INTERNET LAW LIBRARY INC, 10-Q, 2000-08-14

INTERNET LAW LIBRARY INC
10-Q, 2000-08-14
COMPUTER PROGRAMMING, DATA PROCESSING, ETC.

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------

FORM 10-Q

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

--------------------

Commission File Number 1-07149

INTERNET LAW LIBRARY, INC.
(Exact Name of Registrant as specified in its charter)

DELAWARE 82-0277987
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

4301 WINDFERN ROAD, SUITE 200, HOUSTON, TEXAS 77041
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code: (281) 600-6000

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 / /

The number of shares of the registrant's common stock outstanding as of
August 9, 2000, was 30,339,251.

<PAGE>

INTERNET LAW LIBRARY, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2000

INDEX

PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements...................................... 3

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 10

Item 3. Quantitative and Qualitative Disclosures About Market Risk............. 13

PART II. OTHER INFORMATION

Item 1. Legal Proceedings...................................................... 13

Item 2. Changes in Securities and Use of Proceeds.............................. 13

Item 6. Exhibits and Reports on Form 8-K....................................... 21

SIGNATURES....................................................................... 20
</TABLE>

<PAGE>

INTERNET LAW LIBRARY, INC.
CONSOLIDATED BALANCE SHEETS

June 30, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including $9,196 and $20,235
respectively, distributable to the stockholders of Planet
Resources, Inc. $ 164,143 $ 78,544
Short-term investments 1,650,000 450,000
Accounts receivable, net of allowance for doubtful accounts of
$0 and $5,534, respectively 98,775 86,015
Due from affiliated company - 55,423
Other current assets 67,983 13,284
------------ ------------
Total current assets 1,980,901 683,266
------------ ------------
Database content and software costs, net 7,122,579 2,956,861
Furniture and equipment, net 409,598 104,066
Acquired intangible assets, net 10,700,705 2,176,458
------------ ------------
Total assets $ 20,213,783 $ 5,920,651
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and advance from chairman $ 1,875,263 $ -
Accounts payable 256,481 156,472
Accrued liabilities 246,170 72,414
Deferred revenue 77,983 82,400
Assets distributable to stockholders 19,196 30,235
------------ ------------
Total current liabilities 2,475,093 341,521
------------ ------------
Commitments and contingencies
Redeemable common stock 125,000 125,000
------------ ------------
Stockholders' equity:
Series A Convertible Preferred stock, par value $.001
50,000,000 shares authorized; 300 shares issued and
outstanding at June 30, 2000 2,709,000 -
Common stock, par value $.001, 100,000,000 shares authorized; 30,145,761 and
24,920,991 shares issued, respectively; and
30,135,023 and 24,910,253 shares outstanding, respectively 30,146 24,921
Additional paid-in capital 20,382,703 7,974,994
Deferred compensation (47,020) (364,600)
Accumulated deficit (5,417,955) (2,138,001)
Treasury stock, at cost, 10,738 shares (43,184) (43,184)
------------ ------------
Total stockholders' equity 17,613,690 5,454,130
------------ ------------
Total liabilities and stockholders' equity $ 20,213,783 $ 5,920,651
============ ============
</TABLE>

The accompanying notes are an integral part of these
consolidated financial statements.

<PAGE>

INTERNET LAW LIBRARY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

<TABLE>
<CAPTION>
For the six months ended For the three months ended
June 30, June 30,
------------------------ --------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE $ 459,580 $ 53,520 $ 251,198 $ 44,292

OPERATING EXPENSES:
Selling and marketing 521,750 244,775 205,498 180,694
General and administrative 2,336,819 211,891 1,029,672 75,541
Production and computer service 231,365 65,073 76,602 53,073
Amortization and depreciation 611,349 142,783 403,871 79,643
------------ ------------ ----------- ------------
Total operating expenses 3,701,283 664,522 1,715,643 388,951
------------ ------------ ----------- ------------

OPERATING LOSS (3,241,703) (611,002) (1,464,445) (344,659)

INTEREST INCOME (EXPENSE), net (38,251) (1,212) (32,744) (1,212)
------------ ------------ ----------- ------------

NET LOSS $ (3,279,954) $ (612,214) $ (1,497,189) $ (345,871)
------------ ------------ ----------- ------------

NET LOSS PER SHARE, basic and diluted $ (0.12) $ (0.03) $ (0.05) $ (0.02)
------------ ------------ ----------- ------------
SHARES USED IN COMPUTING NET LOSS PER SHARE, basic
and diluted 27,182,476 18,701,907 29,303,391 21,060,640
============ ============ ============ ============
</TABLE>

The accompanying notes are an integral part of these
consolidated financial statements.

<PAGE>

INTERNET LAW LIBRARY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)

<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,279,954) $ (612,214)
Adjustments to reconcile net loss to net cash
used in operating activities:
Issuance of common stock for services 616,816 29,300
Amortization and depreciation 611,349 142,783
Changes in:
Accounts receivable 1,749 (1,322)
Other current assets (45,049) -
Accounts payable 36,459 49,000
Accrued liabilities 56,926 4,891
Deferred revenue (4,417) -
----------- -----------
Net cash (used in) operating activities (2,006,121) (387,562)
----------- -----------

CASH FLOWS FROM INVESTMENT ACTIVITIES:
Purchases of short-term investments (1,200,000) -
Additions to database and development costs (955,912) (101,050)
Additions to furniture and equipment (135,191) (23,401)
Cash acquired in acquisitions - 90,275
----------- -----------
Net cash used in investment activities (2,291,103) (34,176)
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Due to (due from) affiliated company 55,423 (324,428)
Net proceeds from sale of debentures - 200,000
Net proceeds from (payments on) notes payable 1,395,000 180,000
Issuance of common stock 62,400 420,795
Issuance of preferred stock 2,870,000 -
----------- -----------
Net cash provided by financing activities 4,382,823 476,367
----------- -----------

NET INCREASE IN CASH AND CASH
EQUIVALENTS 85,599 54,629

CASH AND CASH EQUIVALENTS, beginning
of period 78,544 -
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 164,143 $ 54,629
----------- -----------

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 2,892 $ -
</TABLE>

The accompanying notes are an integral part of these
consolidated financial statements.

