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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2000
COMMISSION FILE NUMBER 0-14063
BARRISTER GLOBAL SERVICES NETWORK, INC.
(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.)
290 ELLICOTT STREET, BUFFALO, NEW YORK 14203
(Address of principal executive offices, including ZIP
code)
Registrant's telephone number, including area code: (716) 845-5010
SECURITIES REGISTERED PURSUANT TO SECTION (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.24 par value American Stock Exchange
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates of the
Registrant, based upon the closing price of the Common Stock on June 2, 2000 was
approximately $6.9 million.
The number of shares outstanding of the Registrant's common stock, $.24
par value, was 11,883,556 at June 2, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on September 12, 2000, are incorporated by
reference in Part III.
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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 filed with the
Securities and Exchange Commission.
PART I
ITEM 1. BUSINESS
GENERAL
The Company was formed in 1972 as the Office Automation Division of
Comptek Research, Inc. ("Comptek"). On March 26, 1982, the division was
incorporated under the laws of New York and was spun off to the Comptek
shareholders as a separate company, named Barrister Information Systems
Corporation. In July 1985, the Company sold shares of its common stock in its
initial public offering. The Company's shares are currently traded on the
American Stock Exchange. In December, 1997 the Company reincorporated under the
laws of Delaware. On May 5, 2000 the Company was renamed Barrister Global
Services Network, Inc.
The Company's headquarters are at 290 Ellicott Street, Buffalo, New York
14203, telephone 716-845-5010. In addition, the Company has a number of sales
and services offices throughout the United States.
During fiscal 2000, the Company operated as two business segments:
Equipment Maintenance Services and Software. On May 5, 2000, the Company sold
substantially all of the assets of its Software Business to Keystone Solutions
US, Inc. ("Keystone") a wholly owned subsidiary of Keystone Software PLC. For
the fiscal year ended March 31, 2000, the Company's Software Business is being
reported as a discontinued operation.
EQUIPMENT MAINTENANCE SERVICES BUSINESS
From the mid-1970's to about 1989, the Company manufactured
mini-computers and other equipment as part of the Barrister System, sold
principally to the law firm market. A nationwide organization was established to
support these clients and maintain the Barrister equipment.
When the Company stopped manufacturing mini-computers, the service
organization continued to support the Barrister customers and implement a
strategy to diversify into the maintenance of desktop computer equipment. In
1989, 100% of service revenues came from the maintenance of Barrister
mini-computers and equipment. Today nearly 100% of equipment maintenance
services derive from desktop equipment.
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SERVICES MARKET
The Company provides equipment maintenance services nationwide for
desktop equipment including personal computers and other equipment which attach
to LANs. Using its staff of hardware technicians and third party service
companies, the Company provides comprehensive maintenance services for such
equipment. The Company provides a nationwide toll-free number for customer
service and provides a seven-day, twenty-four hour maintenance capability.
In 1998, the Company took the initiative and developed and licensed
several software modules and integrated them into an Internet-based software
system which provides unique and innovative ways to provide and manage equipment
maintenance services to its clients. This integrated software system is called
the Barrister Global Service Network (GSN) and allows for clients anywhere in
the world to view the status of service calls using the Internet. Further, the
system provides management information to client and company managers
responsible for service delivery. Finally, GSN provides a mechanism over the
Internet to transmit service requests to third party subcontractors, to monitor
and manage those service calls and to measure service delivery performance. The
ability to manage third party service providers and provide summary management
information is a unique and powerful capability. This capability has received
favorable comment as a valuable value-added service from clients and prospects.
It is anticipated this capability will lead to substantial positive changes in
the national service delivery process.
Since 1972, the Company has established a field service organization
located in a number of cities throughout the United States. To support them, a
depot repair facility located in Buffalo, New York performs repairs on equipment
shipped to Buffalo. These resources have enabled the Company to sell equipment
maintenance service contracts outside the legal market and to sell depot repair
services. Currently, more than 90% of hardware maintenance revenues are
generated outside the legal market.
Sales of services are the result of a direct sales force focused on this
market. A variety of service plans are offered which cover a long list of OEM
micro-computer products. In addition, the Company has established business
relationships with companies such as Pioneer-Standard Electronics, Inc., IBM
Corporation, Amherst Computer Products, Amdahl Corporation and Entex Information
Services, Inc. to provide services on a contractual basis.
Since product life cycles for hardware are relatively short, the Company
provides updated training to its service technicians and continuously reviews
its spare parts inventory for potential obsolescence. The Company believes there
are sufficient technicians available to meet its business needs and that
adequate sources of parts will be available to meet technological and product
life cycle changes.
SERVICES COMPETITION
Providing maintenance and repair depot services to clients is also a
highly competitive business. The principal competitive factors are price,
expertise, reputation and geographic location of staff. The market for hardware
maintenance services is very large; it encompasses all businesses, is highly
price competitive, has low technological barriers to entry and the equipment
serviced has short product life cycles. The Company competes with numerous
organizations which can provide similar maintenance services, many of which are
substantially larger, better known and have substantially greater name
recognition and financial, marketing, technical and personnel resources than the
Company. The Company believes it distinguishes itself by its unique use of the
Barrister Global Services Network, by which it manages equipment maintenance
services using the Internet, and by providing services on a dependable and cost
effective basis to customers with multiple locations throughout the U.S.
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MAJOR BUSINESS RELATIONSHIPS
The Company does substantial business with two customers:
Pioneer-Standard Electronics, Inc. ("Pioneer") and IBM Corporation ("IBM").
