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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _________ .
Commission file number 0-27463
LOISLAW.COM, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 71-0655999
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
105 NORTH 28TH STREET
VAN BUREN, ARKANSAS 72956
(Address of principal executive offices) (Zip Code)
(501) 471-5581
Registrant's telephone number, including area code
Not applicable
Former name, address and former fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No_____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
21,244,848 shares of common stock, $.001 par value, were outstanding on
November 9, 2000.
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INDEX
LOISLAW.COM, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Condensed Balance Sheets -- September 30, 2000 (unaudited) and
December 31, 1999 3
Unaudited Condensed Statements of Operations - Three months and
nine months ended September 30, 2000 and 1999 4
Unaudited Condensed Statements of Cash Flows - Nine months ended
September 30, 2000 and 1999 5
Notes to Unaudited Condensed Financial Statements --
September 30, 2000 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LOISLAW.COM, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------------ -------------------------
ASSETS (unaudited) (see notes)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,846,244 $ 19,286,007
Accounts receivable, net 6,611,387 4,052,088
Prepaid commissions 1,153,144 1,454,797
Prepaid software license 305,588 296,125
Other current assets 525,689 650,843
------------ ------------
Total current assets 12,442,052 25,739,860
Databases, net 19,446,113 16,585,088
Property and equipment, net 4,279,357 3,803,122
Other assets 209,548 444,985
------------ ------------
Total assets $ 36,377,070 $ 46,573,055
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 203,485 $ 13,060
Accounts payable 2,664,937 2,580,284
Deferred revenues 7,098,006 6,003,521
Accrued expenses 1,653,080 1,716,435
------------ ------------
Total current liabilities 11,619,508 10,313,300
Deferred revenues 81,027 222,504
Long-term debt, excluding current installments 334,754 9,405
------------ ------------
Total liabilities 12,035,289 10,545,209
------------ ------------
Stockholders' equity :
Common stock, $.001 par value. 50,000,000 shares authorized;
21,209,421 shares issued at September 30, 2000 and
20,952,003 shares issued at December 31, 1999 21,209 20,952
Additional paid-in capital 74,183,432 73,847,856
Accumulated deficit (49,846,760) (37,824,862)
Treasury stock, at cost, 10,000 shares (16,100) (16,100)
------------ ------------
Total stockholders' equity 24,341,781 36,027,846
Total liabilities and stockholders' equity $ 36,377,070 $ 46,573,055
============ ============
</TABLE>
See accompanying notes to unaudited condensed financial statements.
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LOISLAW.COM, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Subscriptions $ 3,575,304 $ 1,826,387 $ 9,794,770 $ 4,618,759
Other 14,641 - 24,794 -
----------- ----------- ------------ ------------
Total revenues 3,589,945 1,826,387 9,819,564 4,618,759
OPERATING EXPENSES:
Database costs 1,582,234 2,555,874 5,334,562 5,260,291
Selling and marketing 4,036,239 3,288,591 12,020,476 7,609,040
General and administrative 1,670,307 1,107,397 4,744,132 2,815,576
Product development 45,688 213,802 208,759 546,877
----------- ----------- ------------ ------------
Total operating expenses 7,334,468 7,165,664 22,307,929 16,231,784
----------- ----------- ------------ ------------
Loss from operations (3,744,523) (5,339,277) (12,488,365) (11,613,025)
OTHER INCOME (EXPENSE):
Interest income 98,022 10,869 485,520 40,681
Interest expense (11,484) (685,394) (20,506) (2,023,883)
Other, net 663 19,483 1,451 24,968
----------- ----------- ------------ ------------
Total other income (expense) 87,201 (655,042) 466,465 (1,958,234)
----------- ----------- ------------ ------------
NET LOSS (3,657,322) (5,994,319) (12,021,900) (13,571,259)
Accrued preferred stock dividends and
accretion on redeemable preferred
stock and common warrants - 2,877,661 - 3,339,740
----------- ----------- ------------ ------------
Net loss applicable to common stock $(3,657,322) $(8,871,980) $(12,021,900) $(16,910,999)
=========== =========== ============ ============
Net loss per share - basic and diluted $(0.17) $(0.87) $(0.57) $(1.87)
=========== =========== ============ ============
Weighted average common shares
outstanding - basic and diluted 21,046,416 10,186,042 20,997,407 9,027,027
----------- ----------- ------------ ------------
</TABLE>
See accompanying notes to unaudited condensed financial statements.
