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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from ____________________to_____________________
Commission File Number: 0-13409
LEGALOPINION.COM
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(Exact name of small business issuer as specified in its charter)
NEVADA 87-0550824
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
230-2000 SPALL ROAD, KELOWNA, BRITISH COLUMBIA, CANADA V1Y 9P6
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(Address of principle operations)
4110 CENTRAL ST., KANSAS CITY, MISSOURI, 64111
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(Address of principle executive offices)
(250-763-5560)
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(Issuer's telephone number)
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(Former name, former address and former fiscal year, if changed
since last report.)
As of September 30, 2000, the registrant had 33,604,442 shares of common stock,
par value $.001 per share, outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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PART 1: FINANCIAL INFORMATION
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ITEM 1: FINANCIAL STATEMENTS
Consolidated Financial Statements of
LEGALOPINION.COM
(A Development Stage Enterprise)
For the nine month period ended September 30, 2000
2
LEGALOPINION.COM
(A Development Stage Enterprise)
Consolidated Balance Sheet
$ United States
September 30, 2000
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September 30, December 31,
2000 1999
(Unaudited - prepared
by management)
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ASSETS
Current assets
Cash $ 86,632 $ 23,080
Accounts receivable 264,938 --
Prepaid expenses 802 10,000,920
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352,372 10,024,000
Note receivable (note 3) 50,000 --
Fixed assets (note 4) 56,265 25,558
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$ 458,637 $ 10,049,558
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 175,327 $ 141,979
Unearned income (note 5) 200,000 --
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375,327 141,979
Long-term debt
Stockholders' loans (note 6) 14,442 527,899
Convertible debentures (note 7) 500,000 --
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889,769 669,878
Stockholders' equity (deficiency)
Capital stock
Authorized:
200,000,000 common shares with a par value
of $0.001 per share
Issued:
33,604,442 (December 31, 1999 - 31,083,942)
common shares 33,605 31,084
Additional paid-in capital 12,619,436 10,000,516
Deficit accumulated during the development stage (13,084,173) (651,920)
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(431,132) 9,379,680
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$ 458,637 $ 10,049,558
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See accompanying notes to financial statements
On behalf of the Board:
_____________________ Director
_____________________ Director
3
LEGALOPINION.COM
(A Development Stage Enterprise)
Consolidated Statement of Loss
$ United States
Nine-month period ended September 30, 2000
(Unaudited - prepared by management)
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From Nine months Three months From Three months
inception ended ended inception ended
(April 7, September 30, September (April 7, September
1999) to 2000 30, 2000 1999) to 30, 1999
September September
30, 2000 30, 1999
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REVENUE
Directory fees $ 13,024 $ 12,585 $ 3,729 $ -- $ --
Licensing fees 50,000 50,000 50,000 -- --
Affiliate 593 593 593 -- --
Interest Income -- -- -- -- --
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Total 63,617 63,178 54,322 -- --
EXPENSES
Accounting and legal 258,244 178,821 81,282 -- --
Advertising and promotion 11,374,609 11,306,126 22,788 -- --
Affiliate commissions 544 544 544 -- --
Attorney directory enrollment 130,644 72,194 13,762 -- --
Credit card commissions 6,343 3,441 1,160 -- --
Cost of recapitalization
(note 2) 100,000 -- -- -- --
Depreciation 10,972 6,676 2,792 900 900
Financing charges (note 7) 75,000 75,000 75,000 -- --
Foreign exchange loss (gain) 1,453 1,203 (325) -- --
General and administrative 62,163 49,936 20,277 157,840 157,840
Goodwill write down -- -- -- 134,522 134,522
Interest (note 7) 7,500 7,500 7,500 --
Investor relations 348,072 319,598 10,143 -- --
Management fees paid to
related party 107,285 46,646 -- -- --
Travel and legal conventions 89,379 61,863 25,662 -- --
Wages and employee benefits 211,599 211,599 131,068 -- --
(note 11)
Website and technology
maintenance 363,983 154,284 78,321 -- --
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13,147,790 12,495,431 469,974 293,262 293,262
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LOSS $(13,084,173) $(12,432,253) $ (415,652) (293,262) (293,262)
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Weighted average number of shares -- 32,441,942 33,351,725 22,170,899 17,083,942
Loss per share -- $ (0.38) $ (0.01) $ (0.01) $ (0.01)
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4
LEGALOPINION.COM
(A Development Stage Enterprise)
Consolidated Statement of Cash Flows
$ United States
Nine-month period ended September 30, 2000
(Unaudited - prepared by management)
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From inception Nine months From inception
(April 7, ended September (April 7,
1999) to 30, 2000 1999) to
September 30, September 30,
2000) 1999)
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Operating Activities
Net Loss $(13,084,173) $(12,432,253) $ (293,262)
Items not involving cash
Depreciation 10,972 6,676 900
Advertising paid with share consideration 11,200,000 11,200,000 --
Compensation cost of options issued (note 12) 21,441 21,441 --
Changes in non-cash working capital
Prepaid expenses (802) 118 (3,413)
Accounts receivable (264,938) (264,938) --
Accounts payable and accrued liabilities 162,177 33,348 10,523
Unearned income 200,000 200,000 --
Write down of goodwill -- -- 134,522
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(1,755,323) (1,235,608) (150,730)
Financing
Stockholders' loans 1,177,692 649,793 176,778
Convertible Debentures 500,000 500,000 --
Shares issued for cash 281,750 236,750 --
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1,959,442 1,386,543 176,778
Investing
Note Receivable (50,000) (50,000) --
Purchase of fixed assets (67,237) (37,383) (17,361)
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(117,237) (87,383) --
Change in foreign currency denominated
Cash balance (250) -- --
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Increase (decrease) in cash 86,632 63,552 8,687
Cash, beginning of period -- 23,080 --
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Cash, end of period $ 86,632 $ 86,632 8,687
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Supplementary Information:
Interest Paid -- -- --
Income taxes paid -- -- --
Non-cash investing and financing activities:
Issuance of capital stock for advertising services 11,200,000 1,200,000 250,000
Issuance of capital stock upon conversion of
stockholders' loans 1,163,250 1,163,250 --
===========================================================================================================
See accompanying notes to financial statements
5
LEGALOPINION.COM
(A Development Stage Enterprise)
Consolidated Statement of Stockholders' Equity (Deficiency)
$ United States
Period from date of Inception (April 7, 1999) to September 30, 2000
(Unaudited - prepared by management)
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Deficit
Capital Stock Accumulated Total
--------------------------- Additional During the Stockholders'
Number Paid in Development Equity
of Shares Amount Capital Stage (Deficiency)
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Issuance of shares for cash on
April 7, 1999 100 $ 45,000 $ -- $ -- $ 45,000
Adjustment to record capital
transaction (note 2) 26,083,842 (14,416) 1,016 -- (13,400)
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legalopinion.com, Inc.
