<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 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 January 22, 1999
- --------------------------- ---------------------------------
Common $.24 Par Value 8,829,236 Shares
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BARRISTER INFORMATION SYSTEMS CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
-------
<S> <C>
Item 1. Financial Statements
Condensed Balance Sheets at
December 25, 1998 and March 31, 1998.................................................... 3
Condensed Statements of Operations -
Three and Nine Months Ended December 25, 1998
and December 26, 1997................................................................... 4
Statement of Shareholders' Equity -
Nine Months Ended December 25, 1998..................................................... 5
Condensed Statements of Cash Flows -
Nine Months Ended December 25, 1998
and December 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
</TABLE>
2
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PART I. FINANCIAL INFORMATION
BARRISTER INFORMATION SYSTEMS CORPORATION
Condensed Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
December 25, March 31
1998 1998
------------- --------------
ASSETS (unaudited)
<S> <C> <C>
Cash $ 159 $ 210
Accounts receivable 2,534 3,084
Inventories:
Service parts 2,433 2,853
Other 54 83
Prepaid expenses 27 30
------------- --------------
Total current assets 5,207 6,260
------------- --------------
Equipment and leasehold
improvements, at cost 3,983 4,089
Less accumulated depreciation 3,599 3,673
Net equipment and leasehold ------------- --------------
improvements 384 416
------------- --------------
Software production costs 824 658
Other assets 254 43
------------- --------------
$ 6,669 $ 7,377
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable to bank $ 245 $ 250
Note payable to related party 100 100
Current installments of long term debt 222 127
Accounts payable 994 1,274
Accrued compensation and benefits 641 722
Customer advances and unearned revenue 757 1,461
Other liabilities 146 55
------------- --------------
Total current liabilities 3,105 3,989
------------- --------------
Long-term debt, excluding current installments
($1,264 in December and $1,377 in March
to a related party) 1,355 1,395
Shareholders' equity:
Preferred stock -- --
Common stock ($.24 par value) 1,974 1,972
Additional paid-in capital 21,567 21,565
Accumulated deficit (21,332) (21,544)
-------------- ---------------
Total shareholders' equity 2,209 1,993
------------- --------------
$ 6,669 $ 7,377
============= ==============
</TABLE>
See accompanying notes to condensed financial statements.
3
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BARRISTER INFORMATION SYSTEMS CORPORATION
Condensed Statements of Operations
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
--------------------------------- --------------------------------
Dec. 25 Dec. 26 Dec. 25 Dec. 26
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 629 $ 512 $ 1,576 $ 1,446
Services 2,983 3,781 9,594 11,323
------------- ------------- ------------- -------------
Total revenues 3,612 4,293 11,170 12,769
------------- ------------- ------------- -------------
Costs and expenses:
Cost of product sales 117 108 324 368
Cost of services 2,418 2,822 7,407 8,756
------------- ------------- ------------- -------------
Total cost of revenues 2,535 2,930 7,731 9,124
Selling, general and
administrative expenses 869 1,022 2,625 2,923
Product development and
engineering 156 187 456 557
------------- ------------- ------------- -------------
Total costs and expenses 3,560 4,139 10,812 12,604
------------- ------------- ------------- -------------
Operating income 52 154 358 165
Interest expense
Related party 34 37 112 112
Other 13 10 34 32
------------- ------------- ------------- -------------
Total interest 47 47 146 144
------------- ------------- ------------- -------------
Net income $ 5 $ 107 $ 212 $ 21
============= ============= ============= =============
Net earnings per common share:
Basic $ 0.00 $ 0.01 $ 0.03 $ 0.00
============= ============= ============= =============
Diluted $ 0.00 $ 0.01 $ 0.03 $ 0.00
============= ============= ============= =============
Weighted average number of
Common shares outstanding:
Basic 8,226 8,209 8,224 8,204
============= ============= ============= =============
Diluted 8,418 8,606 8,445 8,461
============= ============= ============= =============
</TABLE>
See accompanying notes to condensed financial statements.
