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 July 31, 2005
|_| Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of
1934 For the transition period _______ to_________
Commission File Number 333-119632
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 Identification No.)
incorporation or organization)
3275 E. Warm Springs Rd., Las Vegas, Nevada 89120
(Address of principal executive officers)
(404) 368-8500
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) 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
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) |X| Yes |_| No
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 45,548,504 shares of Common Stock as
of October 17, 2005.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
Table of Contents
TABLE OF CONTENTS Page
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements 1
Item 2: Management's Discussion and Analysis and
Plan of Operation 2
Item 3: Controls and Procedures 5
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 6
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 6
Item 3: Defaults Upon Senior Securities 6
Item 4: Submission of Matters to a Vote of Security Holders 6
Item 5: Other Information 6
Item 6: Exhibits 7
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO UNAUDITED FINANCIAL STATEMENTS
Balance Sheets F-1
Statements of Operations F-2
Statement of Stockholders' Equity Deficiency F-3
Statements of Cash Flows F-4
Notes to Financial Statements F-5
1
LEGAL ACCESS TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
BALANCE SHEETS
July 31, 2005 (Unaudited) and April 30, 2005
ASSETS
July 31, 2005 April 30, 2005
--------------- ---------------
CURRENT ASSET, Cash $ 50 $ 50
--------------- ---------------
$ 50 $ 50
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 68,879 $ 55,486
Due to officer 71,182 45,512
Note payable and accrued interest 285,430 280,342
Other accrued expenses 35,751
--------------- ---------------
461,242 381,340
--------------- ---------------
STOCKHOLDERS' EQUITY DEFICIENCY
COMMON STOCK, $.001 par value, 100,000,000 shares 45,548 44,148
authorized 45,548,291 shares issued and outstanding
ADDITIONAL PAID-IN CAPITAL 600,988 480,388
PRE-DEVELOPMENT STAGE DEFICIT (905,826) (905,826)
DEFICIT INCURRED DURING THE DEVELOPMENT STAGE (201,902)
--------------- ---------------
(461,192) (381,290)
--------------- ---------------
$ 50 $ 50
=============== ===============
See accompanying notes to consolidated financial statements.
F-1
LEGAL ACCESS TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
Three Months Ended July 31, 2005 and 2004
2005* 2004
-------------- --------------
OPERATING COST AND EXPENSES
Maritime licensing consulting $ 98,000
General and administrative 98,814 $ 29,577
Interest expense 5,088 5,354
-------------- --------------
201,902 34,931
-------------- --------------
Loss from continuing operations, without tax effect (201,902) (34,931)
Loss from discontinued operations, without tax effect (109,261)
-------------- --------------
NET LOSS $ (201,902) $ (144,192)
============== ==============
BASIC AND DILUTED LOSS PER COMMON SHARE:
Continuing operations $ (0.00) $ (0.01)
Discontinued operations (0.02)
-------------- --------------
NET LOSS $ (0.00) $ (0.02)
============== ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 44,848,291 6,248,732
============== ==============
- ----------
* Includes all cumulative operations from the beginning of the development
stage.
See accompanying notes to consolidated financial statements.
F-2
LEGAL ACCESS TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY DEFICIENCY
Three Months Ended July 31, 2005
Pre-
Common Stock Additional Development Development
---------------------------- Paid-in Stage Stage
Shares Par Value Capital Deficit Deficit
------------ ------------ ------------ ------------ ------------
Balances, May 1, 2005 44,148,291 $ 44,148 $ 480,388 $ (905,826)
Exercise of stock options
for consulting services
exchange for services 1,400,000 1,400 96,600
Contributed services 24,000
Net loss $ (201,902)
------------ ------------ ------------ ------------ ------------
Balances, July 31, 2005 45,548,291 $ 45,548 $ 600,988 $ (905,826) $ (201,902)
============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-3
LEGAL ACCESS TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
Three Months Ended July 31, 2005 and 2004
2005 2004
-------------- --------------
OPERATING ACTIVITIES
Net cash used in continuing operations $ (25,670) $ (34,930)
Net cash used in discontinued operations (4,494)
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (25,670) (39,424)
-------------- --------------
FINANCING ACTIVITIES
Proceeds from borrowings, officers/shareholders 25,670
Sale of common stock 31,125
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 25,670 31,125
-------------- --------------
NET DECREASE IN CASH FOR THE PERIOD -- (8,299)
CASH, BEGINNING OF PERIOD 50 52,843
-------------- --------------
CASH, END OF PERIOD $ 50 $ 44,544
============== ==============
See accompanying notes to consolidated financial statements.
