<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 December 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 January 23, 1998
- ---------------------------- ------------------------------------------
Common $.24 Par Value 8,216,364 Shares
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BARRISTER INFORMATION SYSTEMS CORPORATION
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
Item 1. Financial Statements
Condensed Balance Sheets at
December 26, 1997 and March 31, 1997........................... 3
Condensed Statements of Operations -
Three and Nine Months Ended December 26, 1997
and December 27, 1996.......................................... 4
Statement of Shareholders' Equity -
Nine Months Ended December 26, 1997............................ 5
Condensed Statements of Cash Flows -
Nine Months Ended December 26, 1997
and December 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 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>
December 26, March 31
1997 1997
------------- --------------
ASSETS
<S> <C> <C>
Cash $ 204 $ 226
Accounts receivable 3,224 2,598
Inventories:
Service parts 2,847 2,826
Other 94 146
Prepaid expenses 17 67
------------- --------------
Total current assets 6,386 5,863
------------- --------------
Equipment and leasehold
improvements, at cost 4,174 4,125
Less accumulated depreciation 3,755 3,666
------------- --------------
Net equipment and leasehold
improvements 419 459
------------- --------------
Software production costs 625 595
Other assets 38 36
------------- --------------
$ 7,468 $ 6,953
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable to bank $ 250 $ 250
Current installments of long term debt 117 99
Accounts payable 1,125 1,119
Accrued compensation and benefits 646 642
Customer advances and unearned revenue 1,785 1,320
Other liabilities 141 67
------------- --------------
Total current liabilities 4,064 3,497
------------- --------------
Long-term debt, excluding current installments
($1,403 in December and $1,475 in March
to a related party) 1,413 1,504
Shareholders' equity:
Preferred stock -- --
Common stock ($.24 par value) 1,972 1,968
Additional paid-in capital 21,565 21,551
Accumulated deficit (21,546) (21,567)
-------------- ---------------
Total shareholders' equity 1,991 1,952
------------- --------------
$ 7,468 $ 6,953
============= ==============
</TABLE>
See accompanying notes to condensed financial statements.
3
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BARRISTER INFORMATION SYSTEMS CORPORATION
Condensed Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
--------------------------------- -------------------------------
Dec. 26 Dec. 27 Dec. 26 Dec. 27
1997 1996 1997 1996
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 512 $ 833 $ 1,446 $ 1,952
Services 3,781 2,944 11,323 8,494
------------- -------------- ------------- -----------
Total revenues 4,293 3,777 12,769 10,446
------------- -------------- ------------- -----------
Costs and expenses:
Cost of product sales 108 258 368 698
Cost of services 2,822 2,458 8,756 6,904
------------- -------------- ------------- -----------
Total cost of revenues 2,930 2,716 9,124 7,602
Selling, general and
administrative expenses 1,022 916 2,923 2.467
Product development and
engineering 187 107 557 341
------------- -------------- ------------- -----------
Total costs and expenses 4,139 3,739 12,604 10,410
------------- -------------- ------------- -----------
Operating income 154 38 165 36
Interest expense
Related party 37 - 112 -
Other 10 11 32 27
------------- -------------- ------------- -----------
Total interest 47 11 144 27
------------- -------------- ------------- -----------
Net income $ 107 $ 27 $ 21 $ 9
============= ============= ============= ==========
Net income per common and
common equivalent share $ 0.01 $ 0.00 $ 0.00 $ 0.00
============ ============== ============ ===========
Weighted average number of
common and common equivalent
shares outstanding 8,606 8,788 8,461 8,954
============ ============== ============ ===========
</TABLE>
See accompanying notes to condensed financial statements.
4
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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 15,066 common shares
under stock option plan 4 14 18
Net Income 21 21
------------ ------------ ------------- ----------
Balance at December 26, 1997 $ 1,972 $ 21,565 $ (21,546) $ 1,991
============ ============ ============= ==========
</TABLE>
Common stock - 8,216,364 and 8,201,300 shares issued and outstanding at
December 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>
Nine Months Ended
------------------------------
December 26, December 27,
1997 1996
-------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21 $ 9
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 300 238
Loss on equipment disposal - 9
Changes in current assets and liabilities:
Accounts receivable (626) (1,033)
Inventories 31 365
Prepaid expenses 50 4
Accounts payable 6 (2)
Accrued compensation and benefits 5 39
Customer advances and unearned revenues 465 316
Other liabilities 74 39
-------- ----------
Net cash provided (used)
by operating activities 326 (16)
-------- ----------
Cash flows from investing activities:
Additions to equipment and leasehold
improvements (84) (262)
Proceeds on equipment disposal - 34
Capitalized software (206) (238)
Other (2) (3)
-------- ----------
Net cash used in investing activities (292) (469)
-------- ----------
Cash flows from financing activities:
Net repayment of debt (74) (522)
Proceeds from stock 18 1
-------- ----------
Net cash used by financing activities (56) (521)
-------- ----------
Net decrease in cash (22) (1,006)
Cash at beginning of period 226 1,198
-------- ----------
Cash at end of period $ 204 $ 192
======== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 95 $ 27
======== ==========
</TABLE>
See accompanying notes to condensed financial statements.
