SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(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, 1999 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]
<PAGE>
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. $4,394,151
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.)
$4,203,975 as of March 15, 2000
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.
3,603,554 shares of Common Stock as of March 15, 2000
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 2000 (the "2000 Proxy
Statement") (incorporated by reference into Part III of this Form 10-KSB).
[Cover page 2 of 2 pages]
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
General
Legal Research Center, Inc. (the "Company" or "LRC") became a publicly
owned company in August 1995. The Company provides outsourced legal research,
writing and knowledge management services to U.S. and Canadian attorneys in
corporate and private practice. The Company also serves as a content developer
for legal publishers and creates law-related business-to-business and
business-to-consumer content for Internet sites serving the legal profession and
consumers. LRC utilizes a carefully selected group of attorneys to provide
value-added services to its customers by (i) conducting computerized and manual
legal and factual information research and analysis and (ii) preparing written
memoranda, formal court-ready legal briefs and surveys of the law. As an adjunct
to its core services, the Company also provides contract attorneys to law firms
and corporate law departments on a temporary or permanent basis, and non-legal
research services to the general public.
Business Highlights
All core product and service offerings of the Company's business continued
to grow in 1999, including research and writing for private attorneys,
multijurisdictional surveys for corporate legal counsel, and the Company's new
Guaranteed Appellate Brief Service. Additionally, the Company continued to
author and edit publications for legal publishers and experienced significant
growth in the creation of content for Internet sites serving the legal
profession and consumers. The revenues from the Company's 10 largest customers
accounted for approximately 75% of total revenues in 1999, as compared to 60% in
1998.
Gross profit remained strong, at 52 cents for every $1 of revenue, the same
as in 1998. Overhead decreased as a percentage of revenue from 50% in 1998 to
34% in 1999. These factors, combined with the growth in revenues, had a positive
impact on the Company's additions to cash. In 1998 the Company added $270,186 to
cash, in 1999 it added $911,359 to cash.
Industry Overview
It is estimated that over $100 billion is spent in the U.S. on legal
services each year and that such expenditures have increased significantly over
the past ten years. In advising clients on the routine legal and practical
aspects of their business transactions and dealings, and in advocating positions
in court on behalf of clients, attorneys in corporate and private practice rely
on an analysis of applicable laws, rules, regulations and court decisions. As
federal, state and local governmental authorities increasingly add to the myriad
of laws and as the number of court decisions proliferate, the accurate and
timely analysis of the controlling law places growing burdens on practicing
private and corporate attorneys. Even with the evolutionary expansion of
computerized legal databases such as West Group's WESTLAW system and Reed
Elsevier's LEXIS/NEXIS system, a significant portion of an attorney's billable
time is dedicated to legal research.
In a large private law firm, an associate attorney, who typically is less
experienced than the attorney having the primary business contact with the
firm's client, is usually assigned the task of conducting all necessary legal
and factual research and of writing an internal memorandum to the senior
attorney related to the client's project or lawsuit. The memorandum, which
usually describes the controlling laws and court decisions relevant to the
issues presented, may be shared with the client in connection with strategic
decision making on a business issue or in the ongoing litigation. If the project
involves litigation, the associate attorney may also be assigned the
responsibility to prepare a legal brief for presentation to the court. A legal
brief advocates a client's legal, factual and business reasons for prevailing
over the opposing party on the issues presented to the court for adjudication.
The Company
<PAGE>
prepares legal memoranda and briefs for review and use by attorneys in law firms
as an alternative to internal preparation by law firm associates.
Corporations with in-house legal counsel usually rely on their staff to
advise management on core business and legal issues. However, in-house counsel
continue to rely on private law firm support for expertise in areas outside of
the corporate counsel's knowledge and for the conduct of litigation. As
corporations seek to improve operating efficiencies and reduce costs in all
areas of their businesses, their in-house legal counsel also seek to reduce
overall outside legal expenses. Increasingly, corporate clients have begun to
treat legal services as a commodity and have been carefully reviewing the legal
fees charged by private law firms for analytical research and writing,
especially since much of this work is performed out of the client's view and
therefore cannot easily be assessed as to its actual added value. These trends
also have led corporations to outsource their legal and factual research and
writing activities to the Company. Management believes that there will be
continued growth in the outsourcing of legal and factual research and writing
activities by corporations and that such corporations will increasingly use, or
require their outside counsel to use, the Company for such purposes.
Individual attorney practitioners and small law firms often do not have the
professional support for the conduct of legal and factual research or for
writing projects. In order to accomplish necessary legal research and writing,
yet at the same time focus their efforts on direct client contact, solo
practitioners and small law firms increasingly are outsourcing their legal and
factual research and writing activities to the Company.
Business Overview and Initiatives
LRC's core activities consist of providing legal and factual research and
writing and knowledge management services to its customers. The Company may
receive assignments from corporate in-house counsel or law firms requesting the
analysis of a single legal or factual issue or of complex, interrelated issues.
Upon receipt of an assignment, the Company assigns the project directly to one
of the Company's research attorneys who contacts the customer to obtain any
additional information necessary to understand the scope of the project and the
customer's needs. The researcher accesses available legal and other computer
databases, such as WESTLAW, LEXIS/NEXIS and DIALOG, to locate controlling laws,
rules and regulations and court decisions relevant to the customer's research
request and conducts research manually, in order to obtain the information
necessary to complete the customer's project.
