SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999 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.
3,481,093 shares of Common Stock as of September 30, 1999
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements:
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998...........................2
Consolidated Statements of Operations
Nine Months Ended September 30, 1999 and 1998........................3
Consolidated Statements of Stockholders' Equity .....................4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998......................5
Notes to Consolidated Financial Statements ..........................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................8
<PAGE>
PART I. FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
ASSETS 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,144,889 $ 436,110
Accounts receivable 614,137 457,723
Note receivable 30,909 30,909
Other 52,037 33,121
----------- -----------
TOTAL CURRENT ASSETS 1,841,972 957,863
----------- -----------
FURNITUIRE AND EQUIPMENT 339,576 342,067
Less accumulated depreciation 321,057 (298,340)
----------- -----------
18,519 43,727
----------- -----------
OTHER ASSETS
Notes receivable, net of allowance for doubtful accounts 50,050 50,050
Intangible assets 155,096 232,645
----------- -----------
205,146 282,695
----------- -----------
$ 2,065,637 $ 1,284,285
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 26,371 $ 44,235
Accrued expenses:
Compensation 151,024 80,990
Other 141,235 3,155
Client Advances 14,990 17,477
----------- -----------
TOTAL CURRENT LIABILITIES 333,620 145,857
----------- -----------
----------- -----------
NOTES PAYABLE $ 100,000 $ 200,000
----------- -----------
STOCKHOLDER'S EQUITY
Common stock, $0.01 par value; (authorized 20,000,000 shares;
issued - 3,481,093 and 3,327,633 shares respectively) 34,811 33,276
Additional paid-in capital 6,981,264 6,870,007
Accumulated deficit (3,417,808) (3,998,605)
Notes receivable from officers and directors (1,966,250) (1,966,250)
----------- -----------
1,632,017 938,428
----------- -----------
$ 2,065,637 $ 1,284,285
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements (unaudited)
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
--------------------------- ---------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 1,214,160 $ 684,531 $ 3,141,424 $ 1,579,084
DIRECT OPERATING COSTS
Compensation and benefits 504,233 298,777 1,212,050 609,373
Other 85,460 15,033 248,597 122,738
----------- ----------- ----------- -----------
Total direct operating costs 589,693 313,810 1,460,647 732,111
----------- ----------- ----------- -----------
GROSS PROFIT 624,467 370,721 1,680,777 846,973
----------- ----------- ----------- -----------
OTHER OPERATING COSTS
Sales and marketing 189,111 175,022 580,520 654,364
General and administrative 185,184 93,477 530,873 261,930
----------- ----------- ----------- -----------
Total other operating costs 374,295 268,499 1,111,393 916,294
----------- ----------- ----------- -----------
PROFIT/LOSS FROM OPERATIONS 250,172 102,222 569,384 (69,321)
OTHER INCOME (EXPENSE)
Interest Income 12,127 4,669 25,914 8,964
Interest Expense (4,583) (5,083) (14,501) (7,711)
----------- ----------- ----------- -----------
NET PROFIT/LOSS FROM CONTINUING OPERATIONS $ 257,715 $ 101,808 $ 580,797 $ (68,068)
=========== =========== =========== ===========
NET GAIN/ LOSS PER COMMON SHARE
Basic $ 0.11 $ 0.04 $ 0.24 $ (0.03)
=========== =========== =========== ===========
Diluted $ 0.10 $ 0.04 $ 0.22 $ (0.03)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUSTANDING
Basic 2,441,093 2,287,633 2,441,093 2,287,633
=========== =========== =========== ===========
Diluted 2,650,196 2,301,535 2,650,196 2,301,535
=========== =========== =========== ===========
</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, 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 Income -- - -- 55,240 -- 55,240
-----------
BALANCE DECEMBER 31, 1998 3,327,633 $33,276 $6,870,007 $(3,998,605) (1,966,250) $ 938,428
--------- ------- ---------- ----------- ----------- -----------
Net Income $ 323,081 $ 323,081
Exercised Stock Options 41,480 $ 415 $ 9,315 $ 9,730
BALANCE, JUNE 30, 1999 3,369,113 33,691 6,879,322 $(3,675,524) (1,966,250) $ 1,271,240
--------- ------- ---------- ----------- ----------- -----------
Net Income $ 257,715 $ 257,715
Exercised Stock Options 11,980 120 2,941 $ 3,061
Note Converstion 100,000 1,000 99,000 $ 100,000
BALANCE, SEPTEMBER 30, 1999 3,481,093 34,811 6,981,263 $(3,417,809) $ (1,966,250) $ 1,632,016
--------- ------- ---------- ------------- ------------- -----------
</TABLE>
See Notes to Consolidated Financial Statements (unaudited)
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
September 30
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net profit (loss) $ 580,797 $ (104,478)
Adjustments to reconcile net profit (loss) to net
cash used by operating activities:
Depreciation 25,208 23,027
Amortization and write-off of intangible assets and 77,549 3,431
capitalized development costs
(Gain) loss on disposal of furniture and equipment (500) (50)
Change in assets and liabilities
Trade accounts receivable and unbilled services (156,414) (82,819)
Other current assets (18,916) (25,001)
Accounts payable (17,864) 97,362
Accrued expenses 208,114 11,070
Client advances (2,487) 15,770
----------- -----------
Net cash provided (used) in operating activities 695,487 (61,688)
----------- -----------
INVESTING ACTIVITIES
Proceeds from the sale of furniture and equipment 500 50
Capitalized development costs
Cash received on notes receivable (100,000) 15,000
----------- -----------
Net cash provided (used) by investing activities (99,500) 15,050
----------- -----------
FINANCING ACTIVITIES
Common Stock 1,535
Proceeds from exercise of stock options 111,257
----------- -----------
----------- -----------
Increase (Decrease) in cash and cash equivalents 708,779 (46,638)
----------- -----------
Cash and cash equivalents
Beginning of period 436,110 165,924
----------- -----------
End of period $ 1,144,889 $ 119,286
=========== ===========
</TABLE>
<PAGE>
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(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, 1998.