<PAGE>

INTERNET LAW LIBRARY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

NOTE 1 - BUSINESS:

Internet Law Library, Inc. (the "Company" or "Internet Law," formerly Planet
Resources, Inc.), a Delaware corporation, through its wholly owned
subsidiaries, National Law Library, Inc, GoverNet Affairs, Inc., and Brief
Reporter LLC, operates Internet sites that provide subscription access to
databases used for tracking pending legislation and for performing legal
research, and through its wholly owned subsidiary ITIS, Inc., furnishes
hardware, software, content conversion technology, and management support and
expertise to its other affiliates. These databases consist primarily of
federal and state case law, statutory law for certain states, legal briefs
prepared by attorneys for trials in state and federal courts, and summaries
and details of pending legislation at the state and federal levels used by
attorneys, corporate management, and other parties involved in litigation,
legal planning, and legislative undertakings. Interfacing with these
databases are software retrieval engines that are owned by or licensed to
Internet Law's operating subsidiaries. Customers using these Internet sites
pay subscription fees to National Law, GoverNet, and Brief Reporter for
monthly or longer-term service.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION - In January 2000, Internet Law's Board of Directors
approved a resolution changing the fiscal year end from June 30 to December
31. Accordingly, the balance sheet as of December 31, 1999, has been
presented with the balance sheet as of June 30, 2000.

The accompanying unaudited interim consolidated financial statements of
Internet Law have been prepared in accordance with generally accepted
accounting principles and the rules of the Securities and Exchange Commission
(the "SEC") and should be read in conjunction with the audited consolidated
financial statements and notes thereto contained in the Company's latest
Annual Report filed with the SEC on Form 10-K, as amended. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily indicative of
the results to be expected for the full year. Notes to the consolidated
financial statements, which would substantially duplicate the disclosure
contained in the audited consolidated financial statements for the most
recent fiscal year, as reported in the Company's 1999 Form 10-K, have been
omitted.

The six and three month periods ended 2000 have been compared to prior
periods which include November 30, 1998 (inception), through December 31,
1998. The period from inception through December 31, 1998, is insignificant.

NET LOSS PER SHARE - Basic net loss per share has been computed by dividing
net loss by the weighted-average number of shares outstanding. Shares of
Internet Law outstanding at the time of the reverse acquisition have been
treated as outstanding during the entire period, after adjustment for a 1 for
2 reverse stock split immediately preceding the reverse acquisition. Shares
of National Law outstanding before the reverse acquisition have been included
in the weighted-average shares outstanding since November 30, 1998, its date
of inception. All options outstanding at June 30, 1999, and 2000 have been
excluded because they are anti-dilutive. Accordingly, basic and diluted net
loss per share is the same for all periods presented.

<PAGE>

NOTE 3 - TRANSACTIONS WITH AFFILIATED COMPANY:

The content and software development assets of National Law were conveyed to
it by Hunter M. A. Carr, an individual who is now the Chairman of the Board,
Chief Executive Officer, President and the largest stockholder of Internet
Law (the "CEO"). Until January 2000, the CEO was also the controlling
stockholder of ITIS, a Texas corporation formed in 1994 for the purpose of
document management services and software development. As required by
generally accepted accounting principles, Internet Law has recorded the
purchases of database content from ITIS until January 2000 at ITIS' cost
basis in the database content, based upon the common control between Internet
Law and ITIS. However, upon the divestiture of the CEO's controlling interest
in ITIS in January 2000, and through the date of acquisition of ITIS (see
Note 4) Internet Law recorded purchases of database content from ITIS in
accordance with the contractual rate between ITIS and Internet Law. The
effective rate recorded by Internet Law during its period under common
control with ITIS is substantially less than the contractual rate. During the
six months ended June 30, 2000, Internet Law purchased $4,101,925 of case law
content from ITIS, including $469,347 purchased at ITIS' estimated cost and
$3,632,578 purchased at the contractual rate of $0.65 per 1,000 characters of
data.

NOTE 4 - ACQUISITION OF AFFILIATED COMPANY:

Effective April 30, 2000, the Company executed a Stock Exchange Agreement,
pursuant to which the Company exchanged 5,044,903 shares of its common stock,
which have been initially valued at approximately $11,900,000, for all the
outstanding common stock of ITIS, pending an independent appraisal.

Since National Law's inception on November 30, 1998, ITIS has served as its
primary vendor of new case law content while also providing to National Law
various executive, sales, production, software, hardware, and administrative
services. During the period from National Law's inception to December 31,
1999, the CEO was the sole stockholder of ITIS. During the three months
ended March 31, 2000, the CEO sold or otherwise conveyed most of his stock in
ITIS to various individuals and entities, some of whom are either directors
or officers of Internet Law or are entities controlled by directors of
Internet Law. Of the 5,044,903 shares issued to ITIS' stockholders, 1,721,003
shares were issued to five directors of Internet Law or their beneficiaries
and 328,300 shares were issued to four officers of Internet Law.

The acquisition was accounted for under the purchase method of accounting and
resulted in a purchase price of approximately $8,942,000 in excess of the net
value of tangible assets acquired. The excess purchase price has been
preliminarily allocated to identifiable intangible assets such as content,
trademarks, developed technology, and experienced workforce. The intangibles
are being amortized over their estimated useful lives. An independent
appraisal will be obtained to determine the final purchase price and
allocation of the excess purchase price.