In most cases, the Company provides its customers with a finished written
work product often in the form of (i) a memorandum describing the facts of the
customer's project and setting forth the legal and factual analysis of the
issues presented, (ii) a court-ready legal brief which advocates the legal,
factual and business reasons why the customer should prevail over the opposing
party in the matter before the court for adjudication or (iii) a survey of the
applicable laws, rules and regulations in various jurisdictions on the topics
selected by the customer. In order to ensure the quality of the Company's work
product, the Company's managing research attorneys conduct a substantive and an
editorial review of legal memoranda, briefs and multijurisdictional surveys, and
all documents are edited and checked for proper citations.
LRC regularly seeks to create new products and value-added services for its
clients. For example, through its expanding Multijurisdictional Survey Program,
the Company prepares written reports of the laws in various states on selected
topics for corporate customers. An important feature of this product offering is
that, once prepared, it can be resold to other customers who need this
information. The Company also adds value to the product by converting all or
portions of the document into electronic form - disk, CD-ROM or Website - which
is easier to review, cross reference and update.
In 1999, the Company expanded its content development services to legal
publishers. Additionally, the Company increased its services for the creation of
legal and law-related content for Internet sites serving lawyers and consumers.
<PAGE>
As an adjunct service, the Company provides full or part-time contract
attorneys and librarians for temporary or permanent assignments to law firms and
corporate law departments. The Company also provides document retrieval services
for attorneys and the general public.
Sales and Marketing
LRC's marketing strategy centers on providing customized, value-added
solutions in response to each customer's analytical research and writing needs.
Because of the Company's historically limited marketing budget, the Company
relied primarily on its customers' own initiatives to provide repeat business to
LRC. Since its initial public offering, the Company has been targeting
opportunities to capture an increasing share of its customers' analytical
research and writing activities by increasing its contacts with its existing
customers through direct mail, telemarketing and direct account services.
Building on the increases in earnings in 1998 and 1999, the Company continued in
1999 to increase expenditures on direct mail and to add to its sales and
telemarketing staff.
The Company maintains strategic marketing relationships with major law
associations and other providers of legal services. LRC believes these
relationships enhance the Company's visibility to practitioners and reputation
for quality and enable its marketing partners to offer their members a
value-added service. LRC has been the exclusive designated outsourced provider
of research and writing services to the 60,000 members of the Association of
Trail Lawyers of America since 1989. Since 1990, LRC has also served the members
of the American Corporate Counsel Association (ACCA), the largest organization
serving the nation's corporate counsel. In 1998, the Company entered into an
exclusive 4-year contract with ACCA.
In 1994, the Company entered into an agreement with West Publishing Company
- - now West Group - pursuant to which West, the leading legal publisher in the
U.S. and operator of the WESTLAW computer legal database, exclusively refers its
customers requests for analytical legal research and writing to the Company.
Customer Relationships
The Company generally operates under project-by-project contractual
agreements. The pricing component of a contract generally includes a fixed price
or an hourly rate for analytical research and writing services and separate
charges for computer database and other ancillary charges. The Company generally
charges higher hourly rates for expedited service and offers discounted rates to
customers willing to commit to a specified usage of the Company's services.
In 1996, pursuant to a three-year contract, the Company completed a large
multijurisdictional survey for a customer, Bankers Systems, Inc. LRC updates the
BSI Compliance Digest quarterly. Also in 1996, LRC developed, researched and now
updates quarterly a study of the legal trends in the real estate business for
the National Association of REALTORS (NAR). NAR is the largest and one of the
oldest trade organizations in the U.S. The Company has a continuing relationship
with Risk Enterprise Management (REM) under which the Company provides research
and knowledge management services directly to the attorneys and law firms
serving REM. The Company also has a continuing relationship with West Group,
providing research on a variety of projects. Revenues from the Company's ten
largest customers accounted for approximately 75% of total revenues in 1999.
<PAGE>
Executive Officers of the Company
The following sets forth biographical information for Christopher R.
Ljungkull and James R. Seidl, the executive officers of the Company.
Biographical information for directors of the Company can be found in the
Company's 2000 Proxy Statement, incorporated herein by reference.
Christopher R. Ljungkull has been Chief Executive Officer of the Company
since rejoining it on a full time basis in 1994. From 1987 to 1994, Mr.
Ljungkull served in various marketing and editorial capacities with West
Publishing Corporation, most recently as an editor. Mr. Ljungkull is an attorney
and co-founder of the Company and has been a director since its inception.
James R. Seidl has been the President of the Company since 1988 and served
as its Chief Executive Officer prior to Mr. Ljungkull's return in 1994. Mr.
Seidl is an attorney and co-founder of the Company and has been a director of
the Company since its inception.
Personnel
As of March 15, 2000, the Company had 22 employees, including 10 full-time
research attorneys, and a pool of 62 contract attorneys. Many of the Company's
contract attorneys work part-time. No Company employees are currently
represented by labor unions and the Company is not a party to any collective
bargaining agreement. The Company has never been subject to any form of work
stoppage or strike and has not experienced any labor difficulties. The current
full-time staffing level is considered to be adequate. The Company expects that
it will continue to need more contract attorneys as its business grows and
expects that it will be able to secure such attorneys as needed.