6
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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 third quarter results for each year represent thirteen weeks
of operations ended Friday, December 26, 1997 and Friday, December 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 nine month period ended December 26,
1997 are not necessarily indicative of the results to be expected for the full
year.
7
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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 $22,000 for the first nine
months of fiscal 1998. This compares to a net decrease of $1,006,000 in cash for
the comparable period last year. Cash used in investing activities of $292,000
and for debt repayment of $74,000 were partially offset by net cash provided by
operating activities of $326,000. As a result, the Company's cash balance
decreased from $226,000 at March 31, 1997 to $204,000 at December 26, 1997.
The principal cash requirements for fiscal 1998 are investments in capitalized
software and additions to equipment and leasehold improvements, both of which
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 is experiencing growth in both services revenues and margins on
those revenues in fiscal 1998. A number of agreements have been signed with new
business partners and an increase in new contracts has been realized during the
first nine 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. Although
the margins realized on Javelan sales have decreased approximately 11% compared
to the first nine months of the prior year, the Company expects to have an
improved fourth quarter in fiscal 1998 compared to last year. Growth in Javelan
sales 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.
The Company is currently working on a arrangement with an asset-based lender
which if successfully completed would provide additional borrowing capacity.
Other borrowing arrangements are also being pursued. 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
8
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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.
RESULTS OF OPERATIONS
- ---------------------
For the quarter ended December 26, 1997, total revenues increased 13.7% over the
same quarter in 1996, with net income of $107,000 compared to net income of
$27,000 in the third quarter of the prior year. For the nine month period ended
December 26, 1997, total revenues increased 22.2%, compared with the nine months
ended December 27, 1996. The nine month net income was $21,000 compared to a net
income of $9,000 incurred in the comparable period for the prior year. Increased
services revenues and improved margins on those revenues were offset by lower
product margins, increased selling, general and administrative expenses, and
higher interest expense.
Product sales declined 38.5% for the comparable third quarters, and 25.9% for
the comparable first nine months based on a decrease in the sale of low margin
commodity products and in the sale of Javelan, the Company's Windows-based
management software product. While Javelan sales remained steady, they were less
than the record sales achieved in the third quarter of the prior year. Margins
on product sales improved from 69.0% to 78.9% for the comparable third quarters
and from 64.2% to 74.6% for the comparable nine 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's developed software, generally
amount to between 60% and 100% depending on the configuration of the sale.
Services revenues increased 28.4% for the comparable third quarters and 33.3%
for the comparable nine 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 at the end of fiscal 1997 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 was primarily the 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 and,
more recently, in the use of a new computer system to more thoroughly capture
billable work. Based on the high level of expenses being incurred to provide
services under the contract signed in the third quarter of last fiscal year, an
agreement was reached with the customer to significantly curtail the amount of
services being provided starting in the third quarter of this year. The new
computer system is expected to improve the capture and billing of time and
material services in future quarters. The increase in Javelan associated
services is a direct result of Javelan sales made in prior quarters. These
services will follow 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 increased from 16.5% to 25.4% for
the comparable third quarters and from 18.7% to 22.7% for the comparable nine
month periods. These increases were primarily based on margins generated from
the increase in Javelan associated services and in the capture of additional
hardware time and material billings.
9
<PAGE> 10
Selling, general and administrative expenses decreased from 24.3% to 23.8% for
the comparable third quarters and from 23.6% to 22.9% for the comparable nine
month periods. The increase in the amount of expenses incurred resulted
principally from increased selling expenses associated with the Company's
efforts to grow both Javelan sales and hardware maintenance services.
Product development and engineering expenses, before taking into account amounts
capitalized and amortized for software production costs, were approximately the
same percentage of revenues for the comparable third quarters and nine month
periods. The increase in the amount of expenses incurred came from the 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 third quarters and nine
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 $37,000 for the third quarter and $112,000
for the first nine months of the current year.
The decrease in the weighted average number of common and common equivalent
shares outstanding for the comparable nine 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 $2.25 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. The third quarter comparative numbers were
397,000 common equivalent shares computed at an average market price of $ 1.51
per share for the current year compared to 586,000 common equivalent shares
computed at an average market price of $ 2.02 per share in the previous year.
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
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PART II. OTHER INFORMATION
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: January 26, 1998 By: /s/ Henry P. Semmelhack
------------------------ -------------------------------------
Henry P. Semmelhack
President
and
Chief Executive Officer
Date: January 26, 1998 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> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-26-1997
<CASH> 204
<SECURITIES> 0
<RECEIVABLES> 3,224
<ALLOWANCES> 0
<INVENTORY> 2,941
<CURRENT-ASSETS> 6,386
<PP&E> 4,174
<DEPRECIATION> 3,755
<TOTAL-ASSETS> 7,468
<CURRENT-LIABILITIES> 4,064
<BONDS> 1,413
0
0
<COMMON> 1,972
<OTHER-SE> 19
<TOTAL-LIABILITY-AND-EQUITY> 7,468
<SALES> 1,446
<TOTAL-REVENUES> 12,769
<CGS> 368
<TOTAL-COSTS> 9,124
<OTHER-EXPENSES> 3,480
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> 21
<INCOME-TAX> 0
<INCOME-CONTINUING> 21
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