Revenues generated from each of these customers amounted to approximately 10% of
revenues in fiscal 2000. Currently, the business with Pioneer is through a
subcontract arrangement. In February, 2000 an additional agreement was reached
with Pioneer to provide nationwide support on Intel-based systems and servers
that Pioneer distributes to Value-Added Resellers (VARs), Original Equipment
Manufacturers (OEMs) and end users. The IBM business is through a number of
hardware maintenance subcontracts to provide service to IBM's customers. These
subcontracts are generally renewable on an annual basis with 30 day cancellation
rights.
SOFTWARE BUSINESS
During fiscal 2000 and in prior years, the Company operated a Software
Business which is being reported as discontinued operations, due to the sale to
Keystone. The Software Business segment focused on the development, marketing,
licensing and installation of software for law firms, accounting firms,
consultants and departments of Fortune 1000 companies. The majority of the staff
for this business were located in Buffalo, New York with a development office in
San Rafael, California.
The principal products of the Software Business were Javelan, Javelan
Select, Javelan X and LegalHouse. These products used desktop computing and
client server architecture to provide the functions necessary for law firm
management, management reporting and budgeting. Sales of these products could
occur from time to time and were not predictable. As a result, the Company's
performance could change dramatically from quarter to quarter.
The markets for these software products were characterized by rapid
technical changes which required ongoing development. Expenditures for product
development and engineering, before taking into account amounts capitalized and
amortized for software production costs, were $1,537,000, $904,000 and $842,000
in fiscal 2000, 1999 and 1998 respectively.
The Company competed with many other companies engaged in the business of
providing software and services to the legal market. Certain of these companies
were substantially larger and had substantially greater name recognition and
financial, marketing, technical and personnel resources than the Company. The
Company believed that the principal competitive factors affecting a law office's
choice of data processing systems were product quality, performance and
reliability, compatibility with industry standards, the ability to provide
ongoing, long-term customer service and support, hardware and software features,
ease of use, upgrading capabilities, customer training, system flexibility,
company financial stability, name recognition of product and company.
INDUSTRY SEGMENTS
The following table is a summary of information relating to the Company's
operations in its two industry segments for each of the Company's last three
fiscal years. This information excludes corporate expenses which are not
allocated to the segments. The discontinued operations refers to the Company's
Software Business.
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<TABLE>
<CAPTION>
2000 1999 1998
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(in thousands)
<S> <C> <C> <C>
Revenues:
Equipment Maintenance Services $ 8,476 $ 8,590 $ 11,955
Discontinued Operations 6,456 6,404 5,110
Operating Earnings (Loss):
Equipment Maintenance Services (30) 510 1,083
Discontinued Operations (163) 1,169 753
Identifiable Assets:
Equipment Maintenance Services 2,965 3,861 4,942
Discontinued Operations 3,817 4,495 2,128
</TABLE>
EMPLOYEES
On March 31, 2000, the Company had 172 full-time employees and 9
part-time employees. Of these employees, 111 full-time and 4 part-time will
remain with the ongoing business and the other employees were hired by Keystone
effective May 6, 2000. None of the Company's employees is represented by a labor
union and the Company has had no work stoppages. The Company believes that
employee relations are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information with respect to the
executive offices of the Company as of June 16, 2000:
Henry P. Semmelhack, 63, has served as the Company's Chairman of the
Board of Directors, Chief Executive Officer and President since its
incorporation in 1982. He was one of the founders of Comptek, and currently
serves as a Director of Comptek. Previously, he served as Comptek's Chairman of
the Board, Chief Executive Officer and President.
Richard P. Beyer, 53, became Vice President-Finance, Treasurer and a
Director of the Company in 1982 following its incorporation. He joined Comptek
in 1974 and served as its Vice President-Finance and Treasurer.
David L. Blankenship, 43, joined the Company in October, 1997 as its Vice
President of Services Operations. He was promoted to Senior Vice President of
Services Operations in May, 2000. Previously, he was President of Mill Street
Recycling, Inc., a division of SCS Group, L.C. He also has been involved in
companies which he founded, involving construction, mining and trucking.
As of the end of fiscal 2000, the following individuals were also
executive officers of the Company and have joined Keystone as of May 6, 2000:
Mark C. Donadio Vice President, Secretary and General Counsel
Thomas W. Jones Vice President, LegalHouse Development
Jay S. Moeller President, Software Division
Mark J. Phillips Vice President of Sales
Susan T. Robinson Vice President, Software Operations
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ITEM 2. PROPERTIES
The Company currently leases all the facilities used in its business. The
Company is headquartered in Buffalo, New York and currently leases approximately
35,000 square feet in a separate facility located at 290 Ellicott Street. Other
office locations, which are used for regional sales offices and for servicing
activities are as follows:
New York, New York Atlanta, Georgia
Hartford, Connecticut Arlington, Virginia
Boston, Massachusetts Richmond, Virginia
Cleveland, Ohio
Leases for the Company's other Buffalo facility located at 465 Main
Street and certain other sales and development offices used by the Software
Business were assumed by Keystone as of May 6, 2000.
ITEM 3. LEGAL PROCEEDINGS
In the opinion of management, there are no claims or litigation pending
to which the Company is a party which could have a material adverse effect on
the Company's financial condition or statement of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of fiscal 2000.
A special meeting of security holders was held on May 5, 2000 to vote on
and approve the sale of the Company's Software Business and assets to Keystone
Solutions US, Inc. and to change the Company's name to Barrister Global Services
Network, Inc. Both resolutions were passed with more than the required majority
vote.
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PART II
ITEM 5. MARKET FOR REGISTRATION'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the American Stock Exchange under
the symbol "BIS". The price ranges as reported by AMEX applicable to the common
shares during each quarter of the years ended March 31, 2000 and March 31, 1999,
are as follows:
<TABLE>
<CAPTION>
2000 1999
------------- ------------- ---------- -----------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 4 5/8 1 1/4 1 1/2 15/16
Second Quarter 3 1 7/16 1 1/4 7/8
Third Quarter 1 13/16 15/16 1 1/8 13/16
Fourth Quarter 2 1/2 15/16 2 3/4
</TABLE>
The Company's common stock was held by approximately 361 shareholders of
record as of June 15, 2000.
