the surviving entity for accounting purposes. The subsidiary was formed on
July 31, 1996 in the State of Idaho. The Subsidiary is engaged in the field
of economic advising and consulting and commenced principal business
operations as of June 2, 1997. Accordingly, the subsidiary is also considered
a development stage company. Pursuant to a Registration Statement on Form
SB-2, Commission File No. 333-16031, which became effective April 21, 1997,
the Company sold 100,000 shares of its common stock to the public at $1.00 per
share and raised gross proceeds of $100,000.
(b) Business of Company.
General
The Company is engaged in the business of providing economic related
litigation consulting services to litigation attorneys throughout the
country. The Company commenced full-scale operations in June 1997 when it
began preparation for the publication of the first issue of the Company's
newsletter, which was subsequently mailed in July. During 1997, the Company
leased and improved properties, purchased computer, printing and other
equipment, and formed strategic referring relationships with other litigation
consultants to provide attorneys a place to retain the variety of economic
consulting services they may need to successfully litigate certain cases.
Specifically, the Company provides economic, financial, statistical, and other
types of analyses necessary in litigation that involves a dispute regarding
economic damages. Furthermore, the Company is marketing PreVal™, a new
economic consulting service, based on the Company's proprietary software,
provided to attorneys in the settlement-phase of litigation (see Properties
section). The Company's target market consists of approximately 20,000
litigation attorneys specializing in personal injury, employment law, medical
malpractice, and other related areas in the market areas surrounding the
following locations: Idaho, Chicago, Salt Lake City, San Francisco, Portland
and Phoenix.
<PAGE>
The Industry
There are over 800,000 attorneys throughout the United States. Over
125,000 of these attorneys specialize in litigation and over 50,000 specialize
in wrongful job termination and/or personal injury related litigation. To
successfully litigate such cases, attorneys often retain the expertise of
economists, statisticians and other financial experts. Furthermore, recent
changes in laws ("tort reform") have served to limit the recoverability of
non-economic damages. Attorneys are now compelled to expend more time and
effort in proving and examining economic damages. Management believes that
this "tort reform" has elevated the importance of the economist, and other
experts related to the examination of economic damages, as consultants in the
litigation process. In addition to traditional litigation consulting,
management believes that there is demand among personal injury attorneys for a
low-cost, preliminary analysis of lost wages.
Government Regulation
Over the last decade, state and federal legislatures have begun imposing
legal limitations on the recovery of certain types of non-economic damages.
To date, the changes to the legal system proposed as a part of the "tort
reform" movement have been limited to the recovery of nonpecuniary damages
(those not capable of monetary calculation). While the Company's services do
not fall under the limitations of the current tort reform movement, there is
no guarantee that the legislative structure of tort reform will not change.
If legislation were passed placing caps on pecuniary damages, such legislation
may materially adversely affect the Company.
Competition and Markets
Within the Company's market area, as well as throughout the entire United
States, there are numerous competitors, ranging from a host of sole
practitioners to a much smaller number of large companies. Management
believes that the Company appeals to litigation attorneys specializing in
wrongful job termination and personal injury related litigation who need a
variety of economic related litigation consulting services.
The market for litigation support services is very competitive and is composed
of different types of specialty consulting companies. The most common type of
competitor are the sole practitioners who concentrate on servicing small to
midsize law firms handling wrongful job termination and/or personal injury
related cases. These consulting companies are frequently operated by college
professors looking to supplement their teaching income. Service and quality
are not a major focus, rather answering the phone when in their office and
fitting their consulting practice around their academic schedule is the
standard approach. The larger companies usually have a dedicated litigation
consulting group and tend to focus on larger types of business litigation that
typically have voluminous documents to manage. These larger cases often require
<PAGE>
litigation support services related to the handling of documents and
usually require a larger staff of consultants. There is cross-specialization
among both types of consulting firms, and the larger consulting firms have
begun offering a larger variety of services to attorneys in an effort to
satisfy more of the attorney's litigation support needs.
Management believes there is an opportunity for a top-quality consulting
firm that provides a large variety of litigation support services, including
PreVal-(trademarked), to small and mid-size law firms with service and quality
as a major focus.
