<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 June 30, 1999
---------------------------
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 August 6, 1999
- ---------------------------- ---------------------------------------
Common $.24 Par Value 9,162,486 Shares
<PAGE> 2
BARRISTER INFORMATION SYSTEMS CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
--------
Item 1. Financial Statements
<S> <C>
Condensed Balance Sheets at
June 30, 1999 and March 31, 1999........................................................ 3
Condensed Statements of Operations -
Three Months Ended June 30, 1999
and June 26, 1998....................................................................... 4
Statement of Shareholders' Equity -
Three Months Ended June 30, 1999........................................................ 5
Condensed Statements of Cash Flows -
Three Months Ended June 30, 1999
and June 26, 1998....................................................................... 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
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
BARRISTER INFORMATION SYSTEMS CORPORATION
Condensed Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
June 30 March 31
1999 1999
-------- --------
ASSETS (unaudited)
<S> <C> <C>
Cash $ 270 $ 222
Accounts receivable 2,997 3,090
Service parts inventory 2,234 2,341
Prepaid expenses 32 50
-------- --------
Total current assets 5,533 5,703
-------- --------
Equipment and leasehold
improvements, at cost 4,262 4,138
Less accumulated depreciation 3,608 3,555
-------- --------
Net equipment and leasehold
improvements 654 583
-------- --------
Software production costs 1,033 1,007
Goodwill 1,115 1,158
Other assets 196 255
-------- --------
$ 8,531 $ 8,706
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current installments of long term debt $ 445 $ 390
Accounts payable 1,077 1,108
Accrued compensation and benefits 1,066 832
Customer advances and unearned revenue 1,046 1,026
Other liabilities 39 51
-------- --------
Total current liabilities 3,673 3,407
-------- --------
Long-term debt, excluding current installments
($858 in June and $930 in March
to a related party) 1,377 1,487
Shareholders' equity:
Preferred stock 1,250 1,250
Common stock ($.24 par value) 2,189 2,134
Additional paid-in capital 22,170 21,964
Accumulated deficit (22,128) (21,536)
-------- --------
Total shareholders' equity 3,481 3,812
-------- --------
$ 8,531 $ 8,706
======== ========
</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
--------------------------------------
June 30 June 26 June 26
1999 1998 1998
------- ------- -------
(as restated) (as originally
reported)
Revenues:
<S> <C> <C> <C>
Product sales $ 365 $ 385 $ 537
Services 3,245 3,376 3,376
------- ------- -------
Total revenues 3,610 3,761 3,913
------- ------- -------
Costs and expenses:
Cost of product sales 45 98 98
Cost of services 2,653 2,605 2,605
------- ------- -------
Total cost of revenues 2,698 2,703 2,703
Selling, general and
administrative expenses 1,158 877 900
Product development and
engineering 314 157 157
------- ------- -------
Total costs and expenses 4,170 3,737 3,760
------- ------- -------
Operating earnings (loss) (560) 24 153
Interest expense:
Related party 23 40 40
Other 9 10 10
------- ------- -------
Total interest 32 50 50
------- ------- -------
Net earnings (loss) $ (592) $ (26) $ 103
======= ======= =======
Net earnings (loss) per common share
basic and diluted $ (0.07) $ (0.00) $ 0.01
======= ======= =======
Weighted average number of common shares outstanding:
Basic 8,979 8,222 8,222
======= ======= =======
Diluted 8,979 8,222 8,467
======= ======= =======
</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
Preferred Common paid-in Accumulated
stock stock capital deficit Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1999 $ 1,250 $ 2,134 $ 21,964 $(21,536) $ 3,812
Sale of 231,650 common shares -- 55 206 -- 261
Net loss -- -- -- (592) (592)
-------- --------
Balance at June 30, 1999 $ 1,250 $ 2,189 $ 22,170 $(22,128) $ 3,481