balance as at August 9, 1999 26,083,942 30,584 1,016 -- 31,600
Issuance of shares for services
at $2.00 per share 5,000,000 500 9,999,500 -- 10,000,000
Loss for the period ended
December 31, 1999 -- -- -- (651,920) (651,920)
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Balance, December 31, 1999 31,083,942 31,084 10,000,516 (651,920) 9,379,680
Issuance of shares for cash
at $1.75 per share (note 10) 69,000 69 120,681 -- 120,750
Conversion of Stockholders' loans
at $1.75 per share (note 10) 399,000 399 697,851 -- 698,250
Issuance of shares for services
at $2.00 per share (note 10) 600,000 600 1,199,400 -- 1,200,000
Issuance of shares for cash
at $0.40 per share (note 10) 290,000 290 115,710 -- 116,000
Conversion of Stockholders' loans
at $0.40 per share (note 10) 1,162,500 1163 463,837 -- 465,000
Options issued to employees (note 12) -- -- 21,441 -- 21,441
Loss for the nine-month period ended
September 30, 2000 -- -- -- (12,432,253) (12,432,253)
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Balance, September 30, 2000 33,604,442 $ 33,605 $ 12,619,436 $(13,084,173) $ (431,132)
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6
LEGALOPINION.COM
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
$ United States
Nine-month period ended September 30, 2000
(Unaudited - prepared by management)
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legalopinion.com, ("the Company") (formerly Eurotronics Holdings Inc.), was
incorporated under the laws of the State of Utah for the primary purpose of
investigating and evaluating prospective mineral properties for possible
acquisition. Effective August 9, 1999, the Company acquired 100% of the
outstanding shares of legalopinion.com, Inc., a private corporation incorporated
on April 7, 1999 under the laws of Alberta, Canada. Prior to the acquisition,
legalopinion.com was a non-operating public shell corporation with nominal net
assets. For accounting purposes this transaction has been accounted for as a
recapitalization of legalopinion.com, Inc. (see note 2). As part of a capital
transaction with legalopinion.com, Inc., the Company continued its registration
jurisdiction from Utah to Nevada and changed its principal activity to the
development of an online directory service that provides consumers and attorneys
the ability to interact.
1. SIGNIFICANT ACCOUNTING POLICIES:
a) General
The information included in the accompanying consolidated interim
financial statements is unaudited and should be read in conjunction
with the annual audited financial statements and notes thereto
contained in the Company's Report on Form 10-KSB for the fiscal year
ended December 31, 1999. In the opinion of management, all adjustments,
consisting solely of normal recurring accruals, necessary for a fair
presentation of the results of operations for the interim periods
presented, have been reflected herein. The results of operations for
the interim periods presented are not necessarily indicative of the
results to be expected for the entire fiscal year.
b) Going concern
These financial statements have been prepared on the going concern
basis, which assumes the realization of assets and liquidation of
liabilities in the normal course of business. As shown in the
consolidated financial statements, the Company has generated
insignificant revenues and has accumulated a deficit since inception of
$13,084,173. This factor, among others raises substantial doubt about
the Company's ability to continue as a going concern. The Company's
ability to continue as a going concern is dependent on its ability to
generate future profitable operations and receive continued financial
support from its stockholders and other investors.
Management's plans with respect to generating future profitable
operations include obtaining additional financing through the issuance
of debentures.
Management is also anticipating certain stockholders to provide
additional funds in the form of stockholders' loans.
c) Translation of financial statements
The Company's functional currency is the United States dollar. The
Company's wholly owned subsidiary, legalopinion.com, Inc. operates in
the United States and Canada and accordingly, a portion of its
operations are conducted in Canadian currency.
7
LEGALOPINION.COM
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
$ United States
Nine-month period ended September 30, 2000
(Unaudited - prepared by management)
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1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
c) Translation of financial statements (continued)
The method of translation applied is as follows:
i) Monetary assets and liabilities are translated at the rate of
exchange in effect at the balance sheet date, being US $1.00 per
Cdn. $1.47 (December 31, 1999 - $1.44).
ii) Non-monetary assets and liabilities are translated at the rate of
exchange in effect at the time of acquisition of the assets or
assumption of the liabilities.
iii) Revenues and expenses are translated at the exchange rate in
effect at the transaction date.
iv) Foreign exchange gains and losses on translation are included in
income.
d) Basis of presentation and consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All material inter-company
transactions and balances have been eliminated. To September 30, 2000,
the Company is primarily focused on the process of developing its
business and no significant revenues have been generated to date.
Accordingly, the Company is considered to be a development state
enterprise for financial reporting purposes.
e) Prepaid Expenses
The Company expenses prepaid expenses (i.e. advertising) over the
useful life of the assets in accordance with matching of expenses with
the period in which the benefit is received.
f) Fixed assets
Fixed assets are recorded at cost. Depreciation is provided using the
following methods and annual rates which are intended to amortize the
cost of the assets over their estimated useful life:
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Asset Method Rate
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Computer equipment Declining balance 30%
Computer software Declining balance 100%
Furniture and fixtures Declining balance 20%
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g) Income taxes
The Company accounts for income taxes by the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
8
LEGALOPINION.COM
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
$ United States
Nine month period ended September 30, 2000
(Unaudited - prepared by management)
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1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
h) Management estimates
The preparation of financial statements in conformity with United
States generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
i) Financial instruments
The fair values of the Company's cash, accounts receivable and,
accounts payable and accrued liabilities approximate their carrying
values due to the relatively short periods to maturity of the
instruments. It is not possible to arrive at a fair value for
stockholders' loans as a maturity date is not determinable, there is
not a ready market for such instruments and given the nature of the
relationship between the stockholders and the Company. The maximum
credit risk exposure for all financial assets is the carrying amount of
those assets.
j) Revenue Recognition
The Company follows the percentage of completion method of accounting
for all significant long-term contracts. The percentage of completion
method of reporting income from contracts takes into account the cost,
estimated earnings, and revenue to date on contracts not yet completed.
The amount of revenue recognized is the portion of the total contract
price that the cost expended to date bears to the anticipated final
total cost, based on current estimates of cost to complete.
k) Loss per share
Loss per share has been calculated using the weighted average number of
common shares outstanding during the period. The effect of the
convertible debentures and share purchase warrants (note 7 and 10),
have not been included in the computation because to do so would be
anti-dilutive.
l) Accounting standards change
In June 1998, the Financial Accounting Standards Board issued SFAS no.
133, "Accounting for Derivative Instruments and Hedging Activities."
Adoption of this statement is not expected to have a significant impact
on the Company's results of operations or financial position.
