-to-business and business-to-consumer content for Internet sites serving the legal profession and consumers. LRC utilizes a carefully selected group of attorneys to provide value-added services to its customers by (i) conducting computerized and manual legal and factual information research and analysis and (ii) preparing written memoranda, formal court-ready legal briefs and surveys of the law. The Company also markets and sells online compliance training products in partnership with Integrity Interactive Corporation, in which the Company holds an equity interest, and provides contract attorneys to law firms and corporate law departments on a temporary or permanent basis, and non-legal research services to the general public.

Business Highlights

The core product and service offerings of the Company's business continued to grow in 2001, including research and writing for private attorneys and multijurisdictional surveys for corporate legal counsel. Additionally, the Company continued to author and edit publications for legal publishers and added revenue from the sale of online compliance products developed and sold in partnership with Integrity Interactive Corporation. The revenue from the Company's 10 largest customers accounted for approximately 85%, and one customer 71%, of total revenue in 2001, as compared to 60% in 2000.

For the fiscal year, the Company reported revenue of $5.6 million, an increase of 8% over the previous year's revenue of $5.1 million and an all-time high for the Company. Gross profit remained strong, at 52 cents for every $1 of revenue, the same as in 2000. The Company reported net income of $403,291, or $.16 per share (basic), a 71% decrease from the previous year end earnings of $1,373,381, or $.54 per share (basic). Adjusted for a one-time tax benefit to reverse the valuation allowance related to net operating losses carried forward and to reflect a tax provision based on current tax rates, the Company would have had net income of approximately $480,000, or $.19 per share (basic) in 2000.

Industry Overview

It is estimated that over $100 billion is spent in the U.S. on legal services each year and that such expenditures have increased significantly over the past ten years. In advising clients on the routine legal and practical aspects of their business transactions and dealings, and in advocating positions in court on behalf of clients, attorneys in corporate and private practice rely on an analysis of applicable laws, rules, regulations and court decisions. As federal, state and local governmental authorities increasingly add to the myriad of laws and as the number of court decisions proliferate, the accurate and timely analysis of the controlling law places growing burdens on practicing private and corporate attorneys. Even with the evolutionary expansion of computerized legal databases such as West Group's WESTLAW system and Reed Elsevier's LEXIS/NEXIS system, a significant portion of an attorney's billable time is dedicated to legal research.

In a large private law firm, an associate attorney, who typically is less experienced than the attorney having the primary business contact with the firm's client, is usually assigned the task of conducting all necessary legal and factual research and of writing an internal memorandum to the senior attorney related to the client's project or lawsuit. The memorandum, which usually describes the controlling laws and court decisions relevant to the issues presented, may be shared with the client in connection with strategic decision making on a business issue or in the ongoing litigation. If the project involves litigation, the associate attorney may also be assigned the responsibility to prepare a legal brief for presentation to the court. A legal brief advocates a client's legal, factual and business reasons for prevailing over the opposing party on the issues presented to the court for adjudication. The Company prepares legal memoranda and briefs for review and use by attorneys in law firms as an alternative to internal preparation by law firm associates.

Corporations with in-house legal counsel usually rely on their staff to advise management on core business and legal issues. However, in-house counsel continue to rely on private law firm support for expertise in areas outside of the corporate counsel's knowledge and for the conduct of litigation. As corporations seek to improve operating efficiencies and reduce costs in all areas of their businesses, their in-house legal counsel also seek to reduce overall outside legal expenses. Increasingly, corporate clients have begun to treat legal services as a commodity and have been carefully reviewing the legal fees charged by private law firms for analytical research and writing, especially since much of this work is performed out of the client's view and therefore cannot easily be assessed as to its actual added value. These trends also have led corporations to outsource their legal and factual research and writing activities to the Company. Management believes that there will be continued growth in the outsourcing of legal and factual research and writing activities by corporations and that such corporations will increasingly use, or require their outside counsel to use, the Company for such purposes.

Individual attorney practitioners and small law firms often do not have the professional support for the conduct of legal and factual research or for writing projects. In order to accomplish necessary legal research and writing, yet at the same time focus their efforts on direct client contact, solo practitioners and small law firms increasingly are outsourcing their legal and factual research and writing activities to the Company.

Business Overview and Initiatives

LRC's core activities consist of providing legal and factual research and writing and knowledge management services to its customers. The Company may receive assignments from corporate in-house counsel or law firms requesting the analysis of a single legal or factual issue or of complex, interrelated issues. Upon receipt of an assignment, the Company assigns the project directly to one of the Company's research attorneys who contacts the customer to obtain any additional information necessary to understand the scope of the project and the customer's needs. The researcher accesses available legal and other computer databases, such as WESTLAW, LEXIS/NEXIS and DIALOG, to locate controlling laws, rules and regulations and court decisions relevant to the customer's research request and conducts research manually, in order to obtain the information necessary to complete the customer's project.

In most cases, the Company provides its customers with a finished written work product often in the form of (i) a memorandum describing the facts of the customer's project and setting forth the legal and factual analysis of the issues presented, (ii) a court-ready legal brief which advocates the legal, factual and business reasons why the customer should prevail over the opposing party in the matter before the court for adjudication or (iii) a survey of the applicable laws, rules and regulations in various jurisdictions on the topics selected by the customer. In order to ensure the quality of the Company's work product, the Company's managing research attorneys conduct a substantive and an editorial review of legal memoranda, briefs and multi-jurisdictional surveys, and all documents are edited and checked for proper citations.

