SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997 or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________ to ____________.
Commission file number 0-26548
Legal Research Center, Inc.
(Name of Small Business Issuer in Its Charter)
Minnesota 41-1680384
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
700 Midland Square Building, 331 Second Ave. So., Minneapolis, MN 55401
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: 612/332-4950
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
(Title of Class)
Check whether the issuer filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
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[Cover page 1 of 2 pages]
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $1,779,033
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and ask prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.)
$1,454,176 as of March 13, 1998
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
3,327,633 shares of Common Stock as of March 13, 1998
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security-holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933. The listed documents should be
clearly described for identification purposes (e.g., annual report to
security-holders for fiscal year ended December 31, 1996).
Definitive Proxy Statement of Legal Research Center, Inc., relating to the
Annual Meeting of Shareholders to be held in June 1998 (the "1998 Proxy
Statement") (incorporated by reference into Part III of this Form 10-KSB).
[Cover page 2 of 2 pages]
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PART I
Item 1. DESCRIPTION OF BUSINESS
General
Legal Research Center, Inc. (the "Company" or "LRC") became a
publicly-owned company in August 1995. The Company provides outsourced legal and
factual research, writing and support services to U.S. and Canadian attorneys in
corporate and private practice. LRC utilizes a carefully selected group of
attorneys to provide value-added services to its customers by (i) conducting
computerized and manual legal and factual information research and analysis and
(ii) preparing written memoranda, formal court-ready legal briefs and surveys of
the law. As an adjunct to its core services, the Company also provides contract
attorneys to law firms and corporate law departments on a temporary or permanent
basis, library management services and non-legal research services to the
general public.
Business Highlights
Revenues fell from 1996 to 1997. Revenues other than from a major project
from Bankers Systems, Inc. which was delivered December 31, 1996 - increased.
The Company's core revenues of memorandum/brief research and writing were up 56%
from 1996 to 1997. 1997 core research revenues increased to $864,585 compared to
1996 core research revenues of $553,071. Revenues from attorneys working for
Risk Enterprise Management (REM) - which manages the claims of insurance
companies such as Home Insurance - are expected to reach $250,000 in 1998. Those
revenues were $131,082 in 1997.
The growth the Company experienced from 1995 to 1996 required it to build
significant infrastructure. This enlarged infrastructure was necessitated by the
major project with Bankers Systems, Inc. in 1996. When that project concluded,
the Company expected to replace that revenue immediately through the efforts of
LRC's new sales force.
Gross margin increased in 1997 - from 39 cents for every $1 of revenue in
1996 to 40 cents for every dollar of revenue. The Company took steps in the last
quarter of 1997 to increase gross margin further by lowering the cost of
producing research and raising prices. From the Fall of 1996 to February of
1998, gross margins more than doubled - from 27% to 56%, and the Company expects
this trend to continue.
The Company also cut overhead - including ceasing to fund The Law Office,
to which the Company had advanced advanced $1,321,300 as working capital as of
June 30, 1997, It also reduced management compensation by 10%- 30% per person
and reduced non-research staff from 41 to 11. Most of these changes came about
in the second half of 1997 and continued into the first two months of 1998.
Overhead in 1996 averaged $225,000 per month. In 1997 it averaged $140,000 per
month.
These efforts have had a positive impact on the Company's use of cash. In
1996 it used $1.9 million of its cash, in 1997 it used $600,000. Use of cash
fell significantly after discontinuation of operations of TLO and other cost
reductions. In February the Company used approximately $13,000 of its cash.
Industry Overview
U.S. Industrial Outlook 1994 estimated that over $97 billion was spent in
1994 in the U.S. on legal services and that such expenditures have increased
significantly over the past ten years. In advising clients
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on the routine legal and practical aspects of their business transactions and
dealings, and in advocating positions in court on behalf of clients, attorneys
in corporate and private practice rely on an analysis of applicable laws, rules,
regulations and court decisions. As federal, state and local governmental
authorities increasingly add to the myriad of laws and as the number of court
decisions proliferate, the accurate and timely analysis of the controlling law
places growing burdens on practicing private and corporate attorneys. Even with
the introduction of computerized legal databases such as West Publishing
Company's WESTLAW system and Mead Data Central, Inc.'s LEXIS/NEXIS system, a
significant portion of the average attorney's billable time is dedicated to
legal research.
In a large private law firm, an associate attorney, who typically is less
experienced than the attorney having the primary business contact with the
firm's client, is usually assigned the task of conducting all necessary legal
and factual research and of writing an internal memorandum to the senior
attorney related to the client's project or lawsuit. The memorandum, which
usually describes the controlling laws and court decisions relevant to the
issues presented, may be shared with the client in connection with strategic
decision making on a business issue or in the ongoing litigation. If the project
involves litigation, the associate attorney may also be assigned the
responsibility to prepare a legal brief for presentation to the court. A legal
brief advocates a client's legal, factual and business reasons for prevailing
over the opposing party on the issues presented to the court for adjudication.
Research and writing services, such as LRC, prepare legal memoranda and briefs
for review and use by attorneys in law firms as an alternative to internal
preparation by law firm associates.
Corporations with in-house legal counsel usually rely on their staff to
advise management on core business and legal issues. However, in-house counsel
continue to rely on private law firm support for expertise in areas outside of
the counsel's knowledge and for the conduct of litigation. As corporations seek
to improve operating efficiencies and reduce costs in all areas of their
businesses, their in-house legal counsel also seek to reduce overall outside
legal expenses. Increasingly, corporate clients have begun to treat legal
services as a commodity and have been carefully reviewing the legal fees charged
by private law firms for analytical research and writing, especially since much
of this work is performed out of the client's view and therefore cannot easily
be assessed as to its actual added value. These trends also have led
corporations to outsource their legal and factual research and writing
activities to professional research and writing companies such as LRC.
Management believes that there will be continued growth in the outsourcing of
legal and factual research and writing activities by corporations and that such
corporations will increasingly use, or require their outside counsel to use,
companies such as LRC for such purposes.
Individual attorney practitioners and small law firms often do not have the
professional support for the conduct of legal and factual research or for
writing projects. In order to accomplish necessary legal research and writing,
yet at the same time focus their efforts on direct client contact, solo
practitioners and small law firms increasingly are outsourcing their legal and
factual research and writing activities to professional companies such as LRC.
Business Overview and Initiatives
LRC's core activities consist of providing legal and factual information
research and writing services to its customers. The Company may receive
assignments from corporate in-house counsel or law firms requesting the analysis
of a single legal or factual issue or of complex, interrelated issues. Upon
receipt of an assignment, the Company assigns the project directly to one of the
Company's research attorneys who contacts the customer to obtain any additional
information necessary to understand the scope of the project and the customer's
needs. The researcher accesses available legal and other computer databases,
such as WESTLAW, LEXIS/NEXIS and DIALOG, to locate controlling laws, rules and
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regulations and court decisions relevant to the customer's research request and
conducts research manually, in order to obtain the information necessary to
complete the customer's project.
In most cases, the Company provides its customers with a finished written
work product often in the form of (i) a memorandum describing the facts of the
customer's project and setting forth the legal and factual analysis of the
issues presented, (ii) a court-ready legal brief which advocates the legal,
factual and business reasons why the customer should prevail over the opposing
party in the matter before the court for adjudication or (iii) a survey of the
applicable laws, rules and regulations in various jurisdictions on the topics
selected by the customer. In order to ensure the quality of the Company's work
product, the Company's managing research attorneys conduct a substantive and an
editorial review of legal memoranda, briefs and multi-jurisdictional surveys,
and all documents are edited and checked for proper citations.