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LOISLAW.COM, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(12,021,900) $(13,571,259)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 2,778,451 2,411,684
Provision for doubtful accounts 337,500 115,000
Changes in operating assets and liabilities:
Receivables (2,896,799) (876,290)
Prepaid expenses and other current assets 417,345 (1,542,645)
Accounts payable 84,653 2,741,906
Accrued expenses (63,355) 1,934,237
Deferred revenue 953,008 1,009,193
------------ ------------
Net cash used by operating activities (10,411,097) (7,778,174)
------------ ------------
INVESTING ACTIVITIES:
Database production expenditures (4,730,342) (6,967,664)
Purchase of property and equipment (1,158,413) (2,128,874)
Decrease (Increase) in other assets 8,482 (369,582)
------------ ------------
Net cash used by investing activities (5,880,273) (9,466,120)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from notes payable 600,000 11,840,700
Proceeds from sale of common stock 335,833 478,485
Proceeds from sale of Series C convertible preferred stock,
net of issuance costs of $624,023 - 8,893,850
Deferred loan costs - (13,273)
Deferred offering costs - (1,284,444)
Repayment of notes payable (9,698) (2,461,581)
Repayment of capital lease obligations (74,528) (8,954)
------------ ------------
Net cash provided by financing activities 851,607 17,444,783
------------ ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (15,439,763) 200,489
Cash and cash equivalents at beginning of period 19,286,007 99,042
------------ ------------
Cash and cash equivalents at end of period $ 3,846,244 $ 299,531
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 11,484 $ 1,176,070
Noncash investing and financing transactions:
Accrued Series B redeemable preferred stock dividends - $ 169,777
Accretion on redeemable equity securities - $ 372,774
Issuance of warrants - $ 408,364
Cancellation of redemption feature on redeemable
common stock - $ 1,233,746
Conversion of subordinated notes payable to 857,509
shares of Series C convertible preferred stock - $ 4,982,127
Exercise of warrants for satisfaction of subordinated
notes payable - $ 10,566
</TABLE>
See accompanying notes to unaudited condensed financial statements.
5
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LOISLAW.COM, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine-month period ended September
30, 2000 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000. For further information, refer to the
financial statements and notes thereto included in the annual report on
Form 10-K of Loislaw.com, Inc. (the "Company" or "Loislaw.com") for the year
ended December 31, 1999.
NOTE B--CONTINGENCIES
The Company is involved in certain claims and pending litigation arising
from the normal conduct of business. Based on the present knowledge of the
facts, management believes the resolution of these claims and pending litigation
will not have a material adverse effect on the financial position, results of
operations or liquidity of the Company.
On August 14, 2000, Innodata Corporation ("Innodata") made a demand for
arbitration concerning disputed invoices submitted to the Company. The invoices
were submitted for services performed by Innodata involving conversion of
printed text to electronic format. Innodata is seeking $1,458,642, prejudgment
interest, and attorney fees in the proceedings and bases its claims on breach of
contract, unjust enrichment, quantum meruit, misrepresentation, and as an
account stated. The services performed by Innodata were not performed in
accordance with industry standards or the prior course of dealing between
Innodata and the Company. The final product from Innodata was inferior,
contained many errors, was late in being completed, and in some instances
required the Company to utilize its own manpower to correct the deficiencies.
Because Innodata did not perform in accordance with industry standards and
produced an inferior product, the Company does not believe that it is liable for
the full amount claimed by Innodata.
