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 March 31, 2000 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.
3,603,554 shares of Common Stock as of March 31, 2000
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999...........................2
Condensed Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999.....................3
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999.....................4
Notes to Condensed Consolidated Financial Statements .............5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................7
<PAGE>
PART I. FINANCIAL INFORMATION
================================================================================
ITEM 1. FINANCIAL STATEMENTS
LEGAL RESEARCH CENTER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
ASSETS 2000 1999
============================================================================================================
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,676,127 $ 1,347,469
Accounts receivable 573,476 538,671
Other 143,867 29,339
----------- -----------
TOTAL CURRENT ASSETS 2,393,470 1,915,479
----------- -----------
FURNITURE AND EQUIPMENT 282,763 282,763
Less accumulated depreciation 266,083 261,520
----------- -----------
16,680 21,243
----------- -----------
INTANGIBLE ASSETS 103,398 129,247
----------- -----------
$ 2,513,548 $ 2,065,969
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
============================================================================================================
CURRENT LIABILITIES
Accounts payable $ 179,671 $ 20,370
Accrued expenses 151,477 132,941
Income taxes payable 2,000 10,000
Client advances 63,956 19,656
----------- -----------
TOTAL CURRENT LIABILITIES 397,104 182,967
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; (authorized 20,000,000 shares;
issued - 3,603,554 and 3,602,454 shares respectively) 36,035 36,024
Additional paid-in capital 7,096,173 7,095,661
Accumulated deficit (3,049,514) (3,282,433)
Notes receivable from officers and directors (1,966,250) (1,966,250)
----------- -----------
2,116,444 1,883,002
----------- -----------
$ 2,513,548 $ 2,065,969
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
Three Months
Ended March 31,
---------------------------
2000 1999
---------------------------
<S> <C> <C>
REVENUES $ 1,221,959 $ 819,671
----------- -----------
DIRECT OPERATING COSTS
Compensation and benefits 493,120 307,695
Other 88,176 85,276
----------- -----------
581,296 392,971
----------- -----------
GROSS PROFIT 640,663 426,700
----------- -----------
OTHER OPERATING COSTS
Sales and marketing 212,768 182,055
General and administrative 215,691 166,770
----------- -----------
428,459 348,825
----------- -----------
INCOME FROM OPERATIONS 212,204 77,875
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 20,715 6,080
Interest expense -- (4,932)
----------- -----------
20,715 1,148
----------- -----------
NET INCOME $ 232,919 $ 79,023
=========== ===========
NET INCOME PER COMMON SHARE
Basic $ 0.09 $ 0.03
=========== ===========
Diluted $ 0.08 $ 0.03
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUSTANDING
Basic 2,563,984 2,409,252
=========== ===========
Diluted 2,786,334 2,539,371
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31
-----------------------------
2000 1999
-----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 232,919 $ 79,024
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 4,563 10,393
Amortization of intangible assets and
capitalized development costs 25,849 25,850
Change in assets and liabilities:
Accounts receivable (34,805) 13,364
Other current assets (114,529) (29,146)
Accounts payable 159,301 2,179
Accrued expenses 10,537 2,162
Client advances 44,300 17,931
----------- -----------
Net cash provided by operating activities 328,135 121,757
FINANCING ACTIVITIES
Proceeds from exercise of stock options 523 1,712
----------- -----------
Increase in cash and cash equivalents 328,658 123,469
Cash and cash equivalents
Beginning of period 1,347,469 436,110
----------- -----------
End of period $ 1,676,127 $ 559,579
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
LEGAL RESEARCH CENTER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(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.
The condensed consolidated balance sheet as of December 31, 1999, is derived
from the audited financial statements but does not include all disclosures
required by generally accepted accounting principals. The notes accompanying the
consolidated financial statements in the Company's Annual Report on form 10-KSB
for the year ended December 31, 1999, include accounting policies and additional
information is pertinent to an understanding of both the December 31, 1999,
balance sheet and the interim financial statements. The information has not
changed substantially except as a result of normal transactions in the three
months ended March 31, 2000, and as discussed in the following notes.
Major Customers: Two customers accounted for 58% and 10%, respectively, of the
Company's revenues for the quarter ended March 31, 2000. One of these customers
accounted for 49% of the Company's revenues for the quarter ended March 31,
1999.
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 1999 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.
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
<PAGE>
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 $402,288 or 49%, to $1,221,959 for the three
month period ended March 31, 2000, over the same period of 1999. The increase is
primarily attributable to an increase in traditional research and writing
services, multi-jurisdictional survey revenue, and document retrieval revenues.
Direct Operating Costs: Direct operating costs for compensation and 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 $188,325 or 48%, for the three months
ended March 31, 2000, from the same period in 1999. The increase in operating
costs is due to the increase in revenues.
Direct operating costs, expressed as a percentage of revenues remained constant
at 48% for the three months ended March 31, 2000, from the same period in 1999.