The Company has not paid any cash dividends on its common stock and the
board of directors intends to follow a policy of retaining earnings for use in
the business. Under the Company's loan agreement with BIS Partners, L.P., the
payment of dividends is prohibited without the lender's consent. Accordingly, it
is not anticipated that cash dividends will be paid to holders of common stock
in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended March 31
------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data: (1)
Revenues $ 8,476 $ 8,590 $ 11,955 $ 9,538 $ 10,292
Net loss from continuing operations (600) (1,161) (730) (1,202) (1,134)
Net loss per common share from
continuing operations:
Basic and diluted (.06) (.14) (.09) (.15) (.18)
Balance Sheet Data at Year End: (1)
Working capital 1,546 2,296 2,271 2,367 2,929
Total assets 7,556 7,961 6,998 6,630 6,812
Long-term debt 791 1,134 1,395 1,504 1,392
Stockholders' equity 3,552 3,812 1,993 1,952 2,337
</TABLE>
(1) All prior years have been restated to reflect discontinued operations
consistent with the fiscal 2000 presentation. The discontinued operation is more
fully discussed in note 2 to the financial statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANANLYSIS OF FINANCIAL CONTIION AND
RESULTS OF OPERATIONS
GENERAL
Barrister Global Services Network, Inc. (the "Company") (formerly
Barrister Information Systems Corporation) is a provider of multi-vendor
computer equipment maintenance services with warranty authorizations for over 20
manufacturers and provides services for over 200 different manufacturers. The
Company provides its customers with unusual value and powerful online
information through its Global Service Network, a unique web-based service
management system. A wide variety of services are offered, from on-site,
mission-critical equipment services to depot repair, with services currently
being provided in thousands of locations throughout North America. The Company
provides national service delivery through centralized administration and
computerized logistics; equipment repair both during and after equipment
warranty periods; and cost-effective repairs through in-house repair expertise.
Business is generated through direct sales to end-users, subcontracts from other
companies, contracts with computer resellers to provide maintenance services to
their customers and most recently from a contract with a national distributor of
computer equipment. The market for hardware maintenance services is very large;
it encompasses all businesses, is highly price competitive, has low
technological barriers to entry and the equipment serviced has short product
life cycles.
The Company also operated a software business which was focused on the
development, marketing, licensing and installation of software for law firms,
accounting firms, consultants and departments of Fortune 1000 companies. On
April 5, 2000, the Company and Keystone Solutions US, Inc. signed an Asset
Purchase Agreement for the sale of substantially all of the assets of the
Company's software business. The asset sale will allow the Company's management
to concentrate attention and financial resources on its computer equipment
maintenance services business.
For financial reporting purposes, the Company's software business is
being reported as a discontinued operation. The following discussion and
analysis of operations and financial condition pertain to the Company's
equipment maintenance services business, which constitute the continuing
operations. A separate section labeled Discontinued Operations is included at
the end of this discussion and pertains to the disposal of the software
business.
RESULTS OF OPERATIONS
The 1.3% decrease in revenues for fiscal 2000 as compared to 1999
resulted from decreased revenues from hardware maintenance contracts. An
increase in revenues from time and material services, principally from a number
of installation and hardware upgrade projects, partially offset this decrease.
Non renewal and cancellations of contracts during the year, including a large
contract in the third quarter, offset new business captured. The Company did
experience an increase in new maintenance contracts towards the end of the year.
These contracts plus revenues anticipated from the agreement with
Pioneer-Standard Electronics, Inc. to provide warranty services on various
equipment sold by this $2.4 billion distributor, have created expectations of
significant increases in contract maintenance revenues in fiscal 2001. The
Company's Global Services Network, which 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 was instrumental in obtaining the Pioneer agreement. It is expected
that other new business will result from the marketing of the capabilities of
the Global Services Network.
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Revenues for fiscal 1999 decreased 28.1% as compared to 1998. This was
caused by decreased revenues from hardware maintenance contracts and time and
materials services. The drop in these revenues was a result of three factors.
First, all work for CIC Systems, Inc. was halted in March 1998. Revenues from
CIC amounted to approximately $1,200,000 in fiscal 1998. Second, IBM reduced the
amount of subcontracts for hardware services that it was providing to the
Company. As a result, revenues from IBM, the Company's largest customer, dropped
from 24% of revenues in fiscal 1998 to 17% of revenues in fiscal 1999. IBM's
contract with the Company has a provision that stipulates that IBM is able to
terminate any of its contracts by providing thirty days advance notice. Third,
other contract expirations exceeded new business generated.
The cost of services increased as a percentage of revenues from 81.2% in
fiscal 1999 to 84.4% in 2000. The primary reason for this increase was an
increase in subcontract services used for a number of installation and hardware
upgrade projects in the second half of fiscal 2000. The cost of services also
increased as a percentage of revenues from 80.6% in fiscal 1998 to 81.2% in
1999. The large drop in revenues impacted margins since certain fixed expenses
could not be reduced commensurate with the drop in revenues. Cost of services
includes provision for service parts inventory deemed to be no longer repairable
or excess to the Company's needs based on actual and projected service revenues.
The amount of such charges were $900,000, $942,000 and $900,000 for 2000, 1999
and 1998, respectively.
The increase in selling, general and administrative expenses as a
percentage of revenues from 30.2% in fiscal 1999 to 34.5% in 2000 was
principally a result of higher commission expenses and the increase in the
allowance for doubtful accounts. These expenses also increased as a percentage
of revenues from 24% in fiscal 1998 to 30.2% in 1999. This increase resulted
from a decrease in revenues for the comparative periods. Expense reductions of
approximately 9.4% were realized in fiscal 1999 primarily from lower commission
expenses. Selling, general and administrative expenses include all of the
corporate expenses since these expenses were not previously allocated to the
Company's two segments and the amount of reduction in these expenses, if any,
could not be determined.
