<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 26, 1997
-------------------------------------
Commission File Number 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
-----------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report.)
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
------- -------
Class Outstanding at November 4, 1997
- --------------------------- ------------------------------------------
Common $.24 Par Value 8,206,365 Shares
<PAGE> 2
BARRISTER INFORMATION SYSTEMS CORPORATION
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
Item 1. Financial Statements
Condensed Balance Sheets at
September 26, 1997 and March 31, 1997............................ 3
Condensed Statements of Operations -
Three and Six Months Ended September 26, 1997
and September 27, 1996........................................... 4
Statement of Shareholders' Equity -
Six Months Ended September 26, 1997.............................. 5
Condensed Statements of Cash Flows -
Six Months Ended September 26, 1997
and September 27, 1996........................................... 6
Notes to Condensed Financial Statements.......................... 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................................ 8
PART II. OTHER INFORMATION
Item 4. Submission of matters to a Vote of Security Holders.. 11
Item 6. Exhibits and Reports on Form 8-K..................... 11
3
<PAGE> 3
PART I. FINANCIAL INFORMATION
BARRISTER INFORMATION SYSTEMS CORPORATION
Condensed Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
September 26, March 31
1997 1997
-------- --------
ASSETS
<S> <C> <C>
Cash $ 162 $ 226
Accounts receivable 3,070 2,598
Inventories:
Service parts 2,814 2,826
Other 103 146
Prepaid expenses 28 67
-------- --------
Total current assets 6,177 5,863
-------- --------
Equipment and leasehold
improvements, at cost 4,133 4,125
Less accumulated depreciation 3,730 3,666
-------- --------
Net equipment and leasehold
improvements 403 459
-------- --------
Software production costs 618 595
Other assets 38 36
-------- --------
$ 7,236 $ 6,953
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable to bank $ 250 $ 250
Current installments of long term debt 114 99
Accounts payable 1,554 1,119
Accrued compensation and benefits 489 642
Customer advances and unearned revenue 1,394 1,320
Other liabilities 127 67
-------- --------
Total current liabilities 3,928 3,497
-------- --------
Long-term debt, excluding current installments
($1,427 in September and $1,475 in March
to a related party) 1,441 1,504
Shareholders' equity:
Preferred stock -- --
Common stock ($.24 par value) 1,969 1,968
Additional paid-in capital 21,551 21,551
Accumulated deficit (21,653) (21,567)
-------- --------
Total shareholders' equity 1,867 1,952
-------- --------
$ 7,236 $ 6,953
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
BARRISTER INFORMATION SYSTEMS CORPORATION
Condensed Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------- --------------------
Sept. 26 Sept. 27 Sept. 26 Sept. 27
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 423 $ 509 $ 934 $ 1,119
Services 3,826 2,745 7,542 5,550
------- ------- ------- -------
Total revenues 4,249 3,254 8,476 6,669
------- ------- ------- -------
Costs and expenses:
Cost of product sales 128 239 260 440
Cost of services 3,012 2,154 5,934 4,446
------- ------- ------- -------
Total cost of revenues 3,140 2,393 6,194 4,886
Selling, general and
administrative expenses 953 758 1,901 1.551
Product development and
engineering 198 126 370 234
------- ------- ------- -------
Total costs and expenses 4,291 3,277 8,465 6,671
------- ------- ------- -------
Operating income (loss) (42) (23) 11 (2)
Interest expense
Related party 37 - 75 -
Other 12 10 22 16
------- ------- ------- -------
Total interest 49 10 97 16
------- ------- ------- -------
Net loss $ (91) $ (33) $ (86) $ (18)
======= ======= ======= =======
Net loss per common and
common equivalent share $ (0.01) $ 0.00 $ (0.01) $ 0.00
======= ======= ======= =======
Weighted average number of
common and common equivalent
shares outstanding 8,202 8,201 8,389 8,640
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
BARRISTER INFORMATION SYSTEMS CORPORATION
Statement of Shareholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
------- -------- -------- ------
<S> <C> <C> <C> <C>
Balance at March 31, 1997 $ 1,968 $ 21,551 $(21,567) $1,952
Sale of 1,666 common shares
under stock option plan 1 1
Net loss (86) (86)
------- -------- -------- ------
Balance at September 26, 1997 $ 1,969 $ 21,551 $(21,653) $1,867
======= ======== ======== ======
</TABLE>
Common stock - 8,202,965 and 8,201,300 shares issued and
outstanding at September 26, 1997 and March 31,
1997 respectively.
