SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997 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 0-26548
Legal Research Center, Inc.
(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-1680384
(State Or Other Jurisdiction (IRS Employer Identification No.)
Of Incorporation)
700 Midland Square Building, 331 Second Avenue So., Minneapolis, MN 55401
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 612/332-4950
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)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
3,327,633 shares of Common Stock as of May 14, 1998
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 ............................ 2
Consolidated Statements of Operations
Three Months Ended March 31, 1998 and 1997...................... 3
Consolidated Statements of Stockholders' Equity ................... 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997...................... 5
Notes to Consolidated Financial Statements ........................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 6
<PAGE>
PART I. FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
ASSETS 1998 1997
====================================================================================
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 119,286 $ 165,924
Accounts receivable 359,963 277,144
Note receivable 60,000 60,000
Other 68,400 43,399
----------- -----------
TOTAL CURRENT ASSETS 607,649 546,467
----------- -----------
FURNITUIRE AND EQUIPMENT 362,247 362,247
Less accumulated depreciation 268,659 245,632
----------- -----------
93,588 116,615
----------- -----------
OTHER ASSETS
Notes receivable, net of $113,500 45,959 60,959
allowance for doubtful accounts
Intangible assets 310,193 313,624
----------- -----------
356,152 374,583
----------- -----------
$ 1,057,389 $ 1,037,665
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
====================================================================================
Current Liabilities
Accounts payable $ 154,773 $ 57,411
Accrued expenses:
Compensation 53,285 48,899
Other 28,078 21,394
Client Advances 42,543 26,773
----------- -----------
TOTAL CURRENT LIABILITIES 278,679 154,477
----------- -----------
Stockholders' Equity
Common stock, $0.01 par value;
(authorized 20,000,000 shares; issued -
3,327,633 and 3,297,633 shares
respectively)
33,276 33,276
Additional paid-in capital 6,870,007 6,870,007
Accumulated deficit (4,158,323) (4,053,845)
Notes receivable from officers and directors (1,966,250) (1,966,250)
----------- -----------
778,710 883,188
----------- -----------
$ 1,057,389 $ 1,037,665
=========== ===========
</TABLE>
See Notes to Consolidated Financial
Statements (unaudited)
2
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Three Months Three Months
Ended March 31, Ended March 31,
-----------------------------------
1998 1997
-----------------------------------
REVENUES $ 446,409 $ 532,535
DIRECT OPERATING COSTS
Compensation and benefits 154,599 245,396
Other 21,801 92,218
----------- -----------
Total direct operating costs 176,400 337,614
----------- -----------
GROSS PROFIT 270,009 194,922
----------- -----------
OTHER OPERATING COSTS
Sales and marketing 311,837 204,199
General and administrative 64,527 234,870
----------- -----------
Total other operating costs 376,364 439,070
----------- -----------
LOSS FROM OPERATIONS (106,355) (244,148)
OTHER INCOME (EXPENSE)
Interest Income 2,004 9,965
Interest Expense (127) (257)
LOSS FROM CONTINUING OPERATIONS $ (104,478) $ (234,440)
=========== ===========
DISCONTINUED OPERATIONS
----------- -----------
Loss from operations $- $ (212,457)
----------- -----------
NET LOSS $ (104,478) $ (446,897)
=========== ===========
=========== ===========
NET LOSS PER COMMON SHARE $ (0.05) $ (0.20)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,272,633 2,257,633
=========== ===========
See Notes to Consolidated Financial
Statements (unaudited)
3
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Common Stock Additional
---------------------------- Paid-in Accumulated Notes
Shares Amount Capital Deficit Receivable Total
------ ------ ------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995 2,135,833 $21,358 $4,551,634 $(332,288) $ -- $4,240,704
Issuance of stock to purchase
The Law Office, Inc. 121,800 1,218 242,382 -- -- 243,600
Issuance of stock options to
purchase The Law Office, Inc. -- -- 15,441 -- -- 15,441
Issuance of shares subject to a
stock subscription agreement 1,040,000 10,400 1,955,850 -- (1,966,250) --
Net loss -- -- -- (1,656,553) -- (1,656,553)
--------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 3,297,633 32,976 6,765,307 (1,988,841) (1,966,250) 2,843,192
Expiration on repurchase option
on common stock 30,000 300 104,700 105,000
Net Loss -- -- -- (2,065,004) -- (2,065,004)
--------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 3,327,633 33,276 6,870,007 (4,053,845) (1,966,250) 883,188
Net Loss -- -- -- (104,478) -- (104,478)
BALANCE MARCH 31, 1998 3,327,633 $33,276 $6,870,007 $(4,158,323) $(1,966,250) $778,710
============================================================================================
</TABLE>
See Notes to Consolidated Financial