Innodata subsequently filed a Petition to Compel Arbitration against the
Company. The agreement on which Innodata relies to compel arbitration expired
in December 1999. All of the services and charges in dispute were performed
after December 1999. The expired arbitration agreement required arbitration to
occur in New York City. The Company has agreed to arbitrate the dispute but
seeks to arbitrate in Dallas, Texas, which is a more convenient forum. The
Petition to Compel Arbitration seeks to compel the Company to arbitrate in
accordance with the terms of the agreement which expired in December 1999, which
requires arbitration proceedings to occur in New York City.
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The Company believes that it has adequate funds reserved to satisfy any
award in favor of Innodata and believes that its liability, if any, is
significantly less than the amount claimed by Innodata. The Company believes
that the claim of Innodata will not have an adverse impact on the financial
condition of the Company.
On April 28, 2000, the Company executed a promissory note with Bank of
America for the purchase of computer equipment. This note was for $600,000 with
a term of 36 months. Interest rate on the note is fixed at 7.88%. As of
September 30, 2000, the balance of the note was $525,000.
NOTE C - RECLASSIFICATION
-------------------------
Certain amounts in the September 30, 1999 financial statements have been
reclassified to conform to the September 30, 2000 presentation.
7
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FORM 10-Q
LOISLAW.COM, INC.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
OVERVIEW
Loislaw.com provides comprehensive, affordable and easy-to-use legal and
related information to lawyers and law firms over the Internet and on compact
disc. We offer more than 2,000 databases that we estimate to contain over 10
million documents. These databases consist of federal and state law, continuing
legal education materials and other legal information. As of September 30,
2000, our databases included decisions from state appellate courts, statutes,
acts, and regulations of all 50 states and the District of Columbia, U.S. Code,
the Code of Federal Regulations, and court decisions for the U.S. Supreme Court,
and all 13 U.S. Circuit Courts of Appeal. Our databases also included selected
Federal District and United States Bankruptcy Court opinions. Administrative
regulations for the states of Delaware, Hawaii, Maine, Mississippi, New
Hampshire, Rhode Island, Vermont, and Wyoming are supplied by a third party
vendor and will not be available after December 8, 2000. While the same vendor
supplies administrative regulations for certain other states, an alternative
source for such regulations is currently available and being utilized.
We generate revenues primarily from the sale of web-based products for
fixed annual subscription fees. The list price for unlimited Internet access to
substantially all federal and state law databases, except for United States
District Court and United States Bankruptcy Court opinions, that we offer was
$139 per seat per month at September 30, 2000. The price for this product
increased to $179 on November 1, 2000, but continues to be available, subject to
certain specific terms and conditions, at $139 per month until December 31,
2000. During 1999, we offered another multi-jurisdiction product offering fewer
databases for $98 per month. The list price for unlimited Internet access to
substantially all state law for a single state currently varies from state to
state from $39 to $69 per seat per month. We do not charge any additional fees
for multiple permitted users of a seat but only one simultaneous access per seat
is allowed. Our pricing strategy with respect to our web-based products may
change as a result of our evolving market. Continuing legal education, bar
materials, and some specialty databases are available for an additional charge.
Historically, we offered compact disc products at annual subscription
prices ranging from $300 to $690 per state or federal jurisdiction. In recent
periods, we have de-emphasized our compact disc products by implementing a
focused marketing and sales effort for our web-based products. Since July 1999,
we have offered new subscriptions only for our web-based products. Some revenue
from compact disc sales will continue as we fulfill obligations to our current
compact disc customers. Revenues from compact disc products also include a
small amount of revenue from one-time sales of bar association publications. We
will continue to make these one-time compact disc sales.
The migration of our customers to our web-based products will increase our
average revenue per customer if most customers purchase our National
CollectionSM package, featuring a majority of our primary state and federal law
databases except for our Federal District Court and U.S. Bankruptcy Court
opinions databases. It will also decrease our average cost per customer if
8
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fewer customers use our compact disc products. This is because we currently
provide our compact disc customers with updated discs every 90 days and because
compact disc products typically require significantly more customer and
technical support due to the reinstallation of updated compact discs and issues
with customer hardware configuration changes.
