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 June 30, 1998 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 June 22, 1998
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 ............................ 2
Consolidated Statements of Operations
Three Months Ended June 30, 1998 and 1997........................ 3
Consolidated Statements of Stockholders' Equity ................... 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 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)
June 30, December 31,
ASSETS 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 145,327 $ 165,924
Accounts receivable 389,201 277,144
Note receivable 60,000 60,000
Other 44,271 43,399
----------- -----------
TOTAL CURRENT ASSETS 638,799 546,467
----------- -----------
FURNITUIRE AND EQUIPMENT 345,797 362,247
Less accumulated depreciation 274,449 245,632
----------- -----------
71,348 116,615
----------- -----------
OTHER ASSETS
Notes receivable, net of allowance for doubtful accounts 35,959 60,959
Intangible assets 284,343 313,624
----------- -----------
320,302 374,583
----------- -----------
$ 1,030,449 $ 1,037,665
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------
Current Liabilities
Accounts payable $ 123,882 $ 57,411
Accrued expenses:
Compensation 42,362 48,899
Other 12,185 21,394
Client Advances 38,707 26,773
----------- -----------
TOTAL CURRENT LIABILITIES 217,136 154,477
----------- -----------
Long Term Liabilities
Convertable Note $ 100,000
----------- -----------
TOTAL LONG TERM LIABILITIES $ 100,000 $ --
----------- -----------
Stockholders' Equity
Common stock, $0.01 par value; (authorized 20,000,000 shares;
issued -- 3,327,633) 33,276 33,276
Additional paid-in capital 6,870,007 6,870,007
Accumulated deficit (4,223,720) (4,053,845)
Notes receivable from officers and directors (1,966,250) (1,966,250)
-----------
713,313 883,188
----------- -----------
$ 1,030,449 $ 1,037,665
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements (unaudited)
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------ ------------------------------
1998 1997 1998 1997
------------------------------ ------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 448,144 $ 580,977 $ 894,553 $ 1,113,512
DIRECT OPERATING COSTS
Compensation and benefits 155,997 248,398 310,596 493,794
Other 46,421 84,776 107,705 176,994
----------- ----------- ----------- -----------
Total direct operating costs 202,418 333,174 418,301 670,788
----------- ----------- ----------- -----------
GROSS PROFIT 245,726 247,803 476,252 442,724
----------- ----------- ----------- -----------
OTHER OPERATING COSTS
Sales and marketing 206,988 247,712 479,342 451,912
General and administrative 103,926 242,552 168,453 477,423
----------- ----------- ----------- -----------
Total other operating costs 310,914 490,264 647,795 929,335
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (65,188) (242,461) (171,543) (486,611)
OTHER INCOME (EXPENSE)
Interest Income 2,291 9,254 4,295 18,963
Interest Expense (2,500) -- (2,628) --
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS $ (65,397) $ (233,207) $ (169,875) $ (467,648)
=========== =========== =========== ===========
DISCONTINUED OPERATIONS
Loss from operations $ -- $ (807,068) $ -- $(1,019,525)
----------- ----------- ----------- -----------
NET LOSS $ (65,397) $(1,040,275) $ (169,875) $(1,487,173)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE
Continuing operations $ (0.03) $ (0.10) $ (0.07) $ (0.21)
Discontinued operations -- (0.36) -- (0.45)
$ (0.03) $ (0.46) $ (0.07) $ (0.66)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,287,633 2,257,633 2,287,633 2,257,633
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements (unaudited)
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<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 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 -- -- -- (169,875) -- (169,875)
----------- -----------
BALANCE JUNE 30, 1998 3,327,633 $ 33,276 $ 6,870,007 $(4,223,720) $(1,966,250) $ 713,313
=========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements (unaudited)
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
June 30,
------------------------------
1998 1997
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (169,875) $(1,487,173)
Adjustments to reconcile net loss to net
cash used by operating activities:
Loss on disposal of The Law Office, Inc. 612,008
Depreciation 44,155 52,258
Amortization and write-off of intangible assets and
capitalized development costs 29,281 128,219
(Gain) loss on disposal of furniture and equipment (1,588) 1,517
Change in assets and liabilities
Trade accounts receivable and unbilled services (112,057) 520,966
Other current assets (872) (23,797)
Accounts payable 66,471 (111,413)
Accrued expenses (15,746) (34,135)
Client advances 11,934 34,801
----------- -----------
Net cash used in operating activities (148,297) (306,749)
----------- -----------
INVESTING ACTIVITIES
Proceeds from the sale of furniture and equipment 2,700 (1,030)
Capitalized development costs -- (110,193)
Convertable note 100,000
Cash received on notes receivable 25,000 --
----------- -----------
net cash provided (used) by investing activities 127,700 (111,223)
----------- -----------
FINANCING ACTIVITIES
Payments on noncompete agreements -- (8,255)
----------- -----------
Net cash used in financing activities -- (8,255)
----------- -----------
----------- -----------
(Decrease) increase in cash and cash equivalents (20,597) (426,227)
----------- -----------
Cash and cash equivalents
Beginning of period 165,924 955,600
----------- -----------
End of period $ 145,327 $ 529,373
=========== ===========
</TABLE>
<PAGE>
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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: Three customers accounted for 26%, 16% and 10% respectively, of
the Company's total revenues for the quarter ended June 30, 1998. Two of these
same customers accounted for 26% and 15% of the Company's total revenues in the
quarter ended June 30, 1996..