The results of operations of ITIS have been included in Internet Law's
financial statements since the acquisition date of April 30, 2000. The
following unaudited pro forma financial information assumes the acquisition
had occurred at inception, and is preliminary, pending the final results
of the previously discussed appraisal:

Six months Six months
Ended Ended
June 30, 1999 June 30, 2000
------------- -------------

<PAGE>

<S> <C> <C>
Revenues $ 244,475 $ 504,550
Net loss $(1,353,825) $(3,600,188)

Loss per share $ (0.06) $ (0.12)
</TABLE>

NOTE 5 - NOTES PAYABLE AND ADVANCE FROM CHAIRMAN:

During the period from January 1 to June 30, 2000, Internet Law borrowed a
total of $1,400,000 from the CEO to fund working capital requirements. These
borrowings are evidenced by unsecured promissory notes, each bearing an
annual interest rate of 11.75% and payable in full with accrued interest
after six months. With respect to these notes payable, the CEO has provided a
written commitment to the Company to provide forbearance and extend the due
date on such notes, if to demand payment would impair Internet Law's ability
to meet its other existing liabilities and commitments. This commitment is
effective for notes between Internet Law and the CEO with maturity dates
through March 2001.

In connection with the acquisition of ITIS, the Company assumed liabilities
to the Chairman in the amount of $425,050. The liabilities are
non-interest-bearing and payable on demand.

NOTE 6 - COMMITMENTS AND CONTINGENCIES:

LEASE FOR OFFICE SPACE

Effective in July 2000, Internet Law is committed to making monthly payments
of at least $12,400 under a lease agreement for office space that expires in
June 2004. If Internet Law is not successful in maintaining existing
sub-leasing arrangements with a third party tenant, this monthly obligation
may increase to approximately $18,600.

NOTE 7 - STOCKHOLDERS' EQUITY

COMMON STOCK

In December 1999, Internet Law approved a bonus to various employees and two
board members for services rendered in 1999. The bonus consisted of 33,042
aggregate shares of common stock, which were issued in January 2000. The
aggregate value of the award, totaling $105,404, was recorded to compensation
expense and additional paid-in capital at December 31, 1999. However, when
the common shares were issued in January 2000, the par value was recorded and
the related additional paid-in capital was reduced accordingly.

In March 2000, Internet Law issued a total of 125,000 shares of common stock
valued at $551,172, to its outside directors. The award was recorded as
compensation expense in March 2000.

In May 2000, Internet Law entered into an agreement with a vendor pursuant to
which Internet Law will issue an aggregate of 39,825 shares of common stock
as consideration for services over the vendor's service period. The aggregate
fair value of the shares will be measured upon the date the services are
completed and estimated at interim periods until that time. The estimated
fair value is being recognized as expense over the service period through
September 2000.

In July 2000, holders of fifteen (15) shares of Series A convertible
preferred stock converted the preferred shares to 135,251 shares of common
stock.

<PAGE>

STOCK OPTIONS

In February 2000, Internet Law increased the number of shares available for
grant under the 1999 Stock Option Plan to 3,000,000 shares of common stock.

In May 2000, Internet Law entered into a consulting agreement pursuant to
which an option was issued for common shares of Internet Law. The option has
an exercise price of $4.63 per share, vests on October 31, 2000, and is
exercisable through October 2003. The shares under option are calculated as
the number of shares aggregating $35,000 in value on the exercise date. The
aggregate fair value of the option will be measured upon the date the
services are completed and is being estimated at each reporting date until
that time. The estimated fair value is being recognized as expense over the
service period through October 2000.

During the six months ended June 2000, Internet Law granted stock options to
employees for the purchase of an aggregate of 105,000 shares of common stock,
which are classified as a variable award. Pursuant to APB Opinion No.25, the
initial compensation expense related to these options was calculated based on
the difference between the market price of the underlying common stock on the
grant date and the exercise price of the option. The charge is recognized
over the expected service period related to the variable award.
Additionally, a periodic adjustment to deferred compensation and related
compensation expense is computed at the end of each reporting period based on
the difference between the then current market price and the exercise price
less previously recognized compensation expense.

NOTE 8 -INTERMEDIATE FINANCING AGREEMENT:

On May 11, 2000, Internet Law entered into an intermediate financing
agreement with a private capital fund, and privately placed 300 shares of 5%
Series A Convertible Preferred Stock for $3 million. This preferred stock is
convertible into shares of Internet Law's common stock based on a price equal
to the lesser of (i) $3.2375 or (ii) 80% of the average of the three lowest
closing bid prices during a 20-day trading period prior to the date of
conversion. Internet Law is entitled to redeem the convertible preferred
stock at a cash price equal to 120% of the issue price, provided there is an
effective registration statement for the underlying shares of common stock.
As part of this financing agreement and the investor's commitment to secure
an equity line for $25 million, Internet Law has agreed to issue a
five-year warrant to the investor for the purchase of 500,000 shares of its
common stock at an exercise price of $3.56 per share. The estimated fair
value of this warrant totaled $1,114,500 and has been recorded in
stockholders' equity. Additionally, as a commission related to this financing
arrangement, Internet Law agreed to issue a five-year warrant to a third
party for the purchase of 200,000 common shares at an exercise price of
$3.3994 per share. The estimated fair value of this warrant totaled $493,600
and has been recorded in stockholders' equity. A commission of $100,000 and
legal fees of $30,000 related to acquiring this financing arrangement were
recorded in stockholders' equity.

On July 5, 2000, the SEC declared effective the registration statement filed
by Internet Law, which registered an amount of shares of its common stock
sufficient to satisfy any conversion, warrant exercise, and dividend
requirements under the terms of this financing agreement.

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated
financial statements of Internet Law Library, Inc. (the "Company" or
"Internet Law"), which are included elsewhere in this Form 10-Q. Included in
this discussion are certain forward-looking statements regarding the
Company's expectations for its business and its capital resources. These
expectations are subject to various uncertainties and risks that may cause
actual results to differ significantly from these forward-looking statements.