Upon the sale of a new subscription, the total amount of the subscription
fee is accounted for as deferred revenue. Revenues from subscription sales are
recognized on a monthly basis over the subscription period, which is typically
one year. Subscription fees are paid up front in cash or on a monthly basis by
electronic funds transfer or credit card.
Database costs consist primarily of database production costs that support
both our web-based products and our compact disc products. Database production
costs represent amounts incurred for data acquisition and conversion, editing,
coding and quality control of legal information, related salaries and benefits,
facilities cost allocation and related expenses associated with computers for
data processing. We capitalize costs, other than overhead allocations, related
to the production of databases. Because court decisions have significant value
for long periods of time or indefinitely, we amortize our court decision
databases over 20 years. We amortize databases containing statutes and
regulations, which have a more limited useful life, over two years. We expense
as incurred database maintenance and updating costs.
RESULTS OF OPERATIONS
COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues. Total revenues increased 96.6% to $3.6 million for the three
months ended September 30, 2000 from $1.8 million for the three months ended
September 30, 1999. We believe the increase in revenues from subscriptions was
due primarily to the increase in the number of legal databases we offered to
2,055 at September 30, 2000 from 1,501 at September 30, 1999, the increase in
our marketing efforts, and the expansion of our sales staff. We expect that
this trend will continue and that web-based subscription revenues will represent
substantially all of our total revenues in future periods.
Database Costs. Total database costs decreased 38.1% to $1.6 million for
the three months ended September 30, 2000 from $2.6 million for the three months
ended September 30, 1999. The decrease is primarily attributable to a decrease
in employee salaries, wages, and benefits expense and cost of source materials
partially offset by increased amortization costs as a result of having more
databases.
Selling and Marketing Expense. Selling and marketing expense increased
22.7% to $4.0 million for the three months ended September 30, 2000 from $3.3
million for the three months ended September 30, 1999. This was principally due
to an increase of 161.2% in our commission expenses associated with an increase
in the amount of commissionable sales for the three months ended September 30,
2000 compared to the three months ended September 30, 1999. Additionally,
marketing expense increased 131.0% to $894,000 for the three months ended
September 30, 2000 from $387,000 for the three months ended September 30, 1999.
These were partially offset by decreases in salaries, wages, and benefits
expense, travel and sales expense, and communication costs. Selling and
marketing expense consists primarily of:
. employee salaries and benefits for marketing and customer support
personnel;
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. sales commissions paid to our sales force;
. advertising expenses;
. the cost of direct marketing promotional materials; and
. facilities cost allocation and related expenses.
We pay sales commissions upon receipt of an initial subscription payment
after subscription agreements are signed. We record commissions as prepaid
costs and amortize them ratably over the term of the contract, typically one
year, as we recognize the associated revenues. We do not currently pay
commissions on renewals of subscriptions. We expense all other selling and
marketing costs as incurred.
General and Administrative Expense. General and administrative expense
increased 50.8% to $1.7 million for the three months ended September 30, 2000
from $1.1 million for the three months ended September 30, 1999. This increase
resulted primarily from an increase in compensation expenses, depreciation and
amortization costs, and occupancy costs. The compensation expenses increased
29.4% due to a one-time charge of $268,000 for a severance pay expense
associated with the resignation of Mark O. Beyland, the former President and
Chief Financial Officer of the Company. There will be no recurring severance
pay expenses associated with Mr. Beyland's resignation. Depreciation and
amortization costs increased due to the addition in 2000 of additional computer
hardware and software installed which resulted in increased depreciation and
amortization. General and administrative expense consists primarily of employee
salaries and benefits, facilities cost allocation and related expenses
associated with our management, finance, human resources, management information
systems and administrative groups.
Interest Income. Interest income increased 801.8% to $98,000 for the
three months ended September 30, 2000 from $11,000 for the three months ended
September 30, 1999. This increase was due primarily to an increase in funds
available for investment as a result of our initial public offering in September
1999.