9
LEGALOPINION.COM
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
$ United States
Nine month period ended September 30, 2000
(Unaudited - prepared by management)
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2. CAPITAL TRANSACTION:
Effective August 9, 1999, the Company acquired 100% of the outstanding
common shares of LegalOpinion.com, Inc., a private corporation incorporated
on April 7, 1999 under the laws of Alberta, Canada, for cash consideration
of $100,000 and the issuance of 9,000,000 common shares from treasury. The
transaction has been accounted for as if it were a capital transaction,
effectively as if LegalOpinion.com, Inc. had issued shares for the net
assets of the Company. Accordingly, this transaction has been measured at
the carrying amount of the assets and liabilities of the Company with the
excess of the carrying amount reflected as a charge to operations. In
addition, the from inception figures presented on the consolidated
statements of loss, stockholders' equity and cash flows reflect the results
from operations and cash flows of LegalOpinion.com, Inc. for the period
from incorporation on April 7, 1999 to September 30, 2000, combined with
those of the legal parent from the date of acquisition on August 9, 1999.
3. NOTE RECEIVABLE:
On July 23, 2000, the Company entered into a non-binding letter of intent
to acquire all of the outstanding capital stock of the Lawyers Homepage
Network ("LHN") in exchange for 4,000,000 shares of the Company's common
stock. Consummation of the transaction is contingent upon the negotiation
and execution of a definitive acquisition agreement, among other things. As
part of the initial agreement, the Company agreed to provide financing for
LHN. This note is payable upon demand and bears no interest.
4. FIXED ASSETS:
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2000 1999
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Accumulated Net book Net book
Cost depreciation value value
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Computer equipment $ 38,933 $ 8,598 $ 30,335 $ 22,273
Computer software 3,357 552 2,805 -
Furniture and fixtures 24,871 1,746 23,125 3,285
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$ 67,161 $ 10,896 $ 56,265 $ 25,558
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5. UNEARNED INCOME:
In July 2000, the Company entered into a joint venture with the law firm of
Teran & Teran to design a Spanish version of the Company's site for the
Latin American market. In accordance with this agreement, Teran & Teran
will pay the Company fees of approximately $250,000 for licensing fees and
development of the website. The Company's technical department will oversee
and develop the new website based upon the legalopinion.com model. The
unearned income of $200,000 represents the unearned portion of development
fees.
10
LEGALOPINION.COM
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
$ United States
Nine month period ended September 30, 2000
(Unaudited - prepared by management)
- --------------------------------------------------------------------------------
6. STOCKHOLDERS' LOANS:
Stockholders' loans are unsecured, do not bear interest and have no
specified terms of repayment. As the stockholders have indicated in writing
that they will not request repayment in the next fiscal year, the entire
amount has been shown as a long-term liability.
7. CONVERTIBLE DEBENTURES:
In July 2000, the Company entered into a placement agency agreement with
The May Davis Group, Inc. under which May Davis found purchasers for
$500,000 in aggregate principal amount of the Company's 6% convertible
debentures. For the performance by May Davis of its services under the
placement agency agreement, the Company paid May Davis a commission equal
to 9% of the gross proceeds that the Company received from the sale of the
debentures and issued to May Davis a five-year warrant to purchase up to
630,000 shares of the Company's common stock at an exercise price of $1.50
per share, subject to adjustment to prevent dilution. The Company also paid
all of May Davis' legal, administrative, and escrow fees associated with
the sale of the debentures, which totaled $30,000.
All or any part of the principal amount of the debentures, plus any accrued
interest, may be converted at any time by any holder of the debentures into
shares of the Company's common stock at a conversion price per share equal
to either 120% of the closing bid price on the date the debentures were
issued or 80% of the average closing bid prices of the Company's common
stock for any three days of the five trading days immediately preceding the
date of the conversion, as determined by the holder. On the July 17, 2005
maturity date of the debentures, the unpaid balance of each of the
debentures and any accrued and unpaid interest will convert automatically
into shares of the Company's common stock at the conversion price on the
maturity date.
In September 2000, the Company entered into a second placement agency
agreement with The May Davis Group, Inc. under which May Davis agreed to
find purchasers for up to $15,000,000 in aggregate principal amount of the
Company's 6% convertible debentures to be issued from time to time under an
equity line of credit. Subsequently, the Company entered into an equity
line of credit agreement with GMF Holdings through The May Davis Group,
Inc.
Under this agreement, GMF Holdings has agreed to purchase up to $15,000,000
in aggregate principal amount of the Company's 6% convertible debentures
during a period of up to 30 months commencing September 19, 2000. The terms
of conversion of the debentures will be consistent with the terms noted
above for the previously issued debentures. For the performance by May
Davis of its services under the placement agency agreement, the Company
will pay May Davis a commission equal to 9% of the gross proceeds that the
Company receives from the sale of the debentures and will issue to May
Davis a five year warrant to purchase up to 3,500,000 shares of the
Company's common stock at an exercise price of $1.50 per share, subject to
adjustment to prevent dilution. The Company will also pay all of May Davis'
reasonable legal, administrative, and escrow fees associated with the sale
of the debentures.
11
LEGALOPINION.COM
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
$ United States
Nine-month period ended September 30, 2000
(Unaudited - prepared by management)
- --------------------------------------------------------------------------------
8. INCOME TAXES:
At December 31, 1999, the Company had a net operating loss carry forward
for United States income tax purposes of approximately $1,300,000 and a
non-capital loss carry forward for Canadian income tax purposes of
approximately $600,000. The net operating loss and non-capital loss carry
forward expire in increments beginning in 2000 and 2006 respectively. No
amount has been reflected on the balance sheet for future income taxes as
any future income tax asset has been fully offset by a valuation allowance.
9. RELATED PARTY TRANSACTIONS:
During the nine months ended September 30, 2000 the Company paid management
fees of $46,646 to a corporation controlled by the former president of the
Company.
10. SHARES ISSUANCES:
On April 11, 2000, the Company issued 468,000 shares of common stock at
$1.75 per share pursuant to a private placement. The company received
$120,750 in cash and $698,250 of stockholders' loans were deemed repaid in
exchange for the shares. In addition, the recipients of securities in the
private placement received warrants to purchase an additional 468,000
shares of common stock at $3.50 per share until expiry on May 31, 2001.
During the quarter ended June 30, 2000, the Company received advertising
services from an unrelated party. In exchange for these services, the
Company issued 600,000 shares of common stock at a price of $2.00 per
share, being the market value of the common stock at the issue date. The
value of the shares issued, aggregating $1,200,000, was equivalent to the
fair value of the services provided. During the quarter ended June 30,
2000, the Company issued 290,000 shares of common stock at $0.40 per share
pursuant to a private placement. The Company received $116,000 in cash in
exchange for the shares. In addition, the recipients of securities in the
private placement received warrants to purchase an additional 145,000
shares of common stock. The exercise price is $1.00 per share until
December 31, 2000 and increases to $1.50 per share thereafter until expiry
on June 30, 2001.