Competition
The business of providing legal research services is highly competitive and
extremely fragmented. The Company competes in the corporate market with in-house
counsel and outside law firms and individual legal practitioners, who are also
customers of the Company. For its major corporate clients, the Company competes
with larger law firms that have the financial ability to negotiate flexible fee
arrangements for their major clients. The Company also competes with other
companies, such as the National Legal Research Group and Legal Research Network,
which also provide legal research services on an outsourced basis, both of which
may have significantly greater resources than the Company and therefore may also
have the ability to compete more effectively.
Government Regulation
The Company engages attorneys as employees or independent contractors to
provide analytical research and writing services for the Company and its
customers. The practice of law is regulated by each state. The Company believes
that it is not engaged in the practice of law because it provides customized
research and writing services for other lawyers to use in connection with
representation of their clients. In addition, the Standing Committee on Ethics
and Professional Responsibility of the American Bar Association has taken the
position that performing legal research does not constitute the practice of law.
Although the Company believes that it does not engage in the practice of law,
there can be no assurance that a state will not take the position that the
Company is improperly engaged in the practice of law or that all of the persons
providing legal research services must be licensed in the state where the
Company's customers are located.
Insurance
The Company carries property damage, workers' compensation, and Directors
and Officers liability insurance coverage in amounts management considers
sufficient to protect the Company. Management
<PAGE>
does not believe that the Company is engaged in the practice of law and
accordingly does not maintain any professional malpractice insurance.
Item 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters and administrative offices are located
in Minneapolis, Minnesota in an office building and consists of approximately
6,057 square feet leased office space. The Company leases the facility from a
related party under an operating lease expiring January 2001, requiring annual
rent of approximately $61,000 and a portion of the increase in tax and operating
costs over their 1993 levels. The lease is on the same terms and conditions as
the lease between the related party and the related party's landlord. Because
most of the Company's research attorneys generally office in their homes or in
public library facilities, the Company believes that the leased premises are
sufficient for its current operations and its foreseeable needs.
Item 3. LEGAL PROCEEDINGS
Except as described below, the Company is not currently a party to any
litigation which would likely have a materially adverse effect on the Company's
results of operations or financial condition, if decided adversely to the
Company.
In June of 1998 the Company was sued by Lawfinders Associates, Inc. (LFA),
a Dallas competitor, based on LFA's allegation that the Company usurped
proprietary information learned in the context of preliminary discussions of a
business combination, which did not materialize. The lawsuit was based on the
Company's plan to offer customers for appellate briefs a 100% guarantee based on
result. This plan was halted when LFA obtained a temporary restraining order in
Texas state court temporarily ending LRC's program. LFA sought unspecified
damages and to enjoin LRC from offering a results-based guarantee. On November
4, 1998, a federal court in Dallas, Texas granted LRC's request to dissolve the
state court order and rejected LFA's claims that it had exclusive rights to
guaranteed brief writing services. The Company expects to continue to prevail in
the proceedings and expects all its costs related to the litigation to be
covered by its insurer.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the Company's 1999
fiscal year to a vote of security holders, through the solicitation of proxies
or otherwise.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
The Company's Common Stock trades on the Over-the-Counter Bulletin Board
under the symbol "LRCI". As of March 15, 2000, there were approximately 55
recordholders of its Common Stock. The Company estimates that there are
approximately 715 beneficial holders of its Common Stock.
<PAGE>
The following table sets forth the quarterly high and low bid prices for
the periods indicated, through December 31, 1999, as reported by Nasdaq. The
prices listed are inter-dealer quotations without retail markup, markdown or
commission and may not reflect actual transactions. The Company has not
independently verified the prices listed.
Period Low Bid High Bid
------ ------- --------
01/01/98 - 03/31/98 $0.188 $0.50
04/01/98 - 06/30/98 $0.219 $0.438
07/01/98 - 09/30/98 $0.219 $0.39
10/01/98 - 12/31/98 $0.188 $0.39
01/01/99 - 03/31/99 $0.20 $0.938
04/01/99 - 06/30/99 $0.625 $3.00
07/01/99 - 09/30/99 $1.50 $2.00
10/01/99 - 12/31/99 $1.312 $2.563
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 that
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:
Company's dependence on a major customer or customers.
Failure of the Company or its partners successfully to expand its market
share and sell products and services.
Company's inability to produce and deliver its products and services at
margins sufficient to cover operating costs.
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
<PAGE>
writing on a non-recurring basis for its customers. In 1999, 10 customers
accounted for approximately 75% 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.
Results of Operations
Year ended December 31, 1999 compared to the year ended December 31, 1998
Revenues: Revenues increased by $1,991,072 or 83% to $4,394,151 for 1999
compared to revenues of $2,403,079. The increase in revenues is primarily
attributable to increased sales to corporate and private attorneys.
Direct Operating Costs: Direct operating costs for compensation and other
benefits include hourly contract fees for independent research attorneys, hourly
and salaried 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,
long distance and photocopying charges and document retrieval expenses.
Total direct operating costs increased $965,997 or 84% to $2,110,485
compared to 1998 direct operating costs of $1,144,488. This increase is directly
related to the increase in revenue for 1999 with compensation and benefits
comprising 97% of the increase.
Gross Profit: Gross profit increased $1,025,075 for 1999, or 81%, to
$2,283,666 compared to $1,258,591 for 1998. This increase was primarily due to
the increase in revenue. As a percentage of revenue, gross profit remained
consistent with 1998 at 52%.
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.
Other operating costs increased $297,970 or 25%, to $1,503,555 compared to
1998 costs of $1,205,585. The increase is due to a 66% increase in sales and
marketing expenditures offset by a 4% decrease in general and administrative
costs. Other operating costs decreased as a percentage of revenues from 50% in
1998 to 34% in 1999.