See accompanying notes to condensed financial statements.
5
<PAGE> 6
BARRISTER INFORMATION SYSTEMS CORPORATION
Condensed Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------
September 26, September 27,
1997 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (86) $ (18)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization 193 154
Changes in current assets and liabilities:
Accounts receivable (472) (430)
Inventories 55 293
Prepaid expenses 39 2
Accounts payable 435 (9)
Accrued compensation and benefits (152) (178)
Customer advances and unearned revenues 74 18
Other liabilities 60 56
----- -------
Net cash provided (used)
by operating activities 146 (112)
----- -------
Cash flows from investing activities:
Additions to equipment and leasehold
improvements (25) (239)
Capitalized software (135) (147)
Other (2) -
----- -------
Net cash used in investing activities (162) (386)
----- -------
Cash flows from financing activities:
Net repayment of debt
(49) (341)
Proceeds from stock
1 1
----- -------
Net cash used by financing activities (48) (340)
----- -------
Net decrease in cash (64) (838)
Cash at beginning of period 226 1,198
----- -------
Cash at end of period $ 162 $ 360
===== =======
Supplemental disclosure of cash flow information:
Interest paid $ 46 $ 16
===== =======
</TABLE>
See accompanying notes to condensed financial statements.
6
<PAGE> 7
BARRISTER INFORMATION SYSTEMS CORPORATION
Notes to Condensed Financial Statements
1. In the opinion of Management, the accompanying financial statements
present fairly the financial position, results of operations and cash flows for
the periods shown. The second quarter results for each year represent thirteen
weeks of operations ended Friday, September 26, 1997 and Friday, September 27,
1996. The financial data included herein was compiled in accordance with the
same accounting policies applied to the Company's audited annual financial
statements. Any adjustments made were of a normal recurring nature.
The results of operations for the six month period ended September 26,
1997 are not necessarily indicative of the results to be expected for the full
year.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
The Company experienced a net decrease in cash of $64,000 for the first six
months of fiscal 1998. This compares to a net decrease of $838,000 in cash for
the comparable period last year. Cash used in investing activities of $162,000
and for debt repayment of $49,000 were partially offset by net cash provided by
operating activities of $146,000. As a result, the Company's cash balance
decreased from $226,000 at March 31, 1997 to $162,000 at September 26, 1997.