LRC regularly seeks to create new products and value-added services for its
clients. Towards this end, the Company developed a product called
Multi-Jurisdictional Surveys. The Company prepares written reports of the laws
in various states on selected topics for corporate customers. For example, in
1996, the Company completed a large, 52 jurisdiction survey of law for the
banking and financial services industries. An attractive feature of this form of
product is that, once prepared, it can be resold to other customers who can use
this information. The Company also adds value to the product by converting all
or portions of the document into electronic form which is easier to review and
cross reference. The Company attempts to re-market these surveys to other
corporate customers and shares proceeds from remarketing with the originating
customer, thereby enabling them to recoup a substantial portion of the original
cost of the survey.
The Company had been funding development of The Law Office, Inc. (TLO)
since May 1995 and advanced $1,321,300 as working capital as of June 30, 1997,
when the Company ceased funding its operation. TLO provided content by the way
of web-sites on The Microsoft Network and the Internet. The Company determined
that TLO required substantial additional investment to achieve its economic
potential, and the Company did not believe such an expenditure was a prudent use
of its limited capital and was unsuccessful in obtaining investment from outside
investors. It ceased funding TLO as of June 30, 1997 and wrote off its
investment, while it continues to seek a partner, investor or buyer for TLO,
which is still an operating company.
In 1997, the Company continued the development of its Corporate Alternative
Dispute Resolution Enterprises (CADRE) program. An alternative dispute
resolution (ADR) system is a means to reduce the amount of courtroom litigation
and includes private arbitration and mediation. CADRE's mission is to provide
corporations with the highest quality state of the art alternative dispute
resolution training and consulting services, enabling corporate managers and
legal counsel to develop, implement and institutionalize policies for reducing
the risk and spiraling costs of litigation. Management believes that the trend
to save legal costs which have led to outsourcing of analytical research and
writing activities by corporations will also lead in-house corporate counsel
increasingly to seek ADR as a more cost-effective and efficient alternative to
litigation in resolving corporate legal disputes. The potential market for the
services of CADRE includes any industry presently committed to reducing its
conflict costs. Industries experiencing the most claims and highest conflict
costs clearly will be most interested in CADRE's services. The Company has
substantially completed the curriculum and began providing ADR consulting
services in the third quarter of 1997. The Company believes that CADRE will
create greater exposure and awareness of the Company's core research and writing
services and will create additional impetus for growth in the traditional
markets served by the Company. The Company is currently seeking to market CADRE
through insurers to their customers with large product liability exposure.
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As an adjunct to other services, the Company provides full or part-time
contract attorneys and librarians for temporary or permanent assignments to law
firms and corporate law departments. In many cases, a customer indicates to the
Company its interest in engaging the specific contract attorney who had
previously been assigned to a project for such customer. While revenues from
such services are not significant, the Company believes that offering such
value-added placement services enhances the Company's visibility and long-term
relationships with its customers. The Company also provides document retrieval
services for attorneys and the general public.
Sales and Marketing
LRC's marketing strategy centers around providing customized, value-added
solutions in response to each customer's analytical research and writing needs.
Because of the Company's historical limited marketing budget, the Company had
relied primarily on its customers' own initiatives to provide repeat business to
LRC. Since its initial public offering, the Company has been targeting
opportunities to capture an increasing share of its customers' analytical
research and writing activities by increasing its contacts with its existing
customers through direct mail, telemarketing and direct account services.
During 1997 the Company relied heavily on its expanded sales force to
maintain revenues from multijurisdictional surveys at 1996 levels and
simultaneously lowered spending on direct mail. Results were slower than
expected, and the Company decided in the 2nd Half of 1997 to reduce its sales
force and refocus on significantly increasing its direct mail program.
The Company maintains strategic marketing relationships with major law
associations and other providers of legal services. LRC believes these
relationships enhance the Company's visibility to practitioners and reputation
for quality and enable its marketing partners to offer their members a
value-added service. In 1989, the Association of Trail Lawyers of America (ATLA)
selected LRC as the exclusive designated outsourced provider of research and
writing services to its 60,000 members. Since 1990, LRC has also served the
members of the American Corporate Counsel Association (ACCA), the largest
organization serving the nation's corporate counsel. In 1997, the Company was
awarded ACCA's President's Award, an honor provided only a handful of other
legal vendors working with ACCA. The Company paid approximately $19,000 in
royalties for research and writing referrals in 1997.
In 1994, the Company entered into an agreement with West Publishing Company
pursuant to which West, the leading legal publisher in the U.S. and operator of
the WESTLAW computer legal database, exclusively refers to the Company for a fee
all requests for analytical legal and factual research and writing. The term of
the West Agreement was through June 1997, and the agreement automatically
renewed at that time for a one year period.
Customer Relationships
The Company generally operates under project-by-project contractual
agreements. The pricing component of a contract generally includes a fixed price
or an hourly rate for analytical research and writing services and separate
charges for computer database and other ancillary charges. The Company generally
charges higher hourly rates for quick turn-around service and offers discounted
rates to certain customers willing to commit to a specified usage of the
Company's services. The Company often prices multi-jurisdictional surveys of the
law on a flat fee basis.
In 1996, pursuant to a three-year contract, the Company completed a large
multi-jurisdictional survey for a customer, Bankers Systems, Inc., which
accounted for 52% of the Company's revenues. The Company continues to receive
revenue under its agreement with this customer to update the survey. That
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revenue accounted for 14% of the Company's revenues in 1997. It is not certain
that revenue from this customer will continue beyond 1998, which is the final
year of the agreement between the Company and the customer.
Executive Officers of the Company
The following sets forth biographical information for Christopher R.
Ljungkull and James R. Seidl, the executive officers of the Company.
Biographical information for directors of the Company can be found in the
Company's 1998 Proxy Statement, incorporated herein by reference.
Christopher R. Ljungkull has been Chief Executive Officer of the Company
since rejoining it on a full time basis in 1994. From 1987 to 1994, Mr.
Ljungkull served in various capacities with West Publishing Corporation, most
recently as an editor. Mr. Ljungkull is an attorney and co-founder of the
Company and has been a director since its inception.
James R. Seidl has been the President of the Company since 1988 and served
as its Chief Executive Officer prior to Mr. Ljungkull's return in 1994. Mr.
Seidl is an attorney and co-founder of the Company and has been a director of
the Company since its inception.
Personnel
As of March 12, 1998, the Company had 16 employees, including 4 full-time
research attorneys, and a pool of 25 contract attorneys. This represents a
reduction in staff of approximately 66%, attributable to lower revenue levels as
well as efficiencies in production of research and overhead expenses. Most of
the Company's contract attorneys work part-time. No Company employees are
currently represented by labor unions and the Company is not a party to any
collective bargaining agreement. The Company has never been subject to any form
of work stoppage or strike and has not experienced any labor difficulties. The
current full-time staffing level is considered to be adequate. The Company
expects that it will continue to need more contract attorneys as its business
grows and expects that it will be able to secure such attorneys as needed.
Competition
The business of providing legal research services is highly competitive and
extremely fragmented. The Company competes in the corporate market with in-house
counsel and outside law firms and individual legal practitioners, who are also
customers of the Company. For its major corporate clients, the Company competes
with larger law firms which have the financial ability to negotiate flexible fee
arrangements for their major clients. The Company also competes with other
companies, such as the National Legal Research Group and Legal Research Network,
which also provide legal research services on an outsourced basis, both of which
may have significantly greater resources than the Company and therefore may also
have the ability to compete more effectively.
Government Regulation
The Company engages attorneys as employees or independent contractors to
provide analytical research and writing services for the Company and its
customers. The practice of law is regulated by each state. The Company believes
that it is not engaged in the practice of law because it provides customized
research and writing services for other lawyers to use in connection with
representation of their clients. In addition, the Standing Committee on Ethics
and Professional Responsibility of the American Bar
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Association has taken the position that performing legal research does not
constitute the practice of law. Although the Company believes that it does not
engage in the practice of law, there can be no assurance that a state will not
take the position that the Company is improperly engaged in the practice of law
or that all of the persons providing legal research services must be licensed in
the state where the Company's customers are located.
Insurance
The Company carries property damage, workers' compensation, and D & O
insurance coverage in amounts management considers sufficient to protect the
Company. Management does not believe that the Company is engaged in the practice
of law and accordingly does not maintain any professional malpractice insurance.