4
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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
under stock option plan 2 2 4
Net Income 212 212
------------ ------------ --------------- ------------
Balance at December 25, 1998 $ 1,974 $ 21,567 $ (21,332) $ 2,209
============ ============ =============== ============
</TABLE>
Common stock - 8,225,737 and 8,216,362 shares issued and outstanding at
December 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>
Nine Months Ended
--------------------------------
December 25, December 26,
1998 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................ $ 212 $ 21
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................. 343 300
Changes in assets and liabilities:
Accounts receivable ......................... 340 (626)
Inventories ................................. 449 31
Prepaid expenses ............................ 3 50
Accounts payable ............................ (280) 6
Accrued compensation and benefits ........... (81) 5
Customer advances and unearned revenues ..... (704) 465
Other liabilities ........................... 91 74
Net cash provided -------------- --------------
by operating activities ............... 373 326
-------------- --------------
Cash flows from investing activities:
Additions to equipment and leasehold
Improvements ....................................... (87) (84)
Capitalized software .................................. (390) (206)
Other ................................................. (1) (2)
-------------- --------------
Net cash used in investing activities .... (478) (292)
-------------- --------------
Cash flows from financing activities:
Proceeds from long term debt ........................ 156 --
Repayment of debt
(106) (74)
Proceeds from sale of common stock .................... 4 18
Net cash provided (used) -------------- --------------
by financing activities ............... 54 (56)
-------------- --------------
Net decrease in cash ......................................... (51) (22)
Cash at beginning of period .................................. 210 226
-------------- --------------
Cash at end of period ........................................ $ 159 $ 204
============== ==============
Supplemental disclosure of cash flow information:
Interest paid .................................. $ 119 $ 95
============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
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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 25, 1998 and Friday, December 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. Adjustments made were of a normal recurring nature.
The results of operations for the nine month period ended December 25,
1998 are not necessarily indicative of the results to be expected for the full
year.
2. Effective January 1, 1999, the Company acquired the assets of Icon Technology
LLC ("Icon") for 2,500 shares of preferred stock which are convertible into
2,500,000 shares of common stock upon shareholder approval. Icon was a privately
held software development and consulting company with annual revenues of
approximately $1,100,000. The acquisition of the assets of Icon will be
accounted for as a purchase. The required financial statements for Icon and the
required pro-forma financial information with respect to the acquisition will be
filed on Form 8-K by March 31, 1999.
3. On January 15, 1999, BIS Partners, L.P. converted $333,000 of existing debt
into 383,000 shares of common stock and certain existing shareholders acquired
an additional 219,000 shares of common stock for $190,000 in cash. Both the debt
conversion and the sale of stock were transacted at $.87 per share which was the
average market price of the shares for the 10 day period prior to the
transaction date. There was no gain or loss recognized on the debt conversion.
After the conversion, the remaining debt owed to BIS Partners is approximately
$1,170,000.
4. In fiscal 1999, the Company obtained a sales contract from a state agency
which has extended payments terms. The Company has obtained financing from an
economic development agency with terms that correspond to the receivable.
5. The American Institute of Certified Public Accountants' Accounting Standards
Executive Committee(AcSEC) has issued Statement of Position (SOP) 98-9
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions". The SOP clarifies the accounting requirements for software
revenue recognition. The SOP will be implemented by the Company in fiscal 2000.
The Company is presently reviewing the impact, if any of the SOP on revenue
recognition.
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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 $51,000 for the first nine
months of fiscal 1999. Cash used in investing activities of $478,000 was
partially offset by net cash provided by operating activities of $373,000 and an
increase in long term debt of $55,000. The net cash provided by operating
activities was realized after taking into account a reduction of $974,000 in
current liability balances. As a result, the Company's cash balance decreased
from $210,000 at March 31, 1998 to $159,000 at December 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 $145,000. 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. In addition, on January 15, 1999,
the Company raised $190,000 in cash from the sale of 219,000 shares of common
stock to existing shareholders. At the same time BIS Partners, L.P. agreed to
convert $333,000 of debt into 383,000 shares of common stock. The Company is
experiencing a return to growth in Javelan(R) sales in fiscal 1999 and expects
that growth to continue based on market demand to replace software that is not
Year 2000 compatible, the release of a new product, Javelan Select for the
smaller law firms, continuing enhancements being made to Javelan and a
reorganized sales department. Increased Javelan sales should also lead to an
increase in associated installation, training and conversion services. Also, the
Company announced the acquisition of the assets of Icon Technology LLC on
January 15, 1999. This will result in additional product and services revenues
starting in the fourth quarter and is expected to add to the profitability of
the Company. Currently, the Company believes that it will sign sufficient new
contracts for hardware maintenance services that will result in an increase in
hardware related services revenues in the fourth quarter when compared to the
quarter just completed. This expectation is based on contract negotiations
currently taking place and the level of prospects that have been developed by
the selling organization.
