SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 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.
3,607,079 shares of Common Stock as of June 30, 2000
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 2000 and December 31, 1999...............................2
Condensed Consolidated Statements of Income
Three Months and Six Months Ended June 30, 2000 and 1999...........3
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 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
--------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
LEGAL RESEARCH CENTER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
ASSETS 2000 1999
---------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,606,374 $ 1,347,469
Accounts receivable 929,235 538,671
Other 119,437 29,339
----------- -----------
TOTAL CURRENT ASSETS 2,655,046 1,915,479
----------- -----------
FURNITURE AND EQUIPMENT 282,342 282,763
Less accumulated depreciation 270,663 261,520
----------- -----------
11,679 21,243
----------- -----------
INTANGIBLE ASSETS 77,548 129,247
----------- -----------
$ 2,744,273 $ 2,065,969
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 146,107 $ 20,370
Accrued expenses 165,501 142,941
Client advances 71,806 19,656
----------- -----------
TOTAL CURRENT LIABILITIES 383,414 182,967
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; (authorized 20,000,000 shares;
issued - 3,607,046 and 3,602,454 shares respectively) 36,070 36,024
Additional paid-in capital 7,102,038 7,095,661
Accumulated deficit (2,810,999) (3,282,433)
Notes receivable from officers and directors (1,966,250) (1,966,250)
-----------
2,360,859 1,883,002
----------- -----------
$ 2,744,273 $ 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 Six Months
Ended June 30, Ended June 30,
----------------------------- ------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 1,317,373 $ 1,107,593 $ 2,539,332 $ 1,927,264
----------- ----------- ----------- -----------
DIRECT OPERATING COSTS
Compensation and benefits 520,320 400,122 1,013,440 707,817
Other 86,928 77,861 175,104 163,137
----------- ----------- ----------- -----------
607,248 477,983 1,188,544 870,954
----------- ----------- ----------- -----------
GROSS PROFIT 710,125 629,610 1,350,788 1,056,310
----------- ----------- ----------- -----------
OTHER OPERATING COSTS
Sales and marketing 283,682 209,354 496,450 391,409
General and administrative 211,324 178,919 427,015 345,689
----------- ----------- ----------- -----------
495,006 388,273 923,465 737,098
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 215,119 241,337 427,323 319,212
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 23,396 7,707 44,111 13,787
Interest expense -- (4,986) -- (9,918)
----------- ----------- ----------- -----------
23,396 2,721 44,111 3,869
----------- ----------- ----------- -----------
NET INCOME $ 238,515 $ 244,058 $ 471,434 $ 323,081
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE
Basic $ 0.09 $ 0.10 $ 0.18 $ 0.14
=========== =========== =========== ===========
Diluted $ 0.09 $ 0.10 $ 0.17 $ 0.13
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUSTANDING
Basic 2,563,907 2,329,113 2,563,508 2,329,113
=========== =========== =========== ===========
Diluted 2,785,037 2,532,063 2,784,879 2,495,648
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
LEGAL RESEARCH CENTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------------
2000 1999
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 471,434 $ 323,083
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,564 18,569
Amortization of intangible assets and
capitalized development costs 51,699 51,699
Change in assets and liabilities:
Accounts receivable (390,564) (87,761)
Other current assets (90,098) (16,511)
Accounts payable 125,737 (5,970)
Accrued expenses 22,560 52,143
Client advances 52,150 67,613
----------- -----------
Net cash provided by operating activities 252,482 402,865
FINANCING ACTIVITIES
Proceeds from exercise of stock options 6,423 9,730
----------- -----------
Increase in cash and cash equivalents 258,905 412,595
Cash and cash equivalents
Beginning of period 1,347,469 436,110
----------- -----------
End of period $ 1,606,374 $ 848,705
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
LEGAL RESEARCH CENTER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 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 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 six
months ended June 30, 2000, and as discussed in the following notes.
Major Customers: One customer accounted for 50% of the Company's revenues for
the quarter ended June 30, 2000. The same customer accounted for 57% of the
Company's revenues for the quarter ended June 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 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
<PAGE>
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 $209,780 or 19%, to $1,317,373 for the three
month period ended June 30, 2000, over the same period of 1999. For the six
month period, revenues increased by $612,068 or 32%. The increase is primarily
attributable to increases in research and writing services, multi-jurisdictional
survey revenue, and document retrieval revenue.
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 increased $129,265 or 27%, for the three months ended
June 30, 2000, from the same period in 1999. For the six month period, direct
operating costs increased $317,590 or 36%. The increase in operating costs is
due to the increase in revenues.
Direct operating costs, expressed as a percentage of revenues increased 3% to
46% for the three months ended June 30, 2000, from the same period in 1999. For
the six month period, direct operating costs as a percentage of revenue
increased from 45% to 47%.
Gross Profit: Gross profit for the three months ended June 30, 2000, increased
by $80,515 or 13% to $710,125 from gross profits of $629,610 for the comparable
period for 1999. As a percentage of revenues, gross profit decreased 3% to 54%
for the three months ended June 30, 2000, from the same period in 1999. The
decrease in gross profit is attributable to an increase in cost of production
without an increase in rates.
For the six months ended June 30, 2000, gross profit increased $294,478 or 28%
from the comparable 1999 period. As a percentage of revenue, gross profit
decreased from 55% to 53% for the six months ended June 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 $106,733 or 27% for the three months ended June 30, 2000, from the
same period in 1999. For the six month period, other operating costs increased
$186,367 or 25% from the comparable period in 1999. This increase is due to
increases in sales personnel and sales travel, and direct marketing.
Other Income (Expense): Interest income increased $15,689 or 204% for the three
months ended June 30, 2000, from the comparable period in 1999. For the six
month period, interest income increased $30,324 or 220% 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 $4,986 for the three
months ended June 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 $238,515 or $.09 (basic and diluted) per share
for the three months ended June 30, 2000, compared to $244,058 or $.10 (basic
and diluted) per share for the comparable period in 1999. For the six month
period ended June 30, 2000, the Company earned $471,434 or $.18 (basic) and $.17
(diluted) per share compared to $323,081 or $.14 (basic) and $.13 (diluted) per
share for the comparable period in 1999. The decrease in net income for the
three months ended June 30, 2000, is the result of an increase in the cost of
sales and marketing and costs associated with the acquisition of stock in
Integrity Interaction Corporation.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 2000, the Company had cash and cash equivalents of $1,606,374 and
working capital of $2,271,632.
Cash generated by operating activities was $252,482 in the three months ended
June 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 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 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: August 3, 2000 By: /s/ Christopher R. Ljungkull
-----------------------------
Christopher R. Ljungkull
Chief Executive Officer