Interest expense amounted to 1.7%, 2.1% and 1.6% of revenues for fiscal
2000, 1999 and 1998, respectively. The decrease in interest expense for fiscal
2000 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. The increase in
interest expense as a percentage of revenues in fiscal 1999 compared to fiscal
1998 was a result of lower revenues in fiscal 1999 as the amount of interest
expense remained constant.
No current tax expense or benefit was recorded for any of the years in
the three year period ended March 31, 2000 due to the operating losses incurred.
No deferred taxes were recorded in 1999 or 1998 since changes in the net
deferred tax asset were fully offset by changes in the valuation allowance. The
deferred tax benefit recorded in 2000 is based on the amount of deferred tax
assets which are expected to be realized. Realization of the asset has been
determined by a projection of taxable income in fiscal 2001. Taxable income in
fiscal 2001 will be largely determined by the expected gain on sale of the
software business which will approximate $6,200,000. The Company expects to
utilize a significant portion of its net operating loss carryforwards to offset
this gain. The valuation allowance remaining at March 31, 2000 represents
managements estimate of unused operating loss carryforwards remaining at March
31,2001 and net deductable temporary differences at that date which are not
expected to be realizable by carryback to fiscal 2001.
DISCONTINUED OPERATIONS
The income (loss) from discontinued operations consists of the Company's
software business which was sold to Keystone on May 5, 2000. Additional
operating losses are expected for the period from April 1, 2000 through May 5,
2000 and will be recognized as part of the overall expected pre-tax gain of $3.4
million from the sale in the first quarter of fiscal 2001. The Company will
realize net cash proceeds of
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approximately $6.6 million from the sale. The pre-tax gain and net cash proceeds
will be increased by amounts realized from the $800,000 placed in escrow at the
closing.
Revenues for discontinued operations for the year ended March 31, 2000
increased by 1.2% as compared to the prior year. However, product sales were
lower by approximately $850,000, a reduction of 41.5% from the prior year. It is
believed that both current and prospective customers delayed buying decisions
based on their concerns over Y2K issues. This reduction had a significant impact
on earnings since margins on product sales generally exceed 80%. Software
services revenues increased by approximately $925,000, an increase of 21.3% over
the prior year. This increase was largely attributed to LegalHouse related
services. The LegalHouse product was obtained from the acquisition of Icon
Technology LLC ("Icon") in January 1999. A full year of LegalHouse revenues was
recorded in fiscal 2000 compared to only three months in 1999. The cost of
providing services increased from 64.7% in fiscal 1999 to 69.2% in 2000. Higher
costs associated with the delivery of LegalHouse related services including
costs associated with the transition of various resources from Javelan to
LegalHouse was the primary reason for this increase.
Selling, general and administrative expenses increased from 22.6% of
revenues for discontinued operations in fiscal 1999 to 25.8% in the year ended
March 31, 2000. This increase was due to the establishment of a new position of
President of the software business and a full year of expenses for the
amortization of goodwill associated with the Icon acquisition which amounted to
$171,000. The significant increase of approximately $560,000 in expenditures for
product development and engineering that occurred in fiscal 2000 when compared
to 1999 was primarily a result of expenses incurred in the enhancement of
LegalHouse.
Revenues for discontinued operations for the year ended March 31, 1999
increased by 25.3% as compared to fiscal 1998. Product sales grew by 17.2% with
margins on these sales remaining constant at approximately 85%. Software
services revenues increased by 29.6%, however, margins decreased as the cost of
providing these services went from 57.9% in fiscal 1998 to 64.7% in fiscal 1999.
This cost increase was principally due to the addition of personnel to improve
the management, administration and delivery of the services.
Selling, general and administrative expenses decreased as a percentage of
revenues from discontinued operations from 27.0% in fiscal 1998 to 22.6% in
1999. This decrease was based on reductions in certain operating expenses of the
selling organization at the same time that revenues grew 25.3%. Product
development and engineering expenses decreased as a percentage of revenues from
discontinued operation from 15.2% in fiscal 1998 to 10.5% in 1999. This decrease
was a result of a higher portion of expenditures qualifying for capitalization
as software production costs and the increase in revenues for the comparable
years.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced a net decrease in cash from continuing operations
of $460,000 during fiscal 2000. The principal source of cash was $315,000 from
the sale of common stock and $100,000 in proceeds from long-term debt. Principal
uses of cash during the year were $676,000 in net cash used by operating
activities and additions to equipment and leasehold improvements of $154,000.
The net cash used by operating activities was a result of the pre-tax net loss
incurred which was partially offset by positive benefits from reductions in
receivables and inventories. In fiscal 1999, the Company experienced a net
decrease in cash from continuing operations of $405,000. Principal uses of cash
during the year were net cash used by operating activities of $316,000,
additions to equipment and leasehold improvements of $222,000 and net repayment
of long-term debt of $95,000. These uses were partially offset by $228,000 in
proceeds from the sale of common stock. In fiscal 1998, the Company experienced
a net decrease in cash from continuing operations of $775,000. This resulted
primarily from net cash used by operating activities of $705,000 which was a
result of the net loss incurred.
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The principal cash requirements expected for fiscal 2001 are additions to
equipment and leasehold improvements which are expected to increase over amounts
spent in prior years, primarily for a telephone system and computer equipment.
Debt repayments, including repayment of notes totaling $564,000 with proceeds
from the sale of the software business, should approximate $878,000. Cash
proceeds of approximately $6,600,000 received from the sale of the software
business in May 2000 will be sufficient to cover working capital, capital
expenditure requirements and debt repayments in fiscal 2001.
