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 January 31, 2002
[ ] 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 January 31, 2002.
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 Item 310(b) of Regulation S-B 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 nine months ended January 31, 2002
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. ("LATI") and its subsidiaries Tele-Lawyer, Inc. ("Tele-Lawyer") and
Perspectives Health Management Corp. ("Perspectives"), 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 LATI's Form 8K dated August 27, 2001.
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LEGAL ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2002 AND APRIL 30, 2001
January 31, 2002
ASSETS (unaudited) April 30, 2001
-------------- -------------
Current assets
Cash and cash equivalents $2,037,094 $1,302
Accounts receivable, trade 32,457 3,715
Accounts receivable of discontinued business
segment 1,355,778
Prepaid expenses and other 22,196
------------ ----------
3,447,525 5,017
Property and equipment, net of
accumulated depreciation of $84,449 and $61,339 126,095 126,268
Software License, net 26,812
------------ ----------
$ 3,600,432 $ 131,285
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities
Accounts payable $ 224,776 $ 96,983
Accrued expenses 215,818 129,518
------------ ----------
440,594 226,501
Long-term liabilities
Convertible notes plus accrued interest 244,200
Related party debt 55,000
------------ ----------
244,200 55,000
------------ ----------
684,794 281,501
------------ ----------
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 6,031,614 1,599,644
Accumulated deficit (3,122,047) (1,755,215)
------------ ----------
2,915,638 (150,216)
------------ ----------
$ 3,600,432 $ 131,285
============ ==========
See notes to consolidated financial statements
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LEGAL ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JANUARY 31, 2002 and 2001 (Unaudited)
Three Three Nine Nine
Months Months Months Months
January 31, January 31, January 31, January 31,
2002 2001 2002 2001
----------- ----------- ------------ ----------
Legal support services revenues $238,549 $206,785 $343,212 $389,892
----------- ----------- ------------ ----------
Operating costs and expenses
Legal support services 122,818 89,305 176,928 168,852
Software research and development costs 319,502 185,704 778,084 559,052
Selling, general, and administrative 294,275 192,009 787,039 579,631
----------- ----------- ------------ ----------
736,595 467,018 1,742,051 1,307,535
----------- ----------- ------------ ----------
Loss from operations (498,046) (260,233) (1,398,839) (917,643)
Other income
Interest 5,417 1,549 (16,102) 21,697
Rentals 600 400 1,801 1,600
----------- ----------- ------------ ----------
Loss from continuing operations (492,029) (258,284) (1,413,140) (894,346)
Income from operations of discontinued business segment 46,308
----------- ----------- ------------ ----------
Net loss $ (492,029) $ (258,284) $(1,366,832) $(894,346)
=========== =========== ============ ==========
Basic and diluted income (loss) per common share:
Continuing operations $ (.08) $ (.05) $ (.24) $ (.17)
----------- ----------- ----------
Discontinued operations .01
-----------
Net $ (.08) $ (.05) $ (.23) $ (.17)
=========== =========== ============ ==========
Weighted average common shares outstanding 6,071,232 5,341,666 5,917,985 5,341,666
=========== =========== ============ ==========
See notes to consolidated financial statements
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LEGAL ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
NINE MONTHS ENDED JANUARY 31, 2002 (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 (1,366,832)
Reverse acquisition of business segment held for sale 490,096 490 4,205,985
Settlement of debts 126,139 126 126,085
Common stock issued for services 100,000 100 99,900
Balance, January 31, 2002 6,071,232 $6,071 $6,031,614 $(3,122,047)
=========== ====== ========== ============
See notes to consolidated financial statements
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LEGAL ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JANUARY 31, 2002 and 2001 (Unaudited)
2002 2001
------------ -----------
Operating activities
Net cash used in operating activities $(1,076,413) $ (872,847)
------------ -----------
Investing activities
Purchase of software license (26,812)
Purchase of property and equipment (35,359) (73,639)
------------ -----------
(62,171) (73,639)
------------ -----------
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)
Capital Contribution 75,000
Net cash received from disposal
of discontinued business segment 2,935,231
Collections of accounts receivable
of a discontinued business segment 294,145
------------ -----------
3,174,376 75,000
------------ -----------
Net increase (decrease) in cash and cash equivalents 2,035,792 (871,486)
Cash and cash equivalents, beginning of period 1,302 1,041,138
------------ -----------
Cash and cash equivalents, end of period $ 2,037,094 $ 169,652
============ ===========
Reconciliation of net loss to net cash used in operating activities
Net loss $(1,366,832) $ (894,377)
Non-cash items:
Depreciation 35,532 (10,000)
Common stock issued for services 100,000
Increase in operating (assets) liabilities
Accounts receivable (37,010) (5,629)
Prepaid expenses and other (22,196)
Accounts payable 127,793 37,159
Accrued expenses 86,300
------------ -----------
Net cash used in operating activities $(1,076,413) $ (872,847)
============ ===========
See notes to consolidated financial statements
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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. Management originally estimated the value of the
net
assets acquired in the reverse acquisition to be approximately $4,275,000.