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.
<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 $132,833 or 22.9%, to $448,144 for the three
month period ended June 30, 1998, over the same period of 1997. For the six
month period, revenues decreased $218,959 or 19.7%. The decrease is primarily
attributable to a decrease in research and writing revenue in second quarter and
the elimination of on-site library services in second quarter 1997.
Second quarter Multi-jurisdictional survey (MJS) revenue increased 16% in second
quarter 1998 from the comparable period in 1997. Year to date revenue from MJS
was $36,034 or 13% below 1997 MJS revenue for the same period.
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 expense.
Total direct operating costs decreased $130,756, or 39.2%, for the three months
ended June 30, 1998, from the same period in 1997. For the six month period,
direct operating costs decreased $252,487, or 37.6%.
The decrease in operating costs is primarily due to lower personnel costs,
computer database charges, and photocopying expense. Personnel costs decreased
due to a decrease in revenues and the continued downsizing of the Companies
infrastructure. 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 revenues decreased from
57.3% to 45.2% for the three months ended June 30, 1998, from the same period in
1997. For the six month period, direct operating costs as a percentage of
revenue decreased from 60.2% to 46.8%. The decreases are due to various factors
explained above.
Gross Profit: Gross profit for the three months ended June 30, 1998, decreased
by $2,077 or.08% to $245,726 from gross profits of $247,803 for the comparable
period for 1997. As a percentage of revenue, gross profit increased from 42.7%
to 54.8% for the three months ended June 30, 1998, from the same period in 1997,
primarily as a result of the decrease in direct operating costs discussed above.
For the six months ended June 30, 1998, gross profit increased by $33,528 or
7.6% to $476,252 from the comparable 1997 period. As a percentage of revenue,
gross profit increased from 39.8% to 53.2% for the six months ended June 30,
1998, from the same period in 1997, due to the decrease in direct operating
costs as explained above.
<PAGE>
Other Operating Costs: Other operating costs include compensation of officers,
sales and corporate staff, advertising and direct marketing expenditures and
general corporate overhead, including depreciation. Other operating costs
decreased by $179,350 or 36.6% for the three months ended June 30, 1998, from
the same period in 1997. Of these other operating costs, sales and marketing
expenses decreased by $40,724, or 16.4% and general and administrative costs
decreased by $138,626 or 57.2%. The decrease in other operating costs is due to
the downsizing of the Company's infrastructure and continued cost containment.
For the six months ended June 30, 1998, other operating costs decreased $281,540
or 30.3%. The decrease in other operating costs by category is primarily
attributed to a decrease in general and administrative of $308,974 or 64.7%,
offset by an increase in marketing and sales of $27,430 or 6.1%. The increase in
marketing and sales cost is primarily attributable to increased direct mailings
and marketing in first quarter of 1998.
Other Income and Expense: Interest income decreased $6,963 for the three months
ended June 30, 1998, and $14,668 for the six months ended June 30, 1998, from
the comparable periods in 1997. The decrease was a result of less cash invested
in interest bearing accounts.
Net Loss: The Company posted a net loss of $65,397 or $.03 per share for the
three months ended June 30, 1998, compared to a loss of $1,404,275 or $.46 per
share for the comparable period in 1997. The 93% decrease in the loss per share
was the result of a 39% decrease in direct operating costs, a 37% decrease in
general and administrative expenses through the continued downsizing of the
Company's infrastructure, and discontinuation of operations of The Law Office.
Interest expense increased $2,628 for the six months ended June 30, 1998, from
the comparable period in 1997 due to quarterly interest payments for a
convertible note.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to look for marketing and development opportunities and
alliances to increase revenues and cash flow. At June 30, 1998, the Company had
cash and cash equivalents of $145,327 and working capital of $383,339.
Cash used in operating activities was $148,297 in the first six months of 1998.
This use of cash is primarily the result of a $96,439 net loss before
depreciation and other non-cash charges, a $112,057 increase in accounts
receivable and unbilled services, offset by a $66,471 increase in accounts
payable. The Company expects by the end of third quarter 1998, expenditures will
be funded almost exclusively by funds generated by operations.
Investing activity for the first six months of 1998 was $127,700, principally as
a result of a convertible note payable, cash received on a note receivable and
proceeds from the sale of equipment.
The Company used $0 in financing activities for the first half 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: August 12, 1998 By: /s/ Christopher R. Ljungkull
----------------------------------
Christopher R. Ljungkull
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTER
ENDED AND SIX MONTHS ENDED JUNE 30, 1998 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 145,327
<SECURITIES> 0
<RECEIVABLES> 389,201
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 638,799
<PP&E> 345,797
<DEPRECIATION> 274,449
<TOTAL-ASSETS> 1,030,449
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 33,276
<OTHER-SE> 680,037
<TOTAL-LIABILITY-AND-EQUITY> 1,030,449
<SALES> 0
<TOTAL-REVENUES> 894,553
<CGS> 0
<TOTAL-COSTS> 418,301
<OTHER-EXPENSES> 647,795
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,628
<INCOME-PRETAX> (169,875)
<INCOME-TAX> 0
<INCOME-CONTINUING> (169,875)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (169,875)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