The Company, through its wholly owned subsidiaries, National Law Library,
Inc., GoverNet Affairs, Inc, Brief Reporter LLC, and ITIS, Inc., operates
Internet sites that provide access to databases used for tracking pending
legislation and for performing legal research. The content of these databases
consists of federal and state case law, statutory law for certain states,
legal briefs prepared by attorneys for trials in state and federal courts and
summaries and details of pending legislation at the state and federal levels
used by attorneys, corporate management and other parties involved in
litigation, legal planning and legislative undertakings. Interfacing with
these databases are search engines owned by or licensed to Internet Law's
operating subsidiaries. Customers using these Internet sites pay subscription
fees to National Law, GoverNet, and Brief Reporter for monthly or longer-term
service.

On April 30, 2000, the Company acquired all of the outstanding stock of ITIS,
a company once wholly owned by Hunter M.A. Carr, Internet Law's Chairman of
the Board, President, Chief Executive Officer, and largest stockholder.
According to the terms of the Stock Exchange Agreement, Internet Law Library
exchanged 5,044,903 restricted shares of the Company's common stock for all
of the outstanding common stock of ITIS. While serving as one of the
Company's primary vendors of case law content, ITIS also provides various
executive, sales, production, and administrative services including
programming hardware and software support and product development to the
Company. The Company expects to use ITIS' expertise in the future to provide
similar products in other industries.

The following is management's discussion and analysis of certain significant
factors that have affected the Company's financial condition and results of
operations during the three and six months ended June 30, 2000, and 1999.

RESULTS OF OPERATIONS

REVENUES. Revenue increased by $406,060 to $459,580 during the six months
ended June 30, 2000, from $53,520 recorded for the six months ended June 30,
1999. Revenues also increased by $206,906 for the quarter ended June 30,
2000, to $251,198, as compared to revenues of $44,292 for the quarter ended
June 30, 1999. The increases are due to a greater number of subscribers in
National Law's databases, 2,090 at June 30, 2000, compared to 719 at June 30,
1999, and 1851 subscribers at March 31, 2000, compared to 144 at March 31,
1999. A substantial portion of the new subscriptions are due to the addition
of more single-state packages available with statutes and extended case law,
as opposed to the bundled service, where subscribers gain access to the
databases of several states and federal courts for one rate. The Company's
expanded content databases by state have enabled these sales of
state-by-state packages. In addition, average monthly subscription rates
increased to $50.44 at June 30, 2000 from $43.65 at June 30, 1999.
Consolidated revenues for the six months ended June 30, 2000, and the three
months ended June 30, 2000, increased by $27,390 and $35,000, respectively,
due to GoverNet and Brief Reporter, which

<PAGE>

were acquired during the last calendar quarter of 1999, and by $13,538 in the
quarter ended June 30, 2000, due to ITIS, which was acquired at April 30,
2000.

SALES AND MARKETING EXPENSE. Sales and marketing expense increased by
$276,975 to $521,750 during the six months ended June 30, 2000, from $244,775
during the corresponding period ended June 30, 1999. Sales and marketing
expense also increased by $24,804 during the quarter ended June 30, 2000, to
$205,498, from $180,694 for the quarter ended June 30, 1999. During 1999,
National Law was planning and developing a sales and marketing program, which
it began to implement in April 1999 with contract telemarketing personnel.
Sales and marketing expense for the six months ended June 30, 1999, also
consisted of consulting services provided by the Company's President under a
personal services contract that was in effect prior to when Mr. Carr became
an employee of the Company on July 1, 1999. During 2000, the Company has
continued to expand its telemarketing force and has also engaged a field
sales force. Additionally, increased sales and marketing expense has been
incurred in placing banner ads on Internet sites, increased print advertising
in legal publications, and participation in major legal industry meetings and
conferences.

GENERAL AND ADMINISTRATIVE EXPENSE. During the six months ended June 30,
2000, general and administrative expense totaled $2,336,819, resulting in an
increase of $2,124,928 over the $211,891 recorded during the six months ended
June 30, 1999. For the quarter ended June 30, 2000, general and
administrative expenses increased by $954,131 from $75,541 for the quarter
ended June 30, 1999, to $1,029,672 for the quarter ended June 30, 2000. In
connection with the Company's internal expansion and through acquisitions,
payroll and related costs at the administrative and management level have
increased by about $900,000 for the six months ended June 30, 2000, as
compared to the six months ended June 30, 1999, and by about $250,000 for the
quarter ended June 30, 2000, as compared to the quarter ended June 30, 1999.
In addition, professional consulting and contract services, as well as legal
and accounting expenses, have increased by $212,000 for the six months ended
June 30, 2000, over the six months ended June 30, 1999. During the
three-month period ended June 30, 2000, these same expenses increased
$137,000 as compared to the three-month period ended June 30, 1999. As a
result of Internet Law Library's acquisitions of GoverNet, Brief Reporter,
and ITIS, general and administrative expenses increased by $237,000 for the
six months ended June 30, 2000, and by $159,000 for the three months ended
June 30, 2000, as compared to the corresponding periods in 1999.

PRODUCTION AND COMPUTER SERVICE EXPENSE. Production and computer service
expense of $231,365 for the six months ended June 30, 2000, and $76,602 for
the three months ended June 30, 2000, reflects increases of $166,292 and
$23,529 over the respective periods ended June 30, 1999. These increased
expenses were primarily due to increased production staffing to facilitate
the building and expansion of individual state statute databases.