Depreciation and Amortization: The Company had depreciation and
amortization of $134,069 in 1999 compared to $155,081 in 1998.
<PAGE>
Earnings Before Interest, Taxes, Depreciation and Amortization: Earnings
before interest, taxes, depreciation and amortization were $834,025 or $.35 per
share for 1999, compared to $223,203 or $.10 per share for 1998.
Other Income and Expenses: Interest income increased $26,405 or 175% to
$41,521 over interest income of $15,116 in 1998. The Company incurred a one-time
charge of $80,959 as a result of determining that notes due from American
Research Corporation were uncollectible.
Net Income: The Company earned $716,172 or $.30 per share (basic) and $.28
per share (diluted) for the year ended December 31, 1999, compared to earnings
of $55,240 or $.02 per share (basic and diluted) for the comparable period in
1998.
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 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.
<PAGE>
Liquidity and Capital Resources
At December 31, 1999, the Company had cash and cash equivalents of
$1,347,469 and working capital of $1,732,512. At the same time in 1998, the
Company had cash and cash equivalents of $436,110 and working capital of
$812,006.
Net cash provided by operating activities was $890,644 in 1999 compared to
$28,081 net cash provided in operating activities in 1998, or an increase of
3072%. The Company had net income of $716,172 compared to a net income of
$55,240 in 1998 for the reasons discussed above.
Investment activities used $7,687 in 1999. The cash was used for purchases,
net of sales, of equipment.
Financing activities provided $28,402 from the proceeds of exercised stock
options.
In the third quarter of 1999, two notes payable totaling $200,000 were
converted to common stock at $1 per share.
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 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.
Additionally, the Company believes that it will continue to be able to find
researchers of sufficient talent and in sufficient numbers to meet the demands
of expected growth.
Item 7. FINANCIAL STATEMENTS
The information required by this item is incorporated herein by reference
to pages F-1 through F-13, which follow this page.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
CONTENTS
INDEPENDENT AUDITOR'S REPORT F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-13
<PAGE>
F-1
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Legal Research Center, Inc.
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of LEGAL RESEARCH
CENTER, INC. as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity, and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LEGAL RESEARCH
CENTER, INC. as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
February 8, 2000
<PAGE>
F-2
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,347,469 $ 436,110
Accounts receivable 538,671 457,723
Notes receivable -- 30,909
Other 29,339 33,121
----------- -----------
TOTAL CURRENT ASSETS 1,915,479 957,863
----------- -----------
FURNITURE AND EQUIPMENT 282,763 342,067
Less accumulated depreciation 261,520 298,340
----------- -----------
21,243 43,727
----------- -----------
OTHER ASSETS
Notes receivable, net of current amount -- 50,050
Development costs 129,247 232,645
Investment in CLO -- --
----------- -----------
129,247 282,695
----------- -----------
$ 2,065,969 $ 1,284,285
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 20,370 $ 44,235
Accrued expenses:
Compensation 129,863 80,990
Other 3,078 3,155
Income taxes payable 10,000 --
Client advances 19,656 17,477
----------- -----------
TOTAL CURRENT LIABILITIES 182,967 145,857
----------- -----------
NOTES PAYABLE -- 200,000
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value (authorized - 20,000,000 shares;
issued - 3,602,454 and 3,327,633) 36,024 33,276
Additional paid-in capital 7,095,661 6,870,007
Accumulated deficit (3,282,433) (3,998,605)
Notes receivable from officers and directors (1,966,250) (1,966,250)
----------- -----------
1,883,002 938,428
----------- -----------
$ 2,065,969 $ 1,284,285
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
F-3
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1999 and 1998
1999 1998
----------- -----------
REVENUES $ 4,394,151 $ 2,403,079
----------- -----------
DIRECT OPERATING COSTS
Compensation and benefits 1,756,398 817,111
Other 354,087 327,377
----------- -----------
2,110,485 1,144,488
----------- -----------
GROSS PROFIT 2,283,666 1,258,591
----------- -----------
OTHER OPERATING COSTS
Sales and marketing 818,792 493,324
General and administrative 684,763 712,261
----------- -----------
1,503,555 1,205,585
----------- -----------
INCOME FROM OPERATIONS 780,111 53,006
----------- -----------
OTHER INCOME (EXPENSE)
Write-off notes receivable (80,959) --
Interest income 41,521 15,116
Interest expense (14,501) (12,882)
----------- -----------
(53,939) 2,234
----------- -----------
INCOME BEFORE INCOME TAXES 726,172 55,240
INCOME TAX EXPENSE 10,000 --
----------- -----------
NET INCOME $ 716,172 $ 55,240
=========== ===========
NET INCOME PER COMMON SHARE
Basic $ 0.30 $ 0.02
=========== ===========
Diluted $ 0.28 $ 0.02
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 2,368,302 2,287,633
Diluted 2,587,282 2,292,568
See notes to consolidated financial statements.