Item 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters and administrative offices are located
in Minneapolis, Minnesota in an office building and consists of approximately
6,057 square feet leased office space. The Company leases the facility from a
related party under an operating lease expiring January 2001, requiring annual
rent of approximately $73,000 and a portion of the increase in tax and operating
costs over their 1993 levels. The lease is on the same terms and conditions as
the lease between the related party and the related party's landlord. Because
most of the Company's research attorneys generally office in their homes or in
public library facilities, the Company believes that the leased premises are
suitable and adequate for its current operations and its foreseeable needs. In
the event that additional space is required, the Company has the right, prior to
October 1, 1998, to expand the leased premises to include any available space in
the office building. The Company does not anticipate any difficulty in obtaining
additional premises if necessary.
Item 3. LEGAL PROCEEDINGS
The Company is not currently a party to any litigation which would likely
have a materially adverse effect on the Company's results of operations or
financial condition, if decided adversely to the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted during the fourth quarter of the Company's 1997
fiscal year to a vote of security holders, through the solicitation of proxies
or otherwise.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
The Company's Common Stock was traded on the Nasdaq SmallCap Market
(Nasdaq) starting August 3, 1995, and has been traded on the Over-the-Counter
Bulletin Board since October 30, 1997. As
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of March 13, 1998, there were approximately 56 recordholders of its Common
Stock. The Company estimates that there are approximately 1,200 beneficial
holders of its Common Stock.
The following table sets forth the quarterly high and low bid prices for
the periods indicated, through December 31, 1997, as reported by Nasdaq. The
prices listed are inter-dealer quotations without retail mark-up, mark-down or
commission and may not reflect actual transactions. The Company has not
independently verified the prices listed.
Period Low Bid High Bid
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01/01/96 - 03/31/96 $2-1/4 $4-3/8
04/01/96 - 06/30/96 $1-7/8 $3-3/8
07/01/96 - 09/30/96 $1-3/4 $2-7/8
10/01/96 - 12/31/96 $1-1/4 $2-7/8
01/01/97 - 03/31/97 $1 $1-7/8
04/01/97 - 06/30/97 $5/8 $1-1/2
07/01/97 - 09/30/97 $5/8 $1
10/01/97 - 12/31/97 $1/8 $1/2
Under Nasdaq rules, the Company's Common Stock was delisted from the Nasdaq
system because the Company's total assets fell below $2,000,000 and the bid
price of the Common Stock fell below $1.00.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
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 foot notes which
appear elsewhere in this Report.
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 risks 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:
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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.
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 the first quarter being the slowest quarter of the year and the last
quarter being the strongest.
The Company issued shares in its initial public offering (IPO) in August,
1995, and received $4,462,880 in net proceeds from this offering. The Company
used a portion of the proceeds to hire additional sales, research, management
and support personnel to substantially increase its sales and marketing
activities and to support a larger operation. In addition to increased spending
in the sales and marketing area, the Company advanced CLO and TLO working
capital. As a result of decreased revenue in 1997, as well as lack of
performance by TLO and CLO, the Company ceased funding of TLO and CLO and made
substantial cuts in sales, administrative and general expenses.
The Company has expended an aggregate of $3,721,557 due to losses in 1996
and 1997, but believes that steps taken in 1997, including the discontinuation
of The Law Office and the write-down thereof, will enable it to achieve
profitability with capital resources it believes will be sufficient both to
insure stability and fund growth.
Results of Operations
Year ended December 31, 1997 compared to the year ended December 31, 1996
Revenues declined by $956,738, or 35%, to $1,779,033, for 1997 compared to
1996 revenues of $2,735,771. The decrease in revenues is primarily attributable
to the 1996 production of a large multi-jurisdictional survey that comprised
$1,323,445, or 48% of 1996 revenue. Ongoing revenue from that survey was
approximately $155,000 in 1997. Multi-jurisdictional surveys are typically
non-recurring projects. In some instances on-going revenue will be derived from
updating completed survey projects quarterly or annually. The Company refocused
its efforts in 1997 on core research and writing business and revenues in that
area increased by 56%. 1997 core research revenues increased to $864,585
compared to 1996 core research revenues of $553,071.
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 and document retrieval
expenses.
Total direct operating costs decreased $604,060, or 36%, to $1,069,333
compared to 1996 direct operating costs of $1,673,393. The decrease in direct
operating costs is primarily due to lower personnel costs in 1997, when the
company eliminated the hiring of independent attorneys and fees paid to outside
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firms to complete the large multi-jurisdictional research project in 1996.
Throughout 1997, measures have been implemented to reduce research and
production costs.
Gross profit decreased $352,678, or 33%, to $709,700 compared to 1996 gross
profit of $1,062,378 due to the reasons discussed above. As a percentage of
revenue, gross profit increased to 40% in 1997 compared to 39% in 1996. The
increase was principally due to increased efficiency in the production of in
core research and writing.
Other operating costs include compensation of officers, sales and other
corporate staff, advertising and direct marketing expenditures and general
corporate overhead, including depreciation and amortization. These costs
decreased $480,741, or 22%, to $1,678,177 over 1996 costs of $2,158,918. The
decrease in these costs by category was $216,236, or 22%, for sales and
marketing; $264,505, or 23%, in general and administrative. The decrease in
sales and marketing costs was due to the reduction of the sales and support
staff and decreased marketing and advertising expenditures. General and
administrative expenditures decreased due to the reduction of the support and
management staff, decreases in management compensation and decreases in
operating expenses (travel, accounting and legal support and supplies).
The Company reports a loss from discontinued operations of its subsidiaries
of $407,517 in 1997, compared to a loss of $563,913 in 1996. Due to the
continuing negative cash flow, funding for the Company's subsidiaries ceased at
the end of second quarter. The Company recorded a $717,008 loss on the
discontinuation of operations of The Law Office, which consists of a noncash
charge for intangible assets totaling $623,200, a noncash valuation charge for
computers and equipment of $20,000, and a provision for operating expenses
during the phase-out period of approximately $73,800.
Interest income decreased $98,613, or 78%, to $27,998 in 1997 over interest
income of $126,611 in 1996. The decrease in interest income was due to a
declining balance on invested cash proceeds received in the IPO completed in
August of 1995.
Year ended December 31, 1996 compared to the year ended December 31, 1995
Revenues increased by $1,355,649, or 97%, to $2,760,038, for 1996 over 1995
revenues of $1,404,389. The increase in revenues in primarily attributable to an
increase in large multi-jurisdictional research projects that the Company had
been able to secure through sales and marketing activities.
Total direct operating costs increased $975,070, or 132%, to $1,715,257
over 1995 direct operating costs of $740,187. The increase in direct operating
costs were primarily due to higher personnel costs, hiring of independent
attorneys and fees paid to outside firms to complete large multi-jurisdictional
research projects. The percentage increase in these costs was higher than the
increase in revenues for 1996, due to additional research and production
expenses to complete and deliver a large, fixed price multi-jurisdictional
survey by December 31, 1996. The production effort required additional
expenditures for personnel and independent contractors from what was originally
contemplated.
Gross profit increased $380,579, or 57%, to $1,044,781 over 1995 gross
profit of $664,202. As a percentage of revenue, gross profit declined to 38% in
1996 compared to 47% in 1995. The decline was principally due to the increase in
direct operating costs to complete large multi-jurisdictional surveys as
discussed above.
Other operating costs increased $1,613,465, or 148%, to $2,705,009 over
1995 costs of $1,091,544. The increase in these costs by category was $585,082,
or 144%, for sales and marketing; $482,292, or 70%, in general and
administrative; and $546,091 in development costs of TLO. The
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increase in sales and marketing costs was due to higher compensation and benefit
costs, the hiring of additional sales and support staff and increased marketing
and advertising expenditures. General and administrative expenditures increased
due to higher compensation and benefit costs, the hiring of additional finance
and support personnel and increases in operating expenses (rent, utilities,
supplies) for a larger organization.
