<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 25, 1998
----------------------
Commission File Number 0-14063
-----------------
BARRISTER INFORMATION SYSTEMS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 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 October 30, 1998
- --------------------------- -------------------------------
Common $.24 Par Value 8,225,737 Shares
<PAGE> 2
BARRISTER INFORMATION SYSTEMS CORPORATION
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
Item 1. Financial Statements
Condensed Balance Sheets at
September 25, 1998 and March 31, 1998............................ 3
Condensed Statements of Operations -
Three and Six Months Ended September 25, 1998
and September 26, 1997........................................... 4
Statement of Shareholders' Equity -
Six Months Ended September 25, 1998.............................. 5
Condensed Statements of Cash Flows -
Six Months Ended September 25, 1998
and September 26, 1997........................................... 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 6. Exhibits and Reports on Form 8-K..................... 11
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
BARRISTER INFORMATION SYSTEMS CORPORATION
Condensed Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
September 25, March 31
1998 1998
-------- --------
(unaudited)
ASSETS
<S> <C> <C>
Cash $ 111 $ 210
Accounts receivable 2,387 3,084
Inventories:
Service parts 2,635 2,853
Other 72 83
Prepaid expenses 45 30
-------- --------
Total current assets 5,250 6,260
-------- --------
Equipment and leasehold
improvements, at cost 4,126 4,089
Less accumulated depreciation 3,708 3,673
-------- --------
Net equipment and leasehold
improvements 417 416
-------- --------
Software production costs 766 658
Other assets 231 43
-------- --------
$ 6,664 $ 7,377
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable to bank $ 250 $ 250
Note payable to a related party 100 100
Current installments of long term debt 151 127
Accounts payable 936 1,274
Accrued compensation and benefits 511 722
Customer advances and unearned revenue 1,031 1,461
Other liabilities 157 55
-------- --------
Total current liabilities 3,136 3,989
-------- --------
Long-term debt, excluding current installments
($1,300 in September and $1,377 in March
to a related party) 1,324 1,395
Shareholders' equity:
Preferred stock -- --
Common stock ($.24 par value) 1,974 1,972
Additional paid-in capital 21,567 21,565
Accumulated deficit (21,337) (21,544)
-------- --------
Total shareholders' equity 2,204 1,993
-------- --------
$ 6,664 $ 7,377
======== ========
</TABLE>
See accompanying notes to condensed financial statements
3
<PAGE> 4
BARRISTER INFORMATION SYSTEMS CORPORATION
Condensed Statements of Operations
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------- -------------------
Sept. 25 Sept. 26 Sept. 25 Sept. 26
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 410 $ 423 $ 947 $ 934
Services 3,235 3,826 6,611 7,542
------- ------- ------- -------
Total revenues 3,645 4,249 7,558 8,476
------- ------- ------- -------
Costs and expenses:
Cost of product sales 109 128 207 260
Cost of services 2,384 3,012 4,989 5,934
------- ------- ------- -------
Total cost of revenues 2,493 3,140 5,196 6,194
Selling, general and
administrative expenses 856 953 1,756 1.901
Product development and
engineering 143 198 300 370
------- ------- ------- -------
Total costs and expenses 3,492 4,291 7,252 8,465
------- ------- ------- -------
Operating earnings (loss) 153 (42) 306 11
Interest expense:
Related party 38 37 78 75
Other 11 12 21 22
------- ------- ------- -------
Total interest 49 49 99 97
------- ------- ------- -------
Net earnings (loss) $ 104 $ (91) $ 207 $ (86)
======= ======= ======= =======
Net earnings (loss) per common share:
Basic $ 0.01 $ (0.01) $ 0.03 $ (0.01)
======= ======= ======= =======
Diluted $ 0.01 $ (0.01) $ 0.02 $ (0.01)
======= ======= ======= =======
Weighted average number of common shares outstanding:
Basic 8,225 8,202 8,223 8,202
======= ======= ======= =======
Diluted 8,451 8,202 8,459 8,389
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
BARRISTER INFORMATION SYSTEMS CORPORATION
Statement of Shareholders' Equity
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at March 31, 1998 $ 1,972 $ 21,565 $(21,544) $ 1,993
Sale of 9,375 common shares
2 2 4
Net earnings 207 207
-------- -------- -------- --------
Balance at September 25, 1998 $ 1,974 $ 21,567 $(21,337) $ 2,204
======== ======== ======== ========
</TABLE>
Common stock - 8,225,737 and 8,216,362 shares issued and outstanding at
September 25, 1998 and March 31,1998 respectively.
See accompanying notes to condensed financial statements.