Subsequent settlement adjustments that reflected circumstances existing at the
time of the reverse acquisition have reduced the estimate to $4,206,475 as of
January 31, 2002. Paid-in capital has been reduced by a like amount.
2. Disposal of assets of wholly-owned subsidiary
Effective October 1, 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' 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. The Accounts receivable of the discontinued business segment was
valued at the time of the reverse acquisition. The valuation considered an
adjustment for estimated doubtful accounts and collection fees.
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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 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.
During this and our next fiscal year, we plan to set up these statewide hubs in
all 50 states through strategic partnerships and vendor arrangements with
existing legal aid groups, bar associations and state and federal courts ("Legal
Service Organizations"). These legal service hubs will feature dual phone and
web access as well as several 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 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 Service Organizations nationwide. We generate revenues through
a Legal Service Organization by providing them with technology solutions as well
as by providing unbundled products and services to persons they refer to us. We
currently service a relatively small number of Legal Services Organizations, but
have executed or pending agreements with multiple Organizations that management
believes 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 Service
Organizations will result in profitable operations and positive cash flows.
Subsequent to the most recent period presented, we launched our case management
and phone services in Florida with Central Florida Legal Services. This was our
first integrated launch of these web based systems and we saw this event and the
subsequent evaluation of the systems as a key step in the expansion of our
services and implementation of our business plan. The initial two weeks
following the launch was marred with difficulties, not unexpected. Many of
these problems, however, have been solved and management continues to work
toward the stabilization of the integrated systems.
8
We are also currently in development anticipating a beta launch of our systems
in Maryland sometime in the fourth quarter. We have also executed or pending
agreements with multiple Legal Services Organizations in Washington, Nevada,
Ohio, Illinois and Tennessee to do the same.
In general, the development and implementation period of for our web based case
management and phone products and services has taken longer than we had
expected. However, we expect that this time period will shorten with regard to
any future launch as our products become more standardized.
Technology Development
Subsequent to the most recent period presented, we entered into a long-term
agreement with the provider of our call center technology. Utilizing this
technology, we eliminate the need for our clients to purchase a variety of
expensive, on-premises devices such as, Automatic Call Distributors (ACDs),
Interactive Voice Response systems (IVRs), voice mail systems, fax servers, call
recorders and computer telephony integration (CTI) middleware. The technology
manages all communications over a dedicated, private network. Telephone calls,
e-mail, fax, chat requests, and call-back requests are all handled by the
universal communications manager, in a universal queue on the network, and
tracked in the skills-based ACD system. Contacts are sent to the most
appropriate agent wherever they are located. In addition, call center managers
have the flexibility to send calls to agents within the same contact center, to
link multi-site contact centers, and/or provide agents with a true work-at-home
solution without requiring an ISDN connection or IP phones. This new agreement
also secures our ability to provide these services to our clients at
significantly reduced rates.
We have also entered into negotiations with a leading provider of technology
that enables law firms to file documents directly to a court via the Internet
and to send and receive electronically serviced documents. We believe that this
technology will enhance our position as a leading provider of electronic
solutions to the legal profession.
Management continues to investigate, review and discuss opportunities to acquire
or partner in technology development and deployment that enhance the delivery of
legal services and support the operation of Legal Service Organizations.
Disposal of Perspectives Health Management Corporation
Effective October 1, 2001, we assigned all of the hospital management contracts
held by Perspectives to Horizon and entered into a letter agreement with Horizon
to manage 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 as planned.
Assets
At January 31, 2002, we had cash of $2,037,094 as compared to $1,302 as of April
30, 2001. The increase was attributable to the sale of the assets of
Perspectives.
