UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended October 31, 2001
[ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from _____________ to ____________
Commission File Number: 000-19457
LEGAL ACCESS TECHNOLOGIES, INC.
-------------------------------
(Exact name of Small Business Issuer as specified in its charter)
Nevada 87-0473323
- -------------------------------- ----------
(State or other jurisdiction of (IRS Employer
incorporation) Identification No.)
2300 W. Sahara Ave., Suite 500
Las Vegas, NV 89102
- ------------------------------- -----
(Address of principal executive offices (Zip Code)
Issuer's telephone number, including area code (702) 949-6115
Indicate by a check mark whether the issuer (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 issuer was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days [X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 6,071,232 shares of Common Stock as
of October 31, 2001.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-QSB and, therefore, do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' equity
(deficiency) in conformity with generally accepted accounting principles. In
the opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included and all such adjustments are of a normal recurring nature. Operating
results for the three and six months ended October 31, 2001 are not necessarily
indicative of the results that can be expected for the year ending April 30,
2002.
The financial statements present the activities of Legal Access Technologies,
Inc. and its subsidiaries Tele-Lawyer, Inc. and Perspectives Health Management
Corp., with the net assets of Perspectives (other than cash) being shown as a
discontinued business segment. All significant inter-company balances and
transactions have been eliminated in the consolidation.
The balance sheet at April 30, 2001 was derived from the audited financial
statements of Tele-Lawyer, Inc. (see notes to the financial statements, note 1)
included in Legal Access Technologies' Form 8K dated August 27, 2001.
LEGAL ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31 AND APRIL 30, 2001
October 31,
2001
ASSETS (unaudited) April 30, 2001
------------ --------------
Current assets
Cash and cash equivalents $ 2,401,971 $ 1,302
Accounts receivable, trade 33,845 3,715
Accounts receivable of discontinued business segment 1,622,155
------------ ------------
4,057,971 5,017
Property and equipment, net of accumulated depreciation of
$84,449 and $61,339 114,873 126,268
------------ ------------
$ 4,172,844 $ 131,285
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Accounts payable $ 94,387 $ 96,983
Accrued expenses 311,402 129,518
------------ ------------
405,789 226,501
Long-term liabilities
Convertible notes plus accrued interest 241,363
Related party debt 55,000
------------ ------------
241,363 55,000
------------ ------------
647,152 281,501
------------ ------------
Stockholders' equity (deficiency)
Common stock, $0.001 par value, 100,000,000 shares
authorized, 6,071,232 and 5,354,997 shares issued and
outstanding 6,071 5,355
Additional paid-in capital 6,100,339 1,599,644
Accumulated deficit (2,580,718) (1,755,215)
------------ ------------
3,525,692 (150,216)
------------ ------------
$ 4,172,844 $ 131,285
============ ============
<FN>
See notes to consolidated financial statements
3
LEGAL ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED OCTOBER 31, 2001 and 2000 (Unaudited)
Three Three Six Six
Months Months Months Months
October 31, 2001 October 31, 2000 October 31, 2001 October 31, 2000
------------------ ------------------ ------------------ -----------------
Legal support services revenues $ 49,056 $ 125,420 $ 104,663 $ 183,107
------------------ ------------------ ------------------ -----------------
Operating costs and expenses
Legal support services 27,182 49,061 54,110 79,548
Software research and development costs 235,086 216,984 458,582 373,347
Selling, general, and administrative 277,589 212,992 492,764 387,622
------------------ ------------------ ------------------ -----------------
539,857 479,037 1,005,456 840,517
------------------ ------------------ ------------------ -----------------
Loss from operations (490,801) (353,617) (900,793) (657,410)
Other income
Interest 33,230 7,492 27,781 20,147
Rentals 600 800 1,201 1,200
------------------ ------------------ ------------------ -----------------
Loss from continuing operations (456,971) (345,325) (871,811) (636,063)
Income from operations of discontinued
business segment 46,308
------------------ ------------------ ------------------ -----------------
Net loss $ (456,971) $ (345,325) $ (825,503) $ (636,063)
================== ================== ================== =================
Basic and diluted income (loss) per common share:
Continuing operations $ (.08) $ (.07) $ (.15) $ (.12)
------------------ ------------------ -----------------
Discontinued operations .01
------------------
Net $ (.08) $ (.07) $ (.14) $ (.12)
================== ================== =================== =================
Weighted average common shares outstanding 6,071,232 5,341,666 5,852,308 5,341,666
================== ================== ================== =================
<FN>
See notes to consolidated financial statements
4
LEGAL ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
SIX MONTHS ENDED OCTOBER 31, 2001 (Unaudited)
=========================================================================================================
Shares issued Common Additional
and out- Stock par Paid-in Accumulated
standing value Capital Deficit
------------- ---------- ----------- -------------