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 Gain (Loss) Per Common Share: Net gain (loss) per common share is computed
on the basis of the weighted average number of common shares outstanding during
the respective periods.
Major Customers: One customer accounted for 64% of the Company's total revenues
for the quarter ended September 30, 1999. The same customer accounted for 48% of
the Company's total revenues for the quarter ended September 30, 1998.
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 1998 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 losses.
o Company's dependence on a major customer or customers.
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.
<PAGE>
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 increased by $529,629 or 77%, to $1,214,160 for the three
month period ended September 30, 1999, over the same period of 1998. For the
nine month period, revenues increased by $1,562,340 or 99%. The increase is
primarily attributable to an increase in traditional research and writing
services.
Direct Operating Costs: Direct operating costs for compensation and other
benefits include hourly contract fees for independent research attorneys as well
as salaries 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 increased $275,883, or 88%, for the three months
ended September 30, 1999, from the same period in 1998. For the nine month
period, direct operating costs increased $728,536 or 99.5%. The increase in
operating costs is due to the increase in revenue.
Direct operating costs, expressed as a percentage of revenues increased 3% from
46% to 49% for the three months ended September 30, 1999, from the same period
in 1998. For the nine month period, direct operating costs as a percentage of
revenue remained the same at 46.5%.
Gross Profit: Gross profit for the three months ended September 30, 1999,
increased by $253,746 or 68% to $624,467 from gross profits of $370,721 for the
comparable period for 1998. As a percentage of revenue, gross profit decreased
from 54% to 51% for the three months ended September 30, 1999, from the same
period in 1998.
For the nine months ended September 30, 1999, gross profit increased by $833,804
or 98% from the comparable period in 1998. As a percentage of revenue, gross
profit remained the same at 53.5 % for the nine months ended September 30, 1999
from the same period in 1998.
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
increased by $105,796 or 39% for the three months ended September 30, 1999, from
the same period in 1998. For the nine month period, other operating costs
increased by $195,099 or 21%. This increase is due to an increase in direct
marketing and advertising expense.
Other Income and Expense: Interest income increased $7,458 for the three months
ended September 30, 1999, from the comparable period in 1998. The increase is a
result of increased cash invested in interest bearing accounts. Interest expense
decreased by $500 for the three months ended September 30, 1999 from the
comparable periods in 1998. The decrease is a result of a note payable
converting to stock in third quarter.
Net Profit/Loss: The Company posted a net profit of $257,715 or $.11 per share
for the three months ended September 30, 1999, compared to 101,808 or $.04 per
share for the comparable period in 1998. The increase in the revenue per share
was the result of a 77% increase in revenues offset by an 88% increase in direct
operating costs, and a 39% increase in general and administrative expenses.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1999, the Company had cash and cash equivalents of $1,144,889
and working capital of $1,508,352.
Cash generated in operating activities was $695,487 in the nine months ended
September 30, 1999. This was primarily the result of a $683,554 net gain before
depreciation and other non-cash charges, a $156,414 increase in accounts
receivable and unbilled services, and a $2,487 decrease in client advances.
The Company received $111,257 in financing activities in the nine months ended
September 30, 1999 from the exercise of stock options and the conversion of a
note payable to stock.
Part II - Other Information
Item 1. Legal Proceedings
LAWFINDERS LITIGATION
On June 29, 1998, the Company was sued in Dallas, Texas by Lawfinders, Inc.
("Lawfinders"), a competitor of the Company, which alleged that the Company had
misappropriated Lawfinders's proprietary information. Lawfinders sought
injuctive relief and unspecified damages
Commencing in the summer of 1997 and ending in early 1998, the Company was
engaged in discussions with Lawfinders about a possible business combination.
Those discussions failed to produce an agreement between the parties.
Lawfinders commenced suit in state court and obtained a temporary restraining
order restraining the Company from engaging in certain practices in connection
with its appellate brief business. The Company removed the action to federal
court and, on November 4, 1998, after consideration of the evidence and the
parties' briefs, the federal court dissolved the temporary restraining order and
because it found that is unlikely that Lawfinders would be successful on the
merits of its action, denied Lawfinders a preliminary injunction.