======== ======== ======== ======== ========
</TABLE>
Common stock - 9,122,886 and 8,891,236 shares issued and outstanding at June 30,
1999 and March 31, 1999 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>
Three months ended
---------------------------------
June 30 June 26 June 26
1999 1998 1998
----- ----- -----
(as restated) (as originally
reported)
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) (592) (26) 103
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 53 37 37
Amortization of software production costs 105 75 75
Amortization of goodwill 43
Changes in current assets and liabilities:
Accounts receivable 100 201 49
Inventories 107 128 128
Prepaid expenses 18 6 6
Accounts payable (31) (484) (479)
Accrued compensation and benefits 234 61 79
Customer advances and unearned revenues 53 (30) (30)
Other liabilities (12) 88 88
Net cash provided ----- ----- -----
By operating activities 78 56 56
----- ----- -----
Cash flows from investing activities:
Additions to equipment and leasehold
Improvements (124) (34) (34)
Capitalized software (131) (126) (126)
Other assets 19 -- --
----- ----- -----
Net cash used in investing activities (236) (160) (160)
----- ----- -----
Cash flows from financing activities:
Net repayment of debt (55) (14) (14)
Proceeds from sale of common stock 261 3 3
----- ----- -----
Net cash provided (used) by financing 206 (11) (11)
activities ----- ----- -----
Net increase (decrease) in cash 48 (115) (115)
Cash at beginning of period 222 210 210
----- ----- -----
Cash at end of period $ 270 $ 95 $ 95
===== ===== =====
Supplemental disclosure of cash flow information:
Interest paid $ 17 $ 52 $ 52
===== ===== =====
</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 first quarter results for fiscal year 2000 are represented by
the three months ended June 30, 1999. The first quarter results for fiscal 1999
are represented by the thirteen weeks of operations ended Friday, June 26, 1998.
During the fourth quarter of the fiscal year ended March 31, 1999, the Company
recorded an adjustment to reverse all the revenue and defer the costs associated
with a software sale contract having extended payment terms. Revenue and costs
for this contract had originally been reported during the first three quarters
of the year ended March 31, 1999. In connection with this reversal the Company
has restated its operating results for each of the fiscal 1999 quarters. The
effect of this restatement for the first quarter is separately set forth herein
as applicable. 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 three month period ended June 30, 1999
are not necessarily indicative of the results to be expected for the full year.
2. Reportable segments are comprised as follows: Hardware maintenance
services, generally on PC related equipment; Software licensing and software
support services, predominantly to the legal industry; and Corporate operations.
<TABLE>
<CAPTION>
June 30, 1999 June 26,1998
------------- ------------
(as restated)
Hardware Maintenance:
<S> <C> <C>
Total revenues 1,885 2,444
Operating earnings (loss) (58) 283
Software:
Total revenues 1,725 1,317
Operating earnings (loss) (107) 145
Corporate:
Operating expenses 427 454
</TABLE>
3. Subsequent to quarter end the Company obtained two $50,000 five year term
loans from regional development agencies. One loan has specific and newly
acquired assets pledged as collateral, and the second loan has a general
collateral interest in the assets of the Company. Both loans carry interest at
7.75%.
4. On January 15, 1999 the Company acquired the assets of Icon Technology LLC
(Icon) in exchange for 2,500 shares of preferred stock. The acquisition was
accounted for as a purchase. The operating results of Icon are included in the
statement of operations for June 30, 1999. The pro forma results for the quarter
ended June 26, 1998 had the acquisition occurred at the beginning of the period
are as follows: Revenues of $ 3,996,000; Net loss of $(24,000); Net loss per
common share, basic and diluted of $(0.00).
