<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number:
March 31, 1996 0-14063
BARRISTER INFORMATION SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-1176561
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
465 Main Street, Buffalo, New York 14203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 845-5010
--------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: None.
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
Common Stock, $.24 par value
(Title of Class)
Indicate by check mark whether the Registrant (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
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K X .
---
The aggregate market value of Common Stock held by non-affiliates of
the registrant, based upon the closing price of the Common Stock on June 7,
1996, was approximately $8.5 million.
The number of shares outstanding of the Registrant's common stock,
$.24 par value, was 8,197,970 at June 7, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV incorporate by reference portions of the Barrister
Information Systems Corporation Annual Report to Shareholders for the fiscal
year ended March 31, 1996 (the "Company's 1996 Annual Report"). Part III
incorporates by reference portions of the Barrister Information Systems
Corporation Proxy Statement for the Annual Meeting of Shareholders to be held on
August 8, 1996 (the "Company's definitive Proxy Statement to be dated June 28,
1996").
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Barrister Information Systems Corporation (the "Company") is a
national supplier of Windows-based client server software for law firms,
accounting firms, consultants and departments of Fortune 1000 companies. In
addition, the Company provides equipment maintenance services on a nationwide
basis.
The Company was formed in 1972 as the Office Automation Division
of Comptek Research, Inc. ("Comptek"). On March 26, 1982, the division was
incorporated under the laws of New York as Barrister Information Systems
Corporation and was spun off to the Comptek shareholders as a separate company.
In July 1985, the Company sold shares of its common stock in its initial public
offering. The Company's shares are currently traded on the American Stock
Exchange.
The Company's headquarters are at 465 Main Street, Buffalo, New
York 14203, telephone 716-845-5010. In addition, the Company has a number of
sales and services offices throughout the United States.
SOFTWARE MARKET
The Company was the first to offer and install an all
Window's-based firm management software for medium to large sized law firms. The
Company now sells its Windows-based client server software product, Javelan, and
software support services principally to the U.S. law firm market and to law
firms in Canada and the Caribbean. Javelan software is used by law firms for
firm management and to keep track of the time of attorneys and paralegals to
enable them to bill their clients. In addition, the software provides the law
firm with other applications such as executive information, collections, general
ledger and accounts payable.
Based on the most recent information available to the Company
(Symposium of The National Association of Legal Vendors held July, 1993), it was
estimated that expenditures in the legal market for practice management systems,
which include software, hardware and services, would be approximately $600
million in 1993, as well as in the year 2000 for the United States. In addition,
there is market potential in foreign markets which is difficult to quantify. The
Company's product, Javelan, competes for a share of that spending in those
markets. Javelan is also being sold in the accounting, consulting and corporate
markets for organizations seeking time and billing or time and cost allocation
capability. While there are no statistics available to the Company at this time,
it is the opinion of management that the potential in these markets may be
comparable to the potential in the legal market. The Company expects that the
majority of sales will come from the legal market.
The markets pursued by the Company are concentrated in major
cities throughout the United States. There are numerous competitors which are
primarily U.S. companies and the technology barriers to enter the market are
low. However, the requirement for sophisticated functionality demands
substantial investment to develop products which can compete effectively in
these markets. Because of competition and market demands, there is a continuing
requirement to enhance the software to remain a viable competitor. Currently,
the Company believes that its product is distinguished from its competitors'
products by its performance, functionality, product design and architecture.
In its software marketing efforts for the legal market, the
Company conducts seminars in cities throughout the United States, advertises in
professional publications and provides demonstrations at its corporate
headquarters, regional offices, client locations and trade shows. The Company
also markets the systems to consultants to advise them of the system's features
and new product developments and to gain increased market acceptance.
Page -2-
<PAGE> 3
Marketing to the accounting, consulting and corporate segments to
date has consisted of follow through on leads and interest shown by prospects
attending legal trade shows and reading legal market literature. The Company
expects to expand marketing in this area by attending trade shows and group
conferences in those markets and by establishing strategic relationships which
will enhance sales in those segments.
The Company believes that its existing clients present significant
opportunities for sales of additional software and services. Approximately 40%
of Javelan contracts to date have come from these clients. It is marketing to
and communicating with approximately 250 of its existing clients which have
licensed software in the past in order to license Javelan as replacement
software. Further, service efforts are directed to ensuring client satisfaction
and facilitating additional sales. The Company has sponsored the organization of
a national users group, comprised of representatives of clients, who meet with
Company personnel to exchange ideas and techniques for the use of the Company's
systems, provide training and offer suggestions for product development and
enhancements. The Company believes it has the staff with the necessary technical
and market knowledge to advance the product, to install the product and train
clients in its use and to support the client afterward.
The Company has made a substantial investment in the Javelan
product and protects its intellectual property rights by licensing the software
by contract. Pricing is based on the functions licensed and the size of the
system sold. Clients pay recurring monthly license fees and, in return, receive
telephone support and periodic software enhancements. Investments are expected
to continue to enhance the features and functions of the Javelan software
package. The choice of features will be driven by clients through bi-annual user
group meetings. These investments are expected to increase the sales
opportunities in the existing client base and to improve sales in the markets
for Javelan.
Historically, software product life cycles have been five to ten
years. With the markets moving to Windows and client/server architecture, there
may be a lengthening of the cycle. The effect is expected to intensify the
investment in features and functions and reduce investments in the underlying
technology and architecture of the product, which will be available in the open
market.
Sales of Javelan software may occur from time to time and are not
predictable. As a result, the Company's performance from quarter to quarter can
change dramatically. Good or poor performance in a given quarter cannot predict
results in subsequent periods.
The Company provides its systems and services under various
hardware purchase contracts, software license agreements, systems installation
and training agreements and hardware and software service contracts. Law office
personnel, often inexperienced in computer programming or operations, are
trained by the Company to use its systems. The Company's systems are capable of
communicating with computers and personal computers of other manufacturers.
PRODUCTS
Historically, the Company licensed software and sold equipment
including Local Area Networks and PCs. Based on rapidly falling margins on the
resale of hardware, the Company de-emphasized hardware sales and focused on
higher margin software sales. As a result, product sales have dropped and
services revenues have become an increasingly larger percentage of total
revenues. The Company expects increased product revenues from software licenses
in fiscal 1997, which should result in growth in product sales as a percentage
of its revenues.
The principal product of the Company is Javelan, a
state-of-the-art product, which can operate on either Windows 3.1, Windows 95 or
NT Workstation and provides the functions necessary for law firm management
using desktop computing and client server architecture. Javelan software
operates on the law firm's local area network (LAN) and uses PC work stations on
the LAN for data processing. A server using Microsoft SQL-Server 6.0 contains
the law firm's data base and supports the work stations. Javelan was introduced
to the market in November 1992 through an extensive series of seminars. In
December 1994, the Company announced that Javelan would operate with Microsoft
NT and SQL-Server 6.0. Since then, Javelan has been delivered with NT and
SQL-Server 6.0. As a result, Javelan is expected to contribute significantly to
the Company's revenues in the future.
Page -3-
<PAGE> 4
In the past, the Company has developed several products which it
currently supports:
EAGLE Law firm management software which
operates on IBM AS-400 computers.
TIME MANAGER Time and billing, accounting and
accounts payable software which
operates on DOS for smaller firms.
CFMS Law firm management software which
operates on Barrister manufactured
mini-computers.
In addition to software which the Company has developed, the
Company resells software which functions compatibly with its products. Further,
the Company resells equipment such as database servers to clients who license
Javelan software. From time to time, the Company sells personal computers and
AS-400 upgrades in support of clients.
It is anticipated that most minicomputer, AS-400 and DOS-based
clients will migrate to systems using Windows and local area networks (LANs).
The Company's Javelan product, the first Window's based management system for
law firms, is being offered to these clients.
BACKLOG
Because the Company typically ships products within a relatively
short period of time after a contract is signed, the backlog varies, is not
meaningful at any date and is not indicative of intermediate or long-term future
sales.
SOFTWARE DEVELOPMENT
The markets for the Company's software products are characterized
by rapid technical changes which have required and will continue to require the
Company to engage in ongoing development, and evaluations, the future costs of
which are expected to be significant and the economic benefits of which are not
readily predictable. Before taking into account amounts capitalized as software
production costs, the Company incurred $693,000, $667,000, and $755,000 of
product development and engineering expenses in fiscal 1996, 1995, and 1994,
respectively. For fiscal 1997, the Company expects a small increase in the level
of spending in this area.
INVENTORY
Customers generally require rapid delivery and orders are usually
filled within 30 days. Most of the systems the Company provides use equipment
and software developed by third parties, which is generally available and in
many cases shipped directly by the vendors,. Software developed by the Company
does not require large amounts of inventory. Consequently, the Company does not
keep significant amounts of product inventory in order to meet customer
requirements. The Company does not generally provide rights of return or
extended payment terms to customers.
RELATIONSHIP WITH MICROSOFT
The Company is a Solutions Channel provider for Microsoft
Corporation. This relationship provides the Company with cooperative marketing
arrangements.
Page -4-
<PAGE> 5
SOFTWARE COMPETITION
The business of providing software and services to law offices is
highly competitive. The Company believes that the principal competitive factors
affecting a law office's choice of data processing systems are product quality,
performance and reliability, compatibility with industry standards, the ability
to provide ongoing, long-term customer service and support, hardware and
software features, ease of use, upgrading capabilities, customer training,
system flexibility, company financial stability, name recognition of product and
company. Price, while important, is not the dominant factor in client's buying
decisions.
The Company competes with more than ten companies who are
developers of specialized software for law offices, many of which are
substantially larger and have substantially greater name recognition and
financial, marketing, technical and personnel resources than the Company.
SERVICES MARKET
The Company provides equipment maintenance services nationwide for
PCs and other equipment which attach to LANs. Using its staff of hardware
technicians and LAN specialists, the Company provides comprehensive maintenance
services for such equipment. In addition, the Company occasionally uses third
parties as subcontractors to provide maintenance services in certain
geographical locations.
The Company provides a nationwide toll-free number for customer
service and provides a seven-day, twenty-four hour maintenance capability. The
Company also provides a facility management service for customers involved in
relocation of their data centers or offices.
Since 1972, the Company has established a field service
organization located in a number of cities throughout the United States. To
support them, a depot repair facility located in Buffalo, New York performs
repairs on equipment shipped to Buffalo. These resources have enabled the
Company to sell equipment maintenance service contracts outside the legal
market, to sell depot repair services and to offer system integration services.
Currently, more than 80% of hardware maintenance revenues are generated outside
the legal market.