Gross Profit: Gross profit for the three months ended March 31, 2000, increased
by $213,963 or 50% to $640,663 from gross profits of $426,700 for the comparable
period for 1999. As a percentage of revenues, gross profit remained the same at
52% for the three months ended March 31, 2000, from the same period in 1999.
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 $79,634 or 23% for the three months ended March 31, 2000, from the
same period in 1999. This increase is due to increases in sales personnel and
sales travel, and an increase in the allowance for doubtful accounts.
Other Income (Expense): Interest income increased $14,635 or 241% for the three
months ended March 31, 2000, from the comparable period in 1999. The increase is
a result of increased cash invested in interest bearing accounts and
instruments. Interest expense decreased by $4,932 for the three months ended
March 31, 2000, from the comparable period in 1999. The decrease is the result
of converting a note payable to common stock in the third quarter of 1999.
Net Income: The Company earned $232,919 or $.09 (basic) and $.08 (diluted) per
share for the three months ended March 31, 2000, compared to 79,023 or $.03
(basic and diluted) per share for the comparable period in 1999. The increase in
income is the result of an increase in revenues while maintaining a consistent
margin in direct operating costs.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 2000, the Company had cash and cash equivalents of $1,676,127 and
working capital of $1,996,367.
Cash generated by operating activities was $328,135 in the three months ended
March 31, 2000.
<PAGE>
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' 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 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 it 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: May 9, 2000 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 THREE MONTHS ENDED MARCH 31, 2000 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,676,127
<SECURITIES> 0
<RECEIVABLES> 573,476
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,393,470
<PP&E> 282,763
<DEPRECIATION> 266,083
<TOTAL-ASSETS> 2,513,548
<CURRENT-LIABILITIES> 397,104
<BONDS> 0
0
0
<COMMON> 36,035
<OTHER-SE> 2,080,409
<TOTAL-LIABILITY-AND-EQUITY> 2,513,548
<SALES> 0
<TOTAL-REVENUES> 1,221,959
<CGS> 0
<TOTAL-COSTS> 581,296
<OTHER-EXPENSES> 428,459
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 215,229
<INCOME-TAX> 3,025
<INCOME-CONTINUING> 212,204
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 232,919
<EPS-BASIC> .09
<EPS-DILUTED> .08
</TABLE>
Exhibit 99
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
49% Revenue Growth, Record Earnings
Minneapolis - May 4, 2000 - Legal Research Center, Inc. (OTC: LRCI), the
nation's leading provider of outsourced legal research and writing services,
today reported its results for the first quarter ended March 31, 2000.
For the quarter, revenues increased 49 percent to $1,221,959, compared to
$819,671 for the first quarter of 1999.
The company showed particularly strong earnings growth in the first
quarter, reporting net income of $232,919, or $.09 per share, compared to
$79,024, or $.03 per share, for the same period a year ago. This represents an
increase of 195 percent in net income over the first quarter of 1999.
LRC's actual EBITDA (earnings before interest, taxes, depreciation and
amortization) was $245,643 for the first quarter, or $.10 per share, versus
$114,000 for the first quarter of 1999, or $.05 per share.
"With the reporting of these quarterly results, LRC is clearly
demonstrating its consistency as a profitable and growing company," said
Christopher Ljungkull, chief executive officer of Minneapolis-based LRC. "This
marks the seventh consecutive quarter of strong performance in the company's
revenue and net income."
(more)
<PAGE>
Legal Research Center Announces 1Q00 Results
Page Two
"We're obviously delighted that we were able to generate a substantial
increase in net income for our shareholders," said Ljungkull. "This was
accomplished in the first quarter by maintaining our strong sales performance in
the core business of legal research and writing services, while once again
posting gross margins in excess of 50 percent."
"LRC's second quarter is already off to a promising start as we continue to
see growth in the category of outsourced legal research services and products,"
said James Seidl, LRC's president. "Beyond this growth in the core business, we
are on the verge of making a major announcement that will catapult us into
online compliance training. This use of the Internet as a delivery system for
corporate compliance-related legal research is an important vehicle for the
future growth of the company."
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.
Statements contained here, 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, as well as those set forth in the
company's 10-KSB, 10-QSB and other SEC filings.
# # #
(Consolidated statements of income follow)
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months
Ended March 31,
---------------------------
2000 1999
---------------------------
Revenues $1,221,959 $ 819,671
Income from operations $ 212,204 $ 77,875
Net income $ 232,919 $ 79,023
Net income per common share
Basic $ 0.09 $ 0.03
Diluted $ 0.08 $ 0.03
Weighted average common
shares outstanding Basic 2,563,984 2,409,252
Diluted 2,786,334 2,539,371
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31,
2000
----------
Current assets $2,393,470
Furniture and equipment, net 16,680
Intangible assets 103,398
----------
Total assets $2,513,548
==========
Current liabilities $ 397,104
Stockholders' equity 2,116,444
----------
Total liabilities and stockholders' equity $2,513,548
==========