NEW ACCOUNTING STANDARDS
The Company will adopt SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" for the fiscal quarter beginning April 1,
2001. SFAS No. 133 requires all derivatives to be recorded on the balance sheet
at fair value and establishes new accounting rules for hedging instruments. The
Company does not enter into hedging transactions or acquire derivative
instruments, accordingly, SFAS No. 133 will have no impact on the financial
statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25." The adoption of this
interpretation, effective July 1, 2000, is not expected to have a material
impact on the Company's financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company, in the normal course of business, has exposure to interest
rate risk from its long term debt obligations that have variable interest rates
based on prime. The Company does not believe that its exposure to fluctuations
in interest rates is material. A 10% change in the interest rate utilized on
these long term debt obligations would have produced approximately $12,000 in
additional interest expense for the fiscal year ended March 31, 2000.
Due to the immateriality of the above noted market risk, the Company has
decided not to utilize any form of financial instrument as a hedge against this
risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE PAGE
<S> <C>
Independent Auditors' Report .................................................................... 12
Balance Sheets as of March 31, 2000 and 1999..................................................... 13
Statements of Operations for the years ended March 31, 2000, 1999 and 1998....................... 14
Statements of Stockholders' Equity for the years ended March 31, 2000, 1999 and 1998............. 15
Statements of Cash Flows for the years ended March 31, 2000, 1999, and 1998...................... 16
Notes to Financial Statements.................................................................... 17
Financial Statement Schedule II - Valuation and Qualifying Accounts.............................. 29
</TABLE>
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Barrister Global Services Network, Inc.
(formerly Barrister Information Systems Corporation):
We have audited the accompanying balance sheets of Barrister Global Services
Network, Inc. as of March 31, 2000 and 1999, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended March 31, 2000. In connection with our audits of the
financial statements, we have also audited the financial statement schedule
listed in Item 14(d) of the annual report on Form 10K for the fiscal year ended
March 31, 2000. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects the financial position of Barrister Global Services
Network, Inc. as of March 31, 2000 and 1999, and the results of its operations
and its cash flows for each of the years in the three-year period ended March
31, 2000, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
/s/KPMG LLP
Buffalo, New York
June 26, 2000
12
<PAGE> 13
BARRISTER GLOBAL SERVICES NETWORK, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31
----------------- -----------------
2000 1999
----------------- -----------------
<S> <C> <C>
ASSETS (notes 2 & 3)
CURRENT ASSETS:
Cash $ 161 $ 222
Accounts receivable, less allowance for doubtful accounts of
$250 in 2000 and $145 in 1999 934 1,261
Service parts inventory 1,734 2,341
Prepaid expenses 9 26
Deferred income taxes (note 6) 1,146 -
Net current assets of discontinued operations 775 1,461
----------- -------------
Total current assets 4,759 5,311
----------- -------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST:
Computer and other equipment 1,385 1,453
Furniture and fixtures 947 947
Leasehold improvements 246 247
----------- -------------
2,578 2,647
Less accumulated depreciation 2,219 2,318
----------- -------------
Net equipment and leasehold improvements 359 329
----------- -------------
OTHER ASSETS 25 32
NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS 2,413 2,289
----------- -------------
$ 7,556 $ 7,961
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable (to a related party, note 3) $ 264 $ -
Current installments of long-term debt
($314 in 2000 and $203 in 1999 to a related party, note 3) 443 309
Accounts payable 1,075 1,108
Accrued compensation and benefits 678 705
Customer advances and unearned revenue 698 842
Other accrued expenses 55 51
----------- -------------
Total current liabilities 3,213 3,015
----------- -------------
LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS
($620 in 2000 and $930 in 1999 to a related party, note 3) 791 1,134
STOCKHOLDERS' EQUITY (notes 3, 4 and 8):
Preferred stock, authorized 2,000,000 shares, 2,500 convertible
shares issued and outstanding in 1999 - 1,250
Common stock, $.24 par value. Authorized 20,000,000 shares;
11,856,556 and 8,891,236 shares issued and outstanding
in 2000 and 1999, respectively 2,846 2,134
Additional paid-in capital 23,005 21,964
Accumulated deficit (22,299) (21,536)
------------ --------------
Total stockholders' equity 3,552 3,812
----------- -------------
COMMITMENTS AND CONTINGENCIES (notes 7 and 11)
$ 7,556 $ 7,961
=========== =============
</TABLE>
See accompanying notes to financial statements
13
<PAGE> 14
BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended March 31
------------------ ---------------- -----------------
2000 1999 1998
------------------ ---------------- -----------------
<S> <C> <C> <C>
REVENUES $ 8,476 $ 8,590 $ 11,955
COSTS AND EXPENSES:
Cost of services 7,156 6,977 9,630
Selling, general and administrative expenses 2,924 2,594 2,864
------------- -------------- -------------
OPERATING LOSS (1,604) (981) (539)
------------- -------------- -------------
INTEREST EXPENSE:
Related party (note 3) 97 157 149
Other 45 23 42
------------- -------------- -------------
Total interest 142 180 191
------------- -------------- -------------
NET LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (1,746) (1,161) (730)
Income tax benefit (note 6) (1,146) - -
------------- -------------- -------------
NET LOSS FROM CONTINUING OPERATIONS (600) (1,161) (730)
DISCONTINUED OPERATIONS (NOTE 2):
Income (loss) from discontinued operations (163) 1,169 753
------------- -------------- -------------
NET EARNINGS (LOSS) $ (763) $ 8 $ 23
============== ============== =============
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ (.06) $ (.14) $ (.09)
Discontinued operations (.01) .14 .09
-------------- ------------- ------------
Total $ (.07) $ - $ -
============== ============= =============
Weighted average number of common shares
outstanding:
Basic and diluted 10,519 8,363 8,207
============= ============== =============
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 15
BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Year Ended March 31