Advertising and Marketing Strategy
The Company markets its services through a variety of targeted marketing
programs. The Company's main marketing strategy is the Company's newsletter,
The Economic Counselor. The newsletter provides the Company's potential
clients with useful law and economic information while marketing the Company's
services and providing potential clients with an opportunity to request
additional information on the Company's services. In 1997, the Company
received over 1,000 responses to the newsletter. The Company has an Internet
website (http:\\www.gec-inc.com) that provides information on the Company's
services and allows prospective clients to email the Company for additional
information. The Company has been able to market its services through word of
mouth via strategic relationships with other litigation consulting companies
providing non-economic services to the Company's targeted market. Management
believes that with time, its relationships with these mature companies could
be a fruitful source of businesses. The Company has access to over 100,000
attorney email addresses and is in the process of investigating the
possibilities of electronic mail advertising. Additionally, the Company has
investigated advertising in various regional and/or national legal
publications. The Company intends to test market this form of advertising.
The Company also anticipates utilizing the various lawyer association
meetings, forums, and conventions by dispensing information and educating
potential clients about the Company's services and business practices.
(a) The Company Newsletter
The Economic Counselor is a one-page newsletter consisting of three
articles, a one-cell comic, and a section for requesting additional
information on the company's services. In July 1997, the Company mailed the
first issue of its quarterly newsletter, The Economic Counselor, to
approximately 21,000 attorneys. The Economic Counselor is a one-page
newsletter with articles written by the Company and consultants at the
affiliated companies mentioned above. The Economic Counselor is also the host
of a one-cell, law and economics comic illustrated by Jed Clarke, for which
the Company pays $100 per illustration. In October, the Company mailed the
second issue of The Economic Counselor to approximately 16,000 attorneys, a
target market reduction of 5,000 attorneys. This reduction was primarily due
to a test-marketing shift from southern California and Colorado to northern
California and Oregon. As the Company continues to test-market and gauge
<PAGE>
responses to the newsletter across various geographical locations, it is
anticipated that the size of the target market will continue to decrease and
become more focused. The newsletter provides attorneys a place to fax in a
request for additional information on the Company's services.
To reduce costs associated with the printing and distribution of the
newsletter, the Company has begun soliciting authorization from the attorneys
on the Company's newsletter mailing list to fax the newsletter instead of
mailing it. The initial database of attorneys used to generate a mailing list
was retrieved from the Martindale-Hubbell directory of attorneys in the United
States. As of December 31, 1997, approximately 1,200 firms (representing
approximately 2,000 attorneys) have granted the Company permission to fax the
newsletter. Converting The Economic Counselor to a faxed newsletter will save
the Company a substantial amount of labor and material expense presently
incurred by mailing the newsletter. The first fax-based version of the
newsletter will be distributed in January 1998.
While management feels that response to and interest in the newsletter has
been strong (e.g., over 1,500 responses to the first two issues of the
newsletter), actual business received from the newsletter has been slow. As
of December 31, 1997, the Company had received contracts for eighteen
PreVal-(trademarked) reports and four other consulting engagements with
associated revenues of $19,051.
Contracts
In 1997, the Company received contracts for eighteen PreVal-(trademarked)
reports and four other consulting engagements with associated revenues of
$19,051. The PreVal-(trademarked) contracts were performed as a part of
personal injury, wrongful death and employment termination litigation. Signs of
a high degree of client satisfaction include multiple contracts with the same
client as wells the expansion of the preliminary report service into a full
report of economic loss on the same case with pending deposition and/or trial
testimony. While the Company's economic consulting services have been
provided to both plaintiff's and defendant's counsel, only plaintiff's counsel
has used the PreVal-(trademarked) service.
Strategic Relationships
The Company has formed business referring relationships with other
consulting companies that serve the same base of attorneys identified as
potential clients by the Company. Specifically, the Company has formed a
referring relationship with Vocational Diagnostics (a vocational and life care
planning company in Phoenix, Arizona), Mirfak Associates (a vocational and
life care planning company in Lafayette, California), Ellis & Associates (a
vocational and life care planning company in Chicago, Illinois), Intermountain
Vocational and VocConsult Services (vocational and life care planning
companies in Boise, Idaho), BCRC (a vocational and life care planning company
in Missoula, Montana), and The Apollo Group (a structured
<PAGE>
settlement company in Chicago, Illinois). These companies contribute articles
to the Company's newsletter and refer their existing and potential clients to
the Company for economic consulting services. There are no written referring
contracts between the Company and the companies mentioned above. Furthermore,
the relationships with these companies are based on anticipated cross-referrals
and hence no referral fees or other compensation has or will be paid.