AMORTIZATION AND DEPRECIATION EXPENSE. During the six months ended June 30,
2000, amortization and depreciation expense amounted to $611,349, compared to
$142,783 for the six months ended June 30, 1999. For the three months ended
June 30, 2000, amortization and depreciation expense amounted to $403,871,
compared to $79,643 for the three months ended June 30, 1999. The resulting
increases of $468,566 and $324,228 are primarily attributable to amortization
relating to estimated intangible assets acquired by Internet Law in the
acquisitions of GoverNet, Brief Reporter and ITIS, while $65,000 for the six
months ended June 30, 2000, and $40,000 for the three months ended June 30,
2000, relate to depreciation of fixed-asset acquisitions occurring during the
respective periods.

INTEREST EXPENSE: Interest expense of $47,574 incurred by the Company for the
six months ended June 30, 2000, includes accrued interest payable to Mr. Carr
in the amount of $44,682, of which $37,858 was

<PAGE>

accrued during the three months ended June 30, 2000. Internet Law Library
calculates the interest based on the terms of ten unsecured promissory notes
payable in the total amount of $1,400,000 extended to Mr. Carr. There was no
interest expense incurred in 1999.

LIQUIDITY AND CAPITAL RESOURCES

The Company's ability to execute its business strategy depends to a
significant degree on its ability to attract additional capital. The
Company's principal demands for liquidity are cash for operations and funds
for investment in new database content.

For the six months ended June 30, 2000, Internet Law's cash and cash
equivalents increased by $85,599 from the December 31,1999 balance of $78,544
to $164,143 at June 30, 2000. Cash used in operating and investing activities
was $2,006,121 and $2,291,103, respectively. These uses were funded by
advances from a related party and issuances of convertible preferred stock.
Mr. Carr, Internet Law's Chairman, President, and Chief Executive Officer,
made advances to the Company amounting to $1,400,000 during the six months
ended June 30, 2000. These advances are represented by notes payable extended
by Internet Law to Mr. Carr, and Mr. Carr has provided a written commitment
to the Company to provide forbearance and extend the due date on such notes,
if to demand payment would impair Internet Law's ability to meet its other
existing liabilities and commitments. This commitment is effective for notes
between Internet Law and Mr. Carr with maturity dates through March 2001.

On May 11, 2000, Internet Law entered into an intermediate financing
agreement with a private capital fund, and privately placed 300 shares of 5%
Series A Convertible Preferred Stock for $3 million. This preferred stock is
convertible into shares of Internet Law's common stock based on a price equal
to the lesser of (i) $3.2375 or (ii) 80% of the average of the three lowest
closing bid prices during a 20-day trading period prior to the date of
conversion. Internet Law is entitled to redeem the convertible preferred
stock at a cash price equal to 120% of the issue price, provided there is an
effective registration statement for the underlying shares of common stock.
On July 5, 2000. the SEC declared effective the registration statement filed
by Internet Law, which registered an amount of shares of its common stock
sufficient to satisfy any conversion, warrant exercise, and dividend
requirements under the terms of this financing agreement. As part of this
financing agreement, Internet Law has agreed to issue a five-year warrant to
the investor for the purchase of 500,000 shares of its common stock at an
exercise price of $3.56 per share. The estimated fair value of this warrant
totaled $1,114,500 and has been recorded in stockholders' equity. The
convertible preferred stock purchased by the investor is also subject to
mandatory redemption by Internet Law upon the occurrence of a change in
control or certain other events. Additionally, the Company agreed to issue a
five-year warrant to a third party for the purchase of 200,000 common shares
at an exercise price of $3.3994 per share. The estimated fair value of this
warrant totaled $493,600 and has been recorded in stockholders' equity. A
commission of $100,000 and legal fees of $30,000 related to acquiring this
financing arrangement were recorded in stockholders' equity.

Internet Law is also negotiating and attempting to close an equity line for
$25 million with a private funding source. It is anticipated that the
additional funds will be used for operations, production of new database
content, and increased marketing of our products.

The Company is actively pursuing acquisition of information companies that
will assist and complement our commitment to provide superior access to and
use of all types of information resources for increasing business, services
and knowledge. By expanding

<PAGE>

our information resource capabilities beyond the legal industry and through
the use of our powerful search engines, we intend to become one of the
world's most favored information source for data retrieval of all types. It
is expected that increased industry exposure to our products through
advertising, publications, and participation in major legal industry meetings
and conferences will cause our sales to continue to increase at a minimum of
20 percent per quarter, and additional sales increases of 25 percent or more
are expected through merger and acquisition activity. We anticipate that
major content additions, including the addition of statutes and case law for
all states and large portions of federal law, will have been completed by
December 31, 2000, at a minimum average monthly cost of $150,000, which
represents a significant cost savings due to the acquisition of ITIS. While
the concentration of our content building activities in the near term are in
increased content additions related to the legal industry, future plans
include branching out our information resource capabilities into other areas.
Capital expenditures for the balance of 2000 are expected to be insignificant.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

During the six months ended June 30, 2000, the Company's short-term
investments consisted of corporate debt securities supported by letters of
credit which are classified as "securities available for sale" and are
reported at their fair value with accrued interest expense and income
recorded when such securities are purchased and sold, respectively. As of
June 30, 2000, the Company held $1,650,000 in such investments.