F-4
LEGAL ACCESS TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-Month Periods Ended July 31, 2005 and 2004 (Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with the rules of the United States Securities and Exchange
Commission for presentation of interim financial information and the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and notes required by accounting principles generally accepted in
the United States applicable to annual financial statements. Since its merger
with World Explorer Corporation (after which, World Explorer Corporation became
a wholly-owned subsidiary of Legal Access Technologies, Inc.) on April 28, 2005,
the Company has been in the development stage. Prior to the merger, the Company
had discontinued all other operations; accordingly, such operations have been
retroactively reclassified as such in the accompanying comparative statements of
operations and cash flows.
Development stage operating activities between April 28, and May 1, 2005,
were too insignificant, as a practical matter, to be meaningful or even
measurable and accordingly, cumulative development stage operations are
presented from May 1, 2005. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating
results for the three months ended July 31, 2005, are not necessarily indicative
of the results that may be expected for the year ending April 30, 2006.
For further information, refer to the consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended April 30, 2005 (the "2005 Form 10-K") from which the balance sheet
information presented as of April 30, 2005, has been derived.
2. Planned Operations and Contingencies
The Company plans to engage in the business of recovery of shipwrecks and
other cultural resources from the world's oceans and large lakes by applying
advanced technologies in an archaeologically and environmentally sensitive
manner. However, since the Company is in the development stage it has yet to
generate any significant revenues. Moreover, the Company currently has a
judgment entered against it in connection with a $203,500 note payable plus
accrued interest of $81,930 and still accruing at 10%. At this time, the Company
is unable to pay or make payments on this judgment. There is no assurance that
the noteholder will not seek to place the Company into involuntary bankruptcy
proceedings.
Management's plans to achieve its goals include arranging strategic
partnerships with governments, nonprofit organizations, and businesses for: 1)
responsible development of maritime museums, 2) cultural and heritage tourism,
3) development of intellectual property for public entertainment and education,
4) development of new technologies, and 5) the ethical sale of cultural
materials. The successful implementation of management's business plan, and its
ability to continue as a going concern will require the Company to (a) raise
substantial funds to finance future marine salvage activities, and the
settlement of its outstanding obligations, and (b) to obtain the necessary
licenses and permits to commence exploration in territorial waters, which has
been the focus of its efforts to date primarily through the engagement of
outside consultants, or ultimately to generate any significant revenues or
profit. The company is currently working on strategies to raise additional
funds, but there can be no assurance that the Company will be successful in
these efforts.
F-5
LEGAL ACCESS TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three-Month Periods Ended July 31, 2005 and 2004 (Unaudited)
The Company's financial statements are prepared using accounting
principles applicable to a going concern, which contemplate the realization of
assets and liquidation of liabilities in the normal course of business, and do
not include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result from the outcome of the going concern uncertainty.
3. Loss Per Share
Weighted average number of shares outstanding for calculating diluted loss
per share does not include shares issuable upon the exercise of stock options
(Note 5) because they are antidilutive as a result of losses.
4. Related Party Transactions
During the quarter ended July 31, 2005, the Company's majority
shareholder/President paid $25,670 in expenses on behalf of the Company,
primarily for legal and accounting fees.
During the quarter, two officers contributed their time at an estimated
aggregated fair value of $24,000 charged to general and administrative expense
and credited to additional paid-in capital.
5. Other Capital Transactions
On May 9, 2005, the Company issued 1,400,000 shares of common stock to an
outside consultant, for maritime licensing consulting services in connection
with the exercise of options at $0.07 per share or $98,000.
F-6
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
Overview
The Company plans to engage in the business of recovery of shipwrecks and
other cultural resources from the world's oceans and large lakes by applying
advanced technologies in an archaeologically and environmentally sensitive
manner. Prior to the merger of Legal Access Technologies and World Explorer
Corporation in late April 2005, the Company had no business operations. Since
the merger, the Company has been in the development stage and has yet to
generate any significant revenues. The Company has been working to line up
projects in four locations around the world. These will be announced as details
of such plans are formalized.