------------------ ---------------- -----------------
2000 1999 1998
------------------ ---------------- -----------------
<S> <C> <C> <C>
PREFERRED STOCK:
Beginning balance $ 1,250 $ - $ -
Issued 2,500 Series E shares in connection with
acquisition of Icon Technologies, LLC (note 8) - 1,250 -
Conversion into 2,500,000 shares of common stock (1,250) - -
------------- -------------- -------------
Ending balance - 1,250 -
------------- -------------- -------------
COMMON STOCK:
Beginning balance 2,134 1,972 1,968
Issuance of 465,320 shares, 291,991 shares and 15,066
shares in 2000, 1999, 1998, respectively 112 70 4
Issued 382,883 shares on conversion of debt - 92 -
Issued 2,500,000 shares on conversion of
preferred stock 600 - -
------------- -------------- -------------
Ending balance 2,846 2,134 1,972
------------- -------------- -------------
ADDITIONAL PAID-IN CAPITAL:
Beginning balance 21,964 21,565 21,551
Issuance of common shares 391 158 14
Issuance of shares on conversion of debt - 241 -
Conversion of preferred stock 650 - -
------------- -------------- -------------
Ending balance 23,005 21,964 21,565
------------- -------------- -------------
ACCUMULATED DEFICIT:
Beginning balance (21,536) (21,544) (21,567)
Net income (loss) (763) 8 23
-------------- -------------- -------------
Ending balance (22,299) (21,536) (21,544)
-------------- --------------- --------------
TOTAL STOCKHOLDERS' EQUITY $ 3,552 $ 3,812 $ 1,993
============= ============== =============
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 16
BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended March 31
--------------- ---------------- ---------------
2000 1999 1998
--------------- ---------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (600) $ (1,161) $ (730)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation 124 99 107
Deferred income taxes (1,146) - -
Gain on disposal of equipment - - (2)
Changes in current assets and liabilities of continuing
operations:
Accounts receivable 327 574 (506)
Inventory 607 595 36
Prepaid expenses 17 (4) 17
Other assets 7 8 (7)
Accounts payable 14 (166) 227
Accrued compensation and benefits 114 99 64
Customer advances and unearned revenue (144) (356) 101
Other accrued expenses 4 (4) (12)
------------ ------------- -------------
Net cash used by operating activities (676) (316) (705)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and leasehold improvements (154) (222) (38)
Proceeds on sale of equipment - - 3
------------ ------------ ------------
Net cash used by investing activities (154) (222) (35)
------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 100 63 17
Repayment of long-term debt (45) (158) (70)
Proceeds from sale of common stock 315 228 18
------------ ------------ ------------
Net cash provided (used) by financing activities 370 133 (35)
------------ ------------ -------------
Net decrease in cash from continuing operations (460) (405) (775)
Net increase in cash from discontinued operations 399 417 759
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (61) 12 (16)
CASH AT BEGINNING OF YEAR 222 210 226
------------ ------------ ------------
CASH AT END OF YEAR $ 161 $ 222 $ 210
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 132 $ 185 $ 120
Non-cash investing and financing activities:
Current liabilities paid in common stock 188
Debt converted to common stock by BIS Partners, L.P. - 333 -
Preferred stock issued in connection with acquisition - 1,250 -
============ ============ ============
</TABLE>
See accompanying notes to financial statements
16
<PAGE> 17
BARRISTER GLOBAL SERVICES NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF ORGANIZATION - Barrister Global Services Network, Inc.
(formerly Barrister Information Systems Corporation) had two
professional service segments: hardware maintenance services, and
software licensing and support services. The hardware maintenance
service business provides equipment maintenance on personal
computer and related equipment generally attached to LANs. This
comprehensive maintenance and warranty service is done on a
contractual and time and materials basis. These services are
provided through a network of service locations throughout the
United States. The software segment developed and supported
Windows-based client/server software for law, accounting, and
consulting firms and departments of Fortune 1000 companies. As
further described in note 2, the Company sold the software segment
in May 2000. The accompanying financial statements separately
reflect the software business as a discontinued operation.
(B) BASIS OF PRESENTATION - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(C) REVENUE RECOGNITION - Revenues from hardware maintenance contracts
are recognized on a monthly basis over the term of the contract
which generally corresponds to the timing of cost incurred. Time
and material services revenue is recognized as the service is
provided.
Software license revenue is recognized upon delivery of the
software product to the customer, unless the Company had
significant related obligations remaining or the probability of
collection was in doubt. When obligations remain after delivery,
revenue is recognized when such obligations are no longer
significant. When services are deemed essential to the
functionality of the software delivered, the
percentage-of-completion method of revenue recognition is
utilized. Sales of third party software and hardware are recorded
upon shipment.
(D) INVENTORIES - Inventories are stated at the lower of cost
(first-in, first-out) or market. Service parts inventory is
charged to cost of services when the part is no longer repairable
or becomes excess to the Company's needs based on actual and
projected service revenues.
(E) EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Depreciation is recorded on
the straight-line method based on the estimated useful lives of
the assets. Computer and other equipment and furniture and
fixtures are depreciated over estimated useful lives of three to
ten years. Improvements to leased property are depreciated over
the lesser of the term of the lease or the life of the
improvements.
(F) SOFTWARE PRODUCTION AND DEVELOPMENT COSTS - Capitalized software
production costs are carried at the lower of unamortized cost or
net realizable value, and are amortized based on current and
estimated future revenue for each product with minimum
amortization on the straight-line method over the estimated
economic life of the product (3 years). Capitalization ceases and
amortization commences when the product is available for general
release. All costs to establish the technological feasibility of
computer software products are charged to
17
<PAGE> 18
operations when incurred. Technological feasibility is defined
through the existence of a detailed program design or, in the
absence of such, a working model.