Statements (unaudited)
4
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Three Months Ended
March 31 March 31
---------------------------------------
1998 1997
---------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(104,478) $(446,897)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation 23,027 26,325
Amortization and write-off of intangible assets and capitalized
development costs 3,431 64,109
(Gain) loss on disposal of furniture and equipment (50) 1,606
Change in assets and liabilities
Trade accounts receivable and unbilled services (82,819) 179,509
Other current assets (25,001) (63,420)
Accounts payable 97,362 (137,470)
Accrued expenses 11,070 12,809
Client advances 15,770 28,121
--------- ---------
Net cash used in operating activities (61,688) (335,308)
--------- ---------
INVESTING ACTIVITIES
Proceeds from the sale of furniture and equipment 50 1,268
Capitalized development costs -- (49,300)
Cash received on notes receivable 15,000 --
--------- ---------
Net cash provided (used) by investing 15,050 (48,032)
activities
--------- ---------
FINANCING ACTIVITIES
Payments on noncompete agreements -- (4,127)
--------- ---------
Net cash used in financing activities -- (4,127)
--------- ---------
--------- ---------
(Decrease) increase in cash and cash (46,638) (387,467)
equivalents
--------- ---------
Cash and cash equivalents
Beginning of period 165,924 955,600
--------- ---------
End of period $119,286 $568,133
========= =========
</TABLE>
5
<PAGE>
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(unaudited)
Basis Of Presentation: The interim financial statements are unaudited, but in
the opinion of management reflect all adjustments necessary for a fair
presentation of results of such periods. All such adjustments are of a normal
recurring nature. The results of operations for any interim period are not
necessarily indicative of results for a full fiscal year. These financial
statements should be read in conjunction with the audited financial statements
and notes thereto, for the year ended December 31, 1997.
Principles Of Consolidation: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, The Law Office, Inc.
(TLO) and its eighty-five percent owned subsidiary, The CyberLaw Office, Inc.
(CLO). All significant inter company accounts and transactions have been
eliminated.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Net Loss Per Common Share: Net loss per common share is computed on the basis of
the weighted average number of common shares outstanding during the respective
periods.
Major Customers: Two customers accounted for 30.66% and 11.77% respectively, of
the Company's total revenues for the quarter ended March 31, 1998. These same
customers accounted for 1.5% and 20.6%, respectively, of the Company's total
revenues for the same period in 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information that the Company's
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the financial statements and footnotes which appear
elsewhere in this Report and the Company's annual report for 1997 on Form
10-KSB.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions readers that statements
contained herein, other than historical data, may be forward-looking and subject
to risk and uncertainties including, but not limited to the continuation of
revenues through the Company's strategic alliances and the successful
development of other new business. The following important factors could cause
the Company's actual results to differ materially from those projected in
forward-looking statements made by or on behalf of, the Company:
o Failure of the Company or its partners to successfully expand its
market share and sell products and services.
o Company's inability to produce and deliver its products and services
at margins sufficient to cover operating costs.
o Company's inability to continue operating due to insufficient cash or
capital and continued losses.
o Company's dependence on a major customer or customers.
o Effectiveness of restructuring and cost cutting measures implemented
in 1997 by the Company to increase its gross margin and decrease
sales and general and administrative expenses.
6
<PAGE>
In addition, as a result of the delisting of the Company's common stock from the
Nasdaq SmallCap Market, described below, investors may suffer a loss of
liquidity in the shares and the Company may have difficulty raising funds in the
capital markets. Although the Company anticipates that its common stock will
trade on the Nasdaq "bulletin board" or in the local over-the-counter market,
there can be no assurance that such a market will develop or be maintained.
The Company's revenues have historically been derived from conducting analytical
research and writing on a non-recurring basis for its customers. Historically,
the Company has experienced a seasonal fluctuation in revenues with second and
third quarters being the slowest quarters of the year and the last quarter being
the strongest. The Company has developed and implemented programs designed to
attract customers to enter into long term relationships to provide greater
consistency in quarterly revenues.