Employees
One June 2, 1997, the Company commenced business operations and hired
Paul V. Finlayson, age 26, as the Company's office manager. As an office
manager, Mr. Finlayson's primary duties were creating and maintaining client
and potential client databases, managing the production of the Company
newsletter, and managing the responses to the Company newsletter. The Company
paid Mr. Finlayson a salary of $2,500 a month. Mr. Finlayson worked full-time
for the Company from June through November. By the end of November, the
Company completed the conversion of its newsletter from a hard-copy/mailed
format to an electronic/faxed format. This conversion eliminated the need for
a substantial amount of labor. Mr. Finalyson worked full-time for the Company
on an at-will basis and the Company terminated its employment relationship
with Mr. Finlayson at the end of November. The Company will hire part-time
and/or full-time workers as needed in 1998.
Facilities
The Company's principal executive offices are located at 227 South Ninth
Avenue, Pocatello, Idaho 83201 and its telephone number is 208-233-8001.
Improvements on properties include the expansion and finishing of a
portion of the home office of Cornelius A. Hofman II (227 South Ninth Avenue,
Pocatello, 0Idaho 83201), the President and CEO of the Company, in order to
accommodate the administration of the Company's business.
The Company uses the home office of Cornelius A. Hofman II (227 South
Ninth Avenue, Pocatello, Idaho 83201) in Pocatello, Idaho, as its executive
or administrative office for the time being until the Company's business
requires more extensive administrative facilities (see Item 12: Certain
Relationship and Related Transactions).
During the 1997 fiscal year, the Company entered into lease agreements
with the following businesses: Barrister Executive Suites in Los Angeles,
California; Omni Executive Suites (now called Alliance Business Centers) in
Phoenix, Arizona; Mirfak Associates in Lafayette, California; Executive Suites
and Business Services in Denver, Colorado; The Mail Center of Chicago in
Chicago, Illinois; HQ Business Centers in Salt Lake City, Utah; and HQ
Business Centers in Portland, Oregon. All of these leases provide the Company
with a local address in the cities listed (which is an important part of the
Company's marketing strategy) and
<PAGE>
all were or are month by month leases for shared office space, mail services,
secretarial services and/or conference room services. The Company has
discontinued its leases with Barrister Executive Suites in Los Angeles and
Executive Suites and Business Services in Denver.
The Company operates out of six locations.
227 South Ninth Avenue 601 South LaSalle Street
Pocatello, Idaho 83201 Suite 628
Tel: 208-233-8001 Chicago, IL 60605
No monthly charge Tel: 312-922-8001
(see Item 12) $60/year
2390 East Camelback Road 1001 SW Fifth Avenue
Suite 300 Suite 1100
Phoenix, AZ 85016 Portland, OR 97204
Tel: 602-951-8001 Tel: 503-220-0996
$110/month $125/month
201 Lafayette Circle 201 South Main
Suite 100 Suite 900
Lafayette, CA 94549 Salt Lake City, UT 84111
Tel: 510-283-8019 Tel: 801-355-8001
$100/month $47/month
Item 2. Properties
PreVal-(trademarked) is the Company's proprietary software that the Company
uses to assist in the valuation of lost wages, benefits and household services
in personal injury, wrongful death, and employment termination litigation.
Using the PreVal-(trademarked) software, the Company is able to provide a new
economic consulting service to attorneys in the settlement-phase of
litigation. Presently, attorneys hire economists to assess the economic
damages in a case and to provide a report spelling out their opinion regarding
such damages. Attorneys usually delay the hiring of economists because (1)
the economist's report typically costs $2,000 to $4,000 per report; (2) they
think they can satisfactorily settle the case without substantiating economic
losses; and (3) the current litigation paradigm places economists as experts
only to be used at trial. PreVal™ exploits the power of computers and
uses its proprietary software developed by Cornelius A. Hofman II (President
and CEO of the Company) in the assessment of economic damages in lawsuits
involving wage loss issues. For $500, the service provides attorneys with a
report that itemizes and explains the economic losses in a case. Ninety-five
percent of cases in litigation settle, and PreVal-(trademarked) is a
settlement-phase service.
<PAGE>
Item 3. Legal Proceedings
The Company is not a party to any material pending legal proceedings and,
to the best of its knowledge, no action by or against the Company has been
threatened.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of the fiscal year ending December 31, 1997.