Lawfinders' subsequent appeal of that decision was likewise denied. The Company
has asked the Court to dismiss all of Lawfinders' claims.
The Company believes that it will prevail in the litigation, should it continue.
The Company's costs of defending the action, including attorneys' fees, have
been covered by the Company's general liability insurance carrier and the
Company believes that all future costs of defending the litigation, if any, will
be similarly covered.
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: November 2, 1999 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 NINE MONTHS ENDED SEPTEMBER 30, 1999 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,144,889
<SECURITIES> 0
<RECEIVABLES> 614,137
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,841,972
<PP&E> 339,576
<DEPRECIATION> 321,057
<TOTAL-ASSETS> 2,065,637
<CURRENT-LIABILITIES> 333,620
<BONDS> 0
0
0
<COMMON> 34,811
<OTHER-SE> 1,597,206
<TOTAL-LIABILITY-AND-EQUITY> 2,065,637
<SALES> 0
<TOTAL-REVENUES> 3,141,424
<CGS> 0
<TOTAL-COSTS> 1,460,647
<OTHER-EXPENSES> 1,111,393
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,501
<INCOME-PRETAX> 580,797
<INCOME-TAX> 0
<INCOME-CONTINUING> 580,797
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 580,797
<EPS-BASIC> .24
<EPS-DILUTED> .22
</TABLE>
NEWS RELEASE
Media Contacts: Christopher Ljungkull Daryn Teague
Legal Research Center Teague Communications
(800) 776-9377 (661) 297-5292
[email protected] [email protected]
Legal Research Center Announces
Record Third Quarter
As Revenues Increase by 77%
Minneapolis - 4 November 99 - Legal Research Center, Inc. (OTC: LRCI), the
nation's leading provider of outsourced legal research and writing services,
today reported its results for the third quarter ended September 30, 1999.
For the quarter, revenues increased 77% to $1,214,160, compared to $684,531
for the third quarter of 1998. This represents the best quarterly performance
ever for LRC and marked the second consecutive quarter revenues have exceeded $1
million.
The company continued to show strong earnings growth in the third quarter.
Net income for the third quarter was $257,725, or $.11 per share, compared to
$101,808, or $.04 per share, for the third quarter of 1998. Moreover, LRC's
actual EBITDA (earnings before interest, taxes, depreciation and amortization)
was $282,660 for the quarter, or $.12 per share.
LRC's year-to-date earnings through the end of the third quarter were at
$580,797, or $.24 per share, compared to a loss of $68,068, or $.03 per share,
during the same period last year.
According to Christopher Ljungkull, chief executive officer of
Minneapolis-based LRC, "This was another tremendous quarter for our company. Our
sales continue to grow at unprecedented rates and our cost control initiatives
are helping us limit the growth of expenses. We're far ahead of our budget
forecasts for 1999 and we're optimistic that growth is sustainable over the next
several quarters."
"By concentrating our efforts on growing LRC's core business of legal
research and writing services, and by leveraging the cost-efficiencies of new
research technologies available over the Internet, we continue to realize steady
improvement in our company's fiscal performance," said James Seidl, LRC's
president. "Looking ahead to the
<PAGE>
fourth quarter, we have some exciting new business opportunities coming on board
and we continue to believe that LRC's growth is sustainable into the next
decade."
Ljungkull noted that LRC was also successful in the third quarter with
closing the sale of The Law Office and The CyberLaw Office to Arun Dube, LRC's
chairman and the chief executive officer of The CyberLaw Office. Those two
online assets were sold in exchange for $1.5 million in face value preferred
stock in The CyberLaw Office, which is now entirely owned by Dube, and $1.5
million in warrants.
Minneapolis-based Legal Research Center (http://www.lrci.com) offers legal
research and writing services to attorneys in corporate and private practice
throughout the world. Founded in 1978, LRC's work products include
multijurisdictional surveys, office memoranda, and formal court-ready documents
such as trial and appellate briefs, prepared by a staff of highly credentialed
attorneys, carefully selected for their research, analytical, writing and
client-service skills. LRC's research attorneys are honors graduates who have
practiced law for at least two years, and many for over 20, in major law firms
and corporate law departments throughout the United States.
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1999 1998 1999 1998
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Revenues $ 1,214,160 $ 684,531 $ 3,141,424 $ 1,579,084
Operating income (loss) 250,172 102,222 569,384 (69,321)
Net income (loss) $ 257,715 $ 101,808 $ 580,797 $ (68,068)
Net gain/loss per share $ 0.11 $ 0.04 $ 0.24 $ (0.03)
Weighted average common and common
equivalent shares outstanding 2,441,093 2,287,633 2,441,093 2,287,633
</TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
1999 1998
---------- ----------
Current assets $1,841,972 $ 957,863
Furniture & equipment, net 18,519 43,727
Other assets 205,146 282,695
Total assets $2,065,637 $1,284,285
Current liabilities $ 333,620 $ 145,857
Long-term liabilities 100,000 200,000
Stockholders' equity 1,632,017 938,428
Total liabilities and shareholders' equity $2,065,637 $1,284,285