RESULTS OF OPERATIONS
Revenues: Revenues decreased by $86,126 or 16% to $446,409 for the three month
period ended March 31,1998 over the same period of 1997. The decrease is
primarily attributable to the elimination of on-site library services in second
quarter 1997 that had produced revenues of $64,600 for first quarter 1997, and a
decrease in multi-jurisdictional surveys for first quarter 1998 offset by a 15%
increase in core research business.
Direct Operating Costs: Direct operating costs for compensation and other
benefits include hourly contract fees for independent research attorneys and
hourly compensation of staff research attorneys, document production and support
personnel. Other direct operating costs include outside research fees and
services, royalty fees for association referrals, computer database charges,
project data conversion fees, photocopying, and document retrieval expenses.
Total direct operating costs decreased $161,214 or 48% for the three months
ended March 31, 1998 from the same period in 1997. This decrease in operating
costs is primarily due to lower personnel costs, computer database charges, and
photocopying expense. Personnel costs decreased due to the continued downsizing
of the Company's infrastructure through February 1998. Computer database and
photocopying charges have decreased due to improved efficiencies of the
Company's research staff.
Direct operating costs, expressed as a percentage of revenue, decreased from
63.4 % to 39.5% for the three months ended March 31, 1998 from the same period
in 1997, for the reasons discussed above.
Gross Profit: Gross profit increased by $75,088, or 38.5% to $270,009 over March
31, 1997 gross profit of $194,921. As a percentage of revenue, gross profit
increased from 36.6% to 60.5%, primarily as a result of the decrease in direct
operating costs discussed above.
Other Operating Costs: Other operating costs include compensation of officers
and corporate staff, advertising and direct marketing expenditures and general
corporate overhead, including depreciation and amortization. Other operating
costs decreased by $62,705 or 14.3% for the three months ended March 31, 1998
from the same period in 1996. The decrease in other operating costs by category
was primarily attributed to a decrease in general and administrative of $170,343
or 72.5% offset by an increase in marketing and sales of $107,638 or 52.7%.
General and administrative costs decreased due to downsizing of the Company's
infrastructure and continued efforts to control costs. The increase in marketing
and sale is primarily due to increased direct mailings and marketing.
Other Income and Expense: Interest income decreased $7,961 for the three months
ended March 31, 1998 from the comparable period in 1997. The decrease was a
result of less cash invested in interest bearing accounts.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company continued to use the proceeds from its initial public offering in
August 1995 to partially fund first quarter 1998 operating costs. In addition,
the Company continues to look for other marketing and development opportunities
and alliances to increase revenues and cash flow. At March 31, 1998 the Company
had cash and cash equivalents of $119,286 and working capital of $328,970.
Cash used in operating activities was $61,688 in the first three months of 1998.
This use of cash is primarily the result of a $87,568 net loss before
depreciation and other non-cash charges, a $82,819 increase in accounts
receivable and unbilled services, offset by a $97,362 increase in accounts
payable.. The Company expects by end of second quarter 1998, expenditures in the
core research business will be funded almost exclusively by funds generated from
operations.
Investing activity for the first three months of 1998 was $15,050 principally as
a result of cash received on a note receivable and proceeds from the sale of
equipment. The Company used $0 in financing activities for first quarter of
1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LEGAL RESEARCH CENTER, INC.
Dated: March 14, 1998 By: /s/ Christopher R. Ljungkull
-----------------------------
Christopher R. Ljungkull
Chief Executive Officer
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Quarter ended and three months ended March 31, 1998 Financial Statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 119,286
<SECURITIES> 0
<RECEIVABLES> 488,363
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 963,801
<PP&E> 362,247
<DEPRECIATION> 268,659
<TOTAL-ASSETS> 1,057,389
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 33,276
<OTHER-SE> 1,024,113
<TOTAL-LIABILITY-AND-EQUITY> 1,057,389
<SALES> 0
<TOTAL-REVENUES> 446,409
<CGS> 0
<TOTAL-COSTS> 176,400
<OTHER-EXPENSES> 376,364
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127
<INCOME-PRETAX> (104,478)
<INCOME-TAX> 0
<INCOME-CONTINUING> (104,478)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (104,478)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