<PAGE>
F-4
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998
<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, 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
Exercise of stock options, net of
10,183 options utilized in
cashless exercises 74,821 748 27,654 -- -- 28,402
Conversion of debt 200,000 2,000 198,000 -- -- 200,000
Net income -- -- -- 716,172 -- 716,172
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 3,602,454 $ 36,024 $ 7,095,661 ($3,282,433) ($1,966,250) $ 1,883,002
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
F-5
LEGAL RESEARCH CENTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 716,172 $ 55,240
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 30,671 71,777
Amortization of intangible assets and capitalized
development costs 103,398 83,304
Write-off notes receivable 80,959 --
Gain on sale of furniture and equipment (500) (3,319)
Accounts receivable (80,948) (180,579)
Other current assets 3,782 10,278
Accounts payable (23,865) (13,176)
Accrued expenses 48,796 13,852
Income taxes payable 10,000 --
Client advances 2,179 (9,296)
----------- -----------
Net cash provided by operating activities 890,644 28,081
----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of furniture and equipment 500 4,430
Purchases of furniture and equipment (8,187) --
Cash received on notes receivable -- 40,000
Capitalized development costs -- (2,325)
----------- -----------
Net cash provided (used) by investing activities (7,687) 42,105
----------- -----------
FINANCING ACTIVITIES
Proceeds from exercise of stock options 28,402 --
Proceeds from notes payable -- 200,000
----------- -----------
Net cash provided by financing activities 28,402 200,000
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 911,359 270,186
CASH AND CASH EQUIVALENTS
Beginning of year 436,110 165,924
----------- -----------
End of year $ 1,347,469 $ 436,110
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 14,501 $ 12,882
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Conversion of notes payable to common stock $ 200,000 $ --
</TABLE>
See notes to consolidated financial statements.
<PAGE>
F-6
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Business and Summary of Significant Accounting Policies
The Business
Legal Research Center, Inc. (the Company) provides outsourced legal and
factual research, and writing and support services to U.S. and Canadian
attorneys in corporate and private practice. The Company grants credit to
customers on terms established for each customer. Additionally, the Company
developed the Corporate Alternative Dispute Resolution Enterprises (CADRE)
program, a training course focusing on the concepts and skills necessary to
implement and utilize an alternative dispute resolution system on a
corporate wide basis.
In October 1999, the Company sold The Law Office, Inc. (TLO) and The Cyber
Law Office, Inc. (CLO) (Note 2).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and, prior to their sale in October 1999, TLO and CLO subsidiaries. All
significant intercompany accounts and transactions are eliminated.
Use of Estimates
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect certain reported amounts and
disclosures in the consolidated financial statements and accompanying
notes. Actual results could differ from these estimates.
Revenue Recognition
Revenue is recognized as the services are performed. Unbilled services
relate to revenue recognized for services performed, but not billed.
Cash and Cash Equivalents
All investments purchased with a maturity of three months or less are
considered to be cash equivalents. Cash and cash equivalents include money
market accounts at financial institutions located in Minnesota of
approximately $1,339,200 and $430,700 at December 31, 1999 and 1998,
respectively. These investments are not insured by the Federal Deposit
Insurance Corporation.
Fair Value of Financial Instruments
The carrying amounts of financial instruments consisting of cash and cash
equivalents, receivables, accounts payable, and notes payable approximate
their fair values.
(continued)
<PAGE>
F-7
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Business and Summary of Significant Accounting Policies
- (continued)
Furniture and Equipment
Furniture and equipment are recorded at cost. Depreciation is computed
using the straight-line method over three to five years.
Development Costs
The Company capitalized certain product costs incurred for the development
of the Corporate Alternative Dispute Resolution Enterprises (CADRE)
training program. Capitalized costs include direct labor, fees, and
expenses of contractors who assisted in the development of the product. The
Company completed the development of CADRE during the first quarter of 1998
and began amortizing the capitalized costs over three years on the
straight-line method. Accumulated amortization was $186,702 and $83,304 at
December 31, 1999 and 1998, respectively.
Advertising and Promotions
Costs associated with advertising and promoting products are expensed in
the year incurred. Advertising and promotion expenses were approximately
$396,300 and $203,800 in 1999 and 1998, respectively.
Net Income Per Common Share
Basic net income per share is computed using the weighted average number of
common shares outstanding. Diluted net income per share is computed using
the weighted average number of common shares outstanding plus stock options
and the shares subject to subscription if the inclusion of such items is
dilutive.
A reconciliation of net income and shares used to compute net income per
common share-basic and assuming full dilution is as follows:
1999 1998
---------- ----------
Net income as reported - basic $ 716,172 $ 55,240
Effect of convertible notes 2,056 --
---------- ----------
Net income assuming full dilution $ 718,228 $ 55,240
========== ==========
Weighted average common shares - basic 2,368,302 2,287,633
Effect of dulutive securities:
Stock options 187,522 4,935
Convertible notes 31,458 --
---------- ----------
Weighted average common shares - diluted 2,587,282 2,292,568
========== ==========
(continued)
<PAGE>
F-8
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Business and Summary of Significant Accounting Policies
- (continued)
Accounting for Stock-Based Compensation
The Company accounts for employee stock options under the method prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, and provides the pro forma disclosures required by Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation.
2. Sale of Subsidiaries and Investment in CLO -
The Company sold the TLO and CLO common stock to the Company's co-chairman
in October 1999. On the date of sale, TLO and CLO had no current assets,
had fixed assets of approximately $65,000 which were fully depreciated and
had current liabilities of approximately $5,185. The CLO and TLO common
stock was exchanged for all the convertible preferred stock of CLO with a
face value of $1.5 million. The preferred stock is convertible at the
option of the Company into common stock of CLO valued at $1.5 million. The
Company also received warrants to purchase $1.5 million of CLO common stock
for approximately $770,000.
