SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
Amendment No. 1 to Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1998
(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, 1998 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 __
[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 ___.
State issuer's revenues for its most recent fiscal year. $2,403,079
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.)
$1,066,003 as of March 15, 1999
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.
3,334,133 shares of Common Stock as of March 15, 1999
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]
EXPLANATORY NOTE
This Report on Form 10-KSB/A amends and restates in their entirety the
following items of the Annual Report on Form 10-KSB of Legal Research Center,
Inc. (the "Company") for the fiscal year ended December 31, 1998 (the "1998 Form
10-KSB").
The aggregate market value of voting stock held by non-affiliates,
contained on the cover page of the 1998 Form 10-KSB, has been amended to change
the date from March 15, 1998 to March 15, 1999. The information contained in
Item 6 of the 1998 Form 10-KSB has been amended and restated to include Results
of Operations for the "Year ended December 31, 1997 compared to the year ended
December 31, 1996", which was inadvertently omitted from the 1998 Form 10-KSB.
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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 footnotes 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:
o Company's dependence on a major customer or customers.
o Failure of the Company or its partners successfully to 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.
The Company's revenues have historically been derived from conducting
analytical research and writing on a non-recurring basis for its customers. In
1998, 10 customers accounted for approximately 60% of the Company's revenues.
The loss of one or more of these customers without the Company generating
replacement business would have a material adverse impact on its financial
condition. Historically, the Company has experienced a seasonal fluctuation in
revenues with the second and third quarters being the slowest quarters of the
year and the last quarter being the strongest.
The Company has expended an aggregate of $3,721,557 due to losses in 1996
and 1997. Steps taken in 1997 and 1998, including the discontinuation of The Law
Office and the write-down thereof, enabled it to achieve profitability by the
third Quarter of 1998.
Results of Operations
Year ended December 31, 1998 compared to the year ended December 31, 1997
Revenues: Revenues increased by $624,046 or 35%, to $2,403,079 for 1998
compared to 1997 revenues of $1,779,033. The increase in revenues is primarily
attributable to increased sales to corporate customers.
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
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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 increased $75,155, or 7%, to $1,144,488, compared to 1997
direct operating costs of $1,069,333. This increase is directly related to the
increase in revenue in 1998.
Gross Profit: Gross profit increased $548,891, or 77%, to $1,258,591
compared to 1997 gross profit of $709,700. As a percentage of revenue, gross
profit increased to 52% in 1998 compared to 40% in 1997. The increase was
principally due to increased efficiency in the production of research and
writing.
Other Operating Costs: 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 $472,592, or 28%, to $1,205,585 over 1997
costs of $1,678,177. Other operating costs decreased as a percentage of revenues
from 94% in 1997 to 50% in 1998. The decrease in these costs by category was
$281,166, or 36%, for sales and marketing; $191,426, or 21%, 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).
Depreciation and Amortization: The Company had depreciation and
amortization of $155,081 in 1998 compared to $193,736 in 1997.
Earnings Before Interest, Taxes, Depreciation and Amortization: Earnings
before interest, taxes, depreciation and amortization were $223,203, or $.10 per
share for 1998, compared to a loss of $1,871,268 or $.82 in 1997.
Net Income (Loss): The Company earned $55,240 or $.02 per share (basic and
diluted) for the year ended December 31, 1998, compared to a loss from
continuing operations of $940,479 or $.41 per share for the comparable period in
1997. The 105% change in the income/loss per share was the result of a 35%
increase in revenue offset by a 7% increase in direct operating costs, further
offset by a 28% decrease in other operating costs through the continued
downsizing of the Company's infrastructure.
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
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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
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 2000
The Company's information systems and accounting employees have examined
all its internal systems, including hardware and software, and believes that
year 2000 issues will not materially affect its business, results of operations
or financial condition. The Company relies primarily on current versions of
WordPerfect and Word which it believes are not subject to year 2000 issues. The
Company's accounting and record-keeping systems - relying primarily on Microsoft
ACCESS, Windows NT and Peachtree, it believes, are year 2000 compliant and, in
any event, are not 2-digit date dependent. Additionally, its accounting and
record keeping systems can be replicated easily and manually. Primary research
sources relied upon are WESTLAW and LEXIS, which the Company believes are year
2000 compliant but which are, nevertheless, significantly redundant to each
other and to easily-accessible print sources.
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Liquidity and Capital Resources
At December 31, 1998, the Company had cash and cash equivalents of $436,110
and working capital of $812,006. At the same time in 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 would
be funded almost exclusively by funds generated from operations. The Company
reached that goal during the first half of 1998, and raised additional working
capital in the form of convertible debt. The debt consists of two notes payable
incurred in 1998 totaling $200,000 with interest payments at an annual rate of
10%, and is convertible at $1 per share.
Net cash provided by operating activities was $28,081 in 1998 compared to
$600,745 net cash used in operating activities in 1997. The Company had net
income of $55,240 compared to a net loss of $2,065,004 in 1997 for the reasons
discussed above.
Investment activities provided $42,105 in 1998 through cash received on a
note receivable plus proceeds from the sale of equipment. Financing activities
provided $200,000 from notes payable discussed above.
The Company does not anticipate the payment of cash dividends on its Common
Stock in the foreseeable future. It is anticipated that profits 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.
Business Outlook
The Company expects to continue to benefit from it's restructuring, which
began in July 1, 1997, with 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. The Company 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. The Company
hopes to maintain annual gross margins of 50% or better and hopes overhead will
continue to be static or grow at a rate significantly lower than revenue.
The Company continues to focus its marketing/sales efforts on direct
marketing of its traditionally-strong products and services. The Company
believes the market for the outsourced legal research and writing services it
provides to be growing and that it can continue to increase revenues for the
foreseeable future.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
LEGAL RESEARCH CENTER, INC.
Dated April 15, 1999 By: /s/ Christopher R. Ljungkull
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Christopher R. Ljungkull, CEO