The Company recognized $546,091 of expenses associated with the development
of TLO from May through December 1996. Development costs were incurred to hire a
sales and support staff and begin marketing its services. From January 1, 1996
through the date of acquisition May 13, 1996, the Company recorded 25% of TLO's
losses, or $64,476 under the equity method of accounting. TLO commenced
operations in May 1995 and reported year-to-date losses of $197,622 through
December 31, 1995, of which $29,500 had been recorded by the Company under the
equity method of accounting.
Interest income increased $42,222, or 50%, to $127,018 in 1996 over
interest income of $84,796 in 1995. The increase in interest income was due to a
full year's earnings on invested cash proceeds received in the public offering
that was completed in August of 1995. Interest expense decreased $20,075 to $632
due to the retirement of substantially all interest bearing obligations after
the IPO in 1995.
The Company recorded a charge of $122,711 as its share of losses in
unconsolidated investments in TLO and American Research Corporation (ARC). For
further discussion on ARC see Note 4 to Consolidated Financial Statements.
Liquidity and Capital Resources
The Company continued to use the proceeds from its IPO to fund 1997
operating costs, to position itself for future growth in 1997, to fund the
development of CADRE, and to provide working capital to CLO and TLO until June
30, 1997. In addition, the Company continues to look for other marketing and
development opportunities and alliances. At December 31, 1997, the Company had
cash and cash equivalents of $165,924 and working capital of $391,990.
In 1997, the Company instituted specific cost control measures such as
hiring and wage freezes and reductions, to reduce expenditures in all areas of
its operation. The Company expected that by the end of 1997, expenditures in the
core research business would be funded almost exclusively by funds generated
from operations. The Company now expects that goal to be reached in the 1st Half
of 1998, but nevertheless is seeking additional capital.
Net cash used in operating activities decreased from $1,925,548 in 1996 to
$600,745 in 1997. The Company had a net loss of $2,065,004 compared to a net
loss of $1,656,553 in 1996 for the reasons discussed above. Non cash charges
increased $502,181 in 1997 over 1996 due primarily to the loss in disposal of
The Law Office. The use of cash stemming from the changes in other current
assets and liabilities in 1996, net of the effects of the purchase of TLO, was
$710,712 In 1997 changes in other current assets and liabilities was a source of
cash in an aggregate of $520,361. This was primarily due to a decrease in
accounts receivable, unbilled services and related party accounts of $782,931
offset by a decrease in accounts payable and accrued expenses and client
advances of $262,570.
The Company used $180,700 in investment activities in 1997 through
expenditures for development costs and purchases of furniture and fixtures of
$224,400 and $6,300, respectively. This was offset by the receipt of $50,000 on
a note receivable. Funds used in financing activites in 1997 were limited to
payments on noncompete agreements totaling $8,300.
-10-
<PAGE>
The Company does not anticipate the payment of cash dividends on its Common
Stock in the foreseeable future. It is anticipated that profits, if any,
received from operations will be devoted to the Company's future operations. Any
decision to pay dividends will depend upon the Company's profitability at the
time, cash availability and other factors.
New Accounting Pronouncement
In June 1997, the Financing Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, which establishes financial accounting and
reporting standards for comprehensive income and its components (revenue,
expenses, gains, and losses). SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997 and is not expected to have a material impact
on the reported operating results of the Company.
Business Outlook
The Company began a restructurng of operations starting July 1, 1997,
initiated by the discontinuation of operations of The Law Office (TLO) on June
30, 1997. Until that time, the Company was burdened with 1) continued expenses
for the funding of TLO, with inadequate revenue from TLO, 2) low gross margins
in the core research business and 3) increased overhead from an infrastructure
developed to support revenues of $3 - 5 million.
Starting July 1, 1997, the Company sought to improve gross margins by
restructuring research procedures and compensation, raising and restructuring
pricing, and utilizing the technology developed with its new infrastructure to
reduce and eventually eliminate its production department. It reduced overhead
by reducing management compensation by 10% - 30%, restructuring sales
compensation, reducing non-research staff by attrition and layoffs by
two-thirds, and reducing or eliminating all other fixed expenses. Simultaneously
the Company returned its marketing/sales focus to strong direct marketing of its
traditionally-strong products and services.
Finally, the Company is seeking to eliminate the cost of carrying and
collecting receivables and is seeking capital in the form of convertible debt.
As a result of these efforts, the Company's core revenues of
memorandum/brief research and writing were up 56% from 1996 to 1997. From the
Fall of 1996 to February of 1998, gross margin more than doubled - from 27% to
56%, and the Company expects this trend to continue. Overhead in 1996 averaged
$225,000 per month. In 1997 it averaged $140,000 per month and continues to fall
in the 1st Quarter of 1998.
In 1996 the Company used $1.9 million of its cash in operations, in 1997 it
used $600,000. Use of cash fell significantly after discontinuation of
operations of TLO and other cost reductions. In February of 1998 the Company
used approximately $13,000 of its cash. At December 31, 1997, the Company had
cash and cash equivalents of $165,924 and working capital of $391,990. It
expects to raise between $250,000 and $500,000 in additional capital in the 1st
Half of 1998.
Item 7. FINANCIAL STATEMENTS
The information required by this item is incorporated herein by reference
to pages F-1 through F-16, which follow this page.
-11-
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective as of December 17, 1997, the Company's principal accounting firm,
McGladrey & Pullen, LLP resigned. McGladrey & Pullen's reports on the financial
statements of the Company for each of the past two years did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope or accounting principles. There have been no
disagreements between the Company (including the audit committee of the Board of
Directors) and McGladrey & Pullen on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
Effective as of February 13, 1998, the Company hired Lurie Besikof, Lapidus &
Co., LLP, which firm audited the Company's 1997 financial statements.
-12-
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT F-1
INDEPENDENT AUDITORS' REPORT F-2
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6 - F-7
Notes to Consolidated Financial Statements F-8 - F-16
- --------------------------------------------------------------------------------
-13-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Legal Research Center, Inc.
Minnetonka, Minnesota
We have audited the accompanying consolidated balance sheet of LEGAL RESEARCH
CENTER, INC. as of December 31, 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LEGAL
RESEARCH CENTER, INC. as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Note 2, during 1997, the Company discontinued operating two
subsidiaries, The Law Office, Inc. and The CyberLaw Office, Inc., resulting in a
$717,008 loss on disposal.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 3, the
Company incurred significant losses in 1997 and 1996 which raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
March 10, 1998
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Legal Research Center, Inc.
Minnetonka, Minnesota
We have audited the accompanying consolidated balance sheet of Legal Research
Center, Inc. and subsidiaries, as of December 31, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Legal Research
Center, Inc. and subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
February 14, 1997
F-2
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
ASSETS 1997 1996
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 165,924 $ 955,600
Accounts receivable 277,144 1,273,450
Note receivable 60,000 --
Other 43,399 39,044
----------- -----------
TOTAL CURRENT ASSETS 546,467 2,268,094
----------- -----------
FURNITURE AND EQUIPMENT 362,247 367,381
Less accumulated depreciation 245,632 129,886
----------- -----------
116,615 237,495
----------- -----------
OTHER ASSETS
Notes receivable, net of $113,500
allowance for doubtful accounts 60,959 --
Intangible assets 313,624 928,526
Investment in American Research Corporation -- 41,764
----------- -----------
374,583 970,290
----------- -----------
$ 1,037,665 $ 3,475,879
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 57,411 $ 182,032
Accrued expenses:
Compensation 48,899 108,438
Other 21,394 137,291
Noncompete agreement -- 16,508
Client advances 26,773 35,957
----------- -----------
TOTAL CURRENT LIABILITIES 154,477 480,226
----------- -----------
NONCOMPETE AGREEMENT -- 47,461
----------- -----------
COMMON STOCK SUBJECT TO REPURCHASE OBLIGATION -- 105,000
----------- -----------
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 32,976
Additional paid-in capital 6,870,007 6,765,307
Accumulated deficit (4,053,845) (1,988,841)
Notes receivable from officers and directors (1,966,250) (1,966,250)
----------- -----------
883,188 2,843,192
----------- -----------
$ 1,037,665 $ 3,475,879
=========== ===========
See notes to consolidated financial statements.
