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, 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.
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(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-1680384
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(State Or Other Jurisdiction (IRS Employer Identification No.)
Of Incorporation)
700 Midland Square Building, 331 Second Avenue So., Minneapolis, MN 55401
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(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 612/332-4950
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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.
3,607,079 shares of Common Stock as of November 13, 2000
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999...........................2
Condensed Consolidated Statements of Income
Three Months and Nine Months Ended September 30, 2000 and 1999.....3
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 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..........................................5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..........................................7
Item 4. Submission of Matters to a Vote of Security Holders........7
Item 5. Other Information...........................................8
Item 6...Exhibits and Reports on Form 8-K...........................8
<PAGE>
PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
LEGAL RESEARCH CENTER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
ASSETS 2000 1999
-------------------------------------------------------------------------------------------------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,278,862 $ 1,347,469
Accounts receivable 919,863 538,671
Other 74,127 29,339
------------- -------------
TOTAL CURRENT ASSETS 2,272,852 1,915,479
------------- -------------
FURNITURE AND EQUIPMENT 303,962 282,763
Less accumulated depreciation 278,812 261,520
------------- -------------
25,150 21,243
------------- -------------
OTHER ASSETS
Intangible assets 51,699 129,247
Investment in Integrity Interactive Corporation 500,000 -
------------- -------------
551,699 129,247
------------- -------------
$ 2,849,701 $ 2,065,969
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 84,149 $ 20,370
Accrued expenses 160,463 142,941
Client advances 48,650 19,656
------------- -------------
TOTAL CURRENT LIABILITIES 293,262 182,967
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; (authorized 20,000,000 shares;
issued - 3,607,079 and 3,602,454 shares respectively) 36,070 36,024
Additional paid-in capital 7,102,038 7,095,661
Accumulated deficit (2,615,419) (3,282,433)
Notes receivable from officers and directors (1,966,250) (1,966,250)
------------- -------------
2,556,439 1,883,002
------------- -------------
$ 2,849,701 $ 2,065,969
============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------------- ------------------------------
2000 1999 2000 1999
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
REVENUES $ 1,220,978 $ 1,214,160 $ 3,760,310 $ 3,141,424
------------- ------------- ------------- -------------
DIRECT OPERATING COSTS
Compensation and benefits 442,404 504,233 1,455,844 1,212,050
Other 75,820 85,460 250,924 248,597
------------- ------------- ------------- -------------
518,224 589,693 1,706,768 1,460,647
------------- ------------- ------------- -------------
GROSS PROFIT 702,754 624,467 2,053,542 1,680,777
------------- ------------- ------------- -------------
OTHER OPERATING COSTS
Sales and marketing 316,090 189,111 812,540 580,520
General and administrative 209,191 185,184 636,206 530,873
------------- ------------- ------------- -------------
525,281 374,295 1,448,746 1,111,393
------------- ------------- ------------- -------------
INCOME FROM OPERATIONS 177,473 250,172 604,796 569,384
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Interest income 18,107 12,127 62,218 25,914
Interest expense - (4,584) - (14,501)
------------- ------------- ------------- -------------
18,107 7,543 62,218 11,413
------------- ------------- ------------- -------------
NET INCOME $ 195,580 $ 257,715 $ 667,014 $ 580,797
============= ============= ============= =============
NET INCOME PER COMMON SHARE
Basic $ 0.08 $ 0.11 $ 0.26 $ 0.24
============= ============= ============= =============
Diluted $ 0.07 $ 0.10 $ 0.24 $ 0.22
============= ============= ============= =============
WEIGHTED AVERAGE COMMON SHARES OUSTANDING
Basic 2,567,046 2,441,093 2,566,680 2,441,093
============= ============= ============= =============
Diluted 2,843,171 2,650,196 2,806,302 2,650,196
============= ============= ============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
2000 1999
----------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 667,014 $ 580,797
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 17,292 25,208
Amortization of intangible assets 77,549 77,549
Change in assets and liabilities:
Accounts receivable (381,192) (156,414)
Other current assets (44,788) (18,916)
Accounts payable 63,779 (17,864)
Accrued expenses 17,522 208,114
Client advances 28,994 (2,487)
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Net cash provided by operating activities 446,170 695,987
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INVESTING ACTIVITIES
Investment in Integrity Interactive Corporation (500,000) -
Purchase of computers and equipment (21,200) -
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Net cash used by investing activities (521,200) -
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FINANCING ACTIVITIES
Proceeds from exercise of stock options 6,423 12,792
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Increase (decreased) in cash and cash equivalents (68,607) 708,779
Cash and cash equivalents
Beginning of period 1,347,469 436,110
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End of period $ 1,278,862 $ 1,144,889
=============== ===============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
LEGAL RESEARCH CENTER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(unaudited)
Basis Of Presentation: The interim financial statements are unaudited, and 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 principles. 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 six
months ended June 30, 2000, and as discussed in the following notes.