On July 20, 2000, the Company issued 1,162,500 shares of common stock at
$0.40 per share pursuant to a private placement. The issuance of shares was
in exchange for the deemed repayment of outstanding stockholders' loans in
the amount of $465,000.
11. STOCK OPTION PLAN:
The Company adopted a stock option plan ("the plan") during the quarter
ended September 30, 2000. Pursuant to the plan, the Company has reserved up
to 3,000,000 common shares for issuance to its employees. The exercise
price of options issued under the plan shall be equal to 80% of the market
price based on the average trading price during the four-week period ending
on the Friday before the option is granted. The options shall have a term
of not more than five years from the date of grant. Options with the plan
are vested in arrears.
12
LEGALOPINION.COM
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
$ United States
Nine-month period ended September 30, 2000
(Unaudited - prepared by management)
- --------------------------------------------------------------------------------
11. STOCK OPTION PLAN (CONTINUED):
During the quarter ended September 30, 2000, the Company authorized the
issuance of up to 391,500 stock options to its employees of which 109,833
shares have been granted with exercise prices ranging from $0.33 to $0.65.
The market price of the shares at the grant dates ranged from $0.406 to
$0.93, accordingly a compensation expense of $21,441 has been recorded.
12. SUBSEQUENT EVENTS:
Until October, 2000, the Company was a party to an advertising services
agreement with Venture Capital Media, Ltd. Under this agreement, Venture
Capital Media agreed to provide the Company with up to $42 million in
advertising services in exchange for shares of the Company's common stock.
In October, 2000, the Company and Venture Capital Media terminated this
agreement. As at September 30, 2000, 5,000,000 common shares were issued to
the advertising service provider and $10,000,000 had been recorded in
advertising and promotion expense in relation to this agreement.
In October 2000, a non binding letter of intent was signed between
legalopinion.com and Equity Search Inc. to form a joint venture for the
development of "TaxPert" a sister service to the legal opinion model.
TaxPert will be a financial question and answer service staffed by Equity
Search out of Buffalo, New York. Equity Search was founded in 1984 by
former IRS Revenue Officers to aid business and consumers with the various
tax authorities and to address other financial problems.
In October, 2000 a bridge financing agreement was entered into with The May
Davis Group, Inc. who agreed to provide up to $1,000,000 in debt financing
with an interest rate of 6% per annum. As collateral for the indebtedness,
a major stockholder of the Company has pledged 4,500,000 shares of the
Company's common stock.
On October 11, 2000, the Company entered into agreement with a consultant
whereas the Company issued 32,500 shares in payment of consulting services
rendered.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATION
- --------------------------------------------------------------------------------
GENERAL DISCUSSION
- ------------------
legalopinion.com is an online directory service offering consumers access to
legal consultation from their homes or offices. The legalopinion.com portal
offers access to legal consultation via the Internet. Currently, we serve
consumers from the United States and Canada who wish to secure an opinion by an
attorney.
legalopinion.com collects information from the consumer regarding the legal
question, lists attorneys experienced in the consumers' problem area, and
provides a two-day window to research the answer and respond to the consumer. By
October of this year, over 7,000 attorneys chose to participate in our program.
13
We do not practice law in any jurisdiction and are not licensed to do so. We do
not become involved in any attorney-client relationship that may be established
between our customer users and attorneys participating in our database.
legalopinion.com has a worldwide patent pending relating to the expert systems
for computerized delivery legal advice. The company is currently reviewing the
capability of the site to deliver a variety of products and services to both
attorneys and customers.
As the site evolves, member attorneys will be able to build their client bases
and access legal management software, without the traditional hardware,
maintenance or upgrade costs. These services will be provided through an
exclusive private network (VPN) which legalopinion.com will create and maintain
as an application services provider (ASP) to member lawyers. A pool of practice
facilitating options will be available alongside various financial, tax, and
business management resources and utilities. legalopinion.com will build and
maintain a technical support staff trained in Internet Professional Services
Delivery (IPSD) to assist member attorneys in developing their online client
portfolios.
Since the May recast of the business plan from its original "online legal
opinion" revenue model, changes to the business strategy have emerged and we
have announced several transactions.
In May, we began reworking the concept of the attorney network to include the
offering of technology services to member attorneys (free e-mail, web hosting,
application services provisioning,, etc ...) and discovered Lawyers Homepage
Network (LHN). LHN listed 20,000 member attorneys already using their patented
CaseMatch service. In August 2000 a letter of intent to purchase Lawyers
Homepage Network was executed, following a two-month discovery phase where each
explored the synergies and strengths of our respective organizations. Lawyers
Homepage has focused on the attorney side of the equation and provides a variety
of web design/hosting services. They are also in the development stage of
creating the Virtual Law Partner, which will bring an array of services directly
to each attorney member's desktop.
In May we announced the development of a subscriber service program called
LegalCare, designed to allow legal and financial membership services, targeted
at consumers and corporations. Services that come with a LegalCare membership
(services differ with each plan) include online legal and financial opinions,
phone consultations, assistance with tax issues, wills, small claims and a range
of other bundled financial and legal resources. The programs will attempt to
address some of the average person's legal and financial resource requirements.
The LegalCare program launch is scheduled for the 4th quarter of 2000.
In October we announced the signing of a letter of intent with Equity Search,
Inc for the joint development and staffing of TaxPert, a sister service to
legalopinion.com. Taxpert will allow consumers to submit questions to qualified
financial services professionals and receive their answer through the Internet,
for a nominal fee. The TaxPert site will be developed, hosted and maintained by
legalopinion.com. Equity Search will handle the marketing and recruiting of tax
professionals and monitor the performance of their online professionals. The
TaxPert program is scheduled to launch first quarter 2001.
We believe that our continued growth is contingent on our ability to actively
promote the legalopinion.com name and apply the legalopinion.com model to the
online delivery of various other products and services. We intend to continue to
invest in advertising and promotion, personnel and technology. Our limited
operating history makes the prediction of future results difficult and as such,
we cannot assure you that we will achieve or sustain profitability.
14
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
REVENUES
Quarter Ended Quarter Ended Nine Months Ended
Sept. 30 June 30 Sept. 30
-------- ------- --------
2000 1999 2000 2000 1999
---- ---- ---- ---- ----
Revenue $54,322 -- $ 4,981 $63,178 --
Revenues consisted primarily of: (1) opinion revenues from consumers submitting
questions to member attorneys; (2) licensing fees and build-out and maintenance
services to our strategic partners; and (3) affiliate revenues generated from
sales of affiliate products and services. Revenues increased since June 30, 2000
primarily due to the licensing of our online technology to Teran & Teran (see
note 5 to the interim financial statements). In third quarter 1999, the company
did not generate any revenues because the site was not live until October 31,
1999. The 1999 third quarter activities consisted primarily of site development
and attorney registrations.