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information
The Company's Common Stock has not been listed on any bulletin board or
exchange and there is currently no public trading market for the Company's
common stock.
(b) Holders
As of December 31, 1997, there were approximately 60 record holders of the
Company's Common Stock. No other class of stock has been issued at this time.
(c) Dividends
The Company has not previously paid any cash dividends on common stock and
does not anticipate or contemplate paying dividends on common stock in the
foreseeable future. It is the present intention of management to utilize all
available funds for the development of the Company's business. The only
restrictions that limit the ability to pay dividends on common equity or that
are likely to do so in the future, are those restrictions imposed by law.
Under Nevada corporate law, no dividends or other distributions may be made
which would render the Company insolvent or reduce assets to less than the sum
of its liabilities plus the amount needed to satisfy any outstanding
liquidation preferences.
<PAGE>
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with
the Company's financial statements and the notes associated with them
contained elsewhere in this report.
Liquidity and Capital Resources.
The Company was incorporated on April 27, 1995. Although the Company was
incorporated in 1995, it was inactive from inception until 1997. The Company
was activated to raise funds from the sale of its securities and commence
business operations. In connection with these activities, on December 22,
1996, the Company acquired all of the outstanding stock of GEC, Inc., (the
Subsidiary) for 1,000,000 shares of the Company's common stock valued at $.001
per share or $1,000 which represented the capital contributed to the
subsidiary. The subsidiary was formed on July 31, 1996 in the State of
Idaho. The Company also filed a Form SB-2 with the Securities and Exchange
Commission, Commission File No. 333-16031, which became effective April 21,
1997. Commencing on such date, the Company sold 100,000 shares of its common
stock to the public at $1.00 per share and raised gross proceeds of $100,000.
Net proceeds after offering costs amounted to $78,331.
As of December 31, 1997, the Company has $10,434 in cash.
The Company has no significant assets or commitments with respect to
sources of capital. The Company also has no significant commitments with
respect to capital usage. Management believes that revenues received from new
contracts will be sufficient to fund ongoing operations, but no assurance of
this can be given at this time. If the Company is unable to generate
sufficient revenues to finance ongoing operations, the Company will seek to
reduce expenses by consolidating offices and tightening the targeted market
and may also have to seek additional financing. The Company presently has no
commitment or arrangements for additional financing from any source.
<PAGE>
Results of Operations.
Fiscal Year Ended December 31, 1997
Compared to
Fiscal Year Ended December 31, 1996
Operating revenue for fiscal year 1997 was $19,534, an increase of
$19,534 over revenue during fiscal 1996. This increase was due to the fact
that the Company commenced operations on June 2, 1997 and received contracts
to perform economic consulting services.
Operating expenses for fiscal year 1997 was $86,951, (445% of revenue),
an increase of $81,182or 1,407% over operating expense of $5,769 for fiscal
1996. As explained previously, the increase was primarily generated from the
Company beginning full-scale operation in June 1997 while it was essentially
inactive in 1996.
Payroll expenses, which are a part of the total operating expenses, for
fiscal year 1997 were $16,038 (82% of revenue), an increase of $16,038 over
payroll expenses during fiscal 1996. This increase was due to the fact that
the Company was essentially inactive and had no employees in 1996, and that
the Company hired a full-time employee when it began full-scale operations in
June 1997. As explained above in the Employees section of Item 1, the company
has terminated the relationship with its full-time employee, and since
December 1997 the Company has relied on part-time employment, which has
substantially reduced payroll expenses.
Legal and accounting fees from fiscal year 1997 were $19,616. The
magnitude of these fees are primarily a result of the registration of a public
offering of the Company's securities (effective April 21, 1997) and the
initial public offering of 100,000 shares of the Company's common stock that
was closed on July 8, 1997. The bulk of these fees in 1997 are, therefore,
nonrecurring.
General and administrative costs for fiscal year 1997 were $83,204 (426%
of revenue) an increase of $77,435 or 1,342% from the 1996 fiscal year general
and administrative costs of $5,769. As explained earlier, the increase is a
direct result of the Company beginning full-scale operations in June 1997.
Item 7. Financial Statements.
