-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U9Q1mDvGF20XtuCg1cqtd7PwKyvfI/hFwT8D/cLY61xjrAUhG3oRePmH8YTa181r qlsHIITuqoH1X2xWFVfOew== 0000891554-01-502751.txt : 20010516 0000891554-01-502751.hdr.sgml : 20010516 ACCESSION NUMBER: 0000891554-01-502751 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEGAL RESEARCH CENTER INC CENTRAL INDEX KEY: 0000945506 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-LEGAL SERVICES [8111] IRS NUMBER: 411680384 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-26548 FILM NUMBER: 1637529 BUSINESS ADDRESS: STREET 1: 700 MIDLAND SQUARE BLDG STREET 2: 331 SECOND AVE CITY: MINNEAPOLIS STATE: MN ZIP: 55401 MAIL ADDRESS: STREET 1: 700 MIDLAND SQ BLDG STREET 2: 331 SECOND AVE S CITY: MINNEAPOLIS STATE: MN ZIP: 55401 10QSB 1 d25828_10q.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 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. 3,586,879 shares of Common Stock as of May 14, 2001 INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements: Condensed Balance Sheets March 31, 2001 and December 31, 2000..............................2 Condensed Statements of Income Three Months Ended March 31, 2001 and 2000.........................3 Condensed Statements of Cash Flows Three Months Ended March 31, 2001 and 2000........................4 Notes to Condensed 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 6. Exhibits and Reports on Form 8-K............................8 PART I. FINANCIAL INFORMATION - -------------------------------------------------------------------------------- ITEM 1. FINANCIAL STATEMENTS LEGAL RESEARCH CENTER, INC. CONDENSED BALANCE SHEET
(Unaudited) March 31, December 31, ASSETS 2001 2000 - ------------------------------------------------------------------------------------------------ CURRENT ASSETS Cash and cash equivalents $ 757,878 $ 575,817 Certificates of deposit 950,000 855,000 Accounts receivable 898,799 939,132 Deferred income taxes 394,100 407,900 Other 118,227 93,289 ----------- ----------- TOTAL CURRENT ASSETS 3,119,004 2,871,138 ----------- ----------- FURNITURE AND EQUIPMENT 315,492 307,987 Less accumulated depreciation 284,378 280,789 ----------- ----------- 31,114 27,198 ----------- ----------- INTANGIBLE ASSETS Investment in Integrity Interactive Corporation 500,000 500,000 Deferred income taxes 69,600 161,900 Other 10,809 25,849 ----------- ----------- 580,409 687,749 ----------- ----------- $ 3,730,527 $ 3,586,085 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------ CURRENT LIABILITIES Accounts payable $ 127,653 $ 114,381 Accrued expenses 226,024 208,898 ----------- ----------- TOTAL CURRENT LIABILITIES 353,677 323,279 ----------- ----------- STOCKHOLDERS' EQUITY Common stock, $0.01 par value; (authorized 20,000,000 shares; issued - 3,597,479 and 3,607,079 shares respectively) 35,974 36,071 Additional paid-in capital 7,060,950 7,102,037 Accumulated deficit (1,753,824) (1,909,052) Notes receivable from officers and directors (1,966,250) (1,966,250) ----------- 3,376,850 3,262,806 ----------- ----------- $ 3,730,527 $ 3,586,085 =========== ===========
See Notes to Condensed Financial Statements LEGAL RESEARCH CENTER CONDENSED STATEMENT OF INCOME (Unaudited) Three Months Ended March 31, ------------------------- 2001 2000 ------------------------- REVENUE $1,633,871 $1,221,959 ---------- ---------- DIRECT OPERATING COSTS Compensation and benefits 790,725 493,120 Other 77,753 88,176 ---------- ---------- 868,478 581,296 ---------- ---------- GROSS PROFIT 765,393 640,663 ---------- ---------- OTHER OPERATING COSTS Sales and marketing 329,454 212,768 General and administrative 194,385 215,691 ---------- ---------- 523,839 428,459 ---------- ---------- INCOME FROM OPERATIONS 241,554 212,204 INTEREST INCOME 19,774 20,715 ---------- ---------- INCOME BEFORE INCOME TAXES 261,328 232,919 INCOME TAX EXPENSE 106,100 -- ---------- ---------- NET INCOME $ 155,228 $ 232,919 ========== ========== NET INCOME PER COMMON SHARE Basic $ 0.06 $ 0.09 ========== ========== Diluted $ 0.06 $ 0.08 ========== ========== WEIGHTED AVERAGE COMMON SHARES OUSTANDING Basic 2,564,557 2,563,984 ========== ========== Diluted 2,768,979 2,786,334 ========== ========== See Notes to Condensed Financial Statements LEGAL RESEARCH CENTER CONDENSED STATEMENT OF CASH FLOW
(Unaudited) Three Months Ended March 31, --------------------------- 2001 2000 --------------------------- OPERATING ACTIVITIES Net income $ 155,228 $ 232,919 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,589 4,563 Amortization of intangible assets and capitalized development costs 25,849 25,849 Deferred income taxes 106,100 -- Change in assets and liabilities: Accounts receivable 40,333 (34,805) Other current assets (35,747) (114,529) Accounts payable 13,272 159,301 Accrued expenses 17,126 54,837 ----------- ----------- Net cash provided by operating activities 325,750 328,135 ----------- ----------- INVESTING ACTIVITIES Purchase of furniture and equipment (7,505) -- Purchases of certificates of deposit (95,000) -- ----------- ----------- Net cash used by investing activities (102,505) -- ----------- ----------- FINANCING ACTIVITIES Redemption of Legal Research Center stock (42,778) -- Proceeds from exercise of stock options 1,594 523 ----------- ----------- Net cash provided (used) by financing activities (41,184) 523 ----------- ----------- Increase in cash and cash equivalents 182,061 328,658 Cash and cash equivalents Beginning of period 575,817 1,347,469 ----------- ----------- End of period $ 757,878 $ 1,676,127 =========== ===========