The principal cash requirements for fiscal 1998 are investments in capitalized
software at levels that approximate those in fiscal 1997 and additions to
equipment and leasehold improvements that are expected to be lower than amounts
spent in fiscal 1997. Debt repayments should approximate $100,000 which is a
significant reduction over amounts repaid in the prior two years. This reduction
is based on an agreement reached with BIS Partners, L.P. in March, 1997, to
lengthen the repayment period of their note with lower monthly repayments in the
earlier years. This agreement will result in an increase in interest expense in
fiscal 1998. The Company expects to meet these cash requirements by generating
positive cash flow from operating activities. Any income earned should not
require cash payments for taxes, since the Company has use of net deductible
temporary differences and operating loss carryforwards of approximately
$3,212,000 at March 31, 1997. The Company expects to achieve growth in both
product sales and services revenues in fiscal 1998. Javelan sales have grown in
each of the past three years and another year of growth is foreseen. This growth
should be aided by the need of companies to replace their current software
before the year 2000, since many older software packages were not designed to
handle the year 2000 in system calculations. Increased Javelan sales will also
lead to an increase of associated installation, training and conversion
revenues. Expectations are that the downward trend in services revenues will be
reversed in 1998. A number of agreements have been signed with new business
partners and an increase in new contracts have been realized during the first
six months. An added operating cash benefit to a number of these agreements is
the sale of warranty upgrade contracts which generally have terms up to three
years and are prepaid at the time the contract is signed. Also, the Company is
currently working on a arrangement with an asset-based lender which if
successfully completed would provide additional borrowing capacity. If the $1.75
and/or the $2.25 warrants that were issued in connection with the sale of the
common stock in March, 1996, were exercised, the Company would realize
$3,000,000 in additional cash. However, these warrants expire in March, 1998,
and the price of the Company's stock is currently less than the exercise price
of the warrants. Even if the price of the Company's stock should increase, there
can be no assurance that the warrants would be exercised.
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 sufficient cash will be available to meet its required obligations.
Further, there can be no assurance that borrowing will be available from
asset-based lenders or that other sources of cash will be available.
8
<PAGE> 9
RESULTS OF OPERATIONS
- ---------------------
For the quarter ended September 26, 1997, total revenues increased 30.6% over
the same quarter in 1996, with a net loss of $91,000 compared to a net loss of
$33,000 in the second quarter of the prior year. For the six month period ended
September 26, 1997, total revenues increased 27.1% compared with the six months
ended September 27, 1996. The six month net loss was $86,000 compared to a net
loss of $18,000 incurred in the comparable period for the prior year. Increased
services revenues and improved margins on those revenues were offset by
increased product development and engineering expenses, increased selling,
general and administrative expenses and higher interest expense.
Product sales declined 16.9% for the comparable second quarters, and 16.5% for
the comparable first six months based on a decrease in the sale of low margin
commodity products. A small increase in the sale of Javelan, the Company's
Windows based management software product, was realized for the comparable six
month periods. Margins on product sales improved from 53.0% to 69.7% for the
comparable second quarters and from 60.7% to 72.2% for the comparable six month
periods. The improvement in margins resulted from a higher percentage of product
sales being attributed to Javelan. Margins on Javelan sales, which can include
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.
Services revenues increased 39.4% for the comparable second quarters and 35.9%
for the comparable six month periods based on increased revenues from hardware
maintenance contracts, hardware time and material services and installation,
training, conversion and custom programming services associated with the sale of
Javelan. The increase in hardware maintenance contracts resulted from two large
contracts sold directly to end users and initial contracts received from
recently established business partners. The Company has signed a number of
business partnership arrangements with equipment resellers to provide hardware
maintenance services to their customers. Expectations are that these
arrangements will provide additional contracts in subsequent quarters. The
increase in hardware time and material services were primarily a result of a
contract signed with a large equipment reseller in the third quarter of last
fiscal year to provide hardware maintenance services on a nationwide basis.
Based on the high level of expenses being incurred to provide services under
this contract, an agreement was reached to significantly curtail the amount of
services being provided in future quarters. The increase in Javelan associated
services is a direct result of the increase in Javelan sales realized in fiscal
1997. These services will lag the product sales by one to six months or more
depending on the size of the sale and the pace of the installation desired by
the customer. The percentage of margin on services revenues was approximately
the same for the comparable second quarters and increased from 19.9% to 21.3%
for the comparable six month periods. The increase was primarily based on
margins generated from the increase in Javelan associated services.
Selling, general and administrative expenses decreased from 23.3% to 22.4% of
total revenues for both the second quarters and six month periods. The increase
in the amount of expenses incurred resulted from increased selling expenses
associated with the Company's efforts to grow both Javelan sales and hardware
maintenance services.