See attached Financial Statements and Schedules.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
(a) Identify Directors and Executive Officers
The following table sets forth the directors and executive officers of
the Company, their ages, and all offices and positions with the Company. Each
director is elected for a period of one year and thereafter serves until his
successor is duly elected by the stockholders and qualifies. Officers and
other employees serve at the will of the Board of Direc
<TABLE>
<CAPTION>
Term Served as
Name of Director Age as Director/Officer Positions with Company
<S> <C> <C> <C>
Cornelius A Hofman II 30 Since August 1996 CEO, President and
Chairman
Stacey A.Hofman 28 Since August 1996 Secretary/Treasurer and
Director
Cornelius A. Hofman 65 Since August 1996 Director
Edward B. Schow 30 From August 1996 Vice-President and
to July 1997 Director
</TABLE>
Cornelius A. Hofman II assumed the role of CEO, President, and Chairman
of the Board of Directors of the Company on August 22, 1996. As such, his
duties include primary responsibility for the financing, marketing, computer
systems, leasing, and general management of the Company. He has experience
working for General Economic Consulting, Inc., an economic consulting company
providing economic valuation services to governments, businesses, and
attorneys. Since June 1995, he has been working as an economist for General
Economic Consulting, Inc. From 1994 to 1995 he was an Economic Consultant and
Manager at Crowe Chizek & Company in South Bend, Indiana. From 1992 to 1994
he attended the Graduate School of Business at the University of Chicago where
he earned an MBA in Economics. Mr. Hofman received a B.A. in Asian Studies
from Cornell University and an M.A. in Japanese Studies from the University of
Pennsylvania. After graduating from Cornell and while attending the
University of Pennsylvania and the University of Chicago, Mr. Hofman worked as
an Analyst on a full-time and part-time basis for General Economic Consulting,
Inc.
Stacey A. Hofman assumed the role of Secretary/Treasurer and a Director
of the Company on August 22, 1996. As such her duties include handling
receipts and deposits and managing the books. Mrs. Hofman attended Brigham
Young University from 1987 to 1989. She worked as a dental assistant in New
York from 1989 to 1991. For the past two years, Mrs. Hofman has
<PAGE>
performed various book keeping and administrative functions for General
Economic Consulting, Inc.
Cornelius A. Hofman assumed the role of Director of the Company on August
22, 1996. As such his duties include providing consulting advice to the
Company's management and other employees. Mr. Hofman was Chairman of the
Department of Economics at Idaho State University from 1974 until his
retirement in 1997. He received his Ph.D. in Economics from the University of
Utah and from 1960 until his retirement in 1997, he taught economics at the
university level. In 1970, he founded General Economic Consulting, Inc., and
has served as the President and/or CEO from its inception to the present time.
(1) Edward B. Schow was the Vice-president and a Director of the Company
from August 22, 1996 until he resigned in July 23, 1997. Edward Schow is no
longer an officer or director of the Company. Since June 1994, Mr. Schow has
been working at First Security Bank were he currently serves as a Manager.
From September 1993 to June 1994, he worked at Fidelity Investments. Mr.
Schow received his bachelor's degree in Finance from Idaho State University.
Directorships
(b) Identify Significant Employees
None
(c) Family Relationships
Cornelius A. Hofman II is President, CEO and Chairman of the Company.
Stacey A. Hofman is Secretary/Treasurer and a Director of the Company.
Cornelius A. Hofman is a Director of the Company. Cornelius A. Hofman II and
Stacey Hofman are husband and wife, and Cornelius A. Hofman and Cornelius A.
Hofman II are father and son.
(d) Involvement in Certain Legal Proceedings
None
Compliance with Section 16(a) of the Exchange Act
The issuer is not subject to the provisions of Section 16(a)
Item 10. Executive Compensation
(a) and (b) General and Summary Compensation Table
<PAGE>
The Company has not paid compensation to any of its officers or
directors.
(c) and (d) Stock Option and Stock Appreciation Right Plans
The Board of Directors adopted the Litigation Economics, Inc., 1996 Stock
Option Plan ("1996 Plan") allowing the Company to offer its key employees,
officers, directors, consultants and sales representatives, an opportunity to
acquire a proprietary interest in the Company. The various types of incentive
awards which may by provided under the Stock Option Plan will enable the
Company to respond to changes in compensation practices, tax laws, accounting
regulations and the size and diversity of its business. The total number of
shares reserved and available for distribution under the 1996 Plan is
400,000. The 1996 Plan is administered by the Board of Directors which
determines the persons to whom awards will be granted, the number of awards to
be granted and the specific terms of each grant, including the vesting
thereof, subject to the provision of the 1996 Plan.