Balance, May 1, 2001 5,354,997 $ 5,355 $ 1,599,644 $ (1,755,215)
Net loss (825,503)
Reverse acquisition of business segment
held for sale 490,096 490 4,274,710
Settlement of debts 126,139 126 126,085
Common stock issued for services 100,000 100 99,900
------------- ---------- ----------- -------------
Balance, October 31, 2001 6,071,232 $ 6,071 $ 6,100,339 $ (2,580,718)
============= ========== =========== =============
<FN>
See notes to consolidated financial statements
5
LEGAL ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED OCTOBER 31, 2001 and 2000 (Unaudited)
2001 2000
----------- -----------
Operating activities
Net cash used in operating activities $ (553,235) $ (653,054)
----------- -----------
Investing activities
Purchase of property and equipment (11,715) (76,557)
----------- -----------
Financing activities
Proceeds from promissory note 150,000
Repayment of promissory note (150,000)
Proceeds from loans, related parties 257,000
Repayment of loans, related parties (312,000)
Net cash received from disposal
of discontinued business segment 3,001,119
Collections of accounts receivable
of a discontinued business segment 19,500
----------- -----------
2,965,619 -
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,400,669 (729,611)
Cash and cash equivalents, beginning of period 1,302 1,041,138
----------- -----------
Cash and cash equivalents, end of period $2,401,971 $ 311,527
=========== ===========
Reconciliation of net loss to net cash used
in operating activities
Net loss $ (825,503) $ (636,063)
Non-cash items:
Depreciation 23,110 10,000
Common stock issued for services 100,000
Increase in operating (assets) liabilities
Accounts receivable (30,130) (45,629)
Accounts payable (2,596) 18,638
Accrued expenses 181,884
----------- -----------
Net cash used in operating activities $ (553,235) $ (653,054)
=========== ===========
<FN>
See notes to consolidated financial statements
6
LEGAL ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Acquisition of Legal Access Technologies, Inc.
On June 12, 2001, in a transaction commonly referred to as a reverse acquisition
and accounted for as a purchase, Tele-Lawyer, Inc. effectively acquired Dynamic
Associates, Inc., which contemporaneously changed its name to Legal Access
Technologies, Inc. ("LATI") and Tele-Lawyer became a wholly-owned subsidiary of
LATI. In a reverse acquisition, the legal acquirer is treated for financial
reporting purposes as the accounting acquiree, and accordingly, these
consolidated financial statements are prepared as if Tele-Lawyer, Inc. acquired
LATI as of June 12, 2001. The value assigned to the net assets acquired by
Tele-Lawyer, Inc. through the reverse acquisition was $4,275,200, and was
allocated as follows:
October 31, 2001
------------------
Cash $ 92,085
Healthcare contracts (note 2) 2,900,000
Accounts receivable, net (note 2) 1,641,655
Liabilities assumed (358,540)
------------------
$ 4,275,200
==================
2. Disposal of wholly-owned subsidiary
Effective September 31, 2001, LATI assigned all of the hospital management
contracts held by its other subsidiary, Perspectives Health Management
Corporation for approximately $2.9 million in cash to Horizon Mental Health
Management, Inc. (Horizon). At the same time, LATI entered into a letter
agreement for Horizon to handle the collection of Perspectives' $5,886,427 in
outstanding receivables. The collection agreement is for 3 years and Horizon
will be entitled to 50% of any accounts actually collected during that time.
Horizon has further agreed to pay all costs of collection from its portion of
the proceeds. As of October 31, 2001, the estimated net realizable value of the
remaining accounts receivable balance, after an allowance for estimated doubtful
accounts and collection fees, is $1,622,155.
3. Related party loans
During the periods presented, LATI entered into a series of unsecured, interest
bearing demand loans provided by LATI's CEO. These loans totaled $55,000 on
April 30, 2001, reached a maximum of $212,000 on July 31, 2001 and were paid in
full together with interest during the quarter ending October 31, 2001. Total
interest paid on these loans was $7,172.
LATI also entered into an unsecured, interest bearing demand loan provided by a
shareholder and relative of LATI's CEO. This loan totaled $100,000 and was paid
in full together with interest during the quarter ending October 31, 2001.
Total interest paid on this loan was $2,953.
7
4. Promissory notes
LATI also entered into two $75,000, secured, interest bearing, promissory notes
that were paid in full together with interest during the quarter ending October
31, 2001. One of these two notes was issued to a minority shareholder in the
Company. Total interest paid on these notes was $2,866. A penalty of $2,250
related to the two promissory notes was included in accrued interest at October
31, 2001 and was paid subsequent to the end of the quarter. In further
consideration for this loan, LATI issued warrants to purchase a total of 20,000
shares of the Company's common stock at an exercise price of $1.50 per share.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Current Plan of Operations
Historically, as part of the Tele-Lawyer business, we have been in the business
of arranging for the provision of legal advice and information to consumers of
legal services through licensed attorneys. We also produce and sell specialized
phone conferencing applications to professionals and associations. The
specialized phone conference applications are most often in the form of
continuing education programs for attorneys called Tele-Seminars.