(G) STOCK-BASED COMPENSATION - Stock options are accounted for using
the intrinsic value method permitted by Statement of Financial
Accounting Standards (SFAS) No. 123 "Accounting for Stock-based
Compensation," whereby compensation is measured as the difference
between an option's exercise price and the market value of the
underlying stock at the grant date. See note 4 for the pro forma
effect on operations as if the fair value-based method of
accounting provided for in SFAS No. 123 had been applied.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of
financial instruments is a reasonable estimate of their fair
value, except for the debt due BIS Partners, L.P. (note 3) for
which it is not practicable to estimate its fair value.
(I) PER SHARE DATA AND EARNINGS PER SHARE - Basic net earnings (loss)
per share amounts are based on the weighted average number of
common shares outstanding. Diluted earnings per share includes the
impact, when dilutive, of stock options and warrants assumed to be
exercised using the treasury stock method.
(J) NEW ACCOUNTING STANDARDS - The Company will adopt SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" for
the fiscal quarter beginning April 1, 2001. SFAS No. 133 requires
all derivatives to be recorded on the balance sheet at fair value
and establishes new accounting rules for hedging instruments. The
Company does not enter into hedging transactions or acquire
derivative instruments, accordingly, SFAS No. 133 will have no
impact on the financial statements.
In March 2000, the Financial Accounting Standards Board issued
FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation - an interpretation of APB Opinion
No. 25." The adoption of this interpretation, effective July 1,
2000, is not expected to have a material impact on the Company's
financial statements.
(2) DISCONTINUED OPERATIONS
On May 5, 2000, the Company signed an Asset Purchase Agreement (the
"Agreement") to sell substantially all of the assets of the Company's
software business to Keystone Solutions US, Inc. ("Keystone"), a wholly
owned subsidiary of Keystone Software PLC. The selling price is
$8,000,000 in cash plus the assumption by Keystone of certain
liabilities. The selling price is subject to adjustment in the event
that the net assets delivered differ from amounts stipulated in the
agreement or if there are any contingent, hidden or undisclosed
liabilities relating to the purchased assets or the software business.
The Company has agreed to indemnify Keystone with respect to any breach
of its representations and warranties (subject to a $50,000 basket and
a cap of the purchase price paid) or any breach of any covenant of the
Company contained in the Asset Purchase Agreement. The Company has also
agreed to indemnify Keystone with respect to claims or actions pending
at or arising after the closing date (May 5, 2000) that relate to the
operation of the software business prior to that date. Of the selling
price, $800,000 is held in escrow by Keystone for the payment of any of
the above claims. One half of the escrow funds will be released to the
Company after six months, minus amounts paid on certain claims or
liabilities, if any, and the remaining paid in equal payments over an
additional six months.
18
<PAGE> 19
The estimated pre-tax net gain on the sale of the software business is
$3.4 million and will be recorded upon consummation of the transaction
in the first quarter of fiscal 2001. The estimated gain excludes the
amount held in escrow. Any amounts received from the escrow funds will
be recorded in the period of receipt. A summary of the operating
results of discontinued operations are as follows:
<TABLE>
<CAPTION>
Year Ended March 31
-------------- ---------------- --------------
2000 1999 1998
-------------- ---------------- --------------
(In thousands)
<S> <C> <C> <C>
Revenues $ 6,456 $ 6,404 $ 5,110
Income (loss) from discontinued operations before
income taxes (163) 1,169 753
</TABLE>
The Company does not allocate corporate general and administrative
expenses or interest expenses to its operating business segments.
The software business assets sold and liabilities assumed by Keystone
have been segregated in the accompanying balance sheets as net assets
of discontinued operations. The components are as follows:
<TABLE>
<CAPTION>
March 31
----------------- -------------------
2000 1999
----------------- -------------------
(In thousands)
<S> <C> <C>
Current assets, primarily accounts receivable $ 1,299 $ 1,853
Equipment and leasehold improvements, net 217 254
Software production costs 1,315 1,007
Goodwill 986 1,158
Other assets - 223
Current liabilities (427) (311)
Current installments of long term debt (97) (81)
Long-term debt, excluding current installments (105) (353)
------------- ------------
$ 3,188 $ 3,750
============= ============
</TABLE>
(3) NOTE PAYABLE AND LONG-TERM DEBT
In the current year, BIS Partners, L.P. agreed to convert certain past
due amounts into a $264,000 demand note bearing interest at prime plus
3.5%.
<TABLE>
<CAPTION>
A summary of long-term debt follows:
-------------------- -------------------
2000 1999
-------------------- -------------------
(In thousands)
<S> <C> <C>
Term note with BIS Partners L.P. $ 934 $ 1,133
Term note payable to bank 171 237
Term notes to Regional Development Agencies 88 -
Other 41 73
------------ ------------
Total long term debt 1,234 1,443
Less current installments 443 309
------------ ------------
Long-term debt, excluding current installments $ 791 $ 1,134
============ ============
</TABLE>
19
<PAGE> 20
The BIS Partners L.P. ("BIS") term note is repayable in twelve (12)
equal monthly installments of principal and interest of $30,000 each
and in $35,000 monthly installments thereafter. The note bears interest
at the prime rate plus 3.5% and is supported by an agreement granting a
security interest in all equipment, inventories and receivables. The
agreement, among other things, requires the Company to maintain certain
financial ratios, prohibits dividend payments, and restricts capital
expenditures, lease obligations and executive compensation. The Company
was in compliance with all covenants in the agreement except for the
interest coverage covenant which was waived by BIS for 2000, 1999 and
1998.