In connection with the stock options, the exercise price of each grant is
to be determined by the Board of Directors at the time of the grant and may
not be less than 100% of the fair
market value of the Common Stock on the date of the grant or 110% of the fair
market value of the Common Stock on the date of the grant for 10%
Stockholders. The aggregate fair market value of Stock (determined at the
time of grant of the Option) with respect to which Incentive Stock Options
become exercisable by a Holder during any calendar year shall not exceed
$100,000.
The Option holders will not be protected against dilution if the Company
should issue additional shares of common stock in the future. Neither the
Options, nor the shares underlying the Options have preemptive rights.
As of December 31, 1997, the Company has not issued any Options
pursuant to the Plan.
(e) Long-term Incentive Plan
None
(f) Compensation of Directors
None
(g) Employment Contracts and Termination of Employment and
Change-in-Control Arrangements
None
<PAGE>
(h) Report on Repricing of Options/SARs
None
Item 11. (a) and (b) Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information with respect to the
current beneficial ownership of the Company's common stock as of December 31,
1997, of each person known to the Company to be the beneficial owner of more
than five percent (5%) of said securities, each director of the Company, and
all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
Title of Amount and Nature of Percent Stock
Name and Address Class Beneficial Ownership of Class Options
<S> <C> <C> <C> <C>
Corelius A Hofman II Common 497,000 31% 0
227 South Ninth Ave.
Pocatello, ID 83201
Stacey A. Hofman Common 500,000 31% 0
227 South Ninth Ave.
Pocatello, ID 83201
Cornelius A. Hofman Common 100 0% 0
216 South 16th Ave.
Pocatello, ID 83201
All officers and Common 997,100 62% 0
directors as a group
(3 persons)
David N. Nemelka Common 500,000 31% 0
897 S. Artistic Cr.
Springville, UT 84663
</TABLE>
(1) The nature of the beneficial ownership for all the shares is sole
voting and investment power.
Item 12. Certain Relationships and Related Transactions.
The Company has entered into certain transactions with officers,
directors or affiliates of the Company which include the following:
<PAGE>
Since December 22, 1996, the Company has used as its principal executive
office, the home office of Cornelius A. Hofman II, President, (227 South Ninth
Avenue, Pocatello, Idaho 83201) in Pocatello, Idaho. The Company paid
approximately $2,100 to improve Mr. Hofman's home office in exchange for use
of the office space until the Company's business requires more extensive
administrative facilities. There is no formal written agreement for the use
of such facilities, and no assurance that such facilities will be available to
the Company on such a basis for any specific length of time.
In addition, the Company has subcontracted some consulting work to
General Economic Consulting, Inc., a company controlled by Cornelius A.
Hofman, a director of the Company. General Economic Consulting, Inc. provides
consulting services similar to the Company's, and in a case where one of the
Company's client's required expert testimony (that could not be provided by
the Company) as a follow-up service to consulting services that the Company
had previously provided, the Company referred the work to General Economic
Consulting, Inc. As of December 31, 1997, General Economic Consulting, Inc.
has received $2,544 in fees from said referral of business. Management of the
Company anticipates that this situation will occur with greater frequency as
the Company's revenues increase and is in the process of implementing a
referral fee policy to apply when such occasions arise. Cornelius A. Hofman
II, President and CEO of the Company, is also a director of General Economic
Consulting, Inc.
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
SEC Exhibit
Exhibit Reference
Number Number Title of Document Location
<S> <C> <C> <C>
3.01 3(i) Articles of Inc. Incorportated by
Reference*
3.02 3(ii) By-Laws Incorportated by
Reference*
27 27 Financial Data Attached
Schedule
99 99 1996 Stock Option Incorporated by
Plan Reference*
</TABLE>
* Incorporated by reference from the registrants registration statement on
Form SB-2, as amended and filed with the Commission, SEC file number
333-16031.
(b) Reports on Form 8-K
No Form 8-Ks were required to be filed by the Company for the fourth
quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
LITIGATION ECONOMICS, INC.
DATE: 2/26/98 By /s/ Cornelius A. Hofman
---------------------------
Cornelius A. Hofman
Director and President
<PAGE>
LITIGATION ECONOMICS, INC.