The Company is exposed to interest rate risk, as additional financing may be
needed due to the operating losses and capital expenditures associated with
establishing and expanding the Company's business. The interest rate that the
Company will be able to obtain on debt financing will depend on market
conditions at the time such financing is arranged.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In September 1999, Loislaw.com, Inc. commenced legal proceedings in
the District Court of Harris County, Texas, 11th Judicial District (Case No.
1999-45563), against the Company, National Law and ITIS ("Defendants").
Loislaw, a competitor of the Company, alleged that ITIS breached an agreement
between Lois and ITIS by allegedly providing certain materials to National
Law for use on National Law's web site. The suit seeks, among other things,
to enjoin National Law from utilizing such material, certain unspecified
actual damages for alleged loss of market value and alleged loss of profits.
In October, Defendants answered the lawsuit with general and special denials
of Lois' claims. At the same time, discovery procedures were commenced and
Lois and Defendants filed responses to one another's written discovery
requests. Depositions are scheduled for August 21-23, 2000, and trial is set
for October 23. Loislaw's counsel has withdrawn and new counsel has been
substituted, with assurances to the court that the substitution of counsel
would not delay the trial. Management of Internet Law believes the suit has
no merit and intends to continue to vigorously defend the case.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

During the three months ended June 30, 2000, Internet Law issued and sold
unregistered shares of its common stock to the persons described below:

1. In May 2000, we issued 1,000,000 shares of our common stock to TCA
Investment in exchange for its shares of ITIS valued at $3,502,000.

2. In May 2000, we issued 750,000 shares of our common stock to Thayer
Investment Co. in exchange for its shares of ITIS valued at $2,626,500.

<PAGE>

3. In May 2000, we issued 500,000 shares of our common stock to Kelley V.
Kirker in exchange for his shares of ITIS valued at $1,751,000.

4. In May 2000, we issued 300,000 shares of our common stock to Homer E. Young
in exchange for his shares of ITIS valued at $1,050,600.

5. In May 2000, we issued 250,000 shares of our common stock to Franklin C.
Fisher in exchange for his shares of ITIS valued at $1,030,000.

6. In May 2000, we issued 250,000 shares of our common stock to Michael J.
Hluchanek in exchange for his shares of ITIS valued at $875,500.

7. In May 2000, we issued 250,000 shares of our common stock to George A.
Roberts, Trustee in exchange for his shares of ITIS valued at $875,500.

8. In May 2000, we issued 250,000 shares of our common stock to Steven L. Tebo
in exchange for his shares of ITIS valued at $1,030,000.

9. In May 2000, we issued 200,000 shares of our common stock to Belmont
Equities in exchange for its shares of ITIS valued at $700,400.

10. In May 2000, we issued 196,003 shares of our common stock to Hunter M. A.
Carr in exchange for his shares of ITIS valued at $686,403.

11. In May 2000, we issued 180,000 shares of our common stock to International
Fluid Dynamics in exchange for its shares of ITIS valued at $630,360.

12. In May 2000, we issued 150,000 shares of our common stock to Donald H.
Kellam in exchange for his shares of ITIS valued at $525,300.

13. In May 2000, we issued 150,000 shares of our common stock to Edward P.
Stevens in exchange for his shares of ITIS valued at $525,300.

14. In May 2000, we issued 125,000 shares of our common stock to Donald
Zwernemann, Nominee in exchange for his shares of ITIS valued at $437,750.

15. In May 2000, we issued 50,000 shares of our common stock to J. Michael
Duncan, M.D. in exchange for his shares of ITIS valued at $175,100.

16. In May 2000, we issued 50,000 shares of our common stock to Nommensen &
Williams in exchange for its shares of ITIS valued at $175,100.

17. In May 2000, we issued 50,000 shares of our common stock to Tim Thomas in
exchange for his shares of ITIS valued at $175,100.

18. In May 2000, we issued 25,000 shares of our common stock to Eugene A.
Cernan in exchange for his shares of ITIS valued at $87,550.

19. In May 2000, we issued 25,000 shares of our common stock to Alan Gugenheim
in exchange for his shares of ITIS valued at $87,550.

20. In May 2000, we issued 25,000 shares of our common stock to David P.
Harriman in exchange for his shares of ITIS valued at $87,550.

21. In May 2000, we issued 25,000 shares of our common stock to W. B. Rae in
exchange for his shares of ITIS valued at $87,550.

<PAGE>

22. In May 2000, we issued 25,000 shares of our common stock to Donald W.
Sapaugh in exchange for his shares of ITIS valued at $87,550.

23. In May 2000, we issued 25,000 shares of our common stock to Southerland
Group in exchange for its shares of ITIS valued at $87,550.

24. In May 2000, we issued 22,500 shares of our common stock to Esmerian, Inc.
in exchange for its shares of ITIS valued at $78,795.

25. In May 2000, we issued 20,100 shares of our common stock to Ramona Anderson
in exchange for her shares of ITIS valued at $70,390.

26. In May 2000, we issued 18,000 shares of our common stock to Morris H.
Chapman in exchange for its shares of ITIS valued at $63,036.

27. In May 2000, we issued 15,000 shares of our common stock to Bobby Forshe in
exchange for his shares of ITIS valued at $52,530.

28. In May 2000, we issued 15,000 shares of our common stock to Jimmy Langham,
Jr. in exchange for his shares of ITIS valued at $52,530.

29. In May 2000, we issued 15,000 shares of our common stock to Paul Ledbetter
in exchange for his shares of ITIS valued at $52,530.

30. In May 2000, we issued 13,000 shares of our common stock to Ronald W.
Vickers in exchange for his shares of ITIS valued at $45,526.

31. In May 2000, we issued 10,000 shares of our common stock to Damaris Gore in
exchange for her shares of ITIS valued at $35,020.

32. In May 2000, we issued 10,000 shares of our common stock to Debbie L. Levy
in exchange for her shares of ITIS valued at $35,020.

33. In May 2000, we issued 10,000 shares of our common stock to Marie Anne
Shultz in exchange for her shares of ITIS valued at $35,020.

34. In May 2000, we issued 9,000 shares of our common stock to James I. Dunn in
exchange for his shares of ITIS valued at $31,518.

35. In May 2000, we issued 5,000 shares of our common stock to Eric Brauel in
exchange for its shares of ITIS valued at $17,510.

36. In May 2000, we issued 5,000 shares of our common stock to Murray Fogler in
exchange for his shares of ITIS valued at $17,510.