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
The Company experienced a net increase in cash of $48,000 for its first quarter
ended June 30,1999. Proceeds from common stock sales of $261,000, which were
derived from the exercise of warrants and options, and net cash provided by
operating activities of $78,000 were partially offset by net cash used in
investing activities of $236,000 and net repayments of debt of $55,000. As a
result, the Company's cash balance increased from $222,000 at March 31, 1999 to
$270,000 at June 30, 1999. The principal cash requirements for fiscal 2000 are
investments in capitalized software and additions to equipment and leasehold
improvements that together are expected to approximate amounts spent in fiscal
1999. Scheduled debt repayments should approximate $390,000 for fiscal 2000. The
Company expects to meet its cash requirements by generating positive cash flow
from operating activities. Other sources of cash expected in fiscal 2000 are
five-year term loans in the amount of $100,000 from regional development
agencies (received in July); lease financing for certain capital additions; and
the exercise of some of the 700,000 outstanding warrants which expire on March
29, 2001 and August 31, 2005 ($204,750 was received in the first quarter and an
additional $40,950 has been received through August 6, 1999). Any income earned
should not require cash payments for taxes, since the Company has use of
operating loss carry forwards of approximately $2,040,000 at March 31, 1999.
Although the Company incurred a large loss in the first quarter, it expects to
achieve improved performance in subsequent quarters. This expectation is based
on greater levels of marketing, selling and development resources being applied
to the LegalHouse(TM) product, the sale of JavelanX(TM), the newest version of
Javelan which operates on a firm's wide area network or over the Internet, and
increased selling and marketing resources being applied to the hardware
maintenance business along with the deployment of a new product, Global Services
Network(TM) ("GSN"). It is also based on selective cost cutting that is being
implemented during the second quarter.
If the Company is unsuccessful in increasing its revenues and generating a
profit, there can be no assurance that it will be able to generate positive cash
from operations or that sufficient cash will be available to meet its required
obligations. BIS Partners, L.P. continues to support the Company's cash
requirements by agreeing to delayed payments or restructuring scheduled payments
when necessary. Two monthly payments have been delayed as of June 30, 1999. No
assurance can be provided that BIS Partners will be willing to continue to
provide such support in the future.
RESULTS OF OPERATIONS
- ---------------------
For the quarter ended June 30, 1999, total revenues decreased approximately 4%
from the same quarter in 1998. The net loss for the current quarter was $592,000
compared to a net loss of $26,000 in the first quarter of the prior year. The
increase in the net loss was primarily a result of lower revenues, increases in
selling, general and administrative expenses and increases in product
development and engineering expenses. The results of the first quarter of the
current year include the business activities of Icon Technology LLC ("Icon")
which were acquired in January 1999.
Product sales decreased 5.2% for the comparable quarter. Reductions in the sales
of Javelan(R), the Company's Windows(TM) based management software product were
mostly offset by sales of LegalHouse, the software product acquired from Icon.
Margins on product sales improved based on the increased percentage of product
sales that were comprised of Company developed software. Product sales can also
include certain hardware and third party software products that are sold along
with Javelan and LegalHouse sales. The Company expects increased product sales
in subsequent quarters based on the level of current prospects for its
8
<PAGE> 9
products, further market acceptance of LegalHouse and the introduction of
web-based JavelanX, which is currently under development and has staged releases
planned throughout this year.
Services revenues decreased 3.9% for the comparable quarters as a result of
decreased revenues from hardware maintenance contracts and hardware time and
material services which were partially offset by increases in software services.
The primary reason for the decrease in hardware services revenues were contract
expirations that occurred after the first quarter of the prior year, including
reductions in revenue from IBM, the Company's largest customer, that exceeded
new business generated. To support its marketing efforts, the company announced
a new product, Global Services Network. GSN is a web-based service management
system for providing real-time service call tracking, service call details,
service histories, equipment life-cycle information and service performance
information. Initial results from the introduction of GSN have been favorable
and the Company expects to realize increased hardware services revenues in the
second quarter. The increase in software service revenues for the comparable
first quarters resulted from an increase in Javelan related services which were
realized from the growing base of customers and LegalHouse related services and
general consulting services obtained from the acquisition of Icon.
