Loislaw.com Needs Cash; Losses Depress Stock

A disorganized sales staff, a rock-bottom stock price and a $3.7 million net loss for the third quarter aren’t hallmarks of a thriving company. Add to the mix Loislaw.com Inc.’s admission that it will most likely need a cash injection by 2001, and it would appear that the provider of 2,055 online legal databases is just another “dot-bomb” with a ticking clock.

But Loislaw.com general counsel Chip Sexton said that is not the case. He said Arkansas’ only Web-based information technology company had renewed its commitment to making money. Reorganizing its sales force and “other things not publicly disclosed,” Sexton said, are priorities.

“The core business at Loislaw.com is sound,” Sexton said. “Unfortunately, right now it does not seem like the market values the business as much as it once did. We know the one thing we can do to enhance our stock’s value is to make the company profitable, and we are projecting that will happen in 2001.

“Everything we are doing from a business perspective right now is directly or indirectly related to making us profitable.”

But the innovative sophomore company still faces several trip wires:

• Loislaw.com decided Oct. 3 that writing company president Mark O. Beyland a $268,000 severance check was better than retaining his services. Chairman and chief executive officer Kyle Parker, who could not be reached for comment for this report, is filling in until a replacement is found.

• The company hired Engage.com Inc. of Andover, Mass., this summer to sell advertising on its Loislawschool.com site. Sales were dismal, and Loislaw.com has been looking for another firm to sell its ad space. Parker said previously that the company hoped the initiative would generate new monthly revenue in the six-figure range.

• Dot-coms, especially unprofitable ones, are out of favor on Wall Street, and many investors are too busy toweling off from the summer’s high-technology bath to venture back into the segment.

• Although taking three weeks to tally Florida’s U.S. presidential votes may seem like an eternity, Loislaw.com recently went without a vice president of sales for three months. That prompted analysts to lose confidence and act as though the firm’s logo — the blindfolded lady of justice — might have more vision than its management.

Michael Romanies, company vice president of marketing, said that willing capital investors from out of state, a 96.6 percent hop in third-quarter revenue, and newly named sales vice president David Hoover indicate that the scales will tip back in Loislaw.com’s favor.

But even Loislaw.com’s gung-ho executives acknowledge that its drop from last December’s all-time stock high of $42.38 had been a heavy one. The company, traded as LOIS on the Nasdaq exchange, has spent recent months around the $1 range.

Analyst Apathy

The only two analysts who follow Loislaw.com give it two thumbs sideways — a neutral rating. That tells investors that the experts are neither hot nor cold on the stock and that there’s probably easier pickings elsewhere.

During the third quarter, Loislaw.com did book $1.7 million worth of new orders for its products — which include more than 1,300 legal information databases used by lawyers and law firms over the Internet and on CD-Rom. The material is largely state and federal case law and statutes, but the company just released its anticipated federal court opinions for all 50 states ahead of schedule.

For the third quarter, which ended Sept. 30, Loislaw.com recorded revenues of $3.6 million, compared with $1.8 million for the same period in 1999. Its net loss was $3.7 million, or 17 cents per share, down 59 percent from a 1999 third-quarter loss of $8.9 million, or 87 cents per share.

Brett Manderfeld, an analyst with U.S. Bancorp Piper Jaffray in Minneapolis, said part of Loislaw.com’s sales problems stemmed from a 30 percent drop in staff that left for various reasons, and left the firm with about 113 sales representatives. He said that kept Loislaw.com’s top-line growth from making even bigger leaps.

The company recently fired vice president of sales Robert Gould and inside sales manager Michael Thorton. And it plans to restructure that division through 2001.

But analyst Mark Rupe of Dain Rauscher Wessels in New York said Loislaw.com’s biggest problem is still a shortage of cash. The company, recently named to Inter@ctive Week’s Internet 500 (the e-business equivalent of the Fortune 500) for the second straight year, had $3.8 million in cash in the third quarter compared with $8.2 million in the second.

Operating revenue, primarily the cost of database production, and a growth strategy that included the Oct. 23 acquisition of 20 percent of the common stock of JurisDictionUSA Inc. account for the expenditures.

Ripple Effects

Despite receiving more than 16 million Web site searches per quarter and having more than 20,000 subscribers, both analysts said Loislaw.com’s cash shortage could pressure its stock price for quarters to come. Eventually, if a cash injection doesn’t occur, it could mean the company’s days are numbered.

Marjorie Armstrong, president of the Van Buren Chamber of Commerce, said she had confidence in Loislaw.com’s ability to survive. If it doesn’t, however, 385 employees in the town of about 19,300 population could be out of work.

Since many of Loislaw.com’s employees, especially in its marketing and sales divisions, earn salaries of more than $50,000 annually, Armstrong said, a major blow to the company could be a major economic blow to the community.

“That would break my heart,” Armstrong said. “The economy is so good that we certainly could absorb most of those employees in the workforce. But it would be a real psychological blow. The whole community is so proud of what Kyle and his dad [Doug Parker] have been able to accomplish.”

And because Armstrong said Van Buren’s economy is inseparable from Fort Smith’s, the affects could be felt across the entire Arkansas River Valley.

Loislaw.com, which according to its CEO gets an average of 11 searches per customer per day, intends to head off any such disaster by calling on its out-of-state capital “angels.”

The firm previously was loaned $4 million by Parker’s sister-in-law, Melissa A. Parker. And Loislaw.com board member Randy Laney, the CEO of Mercari Technologies Inc. in Fayetteville, which recently landed $20 million in venture capital, could be another leader in the pursuit of funding.

Sexton, the general counsel, said, “The bottom line right now is focusing on earnings.” Since Loislaw.com operates under a subscription-based business model, like a print magazine rather than being service-based like Internet dynamo Amazon.com, its short-term revenue is not always reflective of its long-term stability.

“We are taking care of the basic knitting of the company,” said Romanies, the marketing director. “We’re focusing on yielding the maximum return from the products we bring out and ensuring they’re quality products that enable us to retain a high subscription rate.”