9
<PAGE> 10
Product development and engineering expenses, before taking into account amounts
capitalized and amortized for software production costs, decreased from 4.8% to
4.4% of total revenues for the comparative second quarters and from 4.9% to 4.6%
for the comparative six month periods. The increase in the amount of expenses
incurred came about from planned increases in this area to further enhance
Javelan and from higher amortization of software production costs.
The increase in interest expense for the comparable second quarters and six
month periods resulted from a renegotiation of the repayment terms of the note
with BIS Partners, L.P. ("BIS"). The accounting treatment of certain debt
forgiveness by BIS in August, 1995, stipulated that the debt forgiveness must
first be considered a reduction of all future interest expense. As a result, all
payments made from September, 1995, through March, 1997, were recorded as
reductions in the principal balance of the loan. In March, 1997, the Company
renegotiated the terms of its agreement with BIS, extending the repayment
schedule through the year 2004 and, accordingly, reducing cash payments
otherwise scheduled in fiscal 1998 and 1999 and adjusting the interest rate to
prime plus 3.5%. As a result of this restructuring and the incremental cash flow
it will require, a portion of each payment is once again being recognized as
interest expense. This amounted to $33,000 for the second quarter and $75,000
for the first six months of the current year.
The decrease in the weighted average number of common and common equivalent
shares outstanding for the comparable six month periods resulted from a decrease
in common equivalent shares. These shares are computed as the net effect of
dilutive stock options and warrants based on the treasury stock method using an
average market price for the quarter. The first quarter of the current year
included approximately 374,000 common equivalent shares which were computed
using an average market price of $1.58 per share. The comparable numbers for the
first quarter last year were 869,000 common equivalent shares computed using an
average market price of $2.55 per share. Based on the losses incurred for the
second quarter of each year, no common equivalent shares were computed, since
the effect would be anti-dilutive.
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.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a.) The Company's Annual Meeting of Shareholders was held October 3, 1997.
(c.) At the Annual Meeting, the shareholders approved the following proposals,
as recommended by management.
<TABLE>
<CAPTION>
Votes Votes Votes
For Against Withheld
<S> <C> <C>
1. Election of the following nominees
for director:
Henry P. Semmelhack 7,951,655 14,025 -
James D. Morgan 7,955,827 9,853 -
Richard P. Beyer 7,955,856 9,824 -
Warren E Emblidge, Jr. 7,955,766 9,914 -
2. Approval to amend the 1989 Stock
Incentive Plan 7,414,045 48,130 14,994
3. Approval to reincorporate the Company
from New York to Delaware 7,426,097 11,684 10,009
4. Ratification of independent auditors for
the current fiscal year. 7,947,860 3,137 14,681
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
11
<PAGE> 12
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARRISTER INFORMATION SYSTEMS CORPORATION
Date: November 5, 1997 By: /s/ Henry P. Semmelhack
---------------------- ----------------------------
Henry P. Semmelhack
President
and
Chief Executive Officer
Date: November 5, 1997 By: /s/ Richard P. Beyer
---------------------- -----------------------------
Richard P. Beyer
Vice President, Finance
(Principal Financial Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-26-1997
<CASH> 162
<SECURITIES> 0
<RECEIVABLES> 3,070
<ALLOWANCES> 0
<INVENTORY> 2,917
<CURRENT-ASSETS> 6,177
<PP&E> 4,133
<DEPRECIATION> 3,730
<TOTAL-ASSETS> 7,236
<CURRENT-LIABILITIES> 3,928
<BONDS> 1,441
0
0
<COMMON> 1,969
<OTHER-SE> (102)
<TOTAL-LIABILITY-AND-EQUITY> 7,236
<SALES> 934
<TOTAL-REVENUES> 8,476
<CGS> 260
<TOTAL-COSTS> 6,194
<OTHER-EXPENSES> 2,271
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97
<INCOME-PRETAX> (86)
<INCOME-TAX> 0
<INCOME-CONTINUING> (86)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (86)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