Interest Expense. Interest expense decreased 98.3% to $11,000 for the
three months ended September 30, 2000 from $685,000 for the three months ended
September 30, 1999. This decrease was due primarily to the reduction of debt
using proceeds from our initial public offering.
COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues. Total revenues increased 112.1% to $9.8 million for the nine
months ended September 30, 2000 from $4.6 million for the nine months ended
September 30, 1999. We believe the increase in revenues from subscriptions was
for the same reasons discussed above in the comparison of the quarter ended
September 30, 2000 to the quarter ended September 30, 1999.
Database Costs. Total database costs increased 1.4% to $5.33 million for
the nine months ended September 30, 2000 from $5.26 million for the nine months
ended September 30, 1999. The increase is primarily attributable to increased
amortization and updating costs as a result of having more databases, partially
offset by the decreases attributable to the reasons
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discussed above in the comparison of the quarter ended September 30, 2000 to the
quarter ended September 30, 1999.
Selling and Marketing Expense. Selling and marketing expense increased
58.0% to $12.0 million for the nine months ended September 30, 2000 from $7.6
million for the nine months ended September 30, 1999. This was principally due
to the same reasons discussed above in the comparison of the quarter ended
September 30, 2000 to the quarter ended September 30, 1999.
General and Administrative Expense. General and administrative expense
increased 68.5% to $4.7 million for the nine months ended September 30, 2000
from $2.8 million for the nine months ended September 30, 1999. This increase
resulted primarily from the same reasons discussed above in the comparison of
the quarter ended September 30, 2000 to the quarter ended September 30, 1999.
Interest Income. Interest income increased 1,093.5% to $486,000 for the
nine months ended September 30, 2000 from $41,000 for the nine months ended
September 30, 1999. This increase was due primarily to an increase in funds
available for investment as a result of our initial public offering in September
1999.
Interest Expense. Interest expense decreased 99.0% to $21,000 for the
nine months ended September 30, 2000 from $2.0 million for the nine months ended
September 30, 1999. This decrease was due primarily to the reduction of debt
using proceeds from our initial public offering and the elimination of interest
expense associated with amortization of deferred loan costs of $617,000 for the
nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have used substantial amounts of cash in the growth of our company. Net
cash used in operating activities was $10.4 million and $7.8 million for the
nine months ended
September 30, 2000 and 1999, respectively. The primary use of cash was the
payment of operating expenses, including database production costs. We expect
to continue to incur significant database production costs for the foreseeable
future. The continued payment and amortization of database production costs,
together with increased selling and marketing expenditures, is expected to
generate losses for 2000 and at least through the first half of 2001.
Net cash used in investing activities was $5.7 million and $9.3 million for
the nine months ended September 30, 2000 and 1999, respectively. The primary
use of cash was the payment of the capitalized portion of our database
production costs. For the nine months ended September 30, 1999, $7.0 million of
these expenditures was for the payment of database production costs, which we
capitalized, and $2.3 million was for property and equipment and other assets
purchased to support the growth of our business. For the nine months ended
September 30, 2000, $4.7 million of these expenditures was for the payment of
database production costs, which we capitalized, and $1.0 million was for
property and equipment and other assets purchased to support the growth of our
business.
For the nine months ended September 30, 2000, financing of our operations
and continued expansion was from cash reserves remaining from additional capital
obtained through our initial public offering of 3.9 million shares of common
stock in September 1999, the proceeds from a term loan for $600,000 from a
financial institution, and the sale of common
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stock from the exercise of stock options. Total financing, net of repayments,
was approximately $852,000 for the nine-month period ended September 30, 2000.
To finance our operations and continued expansion during the first nine months
of 1999, we obtained additional capital through private placements of debt from
a related party. Total financing, net of repayments, was approximately $17.4
million for the nine months ended September 30, 1999.
During 2000, our selling and marketing expenses have increased due to more
aggressive marketing. Cash on hand generated from operations and our initial
public offering has met our cash needs for working capital and capital
expenditures through September 30, 2000. We believe that additional cash may be
necessary to finance our operations between the present time and September 30,
2001. We are exploring opportunities for the Company in this regard, including
those with our current capital venture investors and with lending institutions.