F-3
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1997 and 1996
1997 1996
----------- -----------
REVENUES $ 1,779,033 $ 2,735,771
----------- -----------
DIRECT OPERATING COSTS
Compensation and benefits 767,712 1,303,367
Other 301,621 370,026
----------- -----------
1,069,333 1,673,393
----------- -----------
GROSS PROFIT 709,700 1,062,378
----------- -----------
OTHER OPERATING COSTS
Sales and marketing 774,490 990,726
General and administrative 903,687 1,168,192
----------- -----------
1,678,177 2,158,918
----------- -----------
LOSS FROM OPERATIONS (968,477) (1,096,540)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 27,998 126,611
Losses related to unconsolidated investments -- (122,711)
----------- -----------
27,998 3,900
----------- -----------
LOSS FROM CONTINUING OPERATIONS (940,479) (1,092,640)
----------- -----------
DISCONTINUED OPERATIONS (Note 4)
Loss from operations (407,517) (563,913)
Loss on the disposal of subsidiaries (717,008) --
----------- -----------
(1,124,525) (563,913)
----------- -----------
NET LOSS ($2,065,004) ($1,656,553)
=========== ===========
NET LOSS PER COMMON SHARE
Continuing operations ($ 0.41) ($ 0.49)
Discontinued operations (0.50) (0.26)
----------- -----------
($ 0.91) ($ 0.75)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,272,633 2,213,040
See notes to consolidated financial statements.
F-4
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
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
stock subscription agreement 1,040,000 10,400 1,955,856 -- (1,966,256) --
Net loss -- -- -- (1,656,553) -- (1,656,553)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 3,297 633 32,976 6,765,313 (1,988,841) (1,966,256) 2,843,192
Expiration of 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 $ 6,870,013 ($4,053,845) ($1,966,256) $ 883,188
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($2,065,004) ($1,656,553)
Adjustments to reconcile net loss to net cash
used by operating activities:
Loss on disposal of subsidiaries 717,008 --
Depreciation 83,279 81,642
Amortization of intangible assets and capitalized
development costs 110,457 158,705
Provision for uncollectible accounts receivable 33,154 78,659
Equity in losses of unconsolidated investments -- 122,711
Change in assets and liabilities, net of effects of
the purchase of The Law Office, Inc. in 1996:
Trade accounts receivable and unbilled services 613,220 (682,450)
Related party accounts and other current assets 169,711 (119,753)
Accounts payable (124,621) (48,020)
Accrued expenses (128,765) 156,023
Client advances (9,184) (16,512)
----------- -----------
Net cash used by operating activities (600,745) (1,925,548)
----------- -----------
INVESTING ACTIVITIES
Purchases of furniture and equipment (6,278) (123,285)
Capitalized development costs (224,398) (92,977)
Cash received on notes receivable 50,000 --
Advances to The Law Office, Inc.
through date of acquisition -- (266,453)
Cash paid for The Law Office, Inc.
including acquisition costs -- (97,961)
----------- -----------
Net cash used by investing activities (180,676) (580,676)
----------- -----------
FINANCING ACTIVITIES
Payments on noncompete agreements (8,255) (13,928)
Payments on redemption of common stock -- (35,000)
----------- -----------
Net cash used by financing activities (8,255) (48,928)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (789,676) (2,555,152)
CASH AND CASH EQUIVALENTS
Beginning of year 955,600 3,510,752
----------- -----------
End of year $ 165,924 $ 955,600
=========== ===========
</TABLE>
(continued)
See notes to consolidated financial statements.
F-6
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Acquisition of The Law Office, Inc.
Tangible assets acquired $ -- $ 79,997
Excess of costs over net assets acquired -- 980,254
Liabilities assumed -- (625,352)
Stock options issued -- (15,441)
Noncompete agreement -- (77,897)
Common stock issued -- (243,600)
------------ ------------
Cash purchase price, including acquisition costs $ -- $ 97,961
============ ============
Conversion of accounts receivable from American Research
Corporation to a note receivable, net of allowance of $8,414 and
reclassification of allowance for doubtful accounts of $46,721 $ 129,145 $ --
Sale of investment in American Research Corporatio
for a note receivable, net of allowance of $58,336 41,764 --
Notes received for issuance of common stock -- 1,966,250
Conversion of note payable into common stock
subject to repurchase obligation -- 140,000
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Business and Summary of Significant Accounting Policies-
The Business
Legal Research Center, Inc. (the Company) provides legal and factual
research and writing services to U.S. and Canadian attorneys in corporate
and private practice. The Company grants credit to customers on terms
established for each customer. Additionally, the Company is developing the
Corporate Alternative Dispute Resolution Enterprises (CADRE) program, a
training course focusing on the concepts and skills necessary to implement
and utilize an alternative dispute resolution system on a corporate wide
basis.
During 1997, the Company discontinued the operations of the subsidiaries
The Law Office, Inc. (TLO) and The CyberLaw Office, Inc. (CLO), which were
acquired in 1996 (Note 4).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its TLO and CLO subsidiaries presented on a discontinued basis. All
significant intercompany accounts and transactions are eliminated.
Use of Estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that may affect certain reported amounts and disclosures in the
financial statements and accompanying notes. Actual results could differ
from these estimates.
Revenue Recognition
Revenue is recognized as the services are performed. Unbilled services
relate to revenue recognized for services performed, but not billed, and
includes projects not completed.
Cash and Cash Equivalents
The Company considers all investments with an original maturity of three
months or less to be cash equivalents. Cash and cash equivalents include
money market accounts of approximately $152,300 and $946,600 in 1997 and
1996, respectively. These investments are carried at cost which is equal to
fair value.
Furniture and Equipment
Furniture and equipment are recorded at cost. Depreciation is computed
using the straight-line method over three to five years.
(continued)
F-8
<PAGE>
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Business and Summary of Significant Accounting Policies
- (continued)
Capitalized Development Costs
The Company capitalizes certain product costs incurred for the development
of the Corporate Alternative Dispute Resolution Enterprises (CADRE)
training program and through part of 1996, the development costs of the
web-site for TLO. Capitalized costs include direct labor, fees, and
expenses of contractors who are or have assisted in the development of the
product or service. Once the product or service is available for sale,
costs will no longer be capitalized and will be expensed as incurred. The
Company expects to complete the development of CADRE during the first
quarter of 1998 and thereafter begin amortizing the capitalized costs over
three years.
Advertising and Promotions
Costs associated with advertising and promoting products are expensed in
the year incurred. Advertising and promotion expenses were approximately
$281,000 and $449,000 in 1997 and 1996, respectively.
Net Loss Per Common Share
Net loss per share of common stock is computed by dividing net loss by the
weighted average number of shares outstanding during the period, excluding
stock options and the shares subject to subscription as their impact would
be anti-dilutive. In 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share, which requires
dual presentation of basic and diluted earnings per share. Implementation
of SFAS No. 128 did not have any effect on reported net loss per share.
Accounting for Stock-Based Compensation
The Company accounts for employee stock options under the method prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, and provides the pro forma disclosures required by SFAS No.
123, Accounting for Stock-Based Compensation.
Comprehensive Income
In June 1997, the Financing Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, which establishes financial accounting and
reporting standards for comprehensive income and its components (revenue,
expenses, gains, and losses). SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997 and is not expected to have a material
impact on the reported operating results of the Company.
Reclassifications
Certain reclassifications were made to the 1996 financial statements so as
to present those financial statements on a basis comparable with the
current year.
F-9
<PAGE>
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Discontinued Operations of The Law Office, Inc. and The CyberLaw Office,
Inc. -
In May 1995, the Company acquired 25% of the stock of The Law Office, Inc.