Sales of services and systems integration are the result of a
direct sales force focused on this market. A variety of service plans are
offered which cover Barrister's proprietary equipment to a long list of OEM
micro-computer products. In addition, the Company has established business
relationships with major companies such as IBM and Digital Equipment Corporation
to provide services on a subcontract basis.
The strategy for the services business in fiscal 1995 was to grow
the business through subcontracting, which it did. In 1996, IBM terminated
several contracts and took them in-house. This impacted revenues approximately
$800,000, or 5.5%, in fiscal 1996. In response, the Company recruited and hired
a sales manager responsible for growing the business through prime contracting
and by establishing strategic alliances. It is anticipated that this revised
strategy will enable services revenues to grow again and to improve
profitability.
Since product life cycles for hardware are relatively short, the
Company provides updated training to its service technicians and continuously
reviews its spare parts inventory for potential obsolescence. The Company
believes there are sufficient technicians available to meet its business needs
and that adequate sources of parts will be available to meet technological and
product life cycle changes.
Page -5-
<PAGE> 6
SERVICES COMPETITION
Providing maintenance and repair depot services to clients is also
a highly competitive business. The principal competitive factors are price,
expertise, reputation and geographic location of staff. The Company competes
with numerous organizations which can provide similar maintenance services, many
of which are substantially larger, better known and have substantially greater
name recognition and financial, marketing, technical and personnel resources
than the Company. The Company believes it distinguishes itself by providing
services on a dependable and cost effective basis to customers with multiple
locations throughout the U.S.
FORWARD-LOOKING STATEMENT
When used in this report, the words "expects", "believes" and
"intends" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected. Readers
are cautioned not to place undue reliance on these forward-looking statements
which speak only as of the date hereof. The Company undertakes no obligation to
republish revised forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrences of unanticipated events.
Readers are also urged to carefully review and consider the various disclosures
made by the Company which attempt to advise interested parties of the factors
which affect the Company's business in the Company's periodic reports on Form
10K and 10Q filed with the Securities and Exchange Commission.
RELATIONSHIP WITH IBM
The Company has received a number of hardware maintenance
subcontracts from IBM. These subcontracts are generally renewable on an annual
basis with 30 day cancellation rights. During fiscal 1996, revenues from the
subcontracts were approximately 30% of total revenues.
EMPLOYEES
As of June 7, 1996, the Company had 167 full-time employees and 6
part-time employees. None of the Company's employees is represented by a labor
union and the Company has had no work stoppages. The Company believes that
employee relations are good.
PROTECTION OF PROPRIETARY INFORMATION
The Company believes its proprietary software and hardware
technology is adequately protected by trade secret and copyright laws and
contracts with its customers, employees and suppliers. The Company has a
registered trademark and service mark in the names "BARRISTER" and "JAVELAN" and
trademarks in certain other names used in its business. The Company has no
patents or patent applications pending.
Page -6-
<PAGE> 7
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth as of June 7, 1996, the names and
ages of the executive officers of the Company and the positions held by each
such person.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard P. Beyer 49 Vice President-Finance, Treasurer
and a Director
Mark C. Donadio 40 Secretary and General Counsel
Mark J. Phillips 41 Vice President-Sales
Jose Rivero 47 Vice President-Service Division and
a Director
Henry P. Semmelhack 59 President, Chairman of the Board of Directors, Chief
Executive Officer
</TABLE>
MR. BEYER became Vice President-Finance, Treasurer and a Director
of the Company in 1982 following its incorporation. He joined Comptek in 1974
and served as its Vice President-Finance and Treasurer.
MR. DONADIO joined the Company in January, 1991 as its Secretary
and General Counsel. Prior to his joining the Company he was a partner at
Saperston & Day, P.C. in Buffalo, New York.
MR. PHILLIPS joined the Company in March, 1995 as its Vice
President of Sales. Prior to joining the Company, he was a sales and marketing
executive with Digital Equipment Corporation.
MR. RIVERO became Vice President of the Company in December, 1984
after serving as National Customer Operations Manager and as National Product
Service Manager. Mr. Rivero joined Comptek in 1974 and served in various
positions including National Customer Operations Manager. In May, 1991, he
became Vice President of the Service Division. In October, 1991, Mr. Rivero was
elected as a Director by the shareholders of the Company.
MR. SEMMELHACK has served as the Company's Chairman of the Board
of Directors, Chief Executive Officer and President since its incorporation in
1982. He was one of the founders of Comptek, and currently serves as a Director
of, and consultant to, Comptek. Previously, he served as Comptek's Chairman of
the Board, Chief Executive Officer and President.
Page -7-
<PAGE> 8
ITEM 2. PROPERTIES
REAL PROPERTY
The Company currently leases all the facilities used in its
business. The Company is headquartered in Buffalo, New York and currently leases
approximately 57,000 square feet in two separate facilities in Buffalo. Other
office locations, which are used for regional sales offices and for servicing
activities, are as follows:
<TABLE>
<S> <C>
Los Angeles, California Manchester, New Hampshire
San Diego, California Cherry Hill, New Jersey
Denver, Colorado New York, New York
Hartford, Connecticut Cleveland, Ohio
Miami, Florida Arlington, Virginia
Atlanta Georgia Chicago, Illinois
Boston, Massachusetts
</TABLE>
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The Company's equipment and leasehold improvements include:
computer equipment, components and tools used in the design, development,
testing and maintenance of its systems; office furniture and fixtures; and
leasehold improvements undertaken to accommodate computers and other equipment.
ITEM 3. LEGAL PROCEEDINGS.
In the opinion of management, there are no claims or litigation
pending to which the Company is a party which could have a material adverse
effect on the Company's financial condition or statement of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A special meeting of shareholders was held on March 6, 1996 during
which the following two items were approved:
(1) An Amendment to the Company's Certificate of Incorporation
increasing the Company's authorized Common Stock from 10,000,000 to 20,000,000
shares. (Votes for were 5,140,904 and votes against were 41,879.)
(2) Approving the sale or issuance of Common Stock equal to 20% or
more of the then presently outstanding stock for a discount of no greater than
20% from the market value of the stock. (Votes for were 5,131,155 and votes
against were 51,628.)
Page -8-
<PAGE> 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information required by this item is incorporated by reference
to the Company's 1996 Annual Report under the caption "Stock
Market and Dividend Information".
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is incorporated by reference
to the Company's 1996 Annual Report under the caption "Selected
Financial Data".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this item is incorporated by reference
to the Company's 1996 Annual Report under the caption
"Management's Discussion and Analysis".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is incorporated by reference
to the Company's 1996 Annual Report under the caption "Quarterly
Financial Data" and under the captions as listed in Item 14(a)(1)
of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Item is not applicable.
Page -9-
<PAGE> 10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information under the caption "ELECTION OF DIRECTORS" in the
Company's definitive Proxy Statement to be dated June 28, 1996, is
incorporated herein by reference. Also see Part I of this Report,
under the caption "Executive Officers of the Registrant" for
additional information relating to the Company's executive
officers.
ITEM 11. EXECUTIVE COMPENSATION.
The information under the caption "COMPENSATION AND RELATED
MATTERS" in the Company's definitive Proxy Statement to be dated
June 28, 1996, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the caption "PRINCIPAL SHAREHOLDERS" in the
Company's definitive Proxy Statement to be dated June 28, 1996 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS.
The information under the sub-caption "Certain Transactions" in
the Company's definitive Proxy Statement to be dated June 28,
1996, is incorporated herein by reference.
Page -10-
<PAGE> 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following are filed as a part of this Report:
(1) FINANCIAL STATEMENTS. The following Financial Statements of
Barrister Information Systems Corporation are incorporated by
reference to the Company's 1996 Annual Report:
Balance Sheets -
March 31, 1996 and March 31, 1995
Statements of Operations -
Years ended March 31, 1996, 1995 and 1994
Statements of Shareholders' Equity -
Years ended March 31, 1996, 1995 and 1994
Statements of Cash Flows -
Years ended March 31, 1996, 1995 and 1994
Notes to Financial Statements
Independent Auditors' Report
(2) FINANCIAL STATEMENT SCHEDULE. The following financial
statement schedule of Barrister Information Systems
Corporation for the three years ended March 31, 1996 is being
filed with this Report. Schedules not listed below have been
omitted because they are not applicable or are not required
under the instructions or the information is included in the
"Notes to Financial Statements" of the Company's 1996 Annual
Report.
<TABLE>
<CAPTION>
Schedule Title Page
-------- ----- ----
<S> <C> <C>
II Valuation and Qualifying Accounts 14
</TABLE>
The Independent Auditors' Report on the Financial Statement
Schedule appears on page 13 of this report.
(3) EXHIBITS. See Exhibit Index filed herewith on pages 15 through
16 of this Report.
(b) Reports on Form 8-K: None.
Page -11-
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BARRISTER INFORMATION SYSTEMS CORPORATION
DATE: June 25, 1996 BY: /s/ Henry P. Semmelhack
------------- ----------------------------
Henry P. Semmelhack, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
the report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Henry P. Semmelhack President, Chief Executive June 25, 1996
- -------------------------------- Officer and Chairman of the
Henry P. Semmelhack Board of Directors
/s/ Richard P. Beyer Vice President and Chief June 25, 1996
- -------------------------------- Financial Officer
Richard P. Beyer
/s/ Franklyn S. Barry, Jr. Director June 25, 1996
- --------------------------------
Franklyn S. Barry, Jr.
/s/ Warren E. Emblidge, Jr. Director June 25, 1996
- --------------------------------
Warren E. Emblidge, Jr.
/s/ Richard E. McPherson Director June 25, 1996
- --------------------------------
Richard E. McPherson
/s/ James D. Morgan Director June 25, 1996
- --------------------------------
James D. Morgan
Director June 25, 1996
- --------------------------------
James Page
/s/ Jose Rivero Director June 25, 1996
- --------------------------------
Jose Rivero
</TABLE>
Page -12-
<PAGE> 13
INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULE
-------------------------------
Board of Directors
Barrister Information Systems Corporation:
Under date of June 21, 1996, we reported on the balance sheets of Barrister
Information Systems Corporation as of March 31, 1996 and 1995, and the related
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended March 31, 1996, as contained in the 1996
annual report to shareholders. These financial statements and our report thereon
are incorporated by reference in the annual report on Form 10-K for the year
ended March 31, 1996. In connection with our audits of the aforementioned
financial statements, we also have audited the related financial statement
schedule as listed in item 14(a)(2) of this the annual report on Form 10-K. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
Buffalo, New York
June 21, 1996
Page -13-
<PAGE> 14
Schedule II
BARRISTER INFORMATION SYSTEMS CORPORATION
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
Balance at Additions Write-Offs Balance
beginning charged to costs charged at end
Description of period and expenses to allowance of period
- ----------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year ended March 31, 1994 $ 150 $ - $ - $ 150
-------- -------- ------- -------
Year ended March 31, 1995 $ 150 $ - $ - $ 150
-------- -------- ------- -------
Year ended March 31, 1996 $ 150 $ - $ 50 $ 100
-------- -------- ------- -------
Allowance for inventory
obsolescence: (1)
Year ended March 31, 1994 $ 1,117 $ 371 $ 688 $ 800
-------- -------- ------- -------
Year ended March 31, 1995 $ 800 $ 689 $ 664 $ 825
-------- -------- ------- -------
Year ended March 31, 1996 $ 825 $ 1,045 $ 1,110 $ 760
-------- -------- ------- -------
- --------
<FN>
(1) The allowance is included in inventory in the balance sheets.