OPERATING EXPENSES
- ------------------
ACCOUNTING AND LEGAL
Quarter Ended Quarter Ended Nine Months Ended
Sept. 30 June 30 Sept. 30
-------- ------- --------
2000 1999 2000 2000 1999
---- ---- ---- ---- ----
Accounting and legal $81,282 -- $60,863 178,821 --
% of Revenues 149.6% N/A* 1222% 283% N/A*
* No revenues were recorded for the quarter nor year ended Sept. 30, 1999
Accounting and legal expenses consist of (1) accounting and auditing fees, (2)
legal fees, and (3) payroll processing fees. There was a slight increase in the
amount of accounting and legal fees due to the due diligence on a variety of
partnership arrangements that we entered into this quarter.
ADVERTISING AND PROMOTION
Quarter Ended Quarter Ended Nine Months Ended
Sept. 30 June 30 Sept. 30
-------- ------- --------
2000 1999 2000 2000 1999
---- ---- ---- ---- ----
Advertising $22,788 -- $8,276,541 $11,306,124 --
Attorney Enrollment 13,762 -- 23,607 72,194 --
------- ------- ---------- ----------- ------
Total $36,550 -- $8,300,148 $11,378,318 --
% of Revenues 67.3% N/A* N/A N/A N/A*
* No revenues were recorded for the quarter nor year ended Sept. 30, 1999
Advertising and promotion consists of advertising expenses and other expenses
related directly to marketing. Advertising expenses for the quarter consisted
primarily of (1) online search engine placement; (2) banner advertisements on a
variety of legal websites and (3) production costs. This quarter saw a decrease
in advertising expenses due to the termination of the advertising agreement with
Venture Capital Media on October 24, 2000. It is anticipated that next quarter,
this expense will increase as a result of the promotion of the LegalCare
subscriber program.
Attorney enrollment costs declined slightly as the sales force directed part of
their efforts towards attracting online affiliate partners during the later end
of the quarter.
15
GENERAL AND ADMINISTRATIVE
Quarter Ended Quarter Ended Nine Months Ended
Sept. 30 June 30 Sept. 30
-------- ------- --------
2000 1999 2000 2000 1999
---- ---- ---- ---- ----
General and $20,277 $157,840 $16,306 $49,936 $157,840
Administrative
% of Revenues 37.3% N/A* 327% 79% N/A*
* No revenues were recorded for the quarter nor year ended Sept. 30, 1999
General and administrative expenses consist of (1) Bank Charges and Interest,
(2) Postage and office supplies, (3) Occupancy expenses such as rent, telephone
and misc. utilities and repair expenses. General and administrative expenses for
the quarter increased slightly due to an expansion of the Canadian office and
subsequent expansion of the internal phone system to meet call-in demands.
INVESTOR RELATIONS
Quarter Ended Quarter Ended Nine Months Ended
Sept. 30 June 30 Sept. 30
-------- ------- --------
2000 1999 2000 2000 1999
---- ---- ---- ---- ----
Investor Relations $10,143 -- $281,412 $319,598 --
% of Revenues 18.7% N/A* N/A 506% N/A*
* No revenues were recorded for the quarter nor year ended Sept. 30, 1999
Investor relations expenses consist of (1) stock transfer and issuance fees, (2)
investor relations consulting fees and (3) design and printing of investor
materials. This quarter saw a dramatic decline in investor relations fees due to
the termination of the investor relations contract with Medallion Capital Corp.
Next quarter will see a slight increase in the fees as we contract with a new
Investor Relations firm.
WAGES AND EMPLOYEE BENEFITS
Quarter Ended Quarter Ended Nine Months Ended
Sept. 30 June 30 Sept. 30
-------- ------- --------
2000 1999 2000 2000 1999
---- ---- ---- ---- ----
Wages $102,110 -- $68,301 171,551 --
Payroll taxes & benefits 28,958 -- 6,175 40,048 --
-------- ----- ------- -------- ------
Total $131,068 -- $74,476 $211,599 --
% of Revenues 241% N/A* 1495% 335% N/A*
* No revenues were recorded for the quarter nor year ended Sept. 30, 1999
Wages and Employee Benefits consist of (1) employee wages, (2) employee benefits
including stock options granted, and (3) payroll taxes. Direct wages saw a
slight increase due to the expansion of the IT department to meet development
needs. We also initiated an employee medical and dental benefit plan at the end
of third quarter, which increased the amount spent on employee benefits. The
benefits plan has a 50% pay in by the employee.
16
WEBSITE AND TECHNOLOGY MAINTENANCE
Quarter Ended Quarter Ended Nine Months Ended
Sept. 30 June 30 Sept. 30
-------- ------- --------
2000 1999 2000 2000 1999
---- ---- ---- ---- ----
Website and Technology $78,321 -- $46,829 $154,284 --
Maintenance
% of Revenues 144% N/A* 940% 244% N/A*
* No revenues were recorded for the quarter nor year ended Sept. 30, 1999
Website and Technology Maintenance expenses consist of (1) Website hosting and
maintenance expenses, (2) payments to outside contractors, (3) Website
development and graphic design, (4) domain name registration fees and purchases
and (4) internal network maintenance expenses. Website and technology
Maintenance expenses increased during this quarter due to the development of the
LegalCare site and infrastructure.
PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS.
- --------------------------------------------------------------------------------
(1) Anticipated Financial Requirements for the Next Twelve Months: In order for
the Company to carry out and institute its business plan to provide new services
and programs and to continue to attract consumers to its Web site, additional
funds will be needed. Over the next 12 months we anticipate that the Company
will require up to $3,000,000 to institute these new programs and services.
Approximately $1,000,000 will be utilized in establishing new
business-to-business (B2B) marketing teams, $1,000,000 will be needed for new
product and program development and $1,000,000 will be needed for infrastructure
equipment and working capital. Management believes that as much as $3,000,000
more capital will be required in the second year of the business plan. We intend
to continue to invest in marketing and promotion, technology and personnel. When
possible, we attempt to do this through an exchange of services or the issuances
of our securities.
We have generated insignificant revenues and have accumulated a deficit of
$13,084,173 from inception to September 30, 2000. This factor, among others
raises substantial doubt about our ability to continue as a going concern. Our
future capital requirements will depend on many factors, including but not
limited to, results of operations and the availability of additional financing.
To the extent that existing resources and future earnings are insufficient to
fund our activities, we will need to raise additional funds through debt or
equity financings. We cannot assure you that such additional financing will be
available or that, if available, it can be obtained on terms favorable to our
stockholders and to us. In addition, any equity financing could result in
dilution to our stockholders. Our inability to obtain adequate funds would
adversely affect our operations and ability to implement our business strategy.