Since CLO and TLO are not publicly traded, have no operating assets, and
have generated substantial losses, there is a substantial doubt as to
whether the Company will realize the gain from the sale of these entities.
As a result, the $1.5 million value of the preferred stock is fully
reserved and the gain is being deferred until such time as the convertible
preferred stock and warrants can be readily converted into cash.
3. Accounts Receivable -
Accounts receivable consist of the following:
1999 1998
-------- --------
Trade $563,585 $458,430
Unbilled services 27,086 56,493
-------- --------
590,671 514,923
Less allowance for doubtful accounts 52,000 57,200
-------- --------
$538,671 $457,723
======== ========
4. Notes Receivable -
Notes totalling $80,959 were due from American Research Corporation, an
entity in which the Company held a 5% investment through June 1997. The
Company wrote off the notes as uncollectible during 1999.
<PAGE>
F-9
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Notes Payable -
The notes required quarterly interest payments at the annual rate of 10%.
The notes were converted, at the option of the holder, into 200,000 shares
of common stock during 1999.
6. Notes Receivable From Officers and Directors -
In September 1996, the Company sold an aggregate of 1,040,000 shares of
common stock to three officers and/or directors at the closing price of
$1.89 a share on September 4, 1996. The sales were financed with
nonrecourse notes with the shares pledged as collateral. The notes bear
interest at 8.5% and cannot be prepaid anytime before September 2003,
except in connection with a merger, acquisition, or sale of substantially
all of the Company's assets. The shares are restricted and cannot be sold
or otherwise transferred without repaying the notes. The Company's policy
is to not record interest income on the notes until the cash is received in
September 2003.
These shares are not deemed to be outstanding under generally accepted
accounting principles. Rather, such shares are treated as stock options and
therefore potentially dilutive for purposes of calculating weighted average
common shares outstanding and earnings per share.
7. Income Taxes -
Income tax expense consists of the following:
1999 1998
------- ----
Current:
Federal $ 7,000 $ --
State 3,000 --
------- ----
$10,000 $ --
======= ====
The Company utilized approximately $744,000 and $491,000 of federal and
state net operating loss carryforwards, respectively, to reduce its 1999
tax liabilities. The Company utilized approximately $58,000 and $39,000 of
federal and state net operating loss carryforwards, respectively, to reduce
its 1998 tax liabilities.
The significant differences between income taxes at the statutory rate and
the effective tax rates were as follows:
1999 1998
--------- ---------
Tax computed at the statutory federal rate $ 247,000 $ 19,000
Net operating loss carryforward utilized (253,000) (19,000)
Alternative minimum taxes 10,000 --
Other 6,000 --
--------- ---------
Income tax expense $ 10,000 $ --
========= =========
(continued)
<PAGE>
F-10
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Income Taxes - (continued)
Deferred taxes consist of the following:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------- -------------------------------------------
Total Federal State Total Federal State
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Allowance for doubt-
ful accounts $ 21,000 $ 18,000 $ 3,000 $ 81,000 $ 70,000 $ 11,000
Intangible, other
assets and accrued
expenses 36,000 30,000 6,000 71,000 61,000 10,000
Furniture and
equipment 23,000 19,000 4,000 14,000 12,000 2,000
Net operating loss
carryforward 809,000 681,000 128,000 1,219,000 1,036,000 183,000
----------- ----------- ----------- ----------- ----------- -----------
889,000 748,000 141,000 1,385,000 1,179,000 206,000
Valuation allowance (889,000) (748,000) (141,000) (1,385,000) (1,179,000) (206,000)
----------- ----------- ----------- ----------- ----------- -----------
$ -- $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== =========== ===========
</TABLE>
The Company recorded a valuation allowance due to the uncertainty
associated with the realization of the net deferred tax assets. The change
in the valuation allowance was a decrease of $496,000 and $12,000 in 1999
and 1998, respectively.
At December 31, 1999, the Company has a federal net operating loss
carryforward totaling $2,004,000 (state - $1,202,000) expiring $750,000,
$1,196,000 and $58,000, in 2011, 2012, and 2018, respectively.
8. Stock Option Plans and Warrants -
The Company has a 1995 Stock Option Plan and a 1997 Stock Option Plan which
allow for the granting of incentive stock options and nonqualified stock
options to purchase the Company's common stock. The exercise price of the
options issued under the plans may not exceed the fair market value of the
stock on the date of grant. The exercise period for incentive stock options
may not exceed ten years. The Company reserved 700,000 shares of common
stock for issuance under each plan.
The Company also has the Legal Research Center, Inc. Existing Officer's
Stock Option Plan. Pursuant to the Officers' Plan in 1995, the Company
reserved and granted options to two officers to each purchase 180,000
shares of common stock. These incentive stock options are exercisable at
fair value on the date of grant, are fully vested, and expire five years
from the date of grant.
Nonemployee directors are compensated with annual stock option grants
(Director Options) of 5,000 shares, exercisable at fair market value on the
date of grant, and expire ten years after issuance.
(continued)
<PAGE>
F-11
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Stock Option Plans and Warrants - (continued)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999 and 1998, respectively; no dividend
yield during the expected life of outstanding options; expected volatility
of 104% and 167%; risk-free interest rates of 5.5% for both years, and
expected lives of 2.4 and 2.5 years.