LRC regularly seeks to create new products and value-added services for its clients. For example, through its expanding Multijurisdictional Survey Program, the Company prepares written reports of the laws in various states on selected topics for corporate customers. An important feature of this product offering is that, once prepared, it can be resold to other customers who need this information. The Company also adds value to the product by converting all or portions of the document into electronic form - disk, CD-ROM or Website - which is easier to review, cross reference and update.

The Company provides full or part-time contract attorneys for temporary or permanent assignments to law firms and corporate law departments. The Company also provides document retrieval services for attorneys and the general public. In 2001, the Company continued to expand its content development services to legal publishers.

Sales and Marketing

LRC's marketing strategy centers on providing customized, value-added solutions in response to each customer's analytical research and writing needs. Because of the Company's historically limited marketing budget, the Company relied primarily on its customers' own initiatives to provide repeat business to LRC. Since its initial public offering, the Company has been targeting opportunities to capture an increasing share of its customers' analytical research and writing activities by increasing its contacts with its existing customers through direct mail, telemarketing and direct account services. The Company continued in 2001 to add to its sales staff both for core research services and for the sale of online compliance training products through a partnership with Integrity Interactive Corporation.

The Company maintains strategic marketing relationships with major law associations and other providers of legal services. LRC believes these relationships enhance the Company's visibility to practitioners and reputation for quality and enable its marketing partners to offer their members a value-added service. LRC has been the exclusive designated outsourced provider of research and writing services to the 60,000 members of the Association of Trail Lawyers of America since 1989. Since 1990, LRC has also served the members of the American Corporate Counsel Association (ACCA), the largest organization serving the nation's corporate counsel. In 1998, the Company entered into an exclusive 4-year contract with ACCA.

In addition to expanding the size and outreach of its sales team in 2001, the Company continued to promote its services and expand its market presence thorough strategic alliances with companies like West Group, and trade association like the American Corporate Counsel Association, the National Association of Realtors and the Association of Trial Lawyers of America.

Customer Relationships

The Company generally operates under project-by-project contractual agreements. The pricing component of a contract generally includes a fixed price or an hourly rate for analytical research and writing services and separate charges for computer database and other ancillary charges. The Company generally charges higher hourly rates for expedited service and offers discounted rates to customers willing to commit to a specified usage of the Company's services.

LRC developed, researched and now updates quarterly a study of the legal trends in the real estate business for the National Association of REALTORS(R) (NAR). NAR is the largest and one of the oldest trade organizations in the U.S. The Company has a relationship with Risk Enterprise Management (REM) under which the Company provides research and knowledge management services directly to the attorneys and law firms serving REM. The Company has a relationship with West Group, providing research on a variety of projects.

Executive Officers of the Company

The following sets forth biographical information for Christopher R. Ljungkull and James R. Seidl, the executive officers of the Company. Biographical information for directors of the Company can be found in the Company's 2002 Proxy Statement, incorporated herein by reference.

Christopher R. Ljungkull has been Chief Executive Officer of the Company since rejoining it on a full time basis in 1994. From 1987 to 1994, Mr. Ljungkull served in various marketing and editorial capacities with West Publishing Corporation, most recently as an editor. Mr. Ljungkull is an attorney and co-founder of the Company and has been a director since its inception.

James R. Seidl has been the President of the Company since 1988 and served as its Chief Executive Officer prior to Mr. Ljungkull's return in 1994. Mr. Seidl is an attorney and co-founder of the Company and has been a director of the Company since its inception.

Personnel

As of March 15, 2002, the Company had 25 employees, including 9 full-time research attorneys and a pool of 21 contract attorneys. Many of the Company's contract attorneys work part-time. No Company employees are currently represented by labor unions and the Company is not a party to any collective bargaining agreement. The Company has never been subject to any form of work stoppage or strike and has not experienced any labor difficulties. The current full-time staffing level is considered to be adequate. The Company expects that it will continue to need more contract attorneys as its business grows and expects that it will be able to secure such attorneys as needed.

Competition

The business of providing legal research services is highly competitive and extremely fragmented. The Company competes in the corporate market with in-house counsel and outside law firms and individual legal practitioners, who are also customers of the Company. For its major corporate clients, the Company competes with larger law firms that have the financial ability to negotiate flexible fee arrangements for their major clients. The Company also competes with other companies, such as the National Legal Research Group and Legal Research Network, which also provide legal research services on an outsourced basis, both of which may have significantly greater resources than the Company and therefore may also have the ability to compete more effectively.

Government Regulation

The Company engages attorneys as employees or independent contractors to provide analytical research and writing services for the Company and its customers. The practice of law is regulated by each state. The Company believes that it is not engaged in the practice of law because it provides customized research and writing services for other lawyers to use in connection with representation of their clients. In addition, the Standing Committee on Ethics and Professional Responsibility of the American Bar Association has taken the position that performing legal research does not constitute the practice of law. Although the Company believes that it does not engage in the practice of law, there can be no assurance that a state will not take the position that the Company is improperly engaged in the practice of law or that all of the persons providing legal research services must be licensed in the state where the Company's customers are located.

Insurance

The Company carries property damage, workers' compensation, and Directors and Officers liability insurance coverage in amounts management considers sufficient to protect the Company. Management does not believe that the Company is engaged in the practice of law and accordingly does not maintain any professional malpractice insurance.

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