5
<PAGE> 6
BARRISTER INFORMATION SYSTEMS CORPORATION
Condensed Statements of Cash Flows
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
September 25, September 26,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 207 $ (86)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 232 193
Changes in current assets and liabilities:
Accounts receivable 697 (472)
Inventories 229 55
Prepaid expenses (15) 39
Accounts payable (338) 435
Accrued compensation and benefits (211) (152)
Customer advances and unearned revenues (430) 74
Other liabilities 102 60
----- -----
Net cash provided
by operating activities 473 146
----- -----
Cash flows from investing activities:
Additions to equipment and leasehold
improvements (80) (25)
Additions to software production costs (261) (135)
Other (188) (2)
----- -----
Net cash used in investing activities (529) (162)
----- -----
Cash flows from financing activities:
Net repayment of debt (47) (49)
Proceeds from stock 4 1
----- -----
Net cash used by financing activities (43) (48)
----- -----
Net decrease in cash (99) (64)
Cash at beginning of period 210 226
----- -----
Cash at end of period $ 111 $ 162
===== =====
Supplemental disclosure of cash flow information:
Interest paid $ 101 $ 46
===== =====
</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 25, 1998 and Friday, September 26, 1997.
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 25,
1998 are not necessarily indicative of the results to be expected for the full
year.
2. There were no tax benefits established in the statements of operations for
any of the loss temporary differences and operating loss carryforwards as
management had determined that periods presented since the Company had fully
reserved for the tax effect of net deductible under the criterion of FAS No.
109, it is more likely than not that the deferred tax assets will not be
realized. Similarly the absence of a tax provision for the profitable periods
results from a reduction in the reserve for deferred tax assets.
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 $99,000 for the first six
months of fiscal 1999. Cash used in investing activities of $529,000 and for
debt repayment of $47,000 were partially offset by net cash provided by
operating activities of $473,000. The net cash provided by operating activities
was realized after taking into account a reduction of $877,000 in current
liability balances. As a result, the Company's cash balance decreased from
$210,000 at March 31, 1998 to $111,000 at September 25, 1998.
The principal cash requirements for fiscal 1999 are investments in capitalized
software and additions to equipment and leasehold improvements that are expected
to be somewhat higher than amounts spent in 1998. Scheduled debt repayments
should approximate $127,000. The Company expects to meet its 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 carry forwards of
approximately $2,246,000 at March 31, 1998. The Company expects a return to
growth (a small increase was realized during the first six months) in Javelan
sales in 1999. This expectation is based on market demand to replace software
that is not year 2000 compatible, the recent release of a new product, Javelan
Select(TM), for the smaller law firm, enhancements made to Javelan during the
past year and a reorganized sales department. Increased Javelan sales should
also lead to an increase of associated installation, training and conversion
services. While the Company expects additional hardware maintenance contracts to
be obtained from its business partners and direct selling efforts, most of this
revenue will be required to replace the work done for CIC Systems in 1998 and to
replace contracts that expire during the year. However, profitability has
improved since the costs of performing the work for CIC were high and the
implementation of a new computer system has led to a more thorough capture of
billable work. The Company continues to pursue the sale of warranty upgrade
contracts which generally have terms up to three years and are prepaid at the
time the contract is signed.
The Company continues its efforts to obtain additional working capital from
banks and asset-based lenders. 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 banks or asset-based lenders or that other sources of
cash will be available.
RESULTS OF OPERATIONS
- ---------------------
For the quarter ended September 25, 1998, total revenues decreased 14.2% over
the same quarter in 1997, with a net profit of $104,000 being realized compared
to a net loss of $91,000 in the second quarter of the prior year. For the six
month period ended September 25, 1998, total revenues decreased 10.8% compared
with the six months ended September 26, 1997. The six month net profit was
$207,000 compared to a net loss of $86,000 incurred in the comparable period for
the prior year. Improved margins on product sales and expense reductions were
the primary reasons for the improvement in the net profit.
8
<PAGE> 9
Product sales decreased 3.1% for the comparable second quarters, and increased
1.4% for the comparable first six months. Small increases in the sale of
Javelan, the company's Windows based management software product, were realized
for the comparable second quarters and six month periods. A further decline
occurred in the sale of low margin commodity products with the result that sales
of these products were less than 10% of total product sales. Margins on product
sales improved from 69.7% to 73.4% for the comparable second quarters and from
72.2% to 78.1% 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 decreased 15.4% for the comparable second quarters and 12.3%
for the comparable six month periods based on decreased revenues from hardware
maintenance contracts and hardware time and material services. An increase in
services associated with the sale of Javelan was realized for the comparable
periods. The drop in hardware related revenues was primarily a result of halting
all work for CIC Systems, Inc. in March 1998. Revenues from CIC represented 7%
of total revenues (approximately $1,200,000) in fiscal 1998. In addition, a
number of hardware services contracts expired on June 30, 1998 on which the
Company was realizing approximately $100,000 in monthly revenues. While the
Company is actively pursuing a number of large contract opportunities to replace
these revenues, there can be no assurance that the Company will be successful
which would result in lower services revenues in future quarters. Although
decreases in services revenues were incurred, margins on these revenues improved
from 21.3% to 26.3% for the comparable second quarters and from 21.3% to 24.5%
for the comparable six month periods. Reductions in the high level of expenses
being incurred to provide time and material services under the CIC contract,
improved operational efficiencies and margins generated from the increase in
Javelan associated services were the principal reasons for the improved margins.