A summary of the status of the stock options under these plans, including
the stock issued to officers and directors which are treated as stock
options, is as follows:
1999 1998
---------------------- ----------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
---------- ----- ---------- -----
Outstanding at
beginning of year 1,793,471 $2.60 1,653,404 $2.81
Granted 263,200 1.49 193,200 .25
Exercised (85,004) .34 -- --
---------
Forfeited (69,000) 2.61 (53,133) 1.74
--------- --------- -----
Outstanding at
end of year 1,902,667 $2.55 1,793,471 $2.60
--------- ---------
Weighted-average grant date
fair value of options
granted during the year $ .77 $ .21
===== =====
The following table summarizes information about stock options outstanding
as of December 31, 1999:
Options Outstanding
-----------------------------
Weighted- Weighted-
Range of Average Average
Exercise Remaining Exercise
Prices Options Contractual Life Price
-------------- --------- ---------------- -----
$.13 - $.25 159,300 4.2 $ .24
$.30 - $.59 10,000 1.7 .33
$.75 - $.97 5,300 2.2 .95
$1.13 - $1.25 84,367 2.8 1.13
$1.56 - $1.75 82,600 5.1 1.58
$1.81 - $2.00 56,000 .9 2.00
$2.25 - $2.38 100,100 3.0 2.38
$2.97 - $3.50 1,405,000 2.8 3.01
---------
$.13 - $3.50 1,902,667 3.0 2.55
=========
All of the above options are exercisable.
(continued)
<PAGE>
F-12
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Stock Option Plans and Warrants - (continued)
The Company applies APB Opinion 25 and related interpretations in
accounting for stock option plans. Accordingly, no compensation cost was
recognized for options in 1999 or 1998 as the option exercise price did not
exceed the market price on the date of grant. Had compensation cost for the
stock-based compensation plans been determined based on the fair value at
the grant dates for awards under those plans, consistent with the method of
SFAS No. 123, the pro forma net income (loss) and pro forma net income
(loss) per share would be as follows:
1999 1998
----------- -----------
Net income (loss):
As reported $ 716,172 $ 55,240
Pro forma 589,961 (69,421)
Net income (loss) per share:
As reported - basic $ 0.30 $ 0.02
- diluted 0.28 0.02
Pro forma - basic 0.25 (0.03)
- diluted 0.23 (0.03)
The pro forma effects of applying SFAS No. 123 are not indicative of future
amounts since, among other reasons, the pro forma requirements of the
Statement were applied only to options granted after December 31, 1994.
In connection with the Company's initial public offering in 1995, the
underwriter was granted warrants to purchase 135,000 shares of common stock
at a price of $4.20 per share. The warrants expire in August 2000.
9. Royalty Agreements -
The Company has agreements with certain associations which require payment
of royalties for projects. Royalty rates and terms vary depending upon the
agreement. Royalty expense for 1999 and 1998 was approximately $26,900 and
$9,500, respectively.
10. Major Customers -
The Company had the following transactions with significant customers:
Percent Accounts Receivable
of Revenues at December 31,
----------------- -----------------------
Customer 1999 1998 1999 1998
-------- ----- ---- -------- --------
A 55% 30% $125,900 $ 60,500
B 10% 16% 95,800 115,500
<PAGE>
F-13
LEGAL RESEARCH CENTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Commitments and Contingencies -
Lease
The Company utilizes an office facility leased by a related party under an
operating lease requiring monthly base rent of approximately $5,460 through
January 2001. The Company complies with the same terms and conditions as
the lease between the related party and the related party's landlord. Rent
expense, including operating expenses, was approximately $63,800 and
$61,300 for 1999 and 1998, respectively.
Officer Employment Agreements
The Company has employment agreements with two officers. The agreements, as
amended, require annual base salaries of $84,000 for each officer, plus
goal-oriented incentives, which may be adjusted by the Board of Directors.
Incentive compensation expense under the officer employment agreements was
approximately $110,000 and $17,200 in 1999 and 1998, respectively.
Lawsuit
During 1997 and early 1998, the Company had discussions with Lawfinders and
Associates, Inc. (Lawfinders) about a possible business combination; the
discussions failed to produce an agreement between the parties. In June
1998, the Company was sued by Lawfinders who alleged the Company
misappropriated Lawfinder's proprietary information. The Company asked the
court to dismiss all of Lawfinder's claims. The Company believes that it
will prevail in the litigation, should it continue. The Company's general
liability insurance carrier has covered the Company's costs of defending
the action and the Company believes that all future costs, if any, will be
covered.
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information contained under the captions "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
2000 Proxy Statement is incorporated herein by reference.
Information concerning executive officers of the Company can be found under
the caption "Executive Officers of the Company" in Item 1 hereof.
Item 10. EXECUTIVE COMPENSATION
The information contained under the captions "Executive Compensation" and
"Election of Directors____Board of Directors and Committees___Remuneration of
Directors" in the 2000 Proxy Statement is incorporated herein by reference.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Principal Shareholders" in the
2000 Proxy Statement is incorporated herein by reference.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Certain Relationships and
Transactions" in the 2000 Proxy Statement is incorporated herein by reference.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of the report:
Financial Statements. Audited financial statements as of December 31, 1999, 1998
and for the years then ended are filed as part of this Form 10-KSB. See Index to
Financial Statements on Page F-1.