See Notes to Condensed Financial Statements LEGAL RESEARCH CENTER, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS March 31, 2001 (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 balance sheet as of December 31, 2000, 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, 2000, include accounting policies and additional information pertinent to an understanding of both the December 31, 2000, balance sheet and the interim financial statements. The information has not changed substantially except as a result of normal transactions in the three months ended March 31, 2001, and as discussed in the following notes. Major Customers: One customer accounted for 68% of the Company's revenue for the three months ended March 31, 2001. The same customer accounted for 58% of the Company's revenue for the three months ended March 31, 2000. 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 2000 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 revenue 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 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 Revenue: Revenue increased by $411,912 or 34%, to $1,633,871 for the three month period ended March 31, 2001, over the same period in 2000. The increase is primarily attributable to increases in research and writing services for corporate clients. 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 49% or $287,182, for the three months ended March 31, 2001, from the same period in 2000. Compensation and benefits increased 60% offset by a 12% decrease in other operating expense. The increase in operating costs is due to the increase in revenue and additional staff. Direct operating costs, expressed as a percentage of revenue increased 5.6% to 53.2% for the three months ended March 31, 2001, from the same period in 2000. Gross Profit: Gross profit for the three months ended March 31, 2001, increased by $124,730 or 19.5% to $765,393 from a gross profit of $640,663 for the comparable period for 2000. As a percentage of revenue, gross profit decreased 5.6% to 46.8% for the three months ended March 31,2001, from the same period in 2000. The decrease in gross profit is attributable to an increase in cost of compensation and benefits. 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 $95,380 or 22% for the three months ended March 31, 2001, from the same period in 2000. The increase is due to increases in sales personnel and sales travel, new technology and marketing. Earnings Before Interest, Taxes, Depreciation and Amortization: Earnings before interest, taxes, depreciation and amortization were $270,992 or $.11 per share (basic) for the three months ended March 31, 2001, compared to $245,6431 or $.10 (basic) per share for the comparable period in 2000. Interest Income: Interest income decreased $941 or 4.5% for the three months ended March 31, 2001, from the comparable period in 2000. The decrease is a result of the decrease in interest rates. Income Tax Expense: Income tax expense was $106,100 for the three months ended March 31, 2001 compared to no expense for the three months ended March 31, 2000. The increased tax expense was a result of the Company's reversal of the valuation allowance for deferred tax assets in the fourth quarter of 2000. Net Income: The Company earned $155,228 or $.06 (basic) and $.06 (diluted) per share for the three months ended March 31, 2001, compared to $232,919 or $.09 (basic) and $.08 (diluted) per share for the comparable period in 2000. The decrease in net income for the three months ended March 31, 2001, is the result of an increase in production costs and an increase in tax expense. LIQUIDITY AND CAPITAL RESOURCES On March 31, 2001, the Company had cash and cash equivalents of $1,707,878 and working capital of $2,765,327. Net cash provided by operating activities was $325,750 in March 31, 2001 compared to $328,135 for the comparable period in 2000, or a decrease of 1%. Investment activities used $7,505 in the three months ended March 31, 2001. The cash was used for purchases of furniture and equipment. Financing activities provided $1,594 from the proceeds of exercised stock options. Financing activities used $42,778 in the redemption of the Company's stock. 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 6. Exhibits and Reports on Form 8-K (a) Exhibits none (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: May 11, 2001 By: /s/ Christopher R. Ljungkull ----------------------------- Christopher R. Ljungkull Chief Executive Officer EX-99.1 2 d35828_ex99-1.txt NEWS RELEASE Exhibit 99.1 NEWS RELEASE Media Contact: Daryn Teague Teague Communications (661) 297-5292 or teaguecomm@aol.com Legal Research Center Creates New e-Training Division, Taps Experienced Marketing Executive to Head up Group -- Company Also Promotes Pat Brandt to Vice President of Division -- Minneapolis - May XX, 2001 - In an illustration of the fast growth it has enjoyed for delivering Web-based compliance training solutions, Legal Research Center, Inc. (OTC: LRCI), the nation's leading provider of outsourced legal research and writing services, has created an e-Training Division in its Minneapolis headquarters. LRC entered the online compliance training business last June when it announced a partnership with Integrity Interactive Corp., a privately held company that applies the power of Internet learning technology to the challenge of teaching corporate employees how to comply with various regulatory and other legal requirements. In addition to providing legal research content for the Integrity courses, LRC also owns a minority equity stake in the company. "We have