[A Development Stage Company]
FINANCIAL STATEMENTS
DECEMBER 31, 1997
JONES, JENSEN & COMPANY, LLC
(letterhead)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Litigation Economics, Inc. and Subsidiary
(A Development Stage Company)
Pocatello, Idaho
We have audited the accompanying consolidated balance sheet of Litigation
Economics, Inc. and Subsidiary (a development stage company) as of December
31, 1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year ended December 31, 1997 and from inception
on July 31, 1996 through December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated 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 Litigation
Economics, Inc. and Subsidiary (a development stage company) as of December
31, 1997 and the results of their operations and their cash flows for the year
ended December 31, 1997 and from inception on July 31, 1996 through December
31, 1997 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 4 to
the consolidated financial statements, the Company is a development stage
company with no significant operating results to date, which raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in the Note
4. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Jones, Jensen & Company
February 12, 1998
<PAGE>
LITIGATION ECONOMICS, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
December 31,
1997
CURRENT ASSETS
Cash $ 10,434
Accounts receivable 8
Total Current Assets 10,442
PROPERTY AND EQUIPMENT (NET) (Note 2)
24,680
OTHER ASSETS
Deposits 125
Total Other Assets 125
TOTAL ASSETS $ 35,247
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,510
Unearned revenue 388
Total Liabilities 2,898
STOCKHOLDERS' EQUITY
Preferred stock; authorized 5,000,000 shares
at $0.001 par value; no shares issued or
outstanding -
Common stock; authorized 50,000,000 shares
shares at $0.001 par value; 1,600,000
shares issued and outstanding 1,600
Additional paid-in capital 104,041
Deficit accumulated during the development
stage (73,292)
Total Stockholders' Equity 32,349
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 35,247
<PAGE>
LITIGATION ECONOMICS, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
From Inception
For the on July 31,
Year Ended 1996 Through
December 31, December 31,
1997 1997
REVENUE $ 19,534 $ 19,534
EXPENSES
Depreciation 3,747 3,747
General and administrative 83,204 88,973
Total Expenses 86,951 92,720
LOSS FROM OPERATIONS (67,417) (73,186)
OTHER INCOME
Loss on sale of asset (858) (138)
Interest income - 32
Total Other Income (858) (106)
NET LOSS $ (68,275) $ (73,292)
NET LOSS PER SHARE $ (0.04)
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 1,550,000
<PAGE>
LITIGATION ECONOMICS, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
Balance, July 31, 1996 - $ - $ - $ -
Common stock issued for
cash at $0.001 per share 1,000,000 1,000 - -
Recapitalization of G.E.C.,Inc. 500,000 500 4,141 -
Net loss for the period ended
December 31, 1996 - - - (5,017)
Balance, December 31, 1996 1,500,000 1,500 4,141 (5,017)
Common stock issued for
cash at $1.00 per share 100,000 100 9,900 -
Net loss for the year ended
December 31, 1997 - - - (68,275)
Balance, December 31, 1997 1,600,000 $ 1,600 $ 104,041 $ (73,292)
<PAGE>
LITIGATION ECONOMICS, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
From Inception
For the on July 31,
Year Ended 1996 Through
December 31, December 31,
1997 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (68,275) $ (73,292)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation 3,747 3,747
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (8) (8)
(Increase) decrease in deposits (125) (125)
Increase (decrease) in accounts payable 32 2,510
Increase (decrease) in unearned revenue 388 388
Net Cash (Used) by Operating Activities (64,241) (66,780)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (28,427) (28,427)
Cash acquired in recapitalization of subsidiary - 4,641
Net Cash (Used) by Investing Activities (28,427) (23,786)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued for cash 100,000 101,000
Net Cash Provided by Financing Activities 100,000 101,000
NET INCREASE (DECREASE) IN CASH 7,332 10,434
CASH AT BEGINNING OF PERIOD 3,102 -
CASH AT END OF PERIOD $ 10,434 $ 10,434
Cash Paid for:
Interest $ - $ -
Income taxes $ - $ -
<PAGE>
LITIGATION ECONOMICS, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operating History
The Company was incorporated in the State of Nevada on April 27, 1995, under
the name of Landmark Leasing, Corp.
The Company planned on operating as a leasing company of residential property,
commercial property, vehicles, and related activities. The Company has
discontinued pursuing any of these activities and accordingly remains a
development stage company. The Company changed its name to Litigation
Economics, Inc. on December 22, 1996.