(TLO). In May 1996, the Company acquired the remaining outstanding shares
of TLO for $97,961 in cash including acquisition costs, issuance of 121,800
shares of the Company and options to buy 54,500 shares of the Company at
$3.50 per share. The acquisition of TLO was accounted for as a purchase and
the purchase price was allocated to the assets acquired and liabilities
assumed based on fair values. The excess of the purchase price above the
fair value of the assets was assigned to intangible assets which were being
amortized over periods ranging from 18 to 60 months. Intangible assets
consisted primarily of an Independent Content Provider Agreement (ICP) with
Microsoft Online Services Partnership (MOSP), noncompete agreements with
former shareholders of TLO and goodwill.
The CyberLaw Office, Inc. (CLO), was incorporated in Minnesota in October
1995, and is a majority owned subsidiary of the Company. CLO was originally
created by the Company to expand on-line activities, similar to TLO, into
the international market place.
TLO and CLO revenues were not sufficient to cover cash operating expenses
and development costs. In June 1997, TLO was informed by MOSP that the ICP
agreement will not be renewed for a second term. MOSP decided not to
continue the ICP concept and is not renewing ICP contracts.
The Company sought additional investors to fund operating and continuing
development costs of TLO and CLO. Due to the continuing substantial
negative cash flow, the nonrenewal of the ICP agreement, and the
uncertainty of obtaining adequate funds to finance the TLO and CLO
operations and development, the Company suspended the funding of TLO and
CLO and will dispose of their assets. The Company recorded a $717,008 loss
on the disposal of TLO and CLO. The loss on disposition consists of a
noncash charge for intangible assets totaling $623,200, a noncash valuation
charge for computer and related equipment of approximately $20,000, and a
provision for operating expenses during the phase-out period of
approximately $73,800.
3. Going Concern -
The accompanying consolidated financial statements are prepared on a going
concern basis which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of
business. The Company incurred losses of $2,065,004 and $1,656,533 for 1997
and 1996, respectively. The continuation of the Company as a going concern
is dependent upon its ability to achieve profitable operations and obtain
additional financing. Management is pursuing a variety of financing
arrangements and cost reductions.
F-10
<PAGE>
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. American Research Corporation -
In September 1995, the Company purchased less than 5% of the common stock
of American Research Corporation (ARC) for $100,000, which was accounted
for under the cost method. ARC developed a product and service that
supports professional service providers.
ARC reported losses in operations since inception in 1992 and has been
actively seeking financing to support its operations. The Company provides
research services to ARC and charges ARC an arm's-length negotiated market
rate. Total revenues from ARC were approximately $1,800 and $202,000 in
1997 and 1996, respectively.
ARC made payments to the Company under the terms of its original agreement,
for services rendered through July 1996. In late 1996, the Company
restructured its arrangement with ARC to allow ARC more time to complete
its refinancing. At December 31, 1996, the Company had receivables and
notes from ARC of approximately $174,000.
In June 1997, ARC completed its refinancing which resulted in the
repurchase of its common stock from the Company and a restructuring of the
amounts owed the Company. Amounts owed the Company totaling $184,280,
including accrued interest, were converted into a promissory note. The
note, as amended, bears annual interest at 10% and requires monthly
payments of $5,000 and a final balloon payment due June 1999. ARC paid
$50,000 on the note through December 31, 1997. ARC also agreed to
repurchase its shares held by the Company for $100,100 in exchange for a
unsecured promissory note. The unsecured note is due in quarterly
installments of $25,025 beginning June 30, 1999, and bears annual interest
at 10%. Due to ARC's uncertain financial condition, the Company reserved
approximately $113,500 of the notes as potentially uncollectible and
reserved the accrued interest. The carrying value of these notes
approximates their fair market values.
5. Accounts Receivable -
Accounts receivable consist of the following:
1997 1996
---------- ----------
Trade $ 415,083 $ 713,965
Unbilled services 15,261 505,419
Related party - ARC -- 174,066
---------- ----------
430,344 1,393,450
Less allowance for doubtful accounts 153,200 120,000
---------- ----------
$ 277,144 $1,273,450
========== ==========
F-11
<PAGE>
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Intangible Assets -
Intangible assets consist of the following:
1997 1996
-------- --------
Capitalized development costs, net of accumulated
amortization of $ -0- and $5,916, respectively 313,624 101,061
Intangible assets, net of accumulated
amortization of $ -0- and $152,789, respectively -- 827,465
-------- --------
$313,624 $928,526
======== ========
7. Common Stock -
Common Stock Subject to Repurchase Obligation
In September 1996, the Company issued 40,000 shares of common stock on
behalf of TLO to settle a $140,000 note payable. The note was issued to a
former shareholder of TLO as a prerequisite to the acquisition of TLO by
the Company. Under the terms of the agreement by which the shares were
issued, the shareholder could require the Company to repurchase 10,000
shares at $3.50 a share upon written notice to the Company, on or before
December 31, 1997. In October 1996, the shareholder exercised this option.
In addition, the shareholder could have required the Company to repurchase
a portion or all of the remaining shares at $3.50 a share if TLO obtained
debt or equity financing in excess of $500,000. However, due to the
discontinued status of TLO the repurchase option is treated as expired.
Notes Receivable From Officers and Directors
On September 3, 1996, the Company sold an aggregate of 1,040,000 shares of
common stock to three officers and/or directors at the closing price for
the Company's common stock on September 4, 1996, or $1.89 a share. The
purchases were made through nonrecourse notes with the shares pledged as
collateral. The notes bear interest at 8.5% and cannot be prepaid anytime
before September 2003, except in connection with a merger, acquisition, or
sale of substantially all of the Company's assets. The shares are
restricted and cannot be sold or otherwise transferred without repaying the
notes. The Company's policy is to not record interest income on the notes
until the cash is received in September 2003.
Common stock issued to officers and directors (Officer Shares) in exchange
for notes receivable structured as described above, are not deemed to be
shares outstanding under generally accepted accounting principles. Rather,
such shares are treated as stock options and therefore potentially dilutive
for purposes of calculating weighted average common shares outstanding and
earnings per share.
F-12
<PAGE>
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Income Taxes -
Deferred taxes consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 54,000 $ 42,000
Investments 43,000 36,000
Interest income 60,000 --
Accrued expenses 48,000 16,000
Net operating loss carryforward 1,007,000 645,000
----------- ----------
1,212,000 739,000
Deferred tax liability - furniture and equipment (4,000) (4,000)
----------- ----------
Net deferred tax assets 1,208,000 735,000
Valuation allowance (1,208,000) (735,000)
----------- ----------
$ -- $ --
=========== ==========
</TABLE>
The Company recorded a valuation allowance due to the uncertainty
associated with the realization of the net deferred tax assets in future
years.
At December 31, 1997, the Company has a net operating loss carryforward
totaling $2,876,000, expiring $1,033,000, $1,193,000, and $650,000 in 2012,
2011, and 2010, respectively. The net operating loss carryforward includes
$350,000 subject to certain annual limitations.
9. Stock Option Plans -
The Company has reserved 700,000 shares of common stock for issuance under
the 1995 fixed stock option plan. Options may not be granted at an exercise
price less than the fair market value of the common stock of the Company on
the date of grant. The options granted may qualify as incentive stock
options, vest annually, and are exercisable over periods ranging from three
to ten years.
The Company also has the Legal Research Center, Inc. Existing Officer's
Stock Option Plan. Pursuant to the officers' plan, the Company reserved and
granted options to two officers to each purchase 180,000 shares of common
stock. These incentive stock options are exercisable at fair value on the
date of grant, vest in three equal installments commencing one year from
the date of grant, and expire five years from the date of grant.
The Company also has a 1997 fixed stock option plan and has reserved
700,000 shares of common stock for issuance under that plan. Options may
not be granted at an exercise price less than the fair market value of the
common stock on the date of grant. The options may qualify as incentive
stock options, vest annually, and are exercisable over periods ranging from
three to ten years.