</TABLE>
Page -14-
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page No.
No. Description or Location
------- ----------- -----------
<S> <C> <C>
3.1 Restated Certificate of Incorporation (b)
3.2 Bylaws, as amended (b)
3.3 Amendment to the Certificate of Incorporation (c)
dated July 11, 1991
3.4 Amendment to the Bylaws effective (c)
October 9, 1991
3.5 Amendment to the Certificate of Incorporation (c)
dated October 15, 1991
3.6 Amendment to the Certificate of Incorporation (d)
dated March 30, 1992
3.7 Amendment to the Certificate of Incorporation (e)
dated November 3, 1994
3.8* Amendment to the Certificate of Incorporation
dated March 6, 1996
10.1 1989 Stock Incentive Plan, as amended (e)
10.2 Retirement Savings Plan and Trust (a)
10.3 Employee Stock Purchase Plan (b)
10.4 Loan Agreement between Registrant and BIS Partners, (d)
L.P. dated March 31, 1992
10.5 Line of Credit Agreement between Registrant and (f)
BIS Partners, L.P. dated June 27, 1995
13* Annual Report to Shareholders for the fiscal year ended
March 31, 1996 (to be deemed filed only to the extent
required by the instructions to exhibits for reports on
Form 10-K)
24* KPMG Peat Marwick LLP consent regarding forms S-8
27* Financial Data Schedule
</TABLE>
Page -15-
<PAGE> 16
- -------------------------------
* Each exhibit marked with an asterisk is a previously unfiled document
under Category 19 of Regulation S-K, Item 601.
(a) Designates Exhibits annexed to the Registration Statement filed by the
Company with the Securities and Exchange Commission on June 25, 1986
(Registration No. 33-6250), and which are incorporated herein by
reference.
(b) Designates Exhibit annexed to the Registrant's Report on Form 10-Q for
the quarter ended July 1, 1988.
(c) Designates Exhibit annexed to the Registrant's Report on Form 10-Q for
the quarter ended September 27, 1991.
(d) Designates Exhibit annexed to the Registrant's Report on Form 10-K for
the year ended March 31, 1992.
(e) Designates Exhibit annexed to the Registrant's Report on Form 10-Q for
the quarter ended September 30, 1994.
(f) Designates Exhibit annexed to the Registrant's Report on Form 10-K for
the year ended March 31, 1995.
Page -16-
<PAGE> 1
BARRISTER INFORMATION SYSTEMS CORPORATION
EXHIBIT 3.8 - AMENDMENT TO
THE CERTIFICATE OF INCORPORATION
DATED MARCH 6, 1996
<PAGE> 2
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
BARRISTER INFORMATION SYSTEMS CORPORATION
(UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW)
---------------------
The undersigned, Henry P. Semmelhack and Mark C. Donadio,
being respectively the President and Secretary of Barrister Information Systems
Corporation do hereby certify:
1. The name of the Corporation is Barrister Information
Systems Corporation.
2. The original Certificate of Incorporation of the
Corporation was filed by the Department of State on March 26, 1982.
3. Paragraph FOURTH of the Certificate of Incorporation, as
amended and restated, which provides that the total number of shares which the
corporation is authorized to issue is 12,000,000, of which 10,000,000 shares are
designated Common Stock, par value $.24 per share, and 2,000,000 shares are
designated Preferred Stock, par value $1.00 per share, is hereby amended:
(a) To increase the total number of authorized shares of
Common Stock from 10,000,000, par value $.24 per
share, to 20,000,000, par value $.24 per share,
resulting in an increase in the total number of
authorized shares of stock of the Corporation from
12,000,000 to 22,000,000.
To effect such amendments, Paragraph FOURTH of the Certificate of
Incorporation is hereby amended to read in its entirety as follows:
FOURTH. The total number of shares which the corporation shall
have authority to issue is 22,000,000, of which 20,000,000
shares shall be designated Common Stock, par value $.24 per
share, and 2,000,000 shares shall be designated Preferred
Stock, par value of $1.00 per share. The relative rights,
preferences and limitations of the shares of each class are as
follows:
<PAGE> 3
(a) The Preferred Stock authorized hereby may be issued
(i) in such series and with such voting powers, full
or limited, or no voting powers, and such
designations, preferences and relative,
participating, optional or other special rights, and
with such qualifications, limitations or restrictions
thereon, as the Board of Directors shall fix by
resolution, and (ii) in such number of shares in each
series as the Board of Directors, by resolution or
resolutions, shall fix; provided that the aggregate
number of all shares of Preferred Stock issued does
not exceed the number of shares of Preferred Stock
authorized hereby; and, provided further, that the
Series D Convertible Redeemable Preferred Stock
authorized by the Board of Directors of the
Corporation by unanimous written consent on March 30,
1994, shall have their relative rights, preferences
and limitations set forth in the Certificate of
Amendment to the Certificate of Incorporation of the
Corporation filed by the Department of State on April
20, 1994.
(b) Holders of Common Stock shall be entitled to such
dividend, liquidation and voting rights and such
other rights and privileges as are provided by the
Business Corporation Law, subject to the rights of
holders of Preferred Stock issued pursuant to the
provisions of paragraph (a) above.
4. The foregoing amendments to the Certificate of Incorporation of the
Corporation were authorized by the unanimous written consent of the Board of
Directors of the Corporation, followed by authorization by the affirmative vote
of the majority of all outstanding shares entitled to vote thereon at a meeting.
IN WITNESS WHEREOF, the undersigned have subscribed this Certificate of
Amendment to the Restated Certificate of Incorporation of the Corporation and
affirm the statements herein contained as true under penalties of perjury this
6th day of March, 1996.
/S/ HENRY P. SEMMELHACK
------------------------------
HENRY P. SEMMELHACK, PRESIDENT
/S/ MARK C. DONADIO
------------------------------
MARK C. DONADIO, SECRETARY
<PAGE> 1
BARRISTER INFORMATION SYSTEMS CORPORATION
EXHIBIT 13 - ANNUAL REPORT TO SHAREHOLDERS
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
<PAGE> 2
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BARRISTER INFORMATION SYSTEMS CORPORATION
has served law firms as its principal market for 24 years. As
a result, the Company has developed deep-rooted expertise in
meeting the needs of law firms for products and services. This
experience has heavily influenced the Company in its
development, has provided the foundation for its current
strategies, and will guide its vision for the future. The
Company is now bringing its extensive knowledge and its
premiere software product to the general business market.
Through dialog with its clients, the Company has developed
software to enable law firms and other professional service
organizations to operate effectively in the competitive
environment of the 90's and beyond. With a substantial
investment, the Company has brought to market its
state-of-the-art Javelan(R) practice management system based
on Microsoft(R) Windows(TM) and client/server technology. Our
Software Division is committed to capturing market share, to
providing high-quality software support services, and to the
continuing development of Javelan.
An outgrowth of our extensive systems business has been the
evolution of our equipment maintenance business. Our Service
Division, which initially provided equipment services only to
law firms, today delivers superior service nationwide to
customers in many different businesses. This Division is
committed to growth and improved performance as it expands its
service capabilities through investments in automation, in
training, and by establishing strategic partnerships in the
industry.
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Barrister Information Systems Corporation -- Annual Report 1996 Page 1
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Page 2 Barrister Information Systems Corporation -- Annual Report 1996
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- --------------------------------------------------------------------------------
TO OUR SHAREHOLDERS
- --------------------------------------------------------------------------------
In fiscal 1996, the Company reported a net loss of $205,000 compared to a net
loss of $159,000 the previous year. During the year, the Company substantially
improved its balance sheet by raising $1,952,000 of new capital from the sale of
Common Stock and from debt restructurings that occurred in the second and fourth
quarters. An extraordinary gain of $486,000 was recorded from the debt
restructuring that occurred in the fourth quarter of the year. Total revenues
for 1996 were $13,729,000 compared to $15,327,000 for the previous year. Company
revenues declined because of decreased service revenues and declines in computer
hardware product sales through a concerted plan by management, discussed in
previous annual reports, to de-emphasize the sale of low margin commodity
products. Even though product sales decreased, product margins increased as the
result of increased sales of the Company's Windows-based Javelan software, a
financial management package for law firms, professional organizations and the
legal departments of Fortune 1000 companies.
A loss of $691,000 before extraordinary gain occurred in fiscal 1996. This loss
was primarily the result of a decline in service revenues and associated
reduction in services profitability. This decline in profitability was due to
the loss of several contracts with IBM, the Company's major customer. Steps were
taken during the year to reduce service related expenses and to improve service
revenues. They are expected to have a beneficial effect on Company performance
in fiscal 1997.
In the fourth quarter of fiscal 1996, revenues decreased to $3,564,000 from
$3,733,000 in the comparable period in fiscal 1995. Product revenues for the
period were $669,000, a 5.9% increase over the $632,000 of the comparable period
last year. Service revenues for the fourth quarter were $2,895,000, a 6.6%
decrease from the $3,101,000 in the comparable quarter of the prior year. Net
profit for the quarter, including an extraordinary gain of $486,000, amounted to
$182,000 compared to a profit of $35,000 in the fourth quarter of fiscal 1995.
In fiscal 1997, the Company's plans call for a return to growth and
profitability in its Service Division through new sales leadership and
strategies. The Software Division is expected to show growth in revenues and
profits as it expands sales to both the legal market and other markets which
opened in fiscal 1996.