More recently, we have changed our business focus by concentrating on sales of
technology and services to, and the development of strategic partnerships with,
various non-profit associations and government agencies in order to create a
number of statewide hubs for access to legal services. This process has
involved the expansion of our product and service offerings, as well as our
geographic coverage.
Through the end of our next fiscal year, we plan to set up statewide hubs for
access to legal services through strategic partnerships and vendor arrangements
with existing legal aid groups, bar associations and state and federal courts
("Legal Services Organizations"). These legal service hubs will feature dual
phone and web access as well as multi-level choices of price, service and type
of product for consumers of legal services. The vendor and partnership
arrangements with Legal Service Organizations will not only provide us with
direct income from the sale of our technology and services, these arrangements
will also provide a network for the marketing and sale to consumers of our
unbundled legal products and services within each state.
In addition, we plan to expand the sale of these unbundled products and services
through "sweeper team" activities directed at other referral sources within each
state (such as libraries, prosecutors, public defenders, affinity groups, law
schools, government agencies and law firms), and then once we have established
hubs in at least 50% of the states, we will advance to national arrangements for
marketing the unbundled legal services and hubs.
We expect to become profitable through the expansion of our client/affiliate
network of Legal Services Organizations nationwide. We generate revenues
through a Legal Services Organization by providing technology solutions directly
for the Legal Services Organization as well as by servicing the clients who are
referred to our unbundled products and services by the Legal Services
Organization. We currently service a relatively small number of Legal Services
Organizations, but have executed or pending agreements with multiple Legal
Services Organizations in seven states that we believe will have a significant,
positive impact on revenues and profitability.
If these objectives are accomplished, management believes, but there is no
assurance, that the expansion of the affiliate network of Legal Services
Organizations will result in profitable operations and positive cash flows.
Subsequent to October 31, 2001, we have experienced a growth in revenues and
expect continued growth through the rest of this fiscal year and throughout next
year.
9
Disposal of Perspectives Health Management Corporation
During the most recent period reported, we assigned all of the hospital
management contracts held by Perspectives to Horizon and entered into a letter
agreement with Horizon to handle the collection of Perspective's outstanding
receivables (see notes to consolidated financial statements). Management
believes that the sale of these assets, plus the recovery of all or a portion of
the accounts receivable owed to Perspectives, will provide the majority of the
financing needed to expand the affiliate network of Legal Services
Organizations.
Assets
At October 31, 2001, we had cash of $2,401,971 as compared to $1,302 as of April
30, 2001. The increase was attributable to the sale of the assets of
Perspectives.
At October 31, 2001, trade accounts receivable was $33,845 as compared with
$3,715 as of April 30, 2001. The increase reflects our new agreements with
Legal Service Organizations, many of which are currently in a development stage.
Not included in these accounts receivable are those of Perspectives, which are
labeled as "Accounts receivable of discontinued business segment".
Equipment, net of accumulated depreciation was $114,873 as of October 31,2001 as
compared to $126,268 as of April 30, 2001.
Liabilities and Stockholders' Equity
At October 31, 2001, we had accounts payable of $94,387 as compared to $96,983
at April 30, 2001. In addition, we had accrued expenses of $311,402 at October
31, 2001 as compared to $129,518 as of April 30, 2001. The increase in accrued
expenses was attributable to accrued salaries of management employees who had
agreed to defer their salaries because of cash shortages. The management
employees who have not received payment at October 31, 2001 were the CEO and VP
of Business Development. The total accrued salaries at October 31, 2001 were
$121,250. The increase in accrued expenses was also attributable to $160,000 in
accrued brokerage fees related to the sale of the assets of Perspectives.
Prior to the sale of the assets of Perspectives, we borrowed money in order to
fund operations. We entered into a series of unsecured, interest bearing demand
loans provided by our CEO. We also entered into an unsecured, interest bearing
demand loan provided by one of our shareholders. We also entered into two
secured, interest bearing, promissory notes which were paid in full together
with interest by the end of the most recent quarter.
At October 31, 2001, the balance outstanding of convertible notes we owed was
$203,500, plus accrued interest of $35,613. This was substantially reduced from
the prior year through a conversion program of debt to equity described in our
first quarter 10QSB.
Stockholders' equity was $3,525,692 as of October31, 2001, as compared to
($150,216) as of April 30, 2001. This increase was largely due to the reverse
acquisition of Dynamic Associates, the conversion of the convertible note debt
to equity and the sale of the assets held in Perspectives.