The reduction in selling, general and administrative expenses for the comparable
periods was principally a result of lower commission expenses. However, these
expenses increased as a percentage of revenues from 22.4% to 23.5% for the
comparable second quarters and from 22.4% to 23.2% for the comparable six month
periods due to the lower levels of revenues realized.
The amount incurred for product development and engineering expenses, before
taking into account amounts capitalized and amortized for software production
costs, was approximately the same for the comparable periods. The increase in
these expenses as a percentage of revenues from 4.4% to 5.5% in the comparable
second quarters and from 4.6% to 5.4% for the comparable six month periods was
due to the lower amount of revenues recorded in the current year.
Interest expense was approximately the same for the comparable periods as the
level of debt outstanding and the rate of interest remained constant.
The weighted average number of common shares outstanding in the computation of
diluted earnings per share includes the impact of stock options and warrants
assumed to be exercised using the treasury stock method. For the first and
second quarters of the current year, approximately 245,000 and 226,000 common
equivalent shares were computed using average market prices of $1.14 and $1.06
respectively. The comparable numbers for the first quarter last year were
375,000 common equivalent shares computed using an average market price of $1.58
per share. Based on the loss incurred for the second quarter of last year, no
common equivalent shares were computed, since the effect would have been
anti-dilutive.
9
<PAGE> 10
YEAR 2000 COMPLIANCE
- --------------------
The Company's Javelan product is year 2000 compliant. Older software products
previously licensed by the Company are not year 2000 compliant and there is no
contractual obligation to bring them into compliance. Customers using these
products have been notified that they are not year 2000 compliant. Javelan
primarily utilizes operating systems obtained from Microsoft which the Company
believes, based on information provided by Microsoft are year 2000 compliant or
will be compliant by that time. Other third party software and hardware products
that are integrated with Javelan continue to be tested for year 2000 issues.
While no material issues have been found to date, the Company cannot fully
predict the effects of the year 2000 with respect to these third party products.
The Company is currently in the process of upgrading its primary internal
management information system to be year 2000 compliant, with an expected
completion date of March 1999. Current expectations for this upgrade do not
indicate that material incremental costs over and above normal and ongoing
expenditures for improvements in management information systems will be
incurred. Other internal hardware and software systems that have been identified
as being non compliant are being modified, upgraded or replaced. The Company
believes that it has the necessary resources to complete these changes and that
the year 2000 issue will not pose significant operational problems for the
Company.
The Company has not formally contacted suppliers or customers to assess their
readiness for the year 2000. The Company has multiple sources for products and
services it requires and does not feel that any one supplier would have a
material adverse impact on the Company if they experienced year 2000 problems in
their business operations. In addition the Company has only one customer that
exceeds 10% of its revenues and this major corporation is known by management to
be diligently addressing the year 2000 issue.
The Company is continuing the evaluation of its information technology systems
and equipment to determine those systems and equipment which are not year 2000
compliant. While we have not currently formulated formal contingency plans to
handle unexpected and non-contemplated year 2000 problems, we will review the
need for such a plan as the millenium shift approaches. However, based on the
results of evaluations to date, the Company does not anticipate the need for
such a plan nor that the cost associated with year 2000 issues will have a
material adverse impact on its financial position, results of operations, or
liquidity. While the Company believes its efforts are adequate to address its
year 2000 concerns, there can be no guarantee that all internal systems, as well
as those of third parties on which the Company relies upon, will be converted on
a timely basis and will not have a material affect on the Company's operations.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27: Financial Data Schedule
(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 6, 1998 By: /s/ Henry P. Semmelhack
--------------------- --------------------------
Henry P. Semmelhack
President
and
Chief Executive Officer
Date: November 6, 1998 By: /s/ Richard P. Beyer
--------------------- ----------------------------
Richard P. Beyer
Vice President, Finance
(Principal Financial Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-25-1998
<CASH> 111
<SECURITIES> 0
<RECEIVABLES> 2,387
<ALLOWANCES> 0
<INVENTORY> 2,707
<CURRENT-ASSETS> 5,250
<PP&E> 4,126
<DEPRECIATION> 3,708
<TOTAL-ASSETS> 6,664
<CURRENT-LIABILITIES> 3,136
<BONDS> 1,324
0
0
<COMMON> 1,974
<OTHER-SE> 230
<TOTAL-LIABILITY-AND-EQUITY> 6,664
<SALES> 947
<TOTAL-REVENUES> 7,558
<CGS> 207
<TOTAL-COSTS> 5,196
<OTHER-EXPENSES> 2,056
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99
<INCOME-PRETAX> 207
<INCOME-TAX> 0
<INCOME-CONTINUING> 207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 207
<EPS-PRIMARY> .03
<EPS-DILUTED> .02
</TABLE>