37. In May 2000, we issued 5,000 shares of our common stock to Robert M.
Peoples in exchange for his shares of ITIS valued at $17,510.

38. In May 2000, we issued 5,000 shares of our common stock to Jack & Alaine
Reid in exchange for their shares of ITIS valued at $17,510.

39. In May 2000, we issued 4,000 shares of our common stock to K. Charles
Peterson in exchange for his shares of ITIS valued at $14,008.

40. In May 2000, we issued 3,500 shares of our common stock to Donna Kennedy in
exchange for her shares of ITIS valued at $12,257.

<PAGE>

41. In May 2000, we issued 3,300 shares of our common stock to Robert Sarlay in
exchange for his shares of ITIS valued at $11,557.

42. In May 2000, we issued 2,000 shares of our common stock to Ed Junell in
exchange for his shares of ITIS valued at $7,004.

43. In May 2000, we issued 1,500 shares of our common stock to Tim Von Kennel
in exchange for her shares of ITIS valued at $5,253.

44. In May 2000, we issued 1,000 shares of our common stock to Vaughn Pederson
in exchange for his shares of ITIS valued at $3,502.

45. In May 2000, we issued 500 shares of our common stock to John R. DeBusk in
exchange for his shares of ITIS valued at $1,751.

46. In May 2000, we issued 500 shares of our common stock to Fred J. Ramski in
exchange for his shares of ITIS valued at $1,751.

47. In June 2000, we issued 21,825 shares of our common stock to Value Plus
Marketing Inc. as a fee for services valued at $60,018.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Agreement and Plan of Reorganization dated March 25, 1999,
between Planet Resources, National Law and the stockholders of
National (incorporated by reference to Exhibit A to Company's
Form 8-K filed on April 2, 1999).

2.2 First Amendment to Agreement and Plan of Reorganization dated
as of March 30, 1999, between Planet Resources, National Law
and the stockholders of National Law (incorporated by
reference to Exhibit 2.2 to Company's Form 10-K filed on
October 13, 1999).

2.3 Agreement and Plan of Distribution dated as of March 25, 1999,
between Planet Resources, New Planet Resources, Inc. and
National Law (incorporated by reference to Annex B to
Company's Information Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934 filed on April 19, 1999).

2.4 Contract for Sale of Stock, dated November 8, 1999, by and
between John R. Marsh, Ronald W. Hogan, and Charles E. Bowen,
Jr., as Sellers, and the Company, as Buyer (incorporated by
reference to Exhibit 2.1 to the Company's Form 8-K filed on
November 30, 1999).

2.5 Option Agreement to Purchase Stock, dated November 8, 1999, by
and between the Company, as Seller, and Ronald W. Hogan, as
Optionee (incorporated by reference to Exhibit 2.2 to the
Company's Form 8-K filed on November 30, 1999).

<PAGE>

EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.6 Option Agreement to Purchase Stock, dated November 8, 1999, by
and between the Company, as Seller, and Charles E. Bowen, Jr.,
as Optionee (incorporated by reference to Exhibit 2.3 to the
Company's Form 8-K filed on November 30, 1999).

2.7 Option Agreement to Purchase Stock, dated November 8, 1999, by
and between the Company, as Seller, and John R. Marsh, as
Optionee (incorporated by reference to Exhibit 2.4 to the
Company's Form 8-K filed on November 30, 1999).

2.8 Contract for Sale of Stock, dated December 8, 1999, by and
between David P. Harriman, Andrew Wyszkowski, Eugene Meyung,
Suzanne Meyung, and Christina Brown, as Sellers, and the
Company, as Buyer (incorporated by reference to Exhibit 2.7 to
the Company's Form 8-K filed December 23, 1999).

2.9 Stock Exchange Agreement by and among the Company and the
Shareholders of ITIS relating to the acquisition of all of the
outstanding stock of ITIS, dated April 30, 2000 (incorporated
by reference to Exhibit 2.9 to the Company's Form 10-K/A filed
on May 19, 2000).

3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to the Annex A of the
Company's Definitive Proxy Statement on Schedule 14A filed on
January 31, 2000).

3.2 Bylaws of the Company, as amended (incorporated by reference
to Exhibit 3.2 to Company's Form 10-K filed on October 13,
1999).

3.3 Certificate of Designation for the Company's 5% Series A
Convertible Preferred Stock (incorporated by reference to
Exhibit 3.3 to Form 10-K/A filed on May 19, 2000).

10.1 Option Agreement between the Company and Hunter M. A. Carr
(incorporated by reference to Exhibit B to Schedule 13D filed
on October 12, 1999, by Hunter M. A. Carr).

10.2 Option Agreement between the Company and Jack I. Tompkins
(incorporated by reference to Exhibit B to Schedule 13D filed
on October 12, 1999, by Jack I. Tompkins).

10.3 Consulting Agreement between National Law and Castle
Development, Ltd. (incorporated by reference to Exhibit 4(A)
to Company's Registration Statement on Form S-8 filed on April
2, 1999).

10.4 Continuing Service Agreement between National Law and ITIS,
effective December 1, 1998 (incorporated by reference to
Exhibit 10.4 to the Company's Form 10-K filed on October 13,
1999).

10.5 Management and Financial Services Agreement between National
Law and ITIS, effective March 1, 1999 (incorporated by
reference to Exhibit 10.5 to the Company's Form 10-K filed on
October 13, 1999).

<PAGE>

EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.6 Software Development and Consulting Agreement between National
Law and ITIS, dated March 24, 1999 (incorporated by reference
to Exhibit 10.6 to the Company's Form 10-K filed on October
13, 1999).

10.7 Option Agreement to Purchase Stock, effective March 30, 1999,
by and between the Company and Jonathan Gilchrist
(incorporated by reference to Exhibit 10.7 to the Company's
Form 10-K filed on October 13, 1999).