Major Customers: One customer accounted for 72% of the Company's revenues for
the three months ended September 30, 2000 and 57% for the nine months ended
September 30, 2000. The same customer accounted for 64% of the Company's
revenues for the three months ended September 30, 1999 and 58% for the nine
months ended September 30, 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 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 $6,818 or .6%, to $1,220,978 for the three month
period ended September 30, 2000, over the same period of 1999. For the
nine-month period, revenues increased by $618,886 or 19.7%. The increase is
primarily attributable to increases in research and writing services,
multi-jurisdictional survey revenue, and appellate brief services.
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.
Direct operating costs decreased $71,469 or 12%, for the three months ended
September 30, 2000, from the same period in 1999. For the nine-month period,
direct operating costs increased $246,121 or 17%. The increase in operating
costs is due to the increase in revenues.
Direct operating costs, expressed as a percentage of revenues decreased 6% to
42.4% for the three months ended September 30, 2000, from the same period in
1999. For the nine month period, direct operating costs as a percentage of
revenue decreased 1% from 46.5% to 45.4%.
Gross Profit: Gross profit for the three months ended September 30, 2000,
increased by $78,287 or 12.5% to $702,754 from gross profits of $624,467 for the
comparable period for 1999. As a percentage of revenues, gross profit increased
6% to 57.6% for the three months ended September 30, 2000, from the same period
in 1999. The increase in gross profit is attributable to a decrease in cost of
production and expenses.
For the nine months ended September 30, 2000, gross profit increased $372,765 or
22% from the comparable 1999 period. As a percentage of revenues, gross profit
increased from 53.5% to 54.6% for the nine months ended September 30, 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 $150,986 or 40% for the three months ended September 30, 2000, from
the same period in 1999. For the nine-month period, other operating costs
increased $337,353 or 30% from the comparable period in 1999. This increase is
due to increases in sales personnel and sales travel, new technology and
marketing.
Other Income (Expense): Interest income increased $5,980 or 49% for the three
months ended September 30, 2000, from the comparable period in 1999. For the
nine-month period, interest income increased $36,304 or 140% from the same
period in 1999. The increase is a result of increased cash invested in interest
bearing accounts and instruments. Interest expense decreased by $4,584 for the
three months ended September 30, 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 $177,473 or $.08 (basic) and $.07 (diluted) per
share for the three months ended September 30, 2000, compared to $257,715 or
$.11 (basic) and $.10 (diluted) per share for the comparable period in 1999. For
the nine month period ended September 30, 2000, the Company earned $667,104 or
$.26 (basic) and $.24 (diluted) per share compared to $580,797 or $.24 (basic)
and $.22 (diluted) per share for the comparable period in 1999. The decrease in
net income for the three months ended September 30, 2000, is the result of an
increase in sales and marketing costs and costs associated with the acquisition
of stock in Integrity Interaction Corporation.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 2000, the Company had cash and cash equivalents of $1,278,862
and working capital of $1,979,590.
Cash provided by operating activities was $446,170 in the three months ended
September 30, 2000.
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 for summary judgment on all counts, and 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.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's annual meeting was held on June 29, 2000.
(b) Directors elected at the annual meeting were Bruce J. Aho, Arun K.
Dube, Christopher R. Ljungkull and James R. Seidl.
(c) Matters voted on, and votes cast, were as follows:
a. Election of Bruce J. Aho, for - 2,724,501, withheld - 114,250
b. Election of Arun k. Dube, for - 2,729,501, withheld - 109,250
c. Election of Christopher R. Ljungkull, for - 2,728,501, withheld -
110,250
d. Election of James R. Seidl, for - 2,728,501, withheld - 110,250
e. Addition of 1,000,000 shares to the Legal Research Center, Inc.,
1997 Stock Option Plan, for - 1,564,714, against - 270,585,
abstain - 50,750, Broker non-vote - 952,702
f. Selection of Lurie, Besikof, Lapidus & Co., LLP as independent
auditors of the Company for the fiscal year ending 12-31-2000,
for - 2,823,101, against - 3,450, abstain - 12,200.
<PAGE>
Item 5. Other Information
On July 18, 2000, Legal Research Center, Inc. (the "Company") purchased 810,000
shares of Series A Convertible Preferred Stock (the "Shares") of Integrity
Interactive Corporation, a Delaware corporation ("Integrity") for a purchase
price of $500,000 cash. Upon conversion of the Shares, the investment would
represent an approximate 9% interest in Integrity, on a fully diluted basis.
Integrity is in the business of providing web-based compliance training for
corporations. The Company financed the investment with existing cash reserves.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Integrity Interactive Corporation Subscription Agreement
dated as of July 18, 2000 with Legal Research Center, Inc.