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Barrister Information Systems Corporation -- Annual Report 1996 Page 3
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STRENGTHENING THE COMPANY
- -------------------------
On March 29, 1996, the Company completed a financing transaction whereby Brebar
Investments Ltd. of London, England purchased 2,000,000 shares of common stock
with net proceeds to the Company of $1,952,000. In addition, warrants to
purchase an additional 1,500,000 shares over the next two years were issued as
part of the transaction. If all warrants are exercised, an additional $3,000,000
in capital would be realized. Using $400,000 of the funds, the Company was able
to prepay $886,000 of conditional debt, which it had been carrying since fiscal
1990. As a result of this transaction, a $486,000 one-time benefit was recorded
as an extraordinary gain in the fourth quarter on the income statement. In
addition, in August, 1995, BIS Partners, L.P. reduced the amount of its loan to
the Company by $450,000 which resulted in a contribution to capital of $282,000
being recorded in the second quarter.
Because of these transactions, the balance sheet of the Company was
substantially improved. Shareholders' equity grew from $298,000 in fiscal 1995
to $2,337,000 in fiscal 1996. Long-term debt (including current installments)
was reduced from $3,425,000 in fiscal 1995 to $2,118,000 in fiscal 1996.
These transactions have provided increased financial strength to the Company,
which provides greater assurance to prospects that the Company will have the
resources necessary to carry out its support obligations and to complete its
plans for the future. In many ways, the strengthening of the Company will have a
positive impact on the marketing of its products and services. This effect has
already been felt and will benefit the future performance of the Company.
SOFTWARE
- --------
Sales of Javelan, the Company's state-of-the-art Windows-based software package,
grew substantially during the year. Most sales of the package occurred in the
legal market which has been the Company's traditional focus. However,
encouraging sales were concluded in the consulting, accounting and large
corporate markets, as well. The Company made a substantial investment over the
past several years to create the Javelan software package which is 100%
Windows-based, uses client/server architecture and achieves high performance
transaction processing. Javelan is aligned with the market's demand, and
interest in the product is growing. Through our continuing presence in law
journal publications and articles, through word-of-mouth testimony, by
attendance at national trade shows, and with the increasing support of
independent consultants, Javelan is now consistently a top contender in
competition for financial software in professional service firms. Our next
fiscal year promises to be a year of growth with a continuing strong market
presence, a new Internet web site, the addition of innovative new features, and
a solid commitment to client service and satisfaction.
Customers have been very impressed with the performance of Javelan in meeting
their business needs. The software requires relatively low capital investments
at the
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workstation and at the server compared with the competition. Further, Javelan is
very responsive because of unique engineering features and a strong
understanding by the Company's software engineers of the requirements of
professional organizations. The product is easy to install and can use the
customer's existing 386 and 486 workstations.
Acclaim and recognition for Javelan by the experts continues to be published in
various trade magazines. Gene Barrett, Director of Information Systems at the
Washington, D.C. law firm of Shaw, Pittman, Potts & Trowbridge in the
February/March, 1996 issue of LAW OFFICE COMPUTING, stated:
"Javelan is a true client/server design. The latest version runs on
Windows NT and SQL Server 6 at the server level. Javelan runs our 300-
timekeeper firm on a Compaq Proliant server that cost well under
$50,000 - less than a fourth the quote for an HP 9000 to run a
competing product. It's extraordinarily fast. It puts a very low load
on the network, despite the fact that we have had more than 85 people
live in the database at peak periods. Bill worksheets are printed and
distributed usually on the second business day of the month (we close
the previous month on the night of the first business day). We have
distributed 95 percent of our billing to the secretarial level. About
half of our timekeepers enter their own time - voluntarily - insisting
that it's faster for them."
In another article by Cary Griffith in the same magazine, "Beyond Timeslips -
Time & Billing for the Large Firm", he writes:
"The law offices of Baker, Donelson, Bearman & Caldwell have seven
regional offices and over 230 attorneys. As Barrister Information
Systems clients since the mid-70's, Baker stayed with the company
through its recent development and release of Javelan, Barrister's
Windows-based, integrated accounting and practice management system."
"'Before Javelan's release we were looking at all the [T&B] products in
the marketplace,' says John Green, Baker's MIS director. 'I think
Javelan is much more flexible and has more of a future. It's the only
real client/server system out there.'"
"To implement Javelan, Baker uses a powerful central file server
(Compaq Proliant 4,000 with two Pentium microprocessors, 256 MB RAM and
11 Gigs of hard disk space). Each of Baker's regional offices are
connected into the central file server through leased T1 lines."
"'Everyone is on our 600-user WAN,' Green says. 'We're all
interconnected with integrated voice and data networks.'"
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Barrister Information Systems Corporation -- Annual Report 1996 Page 5
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In the law firm market, more and more large law firms are selecting Javelan.
These include Strasburger & Price, one of the largest firms in Dallas, Gordon &
Rees, a large San Francisco firm, and Young, Conaway, Stargatt & Taylor, one of
the largest firms in Delaware.
Last year, several sales outside the law firm market established an exciting new
opportunity for Javelan in accounting firms, consulting practices and in large
corporations. One of those sales was to the Aluminum Company of America (ALCOA),
which selected the product for installation in its corporate offices. Also, in
the first quarter of 1997, the Company announced a contract with Banc One
Corporation in Columbus, Ohio. Additional activity is anticipated in this market
in 1997.
Sales of Javelan outside the United States have occurred in Canada and the
Caribbean. Additional sales activity is expected in these markets in the future.
Investment continues to improve the functionality and competitiveness of
Javelan. Software Release 1.6 was completed during the year and Release 1.7 is
slated for delivery in the Second Quarter of fiscal 1997. Javelan is receiving
important market recognition for its speed, openness, cost and efficiency.
Coupled with new and enhanced functionality, Javelan will be an increasingly
formidable competitor in 1997.
During fiscal 1996, the Company expanded its marketing and sales organization.
This is expected to continue in fiscal 1997 to further strengthen the national
presence of Javelan and to capture increasing market share.
As in previous years, the Time Manager(TM) and Barrister/Eagle(TM) product
groups continued to provide first-class service to their clients and to enhance
their product offerings. In 1997, these groups will continue their excellent
work.
SERVICE
- -------
The Service Division had a disappointing year as its subcontractor relationship
with its primary business partner, IBM, changed when the partner elected to take
several Multi-Vendor Support (MVS) contracts in house. The partner's change in
its subcontracting strategies rapidly and unexpectedly reduced quarterly
hardware maintenance contract service revenues. As a result, steps were taken
both to reduce expenses and increase revenues from other sources, but they did
not offset the entire effect of the unrenewed contracts. The cancellations
resulting from this change in business partner activities, resulted in the
redirection of the Service Division's resources in the pursuit of new business
opportunities.
Mr. Charles Roberts, formerly Vice President of Sales for Edicon Systems, a
division of Eastman Kodak, was hired in November, 1995 to lead the service sales
force and to develop marketing and sales plans which will return the Company's
Service Division to more reliable growth and improved profitability. To date,
his efforts have
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Page 6 Barrister Information Systems Corporation -- Annual Report 1996
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been to establish new business partner arrangements and to implement multiple
distribution strategies for maintenance services.
Demand for maintenance services remains high and the Company is well positioned
nationally to support the market. In 1997, efforts will be focused on increasing
sales and improving efficiency and effectiveness through automation. Automation
activities are expected to focus on the dispatch function, inventory management
and contract management in order to improve its response to its customers,
better utilize its inventory assets and improve the utilization of its labor
force.
PROSPECTS FOR THE COMPANY
- -------------------------
An assessment of the Company's status and prospects reveal many positive signs.
The investment by Brebar Investments Ltd. has resulted in the strongest balance
sheet in years. There are growing sales for Javelan and an increased market
awareness of the product and its capabilities. There are new features about to
be released for the product. In the Service Division, there is new sales
leadership to capture business in a market where there is growing demand. There
is renewed interest in the Company as evidenced by the price of its common stock
which, at year end, had grown to $1-15/16, the highest in years. Employee morale
is also high, and the organization is committed to improving performance.
While these are merely indications, they reflect the potential available to the
Company to return to substantial and stable profitability. All of us in the
Company are focused on that goal and on rewarding the shareholders for their
patience.
Sincerely,
H. P. Semmelhack
President
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Barrister Information Systems Corporation -- Annual Report 1996 Page 7
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- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended March 31
--------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 13,729 $ 15,327 $ 17,772 $ 16,165 $ 17,154
Net loss (205) (159) (1,334) (62) (2,180)
Net loss per common share(1) (.03) (.03) (.53) (.14) (1.92)
BALANCE SHEET DATA AT YEAR END:
Working capital 2,929 2,880 2,733 3,204 3,254
Total assets 6,978 6,544 7,447 7,711 8,566
Long-term debt(2) 1,392 3,329 3,406 3,330 3,693
Shareholders' equity 2,337 298 197 478 534
</TABLE>
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial data for the fiscal years
ended March 31, 1996 and March 31, 1995.
<TABLE>
<CAPTION>
----------------------------------------------------
1st 2nd 3rd 4th Total
Quarter Quarter(3) Quarter Quarter Year
----------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
1996
Revenues $ 3,627 $ 3,332 $ 3,206 $ 3,564 $ 13,729
Earnings (loss) before extraordinary item 4 (177) (214) (304) (691)
Net earnings (loss)(2) 4 (177) (214) 182 (205)
Earnings (loss) before extraordinary item
per common share -- (.03) (.03) (.05) (.11)
Net earnings (loss) per common share -- (.03) (.03) .03 (.03)
1995
Revenues $ 3,965 $ 3,837 $ 3,792 $ 3,733 $ 15,327
Net earnings (loss) (265) 35 36 35 (159)
Net earnings (loss) per common share (.06) .01 .01 .01 (.03)
- --------
<FN>
(1) See note 2 to the financial statements.
(2) See notes 2 and 3 to the financial statements.
(3) The second quarter results for 1996 differ from those previously
reported. The restatement reflects the reversal of a $282,000
extraordinary gain related to debt forgiveness by BIS Partners, L.P.
The restated results reflect the gain as a contribution to capital due
to the related party nature of the transaction.
</TABLE>
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Page 8 Barrister Information Systems Corporation -- Annual Report 1996
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table sets forth for the periods indicated (i) the percentage
which each item reflected in the statements of operations bears to total
revenues and (ii) the percentage change of such items as compared with the
indicated prior period.
<TABLE>
<CAPTION>
----------------------------------------------
Period to Period
Percentage of Total Revenues Percentage
Year Ended March 31 Increase (Decrease)
----------------------------------------------
1996 1995
vs. vs.