Although there is no guarantee that our current investors will make additional
investments in the Company, we believe that our current capital venture
investors are supportive of the Company and will continue to be supportive. We
may also seek debt financing with lending institutions or others. We may also
choose to accelerate our growth by, for example, adding new specialty databases
at a faster pace, to expand our marketing activities or for other purposes.
As part of our growth strategy, we may consider acquiring companies or
businesses, and any acquisition could significantly increase our cash
requirements. On October 23, 2000, we entered an agreement with
JurisDictionUSA, Inc. ("JDUSA") in which we acquired twenty percent of the
outstanding common stock of JDUSA. JDUSA is an internet based company which
provides attorneys with office and case management services on the internet
utilizing an application service provider model. Under the terms of the
agreement, we are obligated to market, sell, and provide technical support
for certain JDUSA products. We will pay a royalty of 40 percent of net revenues
received from such sales to JDUSA. As part of that agreement, we also agreed to
loan JDUSA up to $30,000 per month beginning in November 2000, until a total of
$200,000 has been provided. The loan proceeds are to be repaid from royalties
due to JDUSA beginning 16 months after execution of the agreement.
Another acquisition, or any other increase in our anticipated cash
requirements, could require us to obtain additional financing. We cannot assure
you that additional financing would be available to us or, if available, that we
would be able to obtain it on terms we considered satisfactory.
On April 28, 2000, the Company executed a promissory note with Bank of
America for the purchase of computer equipment. This note was for $600,000 with
a term of 36 months. As of September 30, 2000, the balance of the note was
$525,000. The interest rate of this note is fixed for the term of the note at
7.88% annual percentage rate.
NET OPERATING LOSS CARRYFORWARDS
Since 1994, we have incurred significant net losses. Through September 30,
2000, our accumulated deficit totaled $49.8 million. At December 31, 1999, we
had net operating loss carryforwards for tax purposes of approximately $49
million, which will begin to expire in 2010 for federal income tax purposes and
in 2000 for state purposes. We cannot assure you that we will have income that
is sufficient to allow us to use these loss carryforwards.
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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is required to be adopted in years beginning after June 15,
2000. Because Loislaw.com does not use derivatives, Statement No. 133 will have
no significant effect on earnings or the financial position of Loislaw.com, Inc.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101), which, as amended, must be adopted no later than October 1, 2000. SAB 101
deals with various revenue recognition issues. Management believes adoption of
SAB 101 will have no significant effect on earnings or the financial position of
Loislaw.com, Inc.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, the matters
discussed in this report on Form 10-Q are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, that are dependent on
certain risks and uncertainties. We have based these forward-looking statements
largely on our current expectations and projections about future events and
financial trends affecting Loislaw.com and the financial condition of our
business. Actual results may differ materially from those anticipated or implied
in the forward-looking statements due to a variety of factors. These factors
include, among other things, our ability to predict and respond to rapid
technological changes; the presence of competitors in the web-based legal
information market with larger databases and greater financial resources; the
availability of free legal information from Internet portal companies and
government agencies; the acceptance of our products by the market; our potential
loss of relationships with legal information providers; difficulties managing
growth; difficulties caused by Internet accessibility and increased usage;
potential system failures due to viruses, telecommunications failures or other
damage to our computer systems; risks due to our reliance on foreign data
converters; legal liability caused by legal information provided in our
databases; and the other risks detailed from time to time in the reports we file
with the Securities and Exchange Commission, including the factors discussed
under the heading "Risk Factors" in the Company's annual report on Form 10-K for
the year ended December 31, 1999.
In addition, in this report, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect," and similar
expressions are intended to identify forward-looking statements. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We do not engage in commodity futures trading or hedging activities and do
not enter into derivative financial instrument transactions for trading or other
speculative purposes. We also do not engage in transactions in foreign
currencies or in interest rate swap transactions that could expose us to market
risk.