In general, the Company's success, if any, will be dependent upon management's
ability to achieve its development plan of operation, which includes arranging
strategic partnerships with governments, nonprofit organizations, and businesses
for: 1) responsible development of maritime museums, 2) cultural and heritage
tourism, 3) development of intellectual property for public entertainment and
education, 4) development of new technologies, and 5) the ethical sale of
cultural materials.
Liquidity and Capital Resources
As a result of the following circumstances, conditions and uncertainties,
in its report on our audited financial statements as of and for the year ended
April 30, 2005, included in our annual report on Form 10-KSB for that year, our
independent registered accounting firm expressed substantial doubt as to the
Company's ability to continue as a going concern.
The Company has largely exhausted its cash reserves. Accordingly, during
the quarter ended July 31, 2005, the Company's majority shareholder/President
paid $25,670 in expenses on behalf of the Company, primarily for legal and
accounting fees, and management expects the Company to continue negative cash
flows for the foreseeable future since there are no operating activities as yet.
Moreover, the Company currently has a judgment entered against it in connection
with a $203,500 note payable plus accrued interest of $81,930 as of July 31,
2005, and still accruing at 10%. At this time, the Company is unable to pay or
make payments on this judgment, and there is no assurance that the noteholder
will not seek to place the Company into involuntary bankruptcy proceedings.
The successful implementation of management's business plan, and the
ability to continue as a going concern will require the Company to (a) raise
substantial funds to finance future marine salvage activities, and the
settlement of its outstanding obligations, and (b) to obtain the necessary
licenses and permits to commence exploration in territorial waters, which has
been the focus of its efforts to date primarily through the engagement of
outside consultants, or ultimately to generate any significant revenues or
profit. The company is currently working on strategies to raise additional
funds, but there can be no assurance that the Company will be successful in
these efforts.
Even if the Company's planned operations are successful, substantial time
will pass before significant revenues will be realized and, during this period,
the company may require additional funds that may not be available to it.
Specific risk factors include: (i) The business of historic shipwreck search and
recovery is highly risky, (ii) We may be subject to other title claims and
2
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION (Continued)
marine recovery rights for any artifacts and cargo we recover, (iii) Many
governments and international groups restrict or oppose the recovery of historic
shipwreck sites, (iv) There is an uncertainty about the marketability for
recovered cargo, (v) Our operations subject us to environmental and
archaeological risks, (vi) We may have to expend resources to protect our
salvage sites from unauthorized persons and operations, (vii) We have no history
of operations or record of earnings, (viii) We will be subject to insurance
risks, (ix) We will be dependent on our key personnel and (x) We will face
significant competition. Please refer to the Company's annual report on 10-KSB
for the year ended April 30, 2005, filed with the Commission on August 9, 2005,
for additional information on the foregoing risk factors.
Critical Accounting Policies and Estimates
The Company does not employ any critical accounting policies or estimates
that are either selected from among available alternatives or, except as noted
in the following two paragraphs, require the exercise of significant management
judgment to apply. The Company's accounting policy presently in use relative to
stock-based compensation, which will soon be replaced by adopting a new
accounting standard (see below) has not resulted in any material variance in
recognized expense from that which would have resulted from use of an
alternative accounting policy.
Near the end of the fourth quarter, April 28, 2005, the Company acquired
100% of the stock of World Explorer (World). Management considered the criteria
set forth in EITF 98-3 and based on that consideration, determined that World
did not constitute a business for purposes of applying purchase accounting
because it lacked any significant inputs, processes or outputs that might
qualify it as a business and, moreover, World had no tangible or intangible
assets prior to the acquisition. World was, in-substance, a privately-owned
"shell" corporation. Accordingly, the Company did not account for the
acquisition as a business combination but rather as the purchase of maritime
salvage industry research, executive skill set, and contacts to compliment those
previously acquired. Management considered the value of World's net liabilities
assumed as the primary and most reliable indicator of value of the acquisition.
Assets assumed in the transaction consisted only of extremely nominal items and
intangibles of highly unproven and therefore questionable value. The value
attributed to the Company's common stock was also believed to be virtually
nonexistent or, at best, quite nominal due to its lack of any operations or
identifiable net assets and the extreme dilution that occurred and the lack of
any substantive change in the financial condition of Company that resulted from
the exchange. Therefore, the minimum legal capital (par value) of the common
stock exchanged was selected to represent the nominal value of the additional
consideration to the liabilities assumed to arrive at the total value of the
transaction.