10
Results of Operations
We generated $49,056 and $104,663 in legal support service revenues during the
three and six months ended October 31, 2001. We generated $125,420 and $183,107
during the same three and six months of the prior year. General and
Administrative Expenses were $277,589 and $492,764 during the three and six
month periods ended October 31, 2001 and $212,992 and $387,622 during the same
periods in the prior year. We incurred $235,086 and $458,582 in software
research and development costs during the three and six month periods ended
October 31, 2001 and $216,984 and $373,347 during the same periods in the prior
year. During the six months ended October 31, 2001, we also generated income
from the operations of Perspectives (noted as discontinued business segment) of
$46,308. As a result, we showed a net loss of $456,971 or $.08 per share in
this quarter as compared to a loss of $345,325 or $.07 per share in the second
quarter last year, and a net loss of $825,503 or $.14 per share for the six
months ended October 31, 2001 and $636,063 or $.12 per share for the six months
ended October 31, 2000.
We continue to make relatively large investments of capital in the development
of our software products, focusing on the completion of the web-based systems we
have recently agreed to develop for certain Legal Service Organizations.
Following the completion and implementation of these systems, we expect revenues
to increase.
Liquidity and Capital Resources
At October 31, 2001, we maintained $2,401,971 in cash and cash equivalents.
During the six months ended October 31, 2001, we used $553,235 in operating
activities and $11,715 in investing activities. We also provided $2,965,619 in
financing activities of which $2,759,756 came through the sale of the assets of
Perspectives, net of the costs of disposal. We expect cash flows from
operations to increase upon the completion and implementation of the systems
that are currently under development.
We expect an increase in capital expenditures in order to expand our affiliate
network of Legal Services Organizations. This increase will be necessary to
support the infrastructure required to host our services and will be funded from
current working capital.
Forward Looking Statements
The information contained in this section and elsewhere may at times represent
management's best estimates of our future financial and technological
performance, based upon assumptions believed to be reasonable. Management makes
no representation or warranty, however, as to the accuracy or completeness of
any of these assumptions, and nothing contained in this document should be
relied upon as a promise or representation as to any future performance or
events. Our ability to accomplish these objectives, and whether or not it will
be financially successful is dependent upon numerous factors, each of which
could have a material effect on the results obtained. Some of these factors are
within the discretion and control of management and others are beyond
management's control. Management considers the assumptions and hypothesis used
in preparing any forward looking assessments of profitability contained in this
document to be reasonable; however, we cannot assure investors that any
projections or assessments contained in this document, or otherwise made by
management, will be realized or achieved at any level.
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
We are currently in default under an existing unsecured note obligation in the
amount of $203,500. Management believes that the note holder filed a civil
action based on this debt sometime during the last fiscal year, but we have not,
as yet, been served. Negotiations with the note holder ceased in May after
management believed it had reached an agreement in settlement. At this time and
over the past several months, management has been unable to make contact with
the note holder's legal counsel, despite several attempts.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Changes In Registrant's Certifying Accountant
Piercy, Bowler, Taylor & Kern, Certified Public Accountants and Business
Advisors, Las Vegas, Nevada have been retained to audit our financial
statements. The change of auditor was approved by majority consent of the board
of directors. Piercy, et. al. audited the financial statements for Tele-Lawyer,
Inc., the Company's subsidiary. The accountant's report on the financial
statements for Legal Access Technologies, Inc. for the past years ended December
31, 2000 and 1999 does not contain an adverse opinion or disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope or accounting
principles with the exception of a standard "going concern" qualification.
The Registrant has contacted its previous auditor, Smith & Company, Certified
Public Accountants, and there are no disagreements between the Registrant and
Smith & Company, whether resolved or not resolved, on any matter of accounting
principles or practices, financial statement disclosures
or auditing scope or procedure, which would cause them to make reference to the
subject matter of a disagreement in connection with their reports for the two
most recent fiscal years and the subsequent interim periods preceding their
dismissal. Furthermore, the former accountant's reports for the financial
statements for either of the past two years did not contain an adverse opinion
or a disclaimer of opinion, nor was it qualified or modified as to uncertainty
(except with respect to the Registrant's ability to continue as a going
concern), audit scope or accounting
principles.
The registrant has provided Smith & Company with a copy of the disclosure
provided under this caption of this Report, and has advised it to provide the
Registrant with a letter addressed to the
12
Securities and Exchange Commission as to whether it agrees or disagrees with the
disclosure made herein. A copy of its response is attached hereto and
incorporated herein by this reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 1 Letter from Smith and Company, Certified Public Accountants
(b) Reports on Form 8-K
None
13
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEGAL ACCESS TECHNOLOGIES, INC.
/S/ Michael A. CANE
Date: December 12, 2001 ---------------------------------
MICHAEL A. CANE
President, Secretary & Director
14