(continued)
F-13
<PAGE>
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Stock Option Plans - (continued)
Nonemployee directors are compensated with annual stock option grants
(Director Options) of 5,000 shares, exercisable at fair market value on the
date of grant, and expire ten years after issuance.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996, respectively; no dividend
yield during the expected life of outstanding options; expected volatility
of 178% and 93%; risk free interest rates of 6.5% and 6.0%, and expected
lives of 3.8 and 5.7 years.
A summary of the status of the fixed stock options under these plans,
including the stock issued to officers and directors which are treated as
stock options, is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ---------------------------------
Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 1,530,804 $ 2.96 394,200 $ 2.96
Granted 126,600 1.15 1,138,104 2.96
Forfeited (4,000) 2.23 (1,500) 2.25
---------- ----------
Outstanding at
end of year 1,653,404 $ 2.81 1,530,804 $ 2.96
========== ==========
Weighted-average fair
value of options granted
during the year $ 1.04 $ 1.37
===== =====
</TABLE>
The following table summarizes information about fixed stock options
outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- ---------------------------
Weighted- Weighted- Weighted-
Range of Average Average Average
Exercise Remaining Exercise Exercise
Prices Options Contractual Life Price Options Price
---------------- ----------- ------------------ ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
$.13 - $.88 2,840 3.4 $ .56 2,840 $ .56
$1.00 - $1.25 113,160 4.9 1.13 113,160 1.13
$1.50 - $1.88 14,404 2.1 1.65 14,404 1.65
$2.00 - $2.38 78,700 2.9 2.06 78,700 2.06
$2.63 - $2.97 394,300 2.2 2.95 274,300 2.94
$3.02 - $3.50 1,050,000 5.7 3.02 1,050,000 3.02
---------- -----------
$.13 - $3.50 1,653,404 4.6 2.81 1,533,404 2.80
========== ===========
</TABLE>
(continued)
F-14
<PAGE>
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Stock Option Plans - (continued)
In June 1996, under the terms of the Option Plan, the Company adopted a
program to award stock options to executive officers whose vesting was
contingent upon the Company attaining two consecutive profitable quarters.
The exercise price of each option was equal to the market price of the
Company's stock on the date of grant and expired in periods ranging from
three to five years from the date of grant. In 1996, options totaling
$385,000 were issued with a weighted-average exercise price of $2.03. In
1997, these options were cancelled.
The Company applies APB Opinion 25 and related interpretations in
accounting for stock option plans. Accordingly, no compensation cost was
recognized for the fixed options plans or performance-based stock option
plans in 1997 or 1996. Had compensation cost for the two stock-based
compensation plans been determined based on the fair value at the grant
dates for awards under those plans, consistent with the method of SFAS No.
123, the net loss and net loss per share would be increased to the pro
forma amounts indicated below:
1997 1996
------------ -------------
Net loss:
As reported ($ 2,065,004) ($ 1,656,533)
Pro forma ( 2,356,452) ( 3,336,450)
Net loss per share:
As reported ($ 0.91) ($ 0.75)
Pro forma ( 1.04) ( 1.51)
The pro forma effects of applying SFAS No. 123 are not indicative of future
amounts since, among other reasons, the pro forma requirements of the
Statement were applied only to options granted after December 31, 1994.
10. Royalty Agreements -
The Company has agreements with certain associations which require payment
of royalties for projects. Royalty rates and terms of the agreements vary
depending upon the agreement and apply to a significant amount of the
Company's revenues. Royalty expense for 1997 and 1996 was approximately
$19,000 and $20,000, respectively.
F-15
<PAGE>
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Related Party Transactions -
Lease
The Company utilizes an office facility leased by a related party under an
operating lease requiring monthly rent of approximately $6,000 through
January 2001. The Company complies with the same terms and conditions as
the lease between the related party and the related party's landlord. Rent
expense, including operating expenses, was approximately $64,700 and
$66,700 for 1997 and 1996, respectively.
Officer Employment Agreements
The Company has employment agreements with two officers of the Company
through July 1, 1998. The agreements, as amended, require annual base
salaries of $96,000 for each officer, plus goal-oriented incentives, which
may be adjusted by the Board of Directors. Incentive compensation expense
under officer employment agreements was approximately $ -0- and $68,200 in
1997 and 1996, respectively.
Capitalized Development Costs
The Company had an agreement with a former director for the development of
CADRE, an alternative dispute resolution program to be marketed as a
corporate training course. The agreement required monthly payments of
$2,800 through July 1997. The agreement was terminated in 1997. The Company
capitalized these development costs totaling approximately $68,300.
12. Major Customer -
One customer accounted for 14% and 52% of the Company's revenues in 1997
and 1996, respectively, and owed the Company approximately $47,000 and
$770,000 at December 31, 1997 and 1996, respectively.
F-16
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The information contained under the captions "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
1998 Proxy Statement is incorporated herein by reference.
Information concerning executive officers of the Company can be found under
the caption "Executive Officers of the Company" in Item 1 hereof.
Item 10. EXECUTIVE COMPENSATION
The information contained under the captions "Executive Compensation" and
"Election of Directors--Board of Directors and Committees--Remuneration of
Directors" in the 1998 Proxy Statement is incorporated herein by reference.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Principal Shareholders" in the
1998 Proxy Statement is incorporated herein by reference.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Certain Relationships and
Transactions" in the 1998 Proxy Statement is incorporated herein by reference.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of the report:
1. Financial Statements. Audited financial statements as of December 31, 1997
and 1996 and for the years then ended are filed as part of this Form 10-KSB. See
Index to Financial Statements on Page F-1.
2. Exhibits. The following exhibits are being filed as part of this Form 10-KSB:
<TABLE>
<CAPTION>
Exhibit No. Title Method of Filing
----------- ----- ----------------
<C> <S> <C>
3.1 Restated Articles of Incorporation 1
3.2 Restated Bylaws 1
4 Form of Common Stock Certificate 1
-24-
<PAGE>
10.1 1995 Stock Option Plan 1
10.2 Existing Officer's Stock Option Plan 1
10.3 Employment Agreement dated July 1, 1995 between the Company
and Christopher R. Ljungkull 1
10.4 Employment Agreement dated July 1, 1995 between the Company
and James R. Seidl 1
10.5 1997 Stock Option Plan 5
10.10 Agreement dated May 17, 1995 between the Company and the
other shareholders of The Law Office, Inc. 1
10.11 First Amendment to Net Office Lease Agreement dated June 1996
2
10.12 Letter Agreement dated September 6, 1995 between LRC and
James Seifert re: Consulting Services 2
10.13 Acquisition of Stock of The Law Office, Inc. dated May 13,
1996 3
10.14 Employment Agreement dated July 25, 1996 between The
CyberLaw Office, Inc. and Arun K. Dube 5
10.15 Sale of Common Stock to Officers and Directors on September
3, 1996 4
10.17 News Release regarding the agreement with Risk Enterprise Filed Herewith
Management
10.18 News Release regarding the agreement with WIRE Filed herewith
11 Subsidiaries of Legal Research Center, Inc. 5
</TABLE>
1. Incorporated by reference to the same numbered Exhibit to the Company's
Registration Statement on Form SB-2, which was declared effective August 3,
1995, pursuant to Rule 12b-32.
2. Incorporated by reference to the same numbered Exhibit to the Company's
Form 10-KSB, dated March 29, 1996.
3. Incorporated by reference to Exhibits 2.1 and 2.2 to the Company's Form 8-K
dated May 13, 1996.
4. Incorporated by reference to Exhibits 10.1, 10.2 and 10.3 to the Company's
Form 8-K dated September 5, 1996.
5. Incorporated by reference to Exhibits 10.14 and 11 to the Company's Form
10-KSB (as amended) dated March 27, 1997.
(b) Reports on Form 8-K.
None
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
LEGAL RESEARCH CENTER, INC.