The cost of services increased as a percentage of services revenues to 81.8%
from 77.2% when the first quarter of the current year is compared to the first
quarter of the prior year. The large drop in hardware related services revenues
impacted margins since certain fixed expenses could not be reduced commensurate
with the drop in revenues. While software related services revenues increased,
margins were impacted by the addition of personnel to improve the management,
administration and delivery of the services.
Selling, general and administrative expenses were 32.1% of total revenues for
the first quarter of this year compared to 23.3% for the comparable quarter last
year. Higher selling and administrative expenses in the software business
resulted from selling and marketing expenses associated with LegalHouse sales,
the establishment of a new position of President of the software business and
$43,000 of expenses for the amortization of goodwill. Also, additional selling
resources and selling activities occurred in the hardware maintenance business
in an effort to capture new business. These increased selling expenses are
expected to result in improved revenues in subsequent quarters.
The amount incurred for product development and engineering expenses, before
taking into account amounts capitalized and amortized for software production
costs, increased to 9.4% of total revenues in the first quarter of this year
from 5.5% of total revenues in the first quarter of last year. This increase was
a result of expenses incurred for the development of LegalHouse. The Company
expects to realize increased levels of LegalHouse sales in subsequent quarters.
The reduction of interest expense to 0.9% of total revenues in the first quarter
of this year from 1.3% of total revenues in the first quarter of the prior year
was principally a result of the conversion of $333,000 in debt to common stock
by BIS Partners in the fourth quarter of fiscal 1999. In addition, approximately
$100,000 of principal payments were repaid to BIS Partners over the course of
fiscal 1999.
The increase in the weighted average number of common shares outstanding
primarily resulted from 383,000 shares issued for conversion of debt by BIS
Partners and 219,000 shares sold for cash in the fourth quarter of fiscal 1999
and 150,000 shares issued upon the exercise of a portion of the $1.36 warrants
in the first quarter of fiscal 2000.
9
<PAGE> 10
YEAR 2000 COMPLIANCE
- --------------------
The Company's Javelan and LegalHouse products are 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.
In March 1999, the Company installed the Javelan product as a replacement for
its accounting system, which was not year 2000 compliant. No material
incremental costs over and above normal and ongoing expenditures for
improvements in management information systems were incurred in enacting this
replacement. All other internal hardware and software systems have been
evaluated and those 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 contacted its major suppliers to assess their readiness for the
year 2000. To date, the suppliers contacted have indicated that they are in
compliance or expect to be compliant by the end of the year. The Company has
multiple sources for products and services it requires and does not feel that
any supplier would have a material adverse impact on the Company if they
experienced year 2000 problems in their business operations.
The Company is continuing the evaluation of its non-information technology
systems and equipment to determine those systems which are not year 2000
compliant. To date, no formal contingency plans have been developed to handle
unexpected and non-contemplated year 2000 problems. 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 manner and will not have a material affect on the Company's operation.
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) 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: August 13, 1999 By: /s/ Henry P. Semmelhack
------------------------------ -------------------------------------
Henry P. Semmelhack
President
and
Chief Executive Officer
Date: August 13, 1999 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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 270
<SECURITIES> 0
<RECEIVABLES> 2,997
<ALLOWANCES> 0
<INVENTORY> 2,234
<CURRENT-ASSETS> 5,533
<PP&E> 4,262
<DEPRECIATION> 3,608
<TOTAL-ASSETS> 8,531
<CURRENT-LIABILITIES> 3,673
<BONDS> 1,377
0
1,250
<COMMON> 2,189
<OTHER-SE> 42
<TOTAL-LIABILITY-AND-EQUITY> 8,531
<SALES> 365
<TOTAL-REVENUES> 3,610
<CGS> 45
<TOTAL-COSTS> 2,698
<OTHER-EXPENSES> 1,472
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> (592)
<INCOME-TAX> 0
<INCOME-CONTINUING> (592)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (592)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