In September 2000, we entered into a placement agency agreement with The May
Davis Group, Inc. under which May Davis agreed to find purchasers for up to
$15,000,000 in aggregate principal amount of our 6% convertible debentures to be
issued from time to time under an equity line of credit agreement. As a result,
in September 2000, we entered into an equity line of credit agreement with GMF
Holdings. Under this agreement, these persons have agreed to purchase up to
$15,000,000 in aggregate principal amount of our 6% convertible debentures
during a period of up to 30 months commencing on September 19, 2000. From time
to time during such period, we can request an advance under the agreement and
require these persons to purchase at least $50,000 in principal amount of
debentures until the total of all such debenture purchases reaches $15,000,000.
For the performance by May Davis of its services under the placement agency
agreement, we have agreed to
17
pay May Davis a commission equal to 9% of the gross proceeds that we receive
from the sale of the debentures, which commission is payable in cash or in
shares of our common stock. In addition, upon closing the sale of debentures, we
have agreed to issue to May Davis a five-year warrant to purchase up to
3,500,000 shares of our common stock at an exercise price of $1.50 per share,
subject to adjustment to prevent dilution. We will pay all of May Davis'
reasonable legal, administrative, and escrow fees associated with the sale of
the debentures. In addition, we have agreed to indemnify May Davis against
certain civil liabilities, including liabilities under the Securities Act.
In October, 2000 a bridge financing agreement was entered into with The May
Davis Group who has agreed to provide up to $1,000,000 in financing with a 6%
interest on the principal. As collateral for the indebtedness, a major
shareholder of the company has put up 4,500,000 shares of the Company's common
stock.
The Company has redefined it's business model to include the development of
additional profit centers and programs which are intended to bring a consistent
stream of users to the Company's website. The Company depends on visitors to its
website for revenues. To improve traffic to the website, it is anticipated that
strategic alliances and joint ventures will supplement direct sales efforts
through the Company's targeted media campaign. For example, on August 5, 2000,
the Company entered into a letter of intent to acquire all of the outstanding
capital stock of the Lawyers Home Page Network ("LHN") in exchange for 4,000,000
shares of the Company's common stock. When the transaction is consummated, it is
anticipated that the Company would also issue additional shares under an
incentive schedule based upon future gross revenue levels. Consummation of the
transaction is contingent upon the negotiation and execution of a definitive
acquisition agreement. LHN is a provider of web-based products and services for
legal professionals. In addition, we have entered into a joint venture agreement
with the law firm of Teran & Teran to design a Spanish language version of our
Company's website.
As a result of traffic to the Company's website during the second quarter of
2000 being substantially below original goals, the Company terminated its
agreement with an advertising service provider in October of 2000 and seeks to
obtain advertising from other sources. The Company intends to do this through an
exchange of services or the issuances of additional securities. Advertising will
be focused upon five regional US markets with relatively high concentration of
Internet users, namely California, Florida, Texas, New York and Washington.
Promotional programs targeted at small to mid-sized business users will focus
our sales efforts on growing the business-to-business (B2B) Internet niche in
conjunction with new product and services programs.
(2) Summary of Product Research and Development. As the Company's software and
website have already been completed and the majority of the development work is
complete, on-going changes and enhancements may be made as the Company receives
feedback from both lawyers and consumers and to accommodate new programs and
services. We are planning to expand to provide further services, including
LegalCare, subscriber service program that could be offered by employers to
their employees, and Taxpert, a tax opinion offshoot of our existing online
legal opinion service.
(3) Expected purchase or sale of plant and significant equipment. We do not
anticipate making any significant purchases or sales of plant and equipment
within the next 12 months.
(4) Expected significant change in the number of employees. We anticipate that
we will staff eight new positions within the next 12 months. Further employees
may be required if demand increases significantly for customer support and
sales.
18
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
- --------------------------------------------------------------------------------
The following risk factors and other information included in this Form 10-QSB
should be carefully considered. The risks and uncertainties as described below
are not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently deem insignificant may also impair our business
operations and future profitability. If any of the following risks occurs, our
business, financial condition, operating results and cash flows could be
materially adversely affected.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
We launched our web site in October 1999 and operate in a market that is new and
changing rapidly. Because we have an unproven business model and only a limited
operating history, it may be difficult for you to evaluate our business and
prospects. An investor in our common stock must consider the risks, expenses and
difficulties frequently encountered by early stage companies in new and rapidly
evolving markets, including web-based legal referrals, news and information
companies. We believe that an early stage company such as ours must, among other
things:
o maintain and enhance our brand image and recognition and expand our
service offerings;
o attract consumers, businesses and attorneys to the legalopinion.com
services
o obtain required funding for operations on favorable terms;
o attract, integrate, motivate and retain qualified employees,
consultants and service providers;
o continue to develop and upgrade our systems and infrastructure to
accommodate potential growth;
o adapt to meet changes in our markets and competitive growth;
o maintain and defend our intellectual property rights; and
o respond to changes in government and bar association regulations.
We may not be successful in accomplishing these objectives. Our failure to do so
could harm our business, results of operations and financial condition.
WE HAVE A HISTORY OF LOSSES AND WE ANTICIPATE LOSSES WILL CONTINUE
As of September 30, 2000, we had an accumulated deficit of $13,084,173 that
represented our cumulative loss from our inception on April 7, 1999. We have not
achieved profitability and expect to continue to incur net losses in 2000 and
the subsequent fiscal period. As our business model continues to evolve and we
develop and introduce a number of new services, we expect to incur further
operating expenses in the areas of website and technology maintenance and
advertising and promotion. Even if we do achieve profitability, we may be unable
to sustain or increase profitability on a quarterly or annual basis in the
future.
IF WE ARE UNABLE TO ATTRACT OR RETAIN PARTICIPATING PROFESSIONALS AS WELL AS
QUALIFIED EDITORIAL STAFF AND OUTSIDE CONTRIBUTORS, OUR BUSINESS COULD BE
HARMED.
Our future success depends on our ability to attract lawyers and financial
professionals throughout North America who agree to participate in the
preparation of opinions for our customers and the provision of other
professional services. Our success also depends upon the continued efforts of
our editorial staff and outside contributors to produce original, timely,
comprehensive and trustworthy content. If we fail to attract sufficient
qualified professionals to provide opinions and other professional services in a
timely manner, or we lose the services of a significant number of our editorial
staff and outside contributors or are unable to continue to obtain additional
content for our website at a
19
reasonable cost, our business, results of operations and financial condition
could be materially adversely affected.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE
An increasing number of legal and financial referral, news and information
sources compete for consumers' attention and spending. We expect this
competition to continue to increase. We compete for customers, staff and outside
contributors with many types of companies, including but not limited to:
o online services or web sites such as Feeadvice.com, Nolo.com, Uslaw.com
and Lawyers.com.
o law firms, lawyers and other legal services providers who have or may
enter the Internet legal market, such as Pre-Paid Legal Services, Inc.
o web "portal" companies, such as Yahoo!, America Online and Microsoft
Network.
o traditional legal forms vendors, such as Office Max.