By: /s/ Christopher R. Ljungkull
-----------------------------
Christopher R. Ljungkull, CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name and Title Signature Date
-------------- --------- ----
Arun K. Dube
Chairman of the Board /s/ Arun K. Dube March 27 , 1998
----------------
Christopher R. Ljungkull
Chief Executive Officer
(Principal Executive Officer)
and Director /s/ C.R. Ljungkull March 27, 1998
----------------
James R. Seidl
President and Director /s/ James R. Seidl March 27 , 1998
------------------
-26-
<PAGE>
As filed with the Securities and Exchange Commission
on March 30, 1998
SECURITIES AND EXCHANGE COMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM 10 KSB
ANNUAL REPORT
For the fiscal year ended December 31, 1997
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
LEGAL RESEARCH CENTER, INC.
700 Midland Square Building
331 Second Avenue South
Minneapolis, MN 55401
<PAGE>
INDEX TO EXHIBITS
Exhibits
10.17 News Release regarding the agreement with Risk Enterprise Management
10.18 News Release regarding the agreement with WIRE
Exhibit 10.17
News Release regarding the agreement with Risk Enterprise Management
<PAGE>
FOR IMMEDIATE RELEASE
February __, 1998
Legal Research Center, Inc. Contact: Christopher Ljungkull, CEO
700 Midland Square Building Legal Research Center, Inc.
331 Second Avenue South 612.332.4950
Minneapolis., MN 55401 800.776.9377
LEGAL RESEARCH CENTER ANNOUNCES QUARTER
MILLION DOLLAR-PLUS RESEARCH CONTRACT
Minneapolis, MN. Legal Research Center, Inc. (LRCI) announced today that it has
finalized a strategic alliance agreement with New York City based Risk
Enterprise Management Limited (REM) to further develop and manage REM's
workproduct database system called RESEARCHFILES(TM). The contract is expected
to generate $250,000 in revenues for LRC in 1998, while reducing REM's expense
for outsourced legal research.
Under the agreement, REM will centralize its legal research function through a
working alliance between REM in-house staff, outside counsel and LRC.
RESEARCHFILES(TM) , a workproduct database system developed by LRC, will serve
as the central repository of all legal briefs, memoranda, and depositions
created by REM counsel and LRC. RESEARCHFILES(TM) will be the starting point for
all new research assignments, facilitating the reuse of REM's prior legal
research and preventing duplication of effort by counsel.
"By combining LRC's state-of-the-art legal research and database system, with
REM's highly skilled defense counsel, we have enhanced our ability to achieve
desired case outcomes at lower costs," states William Moss, REM's Assistant Vice
President, Litigation Services, in Chicago.
According to Greg Wolsky, LRC's Vice President of Corporate Services, "REM is
the industry leader in process reengineering, working in partnership with
outside counsel and LRC to reduce litigation costs. REM's RESEARCHFILES(TM)
program is a great example of how technological innovation can systematically
reduce legal costs, while enhancing service."
REM is an international third-party insurance administrator, handling claims for
insurers primarily in the areas of attorney malpractice and product liability.
REM was established in 1995 to manage the legal claims of Home Insurance
Company. With over 1000 employees and a network of 250 outside law firms, REM
now processes the claims of a rapidly growing number of insurance companies,
including Lloyds of London.
<PAGE>
Legal Research Center (http://www.lrci.com), offers legal research and writing
services to attorneys in corporate and private practice throughout the world.
LRC has repeatedly been recognized as the leading supplier of legal research
services in the United States. In 1989, and each year thereafter, the
Association of Trial Lawyers of America (ATLA) selected LRC as the exclusive
provider of research and writing services to its 60,000 members. From 1990
through 1995, the American Corporate Counsel Association partnered with LRC as
the exclusive provider of research and writing services to its 10,000 members,
honoring LRC in 1996, 1997 and 1998 with ACCA's Prestigious President's Award.
In 1994 and following years, West Publishing (now West Group) selected LRC on an
exclusive basis to provide analytical research and writing services to West
customers.
Exhibit 10.18
News Release regarding the agreement with WIRE
<PAGE>
Legal Research Center and WIRE Announce Agreement
Expanding Access to Legal and Liability Risk Information
DATE: March 25, 1998
MINNEAPOLIS, MN.
Legal Research Center, Inc. (LRC) and WIRE, Ltd. (World-wide Intellectual
Resources Exchange) today announced an agreement that will dramatically expand
access to on-demand legal and liability risk information for WIRE's insurance
industry customers. Under the agreement, WIRE's Internet-based Risk Information
and Services Exchange (RSX) incorporates a new "Ask the Experts" feature that
allows customers to initiate custom inquiries on legal and liability risk
subjects via the Internet. RSX customers needing in-depth information on legal
or liability risk subjects simply click the RSX "Ask the Experts" button, fill
out a brief description of their research need, and instantly gain access to
LRC's worldwide network of legal research experts.
"We are very excited by this opportunity to provide direct access to the world's
leading legal research company through RSX," said Matthew Richardson, director
of WIRE, Ltd. "LRC is the most trusted organization providing custom research on
legal and liability topics worldwide."
"Our joint effort with WIRE will help LRC continue to serve the need for legal
liability and compliance information in the insurance industry," according to
James Seidl, president of Legal Research Center. "WIRE's RSX offers the world's
largest collection of Internet-based information designed specifically for
managing liability and other risks, and we expect the new relationship to bring
exciting interactive research capabilities to WIRE customers, blending the best
of pre-packaged information and on-demand research."
RSX, an Internet-based subscription service, serves the insurance industry with
access to extensive collections of information concerning risk management. Its
developer, WIRE Ltd. (http://wire.co.uk/) is a UK-based knowledge broker,
specializing in the switching of high value risk-related information and
expertise around the world using advanced communications technologies. The
quality and service-conscious WIRE Innovation Team has developed unique ways of
locating, sorting, filtering and disseminating content that responds rapidly to
clients' sophisticated needs. The WIRE team uses a special combination of risk
market understanding and human/artificial intelligence to merge public and
private information.
Legal Research Center (http://www.lrci.com), headquartered in Minneapolis,
Minnesota offers cost-effective legal research and writing services to attorneys
in corporate and private practice throughout the world. LRC has repeatedly been
recognized as the leading supplier of legal research services in the United
States. In 1989, and each year thereafter, the Association of Trial Lawyers of
America (ATLA) selected LRC as the exclusive provider of research and writing
services to its 60,000 members. From 1990 through 1995, the American Corporate
Counsel Association partnered with LRC as the exclusive provider of research and
writing services to its 10,000 members, honoring LRC in 1996 and 1997 with
ACCA's Prestigious President=s Award. In 1994 and following years, West
Publishing (now West Group) selected LRC on an exclusive basis to provide
analytical research and writing services to West customers.
CONTACTS: James Seidl, president of Legal Research Center, Inc., 612-332-4950 or
800-776-9377; Matthew Richardson, director of World-wide Intellectual Resource
Exchange, +44 (0) 1273 704414.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 165,924
<SECURITIES> 0
<RECEIVABLES> 868,626
<ALLOWANCES> 113,500
<INVENTORY> 0
<CURRENT-ASSETS> 921,050
<PP&E> 362,247
<DEPRECIATION> 245,632
<TOTAL-ASSETS> 1,037,665
<CURRENT-LIABILITIES> 154,477
<BONDS> 0
0
0
<COMMON> 33,276
<OTHER-SE> 849,912
<TOTAL-LIABILITY-AND-EQUITY> 1,037,665
<SALES> 1,779,033
<TOTAL-REVENUES> 1,779,033
<CGS> 0
<TOTAL-COSTS> 1,069,333
<OTHER-EXPENSES> 1,678,177
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (940,479)
<INCOME-TAX> 0
<INCOME-CONTINUING> (940,479)
<DISCONTINUED> (1,124,525)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,065,004)
<EPS-PRIMARY> (0.91)
<EPS-DILUTED> (0.91)
</TABLE>