(b) Reports on Form 8-K
none
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 3, 2000 By: /s/ Christopher R. Ljungkull
-----------------------------
Christopher R. Ljungkull
Chief Executive Officer
<PAGE>
NEWS RELEASE
Media Contacts: Christopher Ljungkull Daryn Teague
Legal Research Center Teague Communications
(800) 776-9377 or (661) 297-5292 or
[email protected] [email protected]
Legal Research Center Announces Solid Third Quarter Earnings, Record YTD
Performance
Minneapolis - November 2, 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 third quarter ended September 30, 2000.
For the quarter, revenues increased slightly to $1,220,978, compared to
$1,214,160 for the third quarter of 1999. This marks the sixth consecutive
quarter that LRC has posted quarterly revenues in excess of $1 million.
The company also posted another quarter of solid earnings. Net income for
the third quarter was $195,580 or $.08 per share, compared to $257,715, or $.11
per share, for the third quarter of 1999.
The latest reported income brings year-to-date earnings to an all-time high
for the first three quarters of $.26 per share, compared to $.24 per share
through the third quarter a year ago.
"In the third quarter, we were able to maintain healthy revenues and profit
margins while making important investments in the future growth of the company,"
said Christopher Ljungkull, chief executive officer of Minneapolis-based LRC.
"This consistent financial performance is the kind of predictability that should
build investor confidence during fairly turbulent market conditions. Indeed, our
revenues and gross margins year-to-date are slightly above projections while net
income is significantly better than projected because of our ongoing success in
managing costs."
(more)
<PAGE>
Legal Research Center Announces 3Q00 Results
Page Two
According to Ljungkull, earnings declined slightly from the same period a
year ago because of LRC's investments in its previously announced strategic
alliance to produce Web-based legal compliance training with Integrity
Interactive Corporation, a company in which LRC owns a minority equity stake,
including capital outlays for additional sales staff, new technology and
marketing. "Initial response to our Integrity online compliance training product
has been fantastic," said Ljungkull. LRC announced its Integrity online
compliance training offering in late-June of 2000.
"This is a time of unprecedented optimism at LRC for core-business growth,"
said James Seidl, LRC's president. "In addition to the progress we are making
with Integrity Interactive in the area of online legal compliance training,
LRC's compliance-related Multi-jurisdictional Survey Program continues to
evolve, expand and deliver unique value to our corporate customers. Leveraging
breakthrough information-exchange and commerce-enabling technology, LRC will
soon be repackaging and reselling its intellectual capital in ways never before
possible."
According to Seidl, "LRC is also working with companies like Heller
Financial (NYSE: HF) to more effectively access, store, re-use and resell their
proprietary intellectual capital, resulting in corporate-wide improvements in
legal service quality, productivity and cost-efficiency. As a result of these
innovative, industry-leading knowledge-management initiatives, LRC's book of
business for 2000 and 2001 continues to grow at record pace."
Minneapolis-based Legal Research Center (http://www.lrci.com) offers
industry-leading legal research and writing services to attorneys in corporate
and private practice throughout the world. Founded in 1978, LRC's workproducts
include compliance-related multijurisdictional surveys, office memoranda, and
formal court-ready documents such as trial and appellate briefs. LRC's knowledge
management offerings include workproduct database design and facilitation,
website content creation, and compliance training services. LRC has a core staff
of more than 100 research attorneys, editors and administrators. Additionally,
LRC accesses a global network of more than 4500 legal subject-matter experts who
work in conjunction with LRC's core staff on selected assignments. LRC's
research attorneys are honors graduates who have practiced law for at least two
years, and many for over 25, 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)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------------------- ------------------------------
2000 1999 2000 1999
-------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Revenues $ 1,220,978 $ 1,214,160 $ 3,760,310 $3,141,424
Income from operations $ 177,473 $ 250,172 $ 604,796 $ 596,384
Net income $ 195,580 $ 257,715 $ 667,014 $ 580,797
Net income per common share
Basic $ 0.08 $ 0.11 $ 0.26 $ 0.24
Diluted $ 0.07 $ 0.10 $ 0.24 $ 0.22
Weighted average common
shares outstanding Basic 2,567,046 2,441,093 2,566,680 2,441,093
Diluted 2,843,171 2,650,196 2,806,302 2,650,196
</TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30,
2000
-------------------
Current assets $ 2,272,852
Furniture and equipment 25,150
Intangible assets 51,699
Investment in Integrity Interactive Corporation 500,000
-------------------
Total assets $ 2,849,701
===================
Current liabilities $ 293,262
Stockholders' equity 2,556,439
-------------------
Total liabilities and stockholders' equity $ 2,849,701
===================