1996 1995 1994 1995 1994
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales 13.0% 16.8% 32.6% (30.9%) (55.4%)
Services 87.0 83.2 67.4 (6.3) 6.4
------ ------ ------
Total revenues 100.0 100.0 100.0 (10.4) (13.8)
------ ------ ------
Costs and expenses:
Cost of product sales(1) 43.2 73.5 82.9 (59.4) (60.4)
Cost of services(2) 85.8 80.4 83.8 0.0 2.1
------ ------ ------
Total cost of revenues 80.2 79.2 83.5 (9.3) (18.1)
Selling, general, and
administrative 20.4 16.7 18.3 9.6 (21.5)
Product development and
engineering 3.2 3.5 4.2 (17.0) (29.1)
------ ------ ------
Total costs and expenses 103.8 99.4 106.0 (6.4) (19.2)
------ ------ ------
Operating earnings (loss) (3.8) 0.6 (6.0)
Interest expense 1.2 1.6 1.5 (35.2) (3.1)
------ ------ ------
Loss before extraordinary item (5.0) (1.0) (7.5)
Extraordinary item 3.5 -- --
------ ------ ------
Net loss (1.5) (1.0) (7.5)
====== ====== ======
- --------
<FN>
(1) Percentage of product sales
(2) Percentage of services revenues
</TABLE>
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Barrister Information Systems Corporation -- Annual Report 1996 Page 9
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OVERVIEW
The following discussion and analysis provides information that
management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. The
discussion should be read in conjunction with the financial statements
and accompanying notes. The Company operates predominantly in the
computer services industry. Its principal source of revenues is derived
from hardware maintenance services on PC related equipment provided to
a broad base of customers throughout the United States. The Company
also derives significant revenues from the licensing of software and
software support services principally to the legal industry. The
Company's major product, Javelan, is a time and billing and practice
management system based on Microsoft Windows and client/server
technology.
Recently, the Company has sold Javelan to accounting firms, consultants
and departments of Fortune 1000 companies. The Company expects to
expand marketing in these areas by attending trade shows and group
conferences in these markets and by establishing strategic
relationships with others to enhance sales. If successful, this will
reduce the Company's concentration in the legal market and reduce
potential volatility of sales. The market for Javelan is characterized
as having potential customers concentrated in major cities throughout
the United States, having little foreign competition, having high
barriers of entry based on the substantial investment required to
develop the sophisticated functionality of the software, having product
life cycles between 5 and 10 years and having price elasticity. Pricing
for Javelan is based on functions licensed and the size of the system
sold. Since individual sales can be for sizable amounts and are
characterized by high margins, and because the timing of when contracts
are signed is unpredictable, operating results for any given period can
vary significantly. Because of competition, market demands and changing
technology, there is a continuing requirement to invest in product
features and functions to remain a viable competitor. The Company
believes that it has the technological expertise to maintain a
state-of-the-art product and that the trend of increasing sales of
Javelan will provide the financing for its product development needs.
The hardware maintenance business has been generated through direct
sales to end users and subcontracts from other companies. The market
for hardware maintenance services is very large; it encompasses all
businesses, is highly price competitive, has low technological barriers
to entry and the equipment serviced has short product life cycles.
RESULTS OF OPERATIONS
The decrease in product sales for fiscal 1996 as compared to 1995 and
for fiscal 1995 as compared to 1994 resulted from a de-emphasis on the
sale of low margin commodity products. However, the percentage of
margin realized on product sales increased for both years based
primarily on increased sales of the Company's Javelan software product
which has a smaller associated cost of sales. Margins on Javelan sales,
which can include
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various hardware and third party software in addition to the Company
developed software, generally amount to between 60% and 100% depending
on the configuration of the sale. Margins on commodity products sold
generally range from 10% to 15%. Based on the increased level of
Javelan sales, higher levels of qualified prospects and initial sales
outside the legal market, the Company expects to achieve further
increases in Javelan sales in fiscal 1997 which should have a favorable
effect on margins in that year.
The decrease in services revenues for fiscal 1996 as compared to 1995
was principally due to decreased revenues from hardware maintenance
services. These revenues were affected by the non-renewal of two large
subcontracts from IBM in August 1995 and the reduction in contracts for
the Company's older minicomputer equipment. Revenues from IBM accounted
for 30%, 28% and 11% of total revenues for fiscal years 1996, 1995 and
1994, respectively. Since IBM is reducing the amount of subcontracting
it does in the PC equipment market, the Company expects that revenues
from this customer will drop as a percentage of total revenues in
fiscal 1997. IBM may terminate its contracts with the Company with 30
days advance notice. As a result, the Company has increased its efforts
to obtain business by signing new contracts from additional outsourcing
opportunities, from recently established business partners and through
direct sales. The Company hired a National Sales Manager in the third
quarter of fiscal 1996 to head the marketing and sales effort for
hardware services. If IBM were to cancel a major portion of its
subcontracts to the Company, or if the Company's sales and marketing
efforts are unsuccessful, an adverse impact on the Company's results of
operations for fiscal 1997 could occur. Margins on services revenues
decreased for the comparable periods as the cost of providing services
remained about the same on lower services revenues. Savings in labor
costs were offset by increased costs for parts utilized to maintain
equipment which included the expensing of minicomputer spare parts no
longer required to service the reduced level of minicomputer equipment
under contract. Cost of services includes a provision for service parts
inventory deemed to be no longer repairable or excess to the Company's
needs based on actual and projected service revenues. The amount of
such charges were $1,045,000, $689,000 and $371,000 for 1996, 1995 and
1994, respectively. Cost of services for 1994 also included an
additional inventory adjustment of $624,000 in the fourth quarter
related to the Company's ongoing review of the level of its inventory
relative to its service revenue base. The increase in services revenues
for fiscal 1995 as compared to 1994 resulted from new hardware
maintenance contracts which exceeded expiring contracts. Approximately
70% of these new contracts were obtained from subcontracts awarded by
IBM. Margins on service revenues increased for fiscal 1995 as compared
to 1994 primarily by controlling overhead expenses at or below 1994
levels on the increased level of revenues.
The increase in selling, general and administrative expenses as a
percentage of total revenues for fiscal 1996 as compared to 1995
resulted from an increase in selling expenses associated with the
Javelan product, increased corporate expenses and lower levels of
revenues. When fiscal 1995 is compared to 1994, a decrease in selling,
general and administrative expenses as a percentage of revenues was
incurred due essentially to reductions in selling and marketing
expenses associated with the de-emphasis of the sale
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Barrister Information Systems Corporation -- Annual Report 1996 Page 11
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of low margin commodity products.
Expenditures for product development and engineering, before taking
into account amounts capitalized and amortized for software production
costs, increased a small amount when fiscal 1996 is compared to 1995. A
decrease in these expenses occurred when fiscal 1995 is compared to
1994 based on cost cutting measures implemented by management. $308,000
of costs incurred in 1996 and $132,000 of costs incurred in 1995 were
capitalized as software production costs related to the Javelan
product. Amortization, which commenced in 1996, amounted to $59,000.
Interest expense as a percentage of revenues decreased for fiscal 1996
as compared to 1995 based on reductions in interest expense to BIS
Partners, L.P. This resulted from the effect of the debt forgiveness by
BIS Partners in August, 1995 (see note 3 to the financial statements).
The accounting treatment of this transaction stipulates that the debt
forgiveness must first be considered a reduction of all future interest
expense. All payments after August, 1995 are being recorded as
reductions in the principal balance of the loans. Interest expense as a
percentage of revenues increased for fiscal 1995 as compared to 1994
based on lower levels of revenues in 1995. The amount of interest
expense incurred in 1995 was slightly lower than 1994 based on interest
savings resulting from the conversion of $300,000 of debt by BIS
Partners into equity on March 31, 1994 and $250,000 of additional debt
into equity on July 1, 1994. Interest savings from these lower debt
levels were mostly offset by higher interest rates.
The Company realized an extraordinary gain of $486,000 from the
repayment in March, 1996 of a contingent debt of $886,000 for a
one-time payment of $400,000. Previously, repayment of this obligation
was contingent, based on a percentage of net income not to exceed
$200,000 per year with no payments required after 2001. Due to the
Company's series of losses, no repayment had been made on the
contingent debt. Before this extraordinary gain, the Company incurred a
loss of $691,000 compared to a loss of $159,000 in the prior year.
Based on the consideration of the weight of both positive and negative
evidence as required by Statement of Financial Accounting Standards No.
109, management has determined that it is more likely than not that the
deferred tax assets will not be realized. Therefore, no tax benefits
were established in the statements of operations for any of the years
in the three-year period ended March 31, 1996 since the Company has
fully reserved for the tax effect of net deductible temporary
differences and operating loss carryforwards. These benefits will be
recorded in future periods as they are realized or as their realization
becomes predictable.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced a net increase in cash of $1,014,000 during
fiscal 1996. Net proceeds of $1,952,000 received from the sale of
2,000,000 shares of common stock were used to repay $564,000 of
long-term debt and for additions to capitalized software
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Page 12 Barrister Information Systems Corporation -- Annual Report 1996
<PAGE> 14
of $308,000 and additions to equipment and leasehold improvements of
$82,000. In fiscal 1995, the Company experienced a net decrease in cash
of $620,000. The principal reasons for this decrease were the use of
$280,000 of cash by operating activities, the investment of $132,000 in
capitalized software and $80,000 in additions to equipment and
leasehold improvements and the net repayment of $163,000 of debt. In
fiscal 1994, the Company experienced a net increase in cash of
$376,000. Cash of $700,000 raised from the sale of common shares in a
private placement and an increase of $335,000 in borrowings were
partially offset by $306,000 of cash used by operating activities and
$369,000 invested in additions to equipment and leasehold improvements.
The principal cash requirements for fiscal 1997 are scheduled
repayments of $726,000 of long-term debt, investment in capitalized
software at levels that approximate those in fiscal 1996 and an
increase in additions to equipment and leasehold improvements over
amounts spent in the prior two years. Although BIS Partners forgave
$450,000 of debt and reduced the interest rate on the remaining debt in
fiscal 1996, the amount of debt service required for 1997 is
approximately the same since the repayment period was shortened from
five to three years. The Company expects to meet these cash
requirements by generating positive cash from operating activities and
using its cash balance of $1,198,000. Any income earned should not bear
taxes since the Company had use of net deductible temporary differences
and operating loss carryforwards of approximately $2,868,000 at March
31, 1996. Another potential source of cash would be the exercise of the
$1.75 and/or the $2.25 Warrants that were issued in connection with the
sale of common stock in March, 1996. If all the Warrants were
exercised, the Company would realize $3,000,000 in additional cash. The
Warrants are callable by the Company upon the occurrence of certain
conditions. The Company's agreement with BIS Partners, L.P. ("BIS") to
provide the Company a $500,000 line of credit expires June 30, 1996.