The Company had discontinued all operations prior to the acquisition of
World, which resulted in its becoming a development stage enterprise for
financial reporting purposes. Development stage operating activities between the
acquisition date and May 1, 2005, were too insignificant, as a practical matter,
to be meaningful or even measurable and accordingly, cumulative development
stage operations are presented from May 1, 2005.
New Accounting Standards
In December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123 (Revised 2004), "Share-Based Payment" (SFAS 123R). SFAS 123R
requires that compensation cost related to share-based employee compensation
transactions be recognized in the financial statements, effective as of the
first interim period that begins after December 15, 2005. Accordingly, we will
implement the revised standard no later than the first quarter of fiscal year
2006, or whenever new options are issued if later.
3
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION (Continued)
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections", a Replacement of APB Opinion No. 20 and SFAS No. 3. SFAS No. 154
replaces APB Opinion No. 20, "Accounting Changes", and SFAS No 3, "Reporting
Accounting Changes in Interim Financial Statements"; it changes accounting for
and reporting of certain changes in accounting principles, effective fiscal
years beginning after December 15, 2005. We presently have no reason to expect
that the adoption of SFAS No. 154 will have a material impact on the Company's
financial statements in future years.
Results of Operations - Three-Month Period Ended July 31, 2005, Compared to
Three-Month Period Ended 2004
Continuing operations of the current quarter include $98,000 representing
the cost of maritime licensing consulting services performed in connection with
the post-merger development stage activities not previously incurred . In
addition, general and administrative expense increased by $43,726 over the
comparable prior quarter as a result of increased costs of professional services
primarily relating to the Company's reporting obligations as a public registrant
and its development stage activities which began this quarter and $24,000
representing the estimated fair value of contributed services by officers in its
post-merger development stage activities.
Forward Looking Statements
The information contained in this section and elsewhere may at times
represent management's best estimates of the Company's 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. The Company's 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, the Company cannot assure
investors that any forward-looking statements contained in this document, or
otherwise made by management, will be realized or achieved at any level.
4
Item 3. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the
"Exchange Act"), the Company carried out an evaluation of the effectiveness of
the design and operation of its disclosure controls and procedures as of July
31, 2005. This evaluation was carried out under the supervision and with the
participation of the Company's Chief Financial Officer, Mr. Michael W. Broadbear
and the Company's Chief Executive Officer, Mr. Herbert C. Leeming. Based upon
that evaluation, the Company's Chief Financial Officer and Chief Executive
Officer concluded that the disclosure controls and procedures are effective in
timely alerting management to material information required to be included in
the Company's periodic SEC filings. Disclosure controls and procedures are
controls and other procedures that are designed to ensure that information
required to be disclosed in the Company's reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in the
Company's reports filed under the Exchange Act is accumulated and communicated
to management, including the Company's Chief Financial Officer, to allow timely
decisions regarding required disclosure.
Notwithstanding the immediately preceding paragraph, the Company's independent
registered public accounting firm, Piercy Bowler Taylor & Kern, advised the
Company's management and Board of Directors that there were material weaknesses
in our internal controls and procedures. The identified material weaknesses stem
from the Company's use of an outside accounting firm to perform certain
consulting functions in connection with the preparation of our financial
statements, and the Company's timeliness in reporting transactions to the
outside consultant. In response, the Company initiated a number of improvements
in its communications with its consultant, none of which the Company believes
are significant, and believes that the material weaknesses that existed at July
31, 2005 have been corrected. However, the above-described remedial efforts will
be re-examined on a continuing basis to determine their effectiveness.
Notwithstanding the remedial actions described above, there have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to the date the Company
carried out its evaluation.
5
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
6
Item 6. Exhibits and Reports on Form 8-K
Number Description of Exhibit
3.1 Articles of Incorporation(1)
3.2 First Amendment to Articles of Incorporation(1)
3.3 Second Amendment to Articles of Incorporation(1)
3.4 Bylaws(1)
10.1 Agreement and Plan of Merger with World Explorer Corporation(2)
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(1) Incorporated by referenced to the Company's Annual Report on Form 10-KSB
for the year ended April 30, 2005 filed with Commission on August 9, 2005
(2) Incorporated by referenced to the Company's current report on Form 8-K
with the Commission on May 4, 2005
7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Legal Access Technologies, Inc.
Date: October 17, 2005
By: /s/ Herbert C. Leeming
Herbert C. Leeming
President and Chief Executive Officer