The Company continues its efforts to obtain additional working capital. If the
Company is unsuccessful in remaining profitable, 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 sources of working capital will be available.
RESULTS OF OPERATIONS
- ---------------------
For the quarter ended December 25, 1998, total revenues decreased 15.9% over the
same quarter in 1997, with net income of $5,000 being realized compared to net
income of $107,000 in the third quarter of the prior year. The decrease in net
income was primarily a result of lower services revenues. For the nine month
period ended December 25, 1998, total revenues decreased 12.5% compared with the
nine months ended December 26, 1997. The nine month
8
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net income was $212,000 compared to net income of $21,000 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 net income
for the comparable nine month periods.
Product sales increased 22.9% for the comparable third quarters, and increased
9.0% for the comparable nine months. These increases resulted from higher
Javelan sales, the Company's Windows based management software product. A
further decline occurred in the sale of low margin commodity products with the
result that sales of these products were less than 6% of total product sales.
Margins on product sales improved from 78.9% to 81.4% for the comparable third
quarters and from 74.6% to 79.4% 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 developed software,
generally amount to between 60% and 100% depending on the configuration of the
sale.
Service revenues decreased 21.1% for the comparable third quarters and 15.3% for
the comparable nine 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 services 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.
Revenue has been further impacted by additional contract cancellations and non
renewals in the last two quarters. While the Company is actively pursuing a
number of large contract opportunities to replace these revenues and currently
expects an increase in hardware related revenues for its fourth quarter, there
can be no assurance that the Company will be successful, which could result in
lower services revenues and associated margins in future quarters. Margins on
services revenues decreased from 25.4% to 18.9% for the comparable third
quarters. Margins for the comparable nine month periods were approximately the
same at 22.7% of services revenues. During the first part of the current fiscal
year, the Company was able to realize a small increase in services margins
through reductions in the high level of expenses that were incurred to provide
time and materials services under the CIC contract, improved operational
efficiencies and margins generated from the increase in Javelan associated
services. However, the more recent reductions in services revenues have impacted
margins since certain fixed expenses could not be reduced commensurate with the
drop in revenues.
The reduction in selling, general and administrative expenses for the comparable
periods was principally a result of lower commission expenses associated with
services revenue. However, these expenses increased as a percentage of revenues
from 23.8% to 24.1% for the comparable third quarters and from 22.9% to 23.5%
for the comparable nine 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 increased 10.3% for the comparable third quarters and 6.0% for the
comparable nine month periods. Growth in these expenses was based on additional
investment in the enhancement of the current Javelan product and the development
of JavelanX, a browser based version of Javelan. The increase in these expenses
as a percentage of revenues from 4.5% to 5.9% in the comparable third quarters
and from 4.6% to 5.6% for the comparable nine month periods was primarily due to
the lower amount of total revenues recorded in the current period.
9
<PAGE> 10
Interest expense was the same for the comparable periods as a small increase in
the level of debt outstanding was offset by lower interest rates.
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 three
quarters of the current year, approximately 245,000, 226,000 and 192,000 common
equivalent shares were computed using average market prices of $1.14, $1.06 and
$.94 respectively. The comparable numbers for the first and third quarters of
the prior year were 375,000 and 397,000 common equivalent shares computed using
average market prices of $1.58 and $1.51 respectively. 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.
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 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 200 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.
10
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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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
A report was filed on January 29, 1999 regarding the acquisition of the
assets of Icon Technology LLC.
11
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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: February 5, 1999 By: /s/ Henry P. Semmelhack
--------------------- ----------------------------
Henry P. Semmelhack
President
and
Chief Executive Officer
Date: February 5, 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> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-25-1998
<CASH> 159
<SECURITIES> 0
<RECEIVABLES> 2,534
<ALLOWANCES> 0
<INVENTORY> 2,487
<CURRENT-ASSETS> 5,207
<PP&E> 3,983
<DEPRECIATION> 3,599
<TOTAL-ASSETS> 6,669
<CURRENT-LIABILITIES> 3,105
<BONDS> 1,355
0
0
<COMMON> 1,974
<OTHER-SE> 235
<TOTAL-LIABILITY-AND-EQUITY> 6,669
<SALES> 1,576
<TOTAL-REVENUES> 11,170
<CGS> 324
<TOTAL-COSTS> 7,731
<OTHER-EXPENSES> 3,081
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> 212
<INCOME-TAX> 0
<INCOME-CONTINUING> 212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 212
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