Maximum borrowings under this line were $150,000 and no borrowings were
outstanding at fiscal year end. BIS does not intend to renew the
agreement. The Company is planning to replace all or a portion of this
line by increasing its borrowings with Key Bank of New York or through
other sources that may be available.
If the Company is unsuccessful in returning to profitability, there can
be no assurance that it will be able to generate positive cash flow
from operations or that its cash balance will be sufficient to meet
required debt repayments and capital expenditures for software and
equipment. Further, there can be no assurance that additional capital
or lines of credit will be available to the Company in those
circumstances.
ACCOUNTING PRONOUNCEMENTS
The Company is required to adopt Statements of Financial Accounting
Standards Nos. 121 (Accounting of the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of) and 123 (Accounting for
Stock Based Compensation) in fiscal 1997. The Company does not believe
that the adoption of either standard will have a material effect on the
financial statements. With respect to FAS 123, the Company does not
expect to adopt the fair value accounting provisions of the standard in
favor of the disclosure alternative.
================================================================================
Barrister Information Systems Corporation -- Annual Report 1996 Page 13
<PAGE> 15
================================================================================
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31
---------------
1996 1995
---------------
<S> <C> <C>
ASSETS (note 3)
CURRENT ASSETS:
Cash $1,198 $ 184
Accounts receivable, less allowance for doubtful
accounts of $100 in 1996 and $150 in 1995 1,578 1,565
Inventories:
Service parts 3,238 3,823
Other 132 182
------ ------
Total inventories 3,370 4,005
------ ------
Prepaid expenses 32 43
------ ------
Total current assets 6,178 5,797
------ ------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST:
Computer and other equipment 2,730 2,895
Furniture and fixtures 989 997
Leasehold improvements 284 292
------ ------
4,003 4,184
Less accumulated depreciation 3,617 3,619
------ ------
Net equipment and leasehold improvements 386 565
------ ------
SOFTWARE PRODUCTION COSTS 381 132
OTHER ASSETS 33 50
------ ------
$6,978 $6,544
====== ======
</TABLE>
================================================================================
Page 14 Barrister Information Systems Corporation -- Annual Report 1996
<PAGE> 16
================================================================================
<TABLE>
<CAPTION>
March 31
--------------------
1996 1995
--------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank (note 3) $ 250 $ 250
Current installments of long-term debt ($671 in 1996
and $37 in 1995 to a related party, notes 2 and 3) 726 96
Accounts payable 799 933
Accrued compensation and benefits 549 572
Customer advances and unearned revenue 841 956
Other accrued expenses 84 110
-------- --------
Total current liabilities 3,249 2,917
-------- --------
LONG-TERM DEBT, EXCLUDING
CURRENT INSTALLMENTS ($1,343 in 1996 and
$2,357 in 1995 to a related party, notes 2 and 3) 1,392 3,329
SHAREHOLDERS' EQUITY (notes 2 through 5):
Preferred stock, authorized 2,000,000 shares
Common stock, $.24 par value - -
Authorized 20,000,000 shares at March 31, 1996;
8,197,970 and 6,189,972 shares issued and
outstanding in 1996 and 1995, respectively 1,968 1,486
Additional paid-in capital 21,550 19,788
Accumulated deficit (21,181) (20,976)
-------- --------
Total shareholders' equity 2,337 298
-------- --------
COMMITMENTS AND CONTINGENCIES (notes 8 and 11)
$ 6,978 $ 6,544
======== ========
</TABLE>
See accompanying notes to financial statements
================================================================================
Barrister Information Systems Corporation -- Annual Report 1996 Page 15
<PAGE> 17
================================================================================
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended March 31
--------------------------------
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
REVENUES:
Product sales $ 1,784 $ 2,580 $ 5,787
Services 11,945 12,747 11,985
-------- -------- --------
Total revenues 13,729 15,327 17,772
-------- -------- --------
COSTS AND EXPENSES:
Cost of product sales 771 1,897 4,796
Cost of services 10,245 10,249 10,043
-------- -------- --------
Total cost of revenues 11,016 12,146 14,839
Selling, general and
administrative expenses 2,796 2,552 3,251
Product development and engineering 444 535 755
-------- -------- --------
Total costs and expenses 14,256 15,233 18,845
-------- -------- --------
OPERATING EARNINGS (LOSS) (527) 94 (1,073)
INTEREST EXPENSE:
Related party (note 3) 108 200 217
Other 56 53 44
-------- -------- --------
Total Interest 164 253 261
-------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEM (691) (159) (1,334)
EXTRAORDINARY GAIN ON EXTINGUISHMENT
OF DEBT (NOTE 3) 486 -- --
-------- -------- --------
NET LOSS $ (205) $ (159) $ (1,334)
======== ======== ========
PER COMMON SHARE:
LOSS BEFORE EXTRAORDINARY ITEM $ (.11) $ (.03) $ (.53)
EXTRAORDINARY ITEM .08 -- --
-------- -------- --------
NET LOSS $ (.03) $ (.03) $ (.53)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 6,320 5,663 2,495
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
================================================================================
Page 16 Barrister Information Systems Corporation -- Annual Report 1996
<PAGE> 18
================================================================================
STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Year Ended March 31
--------------------------------
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
SERIES A PREFERRED STOCK
Beginning balance $ -- $ -- $ 1,300
Conversion into 1,300 shares of Series D preferred stock -- -- (1,300)
-------- -------- --------
Ending balance -- -- --
-------- -------- --------
SERIES C PREFERRED STOCK
Beginning balance -- -- 1,760
Conversion into 1,760 shares of Series D preferred stock -- -- (1,760)
-------- -------- --------
Ending balance -- -- --
-------- -------- --------
SERIES D PREFERRED STOCK
Beginning balance -- 3,060 --
Issued 3,060 shares on conversion
of Series A and Series C preferred stock -- -- 3,060
Issued 1,000 shares on conversion of long-term debt -- 250 --
Conversion into 2,030,000 shares of common stock -- (3,310) --
-------- -------- --------
Ending balance -- -- 3,060
-------- -------- --------
COMMON STOCK
Beginning balance 1,486 994 569
Issued 100,000 shares and reclassified 120,000 shares on
cancellation of redemption feature of common stock -- -- 53
Issued 150,000 shares on conversion of long-term debt -- -- 36
Sale of 2,008,000 shares, 20,000 shares and 1,400,000 shares
in 1996, 1995, and 1994 respectively 482 5 336
Issued 2,030,000 shares on conversion of Series D
preferred stock -- 487 --
-------- -------- --------
Ending balance 1,968 1,486 994
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL
Beginning balance 19,788 16,960 16,332
Increase in redeemable common stock -- -- (41)
Cancellation of redemption feature of common stock -- -- 266
Conversion of long-term debt -- -- 39
Debt forgiven by BIS Partners, L.P. (note 3) 282 -- --
Sale of common shares 1,480 5 364
Conversion of Series D preferred stock -- 2,823 --
-------- -------- --------
Ending balance 21,550 19,788 16,960
-------- -------- --------
ACCUMULATED DEFICIT
Beginning balance (20,976) (20,817) (19,483)
Net loss (205) (159) (1,334)
-------- -------- --------
Ending balance (21,181) (20,976) (20,817)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY $ 2,337 $ 298 $ 197
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
================================================================================
Barrister Information Systems Corporation -- Annual Report 1996 Page 17
<PAGE> 19
================================================================================
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended March 31
---------------------------
1996 1995 1994
---------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (205) $(159) $(1,334)
Adjustments to reconcile loss to net cash
used by operating activities:
Depreciation 259 309 358
Amortization 59 -- --
Loss (gain) on disposal of equipment (3) 1 4
Extraordinary gain on extinguishment of debt (486) -- --
Changes in current assets and liabilities:
Accounts receivable (13) 288 95
Inventories 635 (126) 489
Prepaid expenses 11 (2) 47
Accounts payable (134) (216) 22
Accrued compensation and benefits (23) (245) --
Customer advances and unearned revenue (115) (59) 144
Other accrued expenses (26) (71) (131)
------- ----- -------
Net cash used by operating activities (41) (280) (306)
------- ----- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and leasehold improvements (82) (80) (369)
Proceeds on sale of equipment 5 10 2
Additions to software production costs (308) (132) --
Other 17 15 14
------- ----- -------
Net cash used by investing activities (368) (187) (353)
------- ----- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayment) on note payable to bank -- (250) 500
Proceeds from long-term debt 25 273 183
Repayment of long-term debt (564) (186) (348)
Proceeds from sale of common stock 1,962 10 700
------- ----- -------
Net cash provided (used) by financing activities 1,423 (153) 1,035
------- ----- -------
NET INCREASE (DECREASE) IN CASH 1,014 (620) 376
CASH AT BEGINNING OF YEAR 184 804 428
------- ----- -------
CASH AT END OF YEAR $ 1,198 $ 184 $ 804
======= ===== =======
SUPPLEMENTAL CASH FLOW INFORMATION (note 9)
</TABLE>
See accompanying notes to financial statements.
================================================================================
Page 18 Barrister Information Systems Corporation -- Annual Report 1996
<PAGE> 20
================================================================================
NOTES TO FINANCIAL STATEMENTS
March 31, 1996, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF ORGANIZATION - Barrister Information Systems
Corporation (the "Company") is a national supplier of
Windows-based client/server software for law firms, accounting
firms, consultants and departments of Fortune 1000 companies. In
addition, the Company provides equipment maintenance services on
a nationwide basis.
(b) BASIS OF PRESENTATION - The financial statements include the
accounts of Barrister Information Systems Corporation (the
Company). The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(c) REVENUE RECOGNITION - The Company's operations consist primarily
of providing computer software, hardware, and related services
under contractual arrangements. Revenues are recognized in
accordance with customer contracts and agreements, primarily upon
shipment of computer hardware or upon performance of services.
Revenues from maintenance contracts are recognized on a monthly
basis over the term of the contract. Software license revenue
(included in Product sales) is recognized upon delivery of the
software product to the customer, unless the Company has
significant related obligations remaining or the probability of
collection is in doubt. When obligations remain after delivery,
revenue is recognized when such obligations are no longer
significant.
(d) INVENTORIES - Inventories are stated at the lower of cost
(first-in, first-out) or market. Service parts inventory is
charged to cost of services when the part is no longer repairable
or becomes excess to the Company's needs based on actual and
projected service revenues.
(e) EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Depreciation is recorded
on the straight-line method based on the estimated useful lives
of the assets. Computer and other equipment and furniture and
fixtures are depreciated over estimated useful lives of three to
ten years. Improvements to leased property are depreciated over
the lesser of the term of the lease or the life of the
improvements.