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We are not subject to interest rate risk in connection with our promissory
note with Bank of America. The interest rate of this note is fixed for the term
of the note at 7.88% annual percentage rate. As of September 30, 2000, there
remains an unpaid principal balance on the note of $525,471.
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FORM 10-Q
LOISLAW.COM, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On or about August 14, 2000, Innodata Corporation ("Innodata") made a
demand for arbitration in a matter involving the Company. On or about October
5, 2000, Innodata filed a Petition to Compel Arbitration against the Company in
the Supreme Court of New York. Innodata claims to be entitled to $1,458,642,
plus pre-award interest, attorney's fees, and punitive damages. Innodata bases
its claim on breach of contract, unjust enrichment, quantum meruit,
misrepresentation, and as a stated account. The amounts claimed are for
Innodata's conversion of printed text to electronic format. The Company
supplied the printed text that was to be converted to electronic format by
Innodata. The Company believes that its liability, if any, is less than the
amount claimed by Innodata because Innodata's conversion services were not
performed in accordance with industry standards or the prior course of dealing
between Innodata and the Company. As a result, the final product was inferior,
contained many errors, was late in being completed, and in some instances
required the Company to utilize its own manpower to correct the deficiencies.
Because Innodata did not perform in accordance with industry standards and
produced an inferior product, the Company does not believe that it is liable for
the full amount claimed by Innodata.
Innodata claims that arbitration in New York City is the only means for
resolution of the dispute, based upon the terms of an agreement with the Company
that expired in December, 1999. All of the services performed by Innodata on
which the claim is based were performed in and after January, 2000. The
agreement which expired in December, 1999 required mandatory arbitration in New
York as the means of dispute resolution. Innodata claims that the Company
signed an agreement in January, 2000 which incorporated the expired contract,
including the mandatory arbitration provision. Innodata is unable to produce
any copies of the signed document. The Company believes that there is no
agreement compelling arbitration but agreed to arbitrate in Dallas, Texas, which
is believed to be a convenient forum for all witnesses. Innodata then filed its
Petition to Compel Arbitration to compel the Company to arbitrate in New York.
The Company does not believe that the venue for dispute resolution will have a
material effect upon the outcome of the dispute.
We believe that we have adequate funds reserved to satisfy any award in
favor of Innodata and believe that our liability, if any, is significantly less
than the amount claimed by Innodata. We believe that the claim of Innodata will
not have an adverse impact on the financial condition of the Company.
Item 5. Other Information.
On or about July 1, 2000, Loislaw.com, Inc. changed stock transfer agents.
Its current stock transfer agent is Interwest Transfer Company, 1981 East 4800
South, Suite 100, Salt Lake City, UT 84117. The telephone number for the
transfer agent is (801) 272-9294 and the facsimile number is (801) 277-3147.
Loislaw.com has elected to comply with the requirement to make quarterly
financial information available to its stockholders by making its quarterly
reports on Form 10-Q available through its web site. To view or print this
information, please visit our web site at www.loislaw.com and select "Investor
Relations -- SEC Filings." You may also request that a copy of our most recent
report on Form 10-Q be mailed to you by submitting a request through our web
site by selecting "Investor Relations -- Info Request" or by calling
Loislaw.com's Investor Resources Information Line toll free at (877) 447-5647.
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Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits
27.1 Financial Data Schedule
(B) Reports on Form 8-K
On October 3, 2000 with an effective date of September 29, 2000 the
Company filed a report on Form 8-K indicating the resignation of
the Company's President and Chief Financial Officer, Mark O.
Beyland. Mr. Beyland also resigned as a director of the Company.
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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.
LOISLAW.COM, INC.
-----------------
(Registrant)
Date: 11/13/2000 /s/ RANDELL L. SISEMORE
---------- ------------------------
RANDELL L. SISEMORE
Vice President of Finance
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
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FORM 10-Q
INDEX TO EXHIBITS
LOISLAW.COM, INC.
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------- ----
27.1 Financial Data Schedule 16
18