At January 31, 2002, trade accounts receivable was $32,457 as compared with
$3,715 as of April
9
30, 2001. The increase reflects our new agreements with
Legal Service Organizations. Not included in these accounts receivable are
those of Perspectives, which are labeled as "Accounts receivable, discontinued
business segment".
Equipment purchased totaled approximately $35,000 and equipment, net of
accumulated depreciation was $126,095 as of January 31, 2002 as compared to
$126,268 as of April 30, 2001. We also purchased a five-year software license
in the amount of $26,812 as part of our ongoing investment in technologies that
enhance the delivery of legal services.
Liabilities and Stockholders' Equity
At January 31, 2002, we had accounts payable of $224,776 as compared to $96,983
at April 30, 2001. In addition, we had accrued expenses of $215,818 at January
31, 2002 as compared to $129,518 as of April 30, 2001. The increase in
accounts payable was attributable to an increase in our software research and
development. Accrued expenses include $160,000 of brokerage fees related to the
sale of the assets of Perspectives.
At January 31, 2002, the balance outstanding of convertible notes we owed was
$203,500, plus accrued interest of $40,700, due in 2006.
Stockholders' equity (deficiency) was $2,915,638 as of January 31, 2002, as
compared to ($150,216) as of April 30, 2001. This increase was largely due to
the reverse acquisition of Dynamic Associates.
Results of Operations
The increase in the net loss during the three and nine months ended January 31,
2002 over 2001 was caused by an increase in software research and development
costs and selling, general and administrative expenses related to the
development of technology for Legal Service Organizations. We generated
$238,549 and $343,212 in legal support service revenues during the three and
nine months ended January 31, 2002. We generated $206,785 and $389,892 during
the same three and nine months of the prior year. General and Administrative
Expenses were $294,275 and $787,039 during the three and nine month periods
ended January 31, 2002 and $192,009 and $579,631 during the same periods in the
prior year. We incurred $319,502 and $778,084 in software research and
development costs during the three and nine month periods ended January 31, 2002
and $185,704 and $559,052 during the same periods in the prior year. During the
nine months ended January 31, 2002, 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 $492,029 or $.08 per share in this quarter as
compared to a loss of $258,284 or $.05 per share in the third quarter last year,
and a net loss of $1,366,832 or $.23 per share for the nine months ended January
31, 2002 and $894,346 or $.17 per share for the nine months ended January 31,
2001.
We continue to make relatively large investments in the development of our
software products, focusing on the completion of the web-based systems for Legal
Service Organizations. Following the completion and implementation of these
systems, we expect revenues to increase.
Liquidity and Capital Resources
At January 31, 2002, we maintained $2,037,094 in cash and cash equivalents.
During the nine months ended January 31, 2002, we used $1,076,413 in operating
activities and $62,171 in
10
investing activities. Our financing activities provided $3,174,376 in cash flows
of which $2,935,231 relates primarily to 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 continued negative cash flow from our operating activities and to make
additional capital expenditures in order to expand our affiliate network of
Legal Services Organizations. The cash requirements 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 currently have an unsecured note obligation in the amount of $203,500.
During a prior period management was concerned that we might be in default under
this obligation; however, after further review of the actual note instrument,
management believes that no such default has occurred. In addition, it is
management's current position that an oral agreement was reached with a
representative of the note holder in complete settlement of this note. In this
regard, management has brought an action with the District Court of Clark County
in the State of Nevada for a declaratory judgment that said note is current and
not in default, and for the enforcement of the oral settlement agreement. The
suit also seeks other remedies and determinations in the alternative of this
result. Management has made numerous further efforts to settle this obligation,
but is currently unable to obtain a return phone call or correspondence from the
note holder's representative.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: None
(b) Reports on Form 8-K
On October 9, 2001 we filed Form 8-K to report the "Asset Purchase
Agreement" with Horizon Mental Health Management, Inc. in which we assigned
to Horizon all of our rights to the hospital management contracts held by
our wholly owned subsidiary, Perspectives Health Management Corporation on
October 5, 2001.
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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.
Date: March 15, 2002 /s/ MICHAEL A. CANE
_______________________
MICHAEL A. CANE
Chief Executive Officer
President, Secretary & Director
/s/ STEVEN D. FELLOWS
_______________________
STEVEN D. FELLOWS
Chief Financial Officer &
Principal Accounting Officer
13