(f) SOFTWARE PRODUCTION AND DEVELOPMENT COSTS - Capitalized software
production costs are carried at the lower of unamortized cost or
net realizable value, and are amortized based on current and
estimated future revenue for each product with minimum
amortization on the straight-line method over the estimated
economic life of the product. Capitalization ceases and
amortization commences when the product is available for general
release. All costs to establish the technological feasibility of
computer software products are charged to operations when
incurred. Technological feasibility is defined through the
existence of a detailed program design or, in the absence of
such, a working model.
(g) FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company follows the
disclosure requirements of Statement of Financial Accounting
Standards No. 107. The carrying amount of all financial
instruments is a reasonable estimate of their fair value, except
for the debt due BIS which, due to its nature, is not practicable
to estimate its fair value.
(h) PER SHARE DATA - Net earnings (loss) per share amounts are based
on the weighted average number of common and dilutive common
equivalent shares outstanding.
================================================================================
Barrister Information Systems Corporation -- Annual Report 1996 Page 19
<PAGE> 21
================================================================================
(2) RECAPITALIZATIONS
(a) On March 29, 1996, the Company completed a private placement
offering of 2,000,000 shares of common stock, resulting in net
proceeds of $1,952,000. As part of the offering, 1,750,000
warrants for the purchase of additional common stock were also
issued (note 5). Prior to the offering, a special meeting of
shareholders was held on March 6, 1996, in which the shareholders
approved an amendment to the Company's Certificate of
Incorporation increasing the Company's authorized common stock
from 10,000,000 to 20,000,000 shares and approved the sale of
common stock equal to 20% or more of the Company's then
outstanding stock for less than market value.
(b) On March 31, 1994, the Company completed a $700,000 private
placement of 1,400,000 shares of common stock. Additionally, the
following transactions were completed:
(i) Each share of Series A and C cumulative preferred stock was
converted into one share of Series D preferred stock. As
part of the conversion, all rights to cumulative unpaid
dividends ($692,000) on the Series A and C preferred stock
were waived. Accordingly, the net loss attributable to the
common shareholders for 1994 has been computed without
regard to preferred stock dividends. If these dividends had
been included, the net loss per common share would have been
$(.65).
(ii) BIS Partners, L.P. (BIS) converted $300,000 of long-term
debt into 150,000 common shares, and agreed to interest only
payments at prime rate plus 3 percent on its revised debt
for one year, with repayment in 48 equal installments
thereafter. These terms were subsequently revised as
described in note 3. The fair market value of the 150,000
common shares ($75,000) was used to measure the debt
reduction and stock issued. The remaining debt reduction
($225,000) was included in long-term debt and was being
recognized as reduced interest expense on the level yield
method over the remaining term of the debt. Ninety percent
of BIS is owned either directly or beneficially by certain
officers and directors of the Company. These same officers
and directors own approximately 42% of the Company's common
stock.
(iii) The redemption provision on 120,000 common shares was
waived by the shareholder in exchange for 100,000 additional
common shares.
(c) On April 4, 1994, BIS increased its working capital loan by
$250,000 which was used to repay $250,000 of the note payable to
bank.
(d) On July 1, 1994, BIS converted $250,000 of its term note into
1,000 shares of Series D preferred stock. As part of the
agreement, the Company agreed to increase the interest rate on
the remaining debt owed to BIS from the prime rate plus three
percent to the prime rate plus four percent.
On October 4, 1994, the shareholders approved an amendment to the Company's
Certificate of Incorporation providing for the automatic conversion of each
share of Series D preferred stock into 500 shares of common stock. The 1995
financial statements reflect this required conversion although the Company
has not yet issued the common share certificates to all affected
shareholders.
================================================================================
Page 20 Barrister Information Systems Corporation -- Annual Report 1996
<PAGE> 22
================================================================================
(3) NOTE PAYABLE AND LONG-TERM DEBT
The note payable to bank is on a demand basis and bears interest at the
prime rate plus 2 1/2 percent (10.75% at March 31, 1996). On June 27, 1995,
BIS provided the Company with a $500,000 line of credit available through
June 30, 1996. There were no borrowings under the line at year end. The
line of credit will not be renewed at its termination.
A summary of long-term debt follows:
<TABLE>
<CAPTION>
March 31
---------------
1996 1995
---------------
(in thousands)
<S> <C> <C>
Working capital note with BIS Partners, L.P.(a) $ 285 $ 285
Term note with BIS Partners, L.P.(a) 1,729 2,108
Other(b) 104 1,032
------ ------
Total long-term debt 2,118 3,425
Less current installments 726 96
------ ------
Long-term debt, excluding current installments $1,392 $3,329
====== ======
</TABLE>
(a) On August 31, 1995, BIS Partners, L.P. ("BIS") agreed to cancel
$450,000 of long-term debt and to reduce the interest rate on the
remaining debt to 8 percent. In addition, the repayment terms were
modified to interest-only through March 31, 1996, with repayment in 36
equal installments thereafter. In accordance with this agreement, the
Company reduced the amount of debt owed to BIS to equal the total cash
to be repaid to BIS for both principal and interest. This resulted in
a debt reduction of $282,000 which, due to the related party nature of
the transaction, was reflected as a contribution to capital. All
future payments to BIS will be recorded as a reduction in the debt
balance. In connection with this transaction, the Company issued
warrants to BIS to purchase 450,000 shares of its capital stock at
$1.93 per share (the fair market value at issue date), exercisable
through August 31, 2005. Principal repayments are to be applied first
to the working capital note.
Both notes are supported by an agreement granting a security interest
in all equipment, inventories and receivables to BIS. The agreement,
among other things, requires the Company to maintain certain financial
ratios, prohibits dividend payments, and restricts capital
expenditures, lease obligations and executive compensation. The
Company was in compliance with all covenants in the agreement except
for the interest coverage covenant which was waived by BIS for 1996
and 1995.
(b) Includes, in 1995, a non-interest bearing obligation of $886,000,
payable to a strategic business partner, upon the Company reaching
certain profitability levels. Payments were based on a percentage of
net income not to exceed $200,000 per year with no payments required
after 2001. In March 1996, the creditor agreed to a one-time payment
of $400,000 as full settlement on the debt. This transaction created
an extraordinary gain of $486,000 in the fourth quarter of 1996.
Payments on long-term debt are due as follows:
<TABLE>
<CAPTION>
Year Ending March 31 Amount (in thousands)
-------------------- ---------------------
<S> <C>
1997 $ 726
1998 708
1999 684
=====
</TABLE>
================================================================================
Barrister Information Systems Corporation -- Annual Report 1996 Page 21
<PAGE> 23
================================================================================
(4) CAPITAL STOCK
The Series A preferred stock is non-voting, has liquidation preference
rights over the Series C preferred stock and the common stock and is
redeemable by the Company at any time for $1,000 per share. Each share of
Series A preferred stock is convertible into 500 shares of common stock.
The rights to cumulative dividends totaling $410,000 were waived on March
31, 1994 (note 2).
The Series C preferred stock is non-voting, has liquidation preference
rights over the common stock, but has no redemption or conversion rights.
The rights to cumulative dividends totaling $282,000 were waived on March
31, 1994 (note 2).
Each share of Series D preferred stock carries voting rights equal to 500
common shares, participates equally and ratably in payment of dividends
with the common shares, and automatically converted into common stock upon
shareholder approval of the 1994 increase in the authorized number of
common shares (note 2).
Prior to March 31, 1994, 120,000 shares of common stock had a redemption
provision (note 2).
(5) STOCK OPTIONS AND WARRANTS
The Company has a stock incentive plan to which it currently has allocated
600,000 shares of its authorized common stock to be offered to key
employees and directors. Under the plan, options are granted at prices
determined by the Compensation Committee of the Board of Directors but not
at a price less than the stock's market value at date of grant. The options
granted may qualify as incentive stock options and are exercisable over a
period of ten years. Options for 225,000 shares were exercisable at March
31, 1996.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
Shares Under Option at March 31
-------------------------------
1996 1995 1994
-------------------------------
(in thousands)
<S> <C> <C> <C>
Outstanding, beginning of year 492 189 157
Granted 79 361 40
Canceled (45) (38) (8)
Exercised (per share) at $1.25 in 1996 and $.50 in 1995 (8) (20) --
---- ---- ----
Outstanding, end of year (at prices
ranging from $.50 to $1.25) 518 492 189
==== ==== ====
Reserved for grant, end of year 51 85 108
==== ==== ====
</TABLE>
The following warrants are outstanding at March 31, 1996:
<TABLE>
<CAPTION>
Number of Shares Exercise Price Expiration Date
---------------- -------------- ---------------
<S> <C> <C>
750,000 $ 1.75 March 29, 1998
750,000 2.25 March 29, 1998
250,000 1.36 March 29, 2001
450,000 1.93 August 31, 2005
</TABLE>
The $1.75 and $2.25 warrants were issued in conjunction with the sale of
2,000,000 shares of common stock which occurred on March 29, 1996 (note 2).
The exercise price is subject to adjustment in certain
================================================================================
Page 22 Barrister Information Systems Corporation -- Annual Report 1996
<PAGE> 24
================================================================================
circumstances, and the Company can call the warrants at any time after the
market price exceeds the exercise price by approximately 40% for a period
of 20 consecutive days. The $1.36 warrants were issued to the placement
agent in conjunction with the stock offering and contain certain
antidilution provisions as well as certain registration rights. The $1.93
warrants were issued on August 31, 1995 when the Company entered into a
modification agreement in which BIS Partners agreed to forgive $450,000 in
debt (note 3).
(6) PENSION AND SAVINGS PLAN
The Company has a defined contribution retirement plan covering all
eligible employees. The Company partially matches employee contributions to
the Plan. Expense under the plan was $21,000 in 1996, $20,000 in 1995 and
$21,000 in 1994.
(7) INCOME TAXES
There were no tax benefits established in the statements of operations for
any of the years in the three year period ended March 31, 1996 since the
Company has fully reserved for the tax effect of net deductible temporary
differences and operating loss carryforwards as management has determined
that, under the criterion of FAS No. 109, it is more likely than not that
the deferred tax assets will not be realized.