Exhibits. The following exhibits are being filed as part of this Form 10-KSB:
<PAGE>
Exhibit No. Title Method of Filing
- ----------- ----- ----------------
3.1 Restated Articles of Incorporation 1
3.2 Restated Bylaws 1
4 Form of Common Stock Certificate 1
10.1 1995 Stock Option Plan 1
10.2 Existing Officer's Stock Option Plan 1
10.3 Employment Agreement dated July 1, 1995 between the
Company and Christopher R. Ljungkull
1
10.4 Employment Agreement dated July 1, 1995 between the
Company and James R. Seidl
1
10.5 1997 Stock Option Plan 5
10.11 First Amendment to Net Office Lease Agreement dated
June 1996
2
10.14 Employment Agreement dated July 25, 1996 between
The CyberLaw Office, Inc. and Arun K. Dube
5
10.15 Sale of Common Stock to Officers and Directors on
September 3, 1996
4
11 Subsidiaries of Legal Research Center, Inc. 5
27 1999 Fiscal Year End Financial Data Schedule Filed Herewith
99.1 News Release regarding the agreement with Risk
Enterprise Management 6
99.2 News Release regarding the agreement with WIRE 6
99.1 News Release regarding sale of CLO/TLO Filed Herewith
- ----------
1. Incorporated by reference to the same numbered Exhibit to the Company's
Registration Statement on Form SB-2, which was declared effective August 3,
1995, pursuant to Rule 12b-32.
2. Incorporated by reference to the same numbered Exhibit to the Company's
Form 10-KSB, dated March 29, 1996.
3. Incorporated by reference to Exhibits 2.1 and 2.2 to the Company's Form 8-K
dated May 13, 1996.
<PAGE>
4. Incorporated by reference to Exhibits 10.1, 10.2 and 10.3 to the Company's
Form 8-K dated September 5, 1996.
5. Incorporated by reference to Exhibits 10.14 and 11 to the Company's Form
10-KSB (as amended) dated March 27, 1997.
6. Incorporated by reference to Exhibits 10.17 and 10.18 to the Company's Form
10-KSB (as amended) dated March 27, 1998.
Reports on Form 8-K.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LEGAL RESEARCH CENTER, INC.
By: /s/ Christopher R. Ljungkull
-------------------------------
Christopher R. Ljungkull, CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name and Title Signature Date
-------------- --------- ----
Arun K. Dube
Co-Chairman of the Board /s/ Arun K. Dube March 26, 2000
----------------
Christopher R. Ljungkull
Co-Chairman of the Board
Chief Executive Officer
(Principal Executive Officer) /s/ C.R. Ljungkull March 26, 2000
------------------
James R. Seidl
President and Director /s/ James R. Seidl March 26, 2000
------------------
Bruce J. Aho /s/ Bruce J. Aho March 26, 2000
----------------
Exhibit 99.3
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 Sale of
The Law Office and The CyberLaw Office for
$3 Million in Stock and Warrants
Minneapolis -- 5 October 99 -- Legal Research Center, Inc. (OTC: LRCI), the
nation's leading provider of outsourced legal research and writing services,
today announced that it completed 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.
The two assets are Internet properties developed by LRC in 1996 and 1997.
The Law Office was developed as a proprietary section of legal content for The
Microsoft Network, prior to Microsoft's decision to reverse course from its
strategy of developing a commercial online service to compete with AOL and other
services. The CyberLaw Office was a "mirror site" that was constructed for the
open standards of the Internet.
LRC discontinued new funding for both properties in 1997 in order to
refocus on its core business of outsourced legal research and writing services.
LRC recently announced second quarter EBITDA of $0.12 per share and an increase
in revenue of 147 percent.
<PAGE>
According to Christopher Ljungkull, chief executive officer of
Minneapolis-based LRC, the 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 convertible warrants.
"This agreement, coupled with the revitalization of the unique TLO/CLO web
sites, provides LRC with the potential for a very attractive return on an
initiative in which we invested significant time and money," said Ljungkull.
"The sale of our Internet assets for stock and warrants fits perfectly with our
strategy of devoting all LRC resources to our core business while preserving the
upside benefit of our online investments. Mr. Dube was succeeding in the
profitable development of these sites when we ceased their funding. We're
confident that he has the vision and talent to build a successful and dynamic
operation on the excellent foundation his leadership provided."
Mr. Dube stated that he plans to make The CyberLaw Office the framework for
a legal portal that will consist of various legal services and products. As part
of the strategy, he expects to announce a strategic alliance or the acquisition
of a leading legal forms company in the near future. "We plan to enter into
several additional key alliances with a number of legal product suppliers and
legal service providers over the course of the next several months," said Dube.
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.
# # #
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM YEAR
ENDED DECEMBER 31, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,347,469
<SECURITIES> 0
<RECEIVABLES> 538,671
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,915,479
<PP&E> 282,763
<DEPRECIATION> 261,520
<TOTAL-ASSETS> 2,065,969
<CURRENT-LIABILITIES> 182,967
<BONDS> 0
0
0
<COMMON> 36,024
<OTHER-SE> 1,846,978
<TOTAL-LIABILITY-AND-EQUITY> 2,065,969
<SALES> 0
<TOTAL-REVENUES> 4,394,151
<CGS> 0
<TOTAL-COSTS> 2,110,485
<OTHER-EXPENSES> 1,503,555
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,501
<INCOME-PRETAX> 726,172
<INCOME-TAX> 10,000
<INCOME-CONTINUING> 716,172
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 716,172
<EPS-BASIC> .30
<EPS-DILUTED> .28
</TABLE>