Our ability to compete depends on many factors, including the timeliness,
comprehensiveness and trustworthiness of our content and that of our
competitors, the ease of use of services developed either by us or our
competitors and the effectiveness of our sales and marketing efforts.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. This may allow them to devote greater resources than we
can to the development and promotion of their services. These competitors may
also engage in more extensive research, undertake more far-reaching marketing
campaigns, adopt more aggressive pricing policies (including offering their
legal news for free) and make more attractive offers to existing and potential
employees, outside contributors, strategic partners and advertisers. Our
competitors may develop content that is equal or superior to ours or that
achieves greater customer acceptance than ours. It is also possible that new
competitors may emerge and rapidly acquire significant market share. We may not
be able to compete successfully for advertisers, customers, and staff or outside
contributors, which could materially adversely affect our business, results of
operations and financial condition. Increased competition could result in price
reductions, reduced margins or loss of market share, any of which could
materially adversely affect our business, results of operations and financial
condition.
POTENTIAL FLUCTUATIONS IN OUR QUARTERLY FINANCIAL RESULTS MAKE FINANCIAL
FORECASTING DIFFICULT
Our quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, including the following factors and those
discussed in this "Risk Factors" section, many of which are outside our control:
o changes in the demand for our services;
o development and launch of new services;
o the introduction of competitive services;
o the pricing of our services, including the listing fee for our
participating attorneys; and
o depreciation expense from capital expenditures.
We believe that quarter-to-quarter comparisons of our operating results may not
be a good indication of our future performance, nor would our operating results
for any particular quarter be indicative of
20
future operating results. In some future quarters our operating results may be
below the expectations of public market analysts and investors. In such an
event, the price of our common stock may fall, possibly by a significant amount.
OUR BUSINESS MODEL IS NEWLY DEVELOPED
The legalopinion.com service is based upon a relatively new business model. We
will be successful only if consumers, lawyers and financial professionals
continue to use our service. It will be difficult to predict the degree to which
consumers, lawyers and financial professionals will continue to use our service.
Many factors influencing consumers, attorneys and financial professionals use of
the Internet are outside our realm of control. For instance, a breach in
Internet security, even if we are not involved, may adversely affect
individuals' willingness to engage in online activities. Our future success is
highly dependent on an increase in the number of customers who are willing to
subscribe online for legal and financial referrals, news and information
publications, including legal forms. The number of Internet users willing to pay
for online legal and financial referral, news and information may not increase.
If the market for online legal referral, news and information develops more
slowly than we expect, our business, results of operations and financial
condition could be materially adversely affected.
A FAILURE TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER WEB SITES
COULD DECREASE OUR SUBSCRIBER AND CUSTOMER BASE, WHICH MAY HARM OUR BUSINESS
We depend on establishing and maintaining subscription distribution
relationships with online firms and content syndication relationships with
high-traffic web sites for a significant portion of our subscriber and customer
base. There is intense competition for relationships with these firms and
placement on these sites, and we may have to pay significant fees to establish
additional content syndication relationships or maintain existing relationships
in the future. We may be unable to enter into relationships with these firms or
sites on commercially reasonable terms or at all. Even if we enter into these
relationships, they may not attract significant numbers of customers. Therefore,
our site may not receive a significant number of additional subscribers or
customers from such relationships. Our business, results of operations and
financial condition could be materially adversely affected if we do not
establish additional, and maintain existing, strategic relationships on
commercially reasonable terms or if any of our strategic relationships do not
result in an increase in the number of subscribers or customers of our web site.
OUR FUTURE SUCCESS DEPENDS ON THE CONTINUED SERVICES AND EFFECTIVE INTEGRATION
OF OUR KEY MANAGEMENT PERSONNEL AND OUR ABILITY TO ATTRACT ADDITIONAL PERSONNEL
Our future success depends upon the continued service of certain key management
personnel. The loss of one or more of our key management personnel could
materially adversely affect our business, results of operations and financial
condition. Our employees may leave us and work for our competitors or start
their own competing business. There is also a high demand for high-tech staff,
which makes finding additional personnel difficult.
UNEXPECTED INCREASES IN TRAFFIC MAY STRAIN OUR SYSTEMS
Our web site must accommodate a high volume of traffic, often at unexpected
times. Our web site may experience slower response times than usual or other
problems for a variety of reasons. These occurrences could cause our customers
to perceive our web site as not functioning properly and, therefore, cause them
to use other methods to obtain legal referral, news and information. If our
21
systems cannot be expanded to cope with increased demand and unpredictable
traffic, our business, results of operations and financial condition could be
materially adversely affected.
WE FACE A RISK OF SYSTEM FAILURE THAT MAY RESULT IN REDUCED TRAFFIC, REDUCED
REVENUE AND HARM TO OUR REPUTATION
Our ability to provide timely information depends on the efficient and
uninterrupted operation of our computer and communications hardware and software
systems. These systems and operations are vulnerable to damage or interruption
from human error, natural disasters, telecommunication failures, break-ins,
sabotage, computer viruses, intentional acts of vandalism and similar events.
Any system failure, including network, software or hardware failure, that causes
an interruption in our service or a decrease in responsiveness of our web site
could result in reduced traffic, reduced revenue and harm to our reputation,
brand and our relations with our advertisers. Our business, results of
operations and financial condition could be materially adversely affected by any
event, damage or failure that interrupts or delays our operations.
FAILURE TO MAINTAIN OUR REPUTATION FOR TRUSTWORTHINESS MAY REDUCE THE NUMBER OF
OUR CUSTOMERS, WHICH MAY HARM OUR BUSINESS
It is very important that we maintain our reputation as a trustworthy legal and
financial resource or provider. The occurrence of events, including providing
inaccurate content, could harm our reputation for trustworthiness. These events
could result in a significant reduction in the number of our customers, which
could materially adversely affect our business, results of operations and
financial condition.
POTENTIAL LIABILITY FOR INFORMATION OBTAINED THROUGH OUR WEB SITE MAY REQUIRE US
TO DEFEND AGAINST LEGAL CLAIMS, WHICH MAY CAUSE SIGNIFICANT OPERATIONAL
EXPENDITURES
We may be subject to claims for defamation, libel, copyright or trademark
infringement or based on other theories relating to the information we publish
on our web site. These types of claims have been brought, sometimes
successfully, against online services as well as other print publications in the
past. We could also be subject to claims based upon the content that is
accessible from our web site through links to other web sites. Our insurance may
not adequately protect us against these claims.
FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR
BRAND-BUILDING EFFORTS AND ABILITY TO COMPETE EFFECTIVELY
To protect our rights to our intellectual property, we rely on a combination of
trademark and copyright law, trade secret protection, confidentiality agreements
and other contractual arrangements with our employees, affiliates, clients,
strategic partners and others. While we believe that our pending patent
applications help to protect our business model, there can be no assurance that:
o The protective steps we have taken may be adequate to deter
misappropriation of our proprietary information;
o We will be able to detect the unauthorized use of, or take appropriate
steps to enforce, our intellectual property rights;
o Pending patents will result in the issuance of patents;
o Competitors or potential competitors will not devise new methods of
competing with us that are not covered by the patent applications.
22
We have registered our trademarks in the United States and we have pending U.S.
applications for other trademarks. Effective trademark, copyright and trade
secret protection may not be available in every country in which we offer or
intend to offer our services. Failure to adequately protect our intellectual
property could harm our brand, devalue our proprietary content and affect our
ability to compete effectively. Further, defending our intellectual property
rights could result in the expenditure of significant financial and managerial
resources, which could materially adversely affect our business, results of
operations and financial condition.
WE MAY HAVE TO DEFEND AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, WHICH
MAY CAUSE SIGNIFICANT OPERATIONAL EXPENDITURES
Although we believe that our proprietary rights do not infringe on the
intellectual property rights of others, other parties may assert infringement
claims against us or claims that we have violated a patent or infringed a
copyright, trademark or other proprietary right belonging to them. We
incorporate licensed third-party technology in some of our services. In these
license agreements, the licensors have generally agreed to defend, indemnify and
hold us harmless with respect to any claim by a third party that the licensed
software infringes any patent or other proprietary right. We cannot assure you
that these provisions will be adequate to protect us from infringement claims.
Any infringement claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources on our part, which
could materially adversely affect our business, results of operations and
financial condition.
DIFFICULTIES IN DEVELOPING NEW AND ENHANCED SERVICES AND FEATURES FOR OUR WEB
SITE COULD HARM OUR BUSINESS
We may introduce additional and enhanced services in order to retain our current
customers and attract new customers. If we introduce a service that is not
favorably received, our current customers may choose a competitive service over
ours. We may also experience difficulties that could delay or prevent us from
introducing new services. These difficulties may include the loss of, or
inability to obtain or maintain, third-party technology license agreements.
Furthermore, the new services we may introduce could contain errors that are
discovered after these services are introduced. In these cases, we may need to
significantly modify the design or implementation of such services on our web
site to correct these errors. Our business, results of operations and financial
condition could be materially adversely affected if we experience difficulties
in introducing new services or if these new services are not accepted by our
customers.
OUR ABILITY TO MAINTAIN AND INCREASE OUR CUSTOMER BASE DEPENDS ON THE CONTINUED
GROWTH IN USE AND EFFICIENT OPERATION OF THE WEB
The web-based information market is new and rapidly evolving. Our business would
be materially adversely affected if web usage does not continue to grow or grows
slowly. Web usage may be inhibited for a number of reasons, such as:
o inadequate network infrastructure;
o security concerns;
o inconsistent quality of service; and
o unavailability of cost-effective, high-speed access to the Internet.
Our customers depend on Internet service providers, online service providers and
other web site operators for access to our web site. Many of these services have
experienced significant service
23
outages in the past and could experience service outages, delays and other
difficulties due to system failures unrelated to our systems. These occurrences
could cause our customers to perceive the web in general or our web site in
particular as an unreliable medium and, therefore, cause them to use other media
to obtain their legal referral, news and information, which could materially
adversely affect our business, results of operations and financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE WEB COULD INCREASE
OUR COSTS OF TRANSMITTING DATA AND INCREASE OUR LEGAL AND REGULATORY
EXPENDITURES AND COULD DECREASE OUR CUSTOMER BASE
Existing domestic and international laws or regulations specifically regulate
communications or commerce on the web. Further, laws and regulations that
address issues such as user privacy, pricing, online content regulation,
taxation and the characteristics and quality of online products and services are
under consideration by federal, state, local and foreign governments and
agencies. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
services providers in a manner similar to the regulation of long distance
telephone carriers and to impose access fees on such companies. This regulation,
if imposed, could increase the cost of transmitting data over the web. Moreover,
it may take years to determine the extent to which existing laws relating to
issues such as intellectual property ownership and infringement, libel,
obscenity and personal privacy are applicable to the web. The Federal Trade
Commission and government agencies in certain states have been investigating
certain Internet companies regarding their use of personal information. We could
incur additional expenses if any new regulations regarding the use of personal
information are introduced or if these agencies chose to investigate our privacy
practices. Any new laws or regulations relating to the web, or certain
application or interpretation of existing laws, could decrease the growth in the
use of the web, decrease the demand for our web site or otherwise materially
adversely affect our business.
CONCERNS ABOUT WEB SECURITY COULD DECREASE OUR CUSTOMER BASE AND INCREASE OUR
WEB SECURITY EXPENDITURES
Concern about the transmission of confidential information over the Internet has
been a significant barrier to electronic commerce and communications over the
web. Any well-publicized compromise of security could deter more people from
using the web or from using it to conduct transactions that involve the
transmission of confidential information, such as purchasing goods or services.
Our business, results of operations and financial condition could be materially
adversely affected if Internet users significantly reduce their use of the web
because of security concerns. We may also incur significant costs to protect
ourselves against the threat of security breaches or to alleviate problems
caused by these breaches.
WE MAY FACE OTHER RISKS NOT DESCRIBED IN THE FOREGOING RISK FACTORS WHICH MAY
IMPAIR OUR BUSINESS OPERATIONS
The risks and uncertainties described in the foregoing risk factors may not be
the only ones facing us. Additional risks and uncertainties not presently known
to us may also impair our business operations. If any of the following risks
actually occur, our business, financial condition and results of operations
could be materially adversely affected. In this case, the trading price of our
common stock could decline, and you may lose all or part of your investment.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Sections of this Form 10-QSB may contain certain forward-looking statements.
24
- --------------------------------------------------------------------------------
PART 2: OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGE IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
# 8-K/A Amended Current Report 10/18/2000
# 8-K Current Report 10/05/2000
- --------------------------------------------------------------------------------
* Filed herewith.
# Documents filed as exhibits to previous filings of the Registrant under the
Securities Act of 1993 or the Securities Exchange Act of 1934 and
incorporated herein by reference.
25
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.
LEGALOPINION.COM
Dated: November 10, 2000 By /s/ John Marencik
---------------------------------
John Marencik, President
(Chief Executive Officer)
By /s/ David Emerick
---------------------------------
David Emerick
Chief Financial Officer
(Principle Financial Officer)