10.8 Planet Resources 1999 Stock Option Plan (incorporated by
reference to Exhibit 10.1 to Company's Form 10-K/A filed on
October 28, 1999).

10.9 Planet Resources Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.2 to Company's Form 10-K/A filed on
October 28, 1999).

10.10 New Planet Resources, Inc. Stock Incentive Plan (incorporated
by reference to Exhibit 10.3 to Company's Form 10-K/A filed on
October 28, 1999).

10.11 Planet Resources 1999 Director Option Plan (incorporated by
reference to Exhibit 10.4 to Company's Form 10-K/A filed on
October 28, 1999).

10.12 Consulting and Option Agreement by and between ITIS, Frank
Fisher and Steve Tebo, dated January 22, 2000, as amended
(incorporated by reference to Exhibit 10.12 to the Company's
Form 10-K/A filed on May 19, 2000).

10.13 Convertible Preferred Stock Purchase Agreement by and among
the Company and Cootes Drive LLC, dated May 11, 2000
(incorporated by reference to Exhibit 10.13 to the Company's
Form 10-K/A filed on May 19, 2000).

10.14 Warrant to purchase 500,000 shares of the Company's common
stock issued to Cootes Drive LLC, dated May 11, 2000
(incorporated by reference to Exhibit 10.14 to the Company's
Form 10-K/A filed on May 19, 2000).

10.15 Registration Rights Agreement by and among the Company and
Coots Drive LLC, dated May 11, 2000 (incorporated by reference
to Exhibit 10.15 to the Company's Form 10-K/A filed on May 19,
2000).

10.16 Warrant to purchase 200,000 shares of the Company's common
stock issued to Aspen Capital Partners, Inc., dated May 19,
2000 (incorporated by reference to Exhibit 10.16 to the
Company's Form 10-K/A filed on May 19, 2000).

16.1 Letter, dated April 5, 2000, from Harper & Pearson Company to
the Securities and Exchange Commission (incorporated by
reference to Exhibit 16.1 to the Company's Form 8-K/A filed on
April 5, 2000).

27.1 Financial Data Schedule for the six months ended June 30,
2000.
</TABLE>

<PAGE>

(b) Reports on Form 8-K

The following reports on Form 8-K were filed during the quarter for
which this report is filed:

(1) Form 8-K/A filed on April 5, 2000, reporting under Item 4, the
dismissal of Internet Law's independent auditors and the
appointment of Arthur Andersen LLP as Internet Law's new
independent auditors.

(2) Form 8-K filed on May 15, 2000, reporting under Item 2 the
acquisition of all the outstanding stock of ITIS, Inc.

<PAGE>

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.

INTERNET LAW LIBRARY, INC.

August 14, 2000 /s/ HUNTER M.A. CARR
-------------------------------------
Hunter M.A. Carr
President and Chief Executive Officer

August 14, 2000 /s/ JOANNA HOOVER
-------------------------------------
Joanna Hoover
Principal Accounting Officer

20
<PAGE>

EXHIBITS

2.6 Option Agreement to Purchase Stock, dated November 8, 1999, by
and between the Company, as Seller, and Charles E. Bowen, Jr.,
as Optionee (incorporated by reference to Exhibit 2.3 to the
Company's Form 8-K filed on November 30, 1999).

3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to the Annex A of the
Company's Definitive Proxy Statement on Schedule 14A filed on
January 31, 2000).

3.2 Bylaws of the Company, as amended (incorporated by reference
to Exhibit 3.2 to

<PAGE>

EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
Company's Form 10-K filed on October 13, 1999).

3.3 Certificate of Designation for the Company's 5% Series A
Convertible Preferred Stock (incorporated by reference to
Exhibit 3.3 to Form 10-K/A filed on May 19, 2000).

10.1 Option Agreement between the Company and Hunter M. A. Carr
(incorporated by reference to Exhibit B to Schedule 13D filed
on October 12, 1999, by Hunter M. A. Carr).

10.2 Option Agreement between the Company and Jack I. Tompkins
(incorporated by reference to Exhibit B to Schedule 13D filed
on October 12, 1999, by Jack I. Tompkins).

10.3 Consulting Agreement between National Law and Castle
Development, Ltd. (incorporated by reference to Exhibit 4(A)
to Company's Registration Statement on Form S-8 filed on April
2, 1999).

10.4 Continuing Service Agreement between National Law and ITIS,
effective December 1, 1998 (incorporated by reference to
Exhibit 10.4 to the Company's Form 10-K filed on October 13,
1999).

10.6 Software Development and Consulting Agreement between National
Law and ITIS, dated March 24, 1999 (incorporated by reference
to Exhibit 10.6 to the Company's Form 10-K filed on October
13, 1999).

10.8 Planet Resources 1999 Stock Option Plan (incorporated by
reference to Exhibit 10.1 to Company's Form 10-K/A filed on
October 28, 1999).

10.9 Planet Resources Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.2 to Company's Form 10-K/A filed on
October 28, 1999).

10.10 New Planet Resources, Inc. Stock Incentive Plan (incorporated
by reference to Exhibit 10.3 to Company's Form 10-K/A filed on
October 28, 1999).

10.11 Planet Resources 1999 Director Option Plan (incorporated by
reference to Exhibit 10.4 to Company's Form 10-K/A filed on
October 28, 1999).

<PAGE>

EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.13 Convertible Preferred Stock Purchase Agreement by and among
the Company and Cootes Drive LLC, dated May 11, 2000
(incorporated by reference to Exhibit 10.13 to the Company's
Form 10-K/A filed on May 19, 2000).

10.15 Registration Rights Agreement by and among the Company and
Coots Drive LLC, dated May 11, 2000 (incorporated by reference
to Exhibit 10.15 to the Company's Form 10-K/A filed on May 19,
2000).

27.1 Financial Data Schedule for the six months ended June 30,
2000.
</TABLE>