been a player in the category of e-training for less than one year and we have already landed a number of major contracts for developing comprehensive online compliance training programs," said Christopher Ljungkull, chief executive officer of LRC. "Our rapid growth has shown us that we have great upside potential in this area, so we are making the appropriate investments and corporate commitment to fully exploit this market opportunity." (more) LRC Creates e-Training Division Page Two According to Ljungkull, LRC has hired Craig Martin, a successful sales and marketing executive with almost 25 years of experience in senior management positions at companies such as General Mills and HMG International. Most recently, Martin was president of Gage In-Store Marketing in Minneapolis. He holds a masters degree in business management from the University of Minnesota. "Craig and I grew up together in St. Paul and I've been trying to lure him to join our company for the last 20 years," said Jim Seidl, LRC's president. "Finally, he saw the enormous potential of our e-training business and agreed to come on board to head up our new division dedicated to serving this dynamic marketplace for Web-based compliance training programs." Lungkull also announced that LRC has promoted Pat Brandt, formerly a sales representative for the company's online compliance training services, to vice president of the new e-training division. Brandt has played a key role in securing major contracts for the LRC/Integrity partnership and he will add some additional operational responsibilities in his new position to his pre-existing sales and marketing obligations. Legal Research Center (www.lrci.com) offers legal research and writing services to attorneys in corporate and private practice throughout the world. Based in Minneapolis and founded in 1978, LRC's work products include compliance-related multijurisdictional surveys, office memoranda, and formal court-ready documents such as trial and appellate briefs. LRC's knowledge management services include work product database design and facilitation, Website content creation, and compliance training content development. LRC's nationally recognized 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 U.S. # # # EX-99.2 3 d25828_ex99-2.txt NEWS RELEASE Exhibit 99.2 NEWS RELEASE Media Contacts: Christopher Ljungkull Daryn Teague Legal Research Center Teague Communications (800) 776-9377 or crl@lrci.com (661) 297-5292 or teaguecomm@aol.com Legal Research Center Announces Record Revenues for First Quarter Minneapolis - May 8, 2001 - Legal Research Center, Inc. (OTC: LRCI), the nation's leading provider of outsourced legal research and writing services, today reported its results for the first quarter ended March 31, 2001. For the quarter, revenues increased 34 percent to $1,633,871, compared to $1,221,959 for the first quarter of 2000. This was the most successful quarter for sales in the company's history. LRC also posted strong earnings in the first quarter, reporting EBITDA earnings (before interest, taxes, depreciation and amortization) of $270,992, or $.11 per share, versus $245,643 for the first quarter of 2000, or $.10 per share. Adjusted for projected 2001 tax expense, LRC's net income was $155,228, or $.06 per share, compared to $232,919, or $.09 per share, for the same period a year ago, reflecting an income tax expense of $106,100 for the quarter ended March 31, 2001, or $.04 per share, compared to no expense for the quarter ended March 31, 2000. The increased tax expense was a result of the Company's reversal of the valuation allowance for deferred tax assets in the fourth quarter of 2000. "On behalf of LRC shareholders, we're pleased to have completed our eleventh consecutive quarter of strong earnings," said Christopher Ljungkull, chief executive officer of Minneapolis-based LRC. (more) Legal Research Center Announces 1Q01 Results Page Two "In three years our revenue has grown 273 percent and consistent profitability has resulted in an increase of nearly 320 percent in shareholders' equity," said Ljungkull. "We benefited from a particularly strong sales performance in the core business of legal research and writing services in the first quarter, and our year-to-date revenues are significantly ahead of internal forecasts. We're optimistic that 2001 will be another stellar year." "We are delighted with market receptivity to LRC's online compliance training solution, offered with our partner Integrity Interactive Corporation," said James Seidl, LRC's president. "We recently announced one of many new contracts for online compliance training and expect steady growth in sales of this product-line in the months ahead. This use of the Internet as a delivery system for compliance-related legal research and training is an important vehicle for the future growth of our company." Legal Research Center (http://www.lrci.com) offers legal research and writing services to attorneys in corporate and private practice throughout the world. Based in Minneapolis and founded in 1978, LRC's work products include compliance-related multijurisdictional surveys, office memoranda, and formal court-ready documents such as trial and appellate briefs. LRC's knowledge management services include work product database design and facilitation, Website content creation and online compliance training. LRC's nationally recognized 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 U.S. 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. # # # (Statements of income follow) -----END PRIVACY-ENHANCED MESSAGE-----