On December 22, 1996, the Company acquired all of the outstanding stock of
G.E.C., Inc., (the Subsidiary) for 1,000,000 shares of the Company's common
stock valued at $.001 per share or $1,000 which represented the capital
contributed to the subsidiary. The acquisition of the Subsidiary was recorded
as a recapitalization of the Subsidiary, whereby the acquired company is
treated as the surviving entity for accounting purposes. The Subsidiary was
formed on July 31, 1996 in the State of Idaho. The Subsidiary is engaged in
the field of economic advising and consulting and commenced principal
business operations during 1997. Accordingly, the subsidiary is also
considered a development stage company.
Summary of Significant Accounting Policies
a. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has selected a December 31, year end.
b. Net Loss Per Share
The computation of loss per share of common stock is based on the weighted
average number of shares outstanding at the date of the consolidated financial
statements.
c. Provision for Taxes
At December 31, 1997, the Company has net operating loss carryforwards of
approximately $73,000 that may be offset against future taxable income through
2012. No tax benefit has been reported in the consolidated financial
statements, because the Company believes there is a 50% or greater chance the
operating loss carryforwards will expire unused. Accordingly, the potential
tax benefits of the operating loss carryforwards are offset by a valuation
allowance of the same amount.
<PAGE>
LITIGATION ECONOMICS, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Cash and Cash Equivalents
For purposes of the financial statement presentation, the Company considers
all highly liquid investments with a maturity of three months or less to be
cash equivalents.
e. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
f. Principles of Consolidation
The consolidated financial statements include the accounts of Litigation
Economics, Inc. and its wholly-owned subsidiary, G.E.C., Inc. All
intercompany transactions have been eliminated.
g. Revenue Recognition
Revenue is recognized upon the completion of consulting and advising services.
h. Computer Software
Proprietary computer software has been developed by the president of the
Company to be used in the Company's economic advising and consulting
activities. The president of the Company has used his personal computer and
space in his home during the development of this software. These facilities
and equipment are used primarily by the Company's president for his personal
affairs and the business usage would be immaterial. In addition, the
president of the Company has not received any compensation from any source for
his time in developing this computer software. He is employed full-time
elsewhere and presently devotes a small portion of his time to the continuing
development of the computer software and operations of the Company.
Accordingly, no costs associated with the development of the computer software
have been reflected in the accompanying consolidated financial statements.
<PAGE>
LITIGATION ECONOMICS, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1997
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
1997
Computer equipment $ 27,400
Furniture and fixtures 1,027
28,427
Accumulated depreciation (3,747)
Net Equipment $ 24,680
Depreciation expense for the year ended December 31, 1997 was $3,747.
NOTE 3 - COMMON STOCK OPTIONS
In October of 1996, the Board of Directors adopted the Litigation Economics,
Inc., 1996 Stock Option Plan (the "Plan"), allowing the Company to offer its
key employees, officers, directors, consultants, and sales representatives an
opportunity to acquire a proprietary interest in the Company. The total
number of shares reserved and available for distribution under the Plan shall
be 500,000 shares. These shares will underlie the Options issued by the
Company pursuant to the Plan. The Option holders will not be protected
against dilution if the Company should issue additional shares of common stock
in the future. Neither the Options, nor the shares underlying the Options
have pre-emptive rights. As of December 31, 1997, no activity has transpired
with regard to the Plan.
NOTE 4 - GOING CONCERN
The Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. However, the Company does not have significant
cash and has not had significant operations. To date, the Company has been
able to cover operating costs with existing financial resources. Officers of
the Company have committed to make capital contributions or advances to the
Company should additional funds be needed to pay operating expenses.
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 2
<CIK> 0001025707
<NAME> LITIGATION ECONOMICS,INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,434
<SECURITIES> 0
<RECEIVABLE> 8
[OTHER] 125
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,442
<PP&E> 24,680
<DEPRECIATION> (3,747)
<TOTAL-ASSETS> 35,247
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0
0
<COMMON> 1600
<OTHER-SE> 32,349
<TOTAL-LIABILITY-AND-EQUITY> 35,247
<SALES> 19,534
<TOTAL-REVENUES> 19,534
<CGS> 0
<OTHER-EXPENSE> 83,204
<LOSS-PROVISION> 858
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (68,275)
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</TABLE>