The components of deferred tax assets fully reserved (computed using an
expected effective tax rate) are as follows:
<TABLE>
<CAPTION>
----------------
1996 1995
----------------
(in thousands)
<S> <C> <C>
Net operating loss carryforwards $ 635 $ 470
Inventory write downs 304 280
Inventory costs capitalized 56 32
Depreciation 81 48
Software revenue - 15
Vacation pay 76 74
Bad debt allowance 40 51
Software production costs (152) (45)
Debt extinguishment 91 -
Other 16 16
------- -----
$ 1,147 $ 941
======= =====
</TABLE>
The issuance of new shares as part of the March 31, 1994 recapitalization
resulted in an ownership change as defined under Section 382 of the
Internal Revenue Code. The ownership change limits the future use of the
net operating loss and credit carryforwards created prior to the ownership
change. The pre-ownership change loss carryforward can be utilized at the
rate of $80,000 per year. After application of this limitation, $1,586,000
of tax loss carryforward is available through 2011.
(8) LEASE COMMITMENTS
The Company conducts its operations from leased facilities and uses certain
equipment primarily under operating lease arrangements. Real estate taxes,
insurance, and maintenance expenses are obligations of the Company. It is
expected that in the normal course of business, leases that expire will be
renewed or replaced. Total rental expense was $744,000 in 1996, $818,000 in
1995 and $855,000 in 1994.
Future minimum rental payments required under leases that have initial or
remaining noncancellable lease terms in excess of one year are: $426,000 in
1997, $97,000 in 1998, $61,000 in 1999, and $61,000 in 2000.
================================================================================
Barrister Information Systems Corporation -- Annual Report 1996 Page 23
<PAGE> 25
================================================================================
(9) SUPPLEMENTAL CASH FLOW INFORMATION
The following provides supplemental cash flow data:
<TABLE>
<CAPTION>
--------------------
1996 1995 1994
--------------------
(in thousands)
<S> <C> <C> <C>
Interest paid $245 $ 170 $261
==== ====== ====
Non-cash financing activities:
Debt forgiven by BIS Partners, L.P. $282 $ -- $ --
Conversion of long-term debt to common
and preferred stock -- 250 75
Conversion of preferred stock to common stock -- 3,310 --
Cancellation of redemption rights on
redeemable common stock -- -- 319
==== ====== ====
</TABLE>
(10) MAJOR CUSTOMER
Sales to the Company's largest customer accounted for 30%, 28% and 11% of
total revenues for 1996, 1995 and 1994, respectively. The Company performs
hardware maintenance services for end users under various subcontracts from
this customer. These subcontracts can be canceled with 30 days notice.
(11) CONTINGENCIES
The Company is a party to various legal proceedings incidental to its
business. Management believes that none of these legal proceedings will
have a material adverse effect on the Company's financial position, results
of operations or liquidity.
(12) BUSINESS OUTLOOK
Although the Company continued to experience difficult financial conditions
as evidenced by its operating loss and the reductions in service's revenues
and margins, it took significant steps to improve its balance sheet in
fiscal 1996. New equity of $1,962,000 was obtained, debt was reduced by
$1,307,000 and the Company's cash balance increased to $1,198,000.
The Company's outlook for fiscal 1997 is for improved operating results
primarily from expected increases in Javelan sales which have high gross
margins. Despite the expected reduction in revenue from the Company's major
customer, new sales leadership and market strategies are expected to bring
improved results in the Company's hardware maintenance business.
If the Company is unsuccessful in returning to profitability, there can be
no assurance that it will be able to generate positive cash flow from
operations or that its cash balance will be sufficient to meet required
debt repayments and capital expenditures for software and equipment.
Further, there can be no assurance that additional capital or lines of
credit will be available to the Company in those circumstances.
================================================================================
Page 24 Barrister Information Systems Corporation -- Annual Report 1996
<PAGE> 26
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Barrister Information Systems Corporation:
We have audited the accompanying balance sheets of Barrister Information Systems
Corporation as of March 31, 1996 and 1995, and the related statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Barrister Information Systems
Corporation as of March 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the years in the three-year period ended March 31,
1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Buffalo, New York
June 21, 1996
================================================================================
Barrister Information Systems Corporation -- Annual Report 1996 Page 25
<PAGE> 27
================================================================================
STOCK MARKET AND DIVIDEND INFORMATION
The Company's common stock is traded on the American Stock Exchange under
the symbol "BIS". For the periods indicated below, the following table sets
forth the high and low closing bid or last trade prices as reported by AMEX.
<TABLE>
<CAPTION>
Price Range
--------------------------------
<S> <C> <C>
Quarter Ended High Low
July 1, 1994 5/8 3/8
September 30, 1994 9/16 3/8
December 30, 1994 11/16 3/8
March 31, 1995 11/16 3/8
June 30, 1995 1 7/16 7/16
September 29, 1995 2 1 1/16
December 29, 1995 1 3/4 1 1/8
March 31, 1996 1 15/16 1 1/4
</TABLE>
The Company's common stock was held by approximately 640 shareholders of
record as of June 13, 1996.
The Company has not paid any cash dividends on its common stock and the
board of directors intends to follow a policy of retaining earnings for use
in the business. Under the Company's loan agreement, the payment of
dividends is prohibited without the lender's consent. Accordingly, it is
not anticipated that cash dividends will be paid to holders of common stock
in the foreseeable future.
TRANSFER AGENT, REGISTRAR
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Telephone: (718) 921-8200
================================================================================
Page 26 Barrister Information Systems Corporation -- Annual Report 1996
<PAGE> 28
================================================================================
ANNUAL MEETING
The annual meeting of shareholders will take place at 10:00 a.m. on
Thursday, August 8, 1996 at:
Buffalo and Erie County Public Library Auditorium
Clinton and Ellicott Streets
Buffalo, New York 14203
SHAREHOLDERS INQUIRIES
Address all shareholder inquiries to:
Secretary
Barrister Information Systems Corporation
465 Main Street
Buffalo, New York 14203
Telephone: (716) 845-5010
================================================================================
<TABLE>
<S> <C>
DIRECTORS
Henry P. Semmelhack Richard E. McPherson
Chairman and President Retired; Former Vice President
Barrister Information Systems Corporation Barrister Information Systems Corporation
Franklyn S. Barry, Jr. James D. Morgan
Private Investor Vice President and Chief Scientist
Comptek Research, Inc.
Richard P. Beyer
Vice President, Finance James Page
Barrister Information Systems Corporation Chief Analyst
Boxall Asset Management of Great Britain
Warren E. Emblidge, Jr.
President Jose Rivero
S. J. McCullagh, Inc. Vice President, Services Division
Barrister Information Systems Corporation
OFFICERS
Henry P. Semmelhack Mark J. Phillips
President and Chairman Vice President, Sales
Richard P. Beyer Jose Rivero
Vice President, Finance and Treasurer Vice President, Services Division
Mark C. Donadio
Secretary and General Counsel
</TABLE>
================================================================================
Barrister Information Systems Corporation -- Annual Report 1996 Page 27
<PAGE> 29
- --------------------------------------------------------------------------------
BARRISTER INFORMATION SYSTEMS CORPORATION OFFICES
- --------------------------------------------------------------------------------
CORPORATE
465 Main Street
Buffalo, NY 14203
716-845-5010
FAX: 716-845-5033
ATLANTA
One Georgia Center
Suite 1950
600 W. Peachtree St., NW
Atlanta, GA 30308
404-873-4445
BOSTON
45 Pond Street
Norwell, MA 02061
617-356-3995
CHICAGO
55 East Monroe
Mezzanine Level
Chicago, IL 60603
312-782-0563
CLEVELAND
The Atrium Office Plaza
668 Euclid Avenue
Suite 310A
Cleveland, OH 44114
216-575-7570
DENVER
518 17th Street
Suite 913
Denver, CO 80202
303-534-5819
HARTFORD
701 Hebron Ave.
Glastonbury, CT 06033
203-659-1178
LOS ANGELES
4201 Wilshire Blvd.
Suite 515
Los Angeles, CA 90010
213-549-0511
MIAMI
5825 Sunset Drive.
Suite 308
Miami, FL 33143
305-667-6908
NEW HAMPSHIRE
500 Harvey Road
P.O. Box 4015
Manchester, NH 03108
603-645-4430
NEW YORK CITY
42 Broadway, Suite 1801
New York, NY 10004
212-344-1240
PHILADELPHIA
1930 East Marlton Pike
Suite K-57
Cherry Hill, NJ 08003
609-424-8771
SAN DIEGO
6046 Cornerstone Ct. W.
Suite 102
San Diego, Ca 92121
619-535-9294
WASHINGTON/
ARLINGTON
2000 14th St. N., Suite 700
Arlington, VA 22201
703-524-9400
TimeManager and Barrister/Eagle are trademarks, Javelan and Barrister are
registered trademarks and Barrister is a service mark of Barrister Information
Systems Corporation. Windows, Windows NT, and SQL Server are trademarks and
Microsoft is a registered trademark of Microsoft Corporation.
Copyright(C) 1996 Barrister Information
Systems Corporation. All rights
reserved.
================================================================================
Page 28 Barrister Information Systems Corporation -- Annual Report 1996
<PAGE> 1
BARRISTER INFORMATION SYSTEMS CORPORATION
EXHIBIT 24 - KPMG PEAT MARWICK LLP
CONSENT REGARDING FORMS S-8
<PAGE> 2
Independent Auditors' Consent
- -----------------------------
The Board of Directors
Barrister Information Systems Corporation:
We consent to incorporation by reference in the registration statements (No.
33-8749 and 33-23309) on Form S-8 of Barrister Information Systems Corporation
of our reports dated June 21, 1996 relating to the balance sheets of Barrister
Information Systems Corporation as of March 31, 1996 and 1995, and the related
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended March 31, 1996, and the related schedule
which reports appear in or are incorporated by reference in the March 31, 1996
annual report on Form 10-K of Barrister Information Systems Corporation.
KPMG Peat Marwick LLP
Buffalo, New York
July 1, 1996
Page -24-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 1,198
<SECURITIES> 0
<RECEIVABLES> 1,578
<ALLOWANCES> 0
<INVENTORY> 3,370
<CURRENT-ASSETS> 6,178
<PP&E> 4,003
<DEPRECIATION> 3,617
<TOTAL-ASSETS> 6,978
<CURRENT-LIABILITIES> 3,249
<BONDS> 1,392
<COMMON> 1,968
0
0
<OTHER-SE> 369
<TOTAL-LIABILITY-AND-EQUITY> 6,978
<SALES> 1,784
<TOTAL-REVENUES> 13,729
<CGS> 771
<TOTAL-COSTS> 11,016
<OTHER-EXPENSES> 3,240
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164
<INCOME-PRETAX> (691)
<INCOME-TAX> 0
<INCOME-CONTINUING> (691)
<DISCONTINUED> 0
<EXTRAORDINARY> 486
<CHANGES> 0
<NET-INCOME> (205)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