BIS is 87.5% owned either directly or beneficially by certain officers
and directors of the Company. These same officers and directors own
approximately 30% of the Company's common stock.
In the fourth quarter of fiscal 1999 BIS converted $233,000 of the term
loan and a $100,000 demand note into 383,000 common shares at $0.87 per
share, the fair market value at that time.
The term note payable to bank dated March 1999, is repayable in
thirty-six (36) equal monthly installments of principal and interest at
the prime rate plus 2.5% (11.5% at March 31, 2000).
During the second quarter the Company obtained two $50,000 five year
term loans from regional development agencies, repayable in sixty equal
monthly installments. 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%.
The demand note payable to BIS Partners, L.P., the term note payable to
bank and the notes payable to regional development agencies were each
paid in full in May 2000 from the proceeds of the sale of the software
business.
Payments on long-term debt remaining after use of proceeds from the
sale of the software business, are estimated to be due as follows:
Year Ending March 31 Amount (in thousands)
-------------------- ---------------------
2001 $ 314
2002 377
2003 243
(4) STOCK OPTIONS AND WARRANTS
The Company has stock incentive plans to which it has allocated
1,500,000 shares of its authorized common stock. Under the plans,
options are granted to key employees and directors at prices determined
by the Compensation Committee of the Board of Directors but not at a
price less than the stock's market value at date of grant. The options
granted may qualify as incentive stock options and are exercisable over
a period of ten years.
20
<PAGE> 21
A summary of stock option activity follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ------------ ----------- ----------- ------------ -----------
Shares Weighted Shares Weighted Shares Weighted
Subject to Average Subject to Average Subject to Average
Options Exercise Options Exercise Options Exercise
(thousands) Price (thousands) Price (thousands) Price
----------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of year 761 $ 0.88 772 $ 0.78 525 $ 0.56
Granted 428 1.29 148 1.14 266 1.25
Cancelled (162) 1.04 (86) 0.74 (4) 0.50
Exercised (117) 0.83 (73) 0.52 (15) 0.50
--------- -------- --------
Outstanding end of year 910 1.05 761 0.88 772 0.78
======== ======== ========
Exercisable at year end 458 0.83 500 0.74 501 0.62
======== ======== ========
Reserved for grant, end of year 102 17 79
======== ======== ========
Weighted-average fair value
of options granted during year $ 0.71 $ 0.57 $ 0.69
======== ======== =======
</TABLE>
In fiscal 2000, 182,000 shares of stock were issued under the plans as
stock bonuses in payment for amounts due certain employees and
directors. These transactions were accounted for as non-cash
activities in 2000. At March 31, 2000, the range of exercise prices and
weighted average remaining contractual life of outstanding options was
$.50 - $1.63 and 5.9 years, respectively. The per share weighted
average fair values of stock options granted was computed using the
Black Scholes option-pricing model with the following assumptions:
------------- -----------
2000 1999
------------- -----------
Risk-free interest rate 6.46% 5.87%
Price volatility 42.0% 42.0%
Dividend yield 0% 0%
Expected term in years 7 7
The Company applies APB Opinion No. 25 in accounting for the Plans and,
since options have been granted with exercise prices equal to the
market value per share, no compensation cost has been recognized in the
financial statements. Had the Company determined compensation cost
based on the fair value of options at the grant date, the reported net
loss for 2000, 1999, and 1998 would be increased by $96,000, $105,000,
and $50,000, respectively, resulting in a $(0.07), $(0.15), and $(0.10)
loss for 2000, 1999, and 1998 respectively.
The following warrants are outstanding at March 31, 2000:
NUMBER OF SHARES EXERCISE PRICE EXPIRATION DATE
---------------- -------------- ---------------
70,000 $ 1.36 March 29, 2001
450,000 1.93 August 31, 2005
The $1.36 warrants were issued to the placement agent in conjunction
with a stock offering which occurred in March, 1996 and contain certain
antidilution provisions as well as certain registration rights. The
$1.93 warrants were issued on August 31, 1995 when the Company entered
into a modification agreement in which BIS agreed to forgive $450,000
in debt.
21
<PAGE> 22
(5) PENSION AND SAVINGS PLAN
The Company has a defined contribution retirement plan covering all
eligible employees. The Company partially matches employee
contributions to the Plan. Expense under the plan was $37,000 in 2000,
$31,000 in 1999 and $29,000 in 1998.
(6) INCOME TAXES
The Company had no current tax expense or benefit in any of the three
years presented due to its operating losses. No deferred taxes were
recognized in 1999 or 1998 since changes in the net deferred tax asset
were fully offset by changes in the valuation allowance.
The valuation allowance is determined based on management's assessment
of whether it is more likely than not that the deferred tax assets will
not be realized. At March 31, 2000 the Company reduced its beginning of
year valuation allowance by $539,000. This reduction results in net
deferred tax assets at March 31, 2000 reflecting the portion expected
to be realized. Realization of the asset has been determined by a
projection of taxable income in fiscal 2001. Taxable income in fiscal
2001 will be largely determined by the expected gain on the sale of the
software business which will approximate $6,200,000. The Company
expects to utilize a significant portion of its net operating loss
carryforwards to offset this gain. The valuation allowance remaining at
March 31, 2000 represents management's estimate of unused operating
loss carryforwards remaining at March 31, 2001 and net deductible
temporary differences at that date which are not expected to be
realizable by carry back to fiscal 2001. The adjustment of the
valuation allowance principally comprises the difference between the
expected tax benefit of $649,000 (applying statutory rates to the
pre-tax loss of continuing and discontinued operations) and the actual
benefit of $1,146,000. The 2000 tax benefit is fully allocable to
continuing operations.
The components of deferred tax assets (computed using an expected
effective tax rate) are as follows:
<TABLE>
<CAPTION>
---------------- ---------------
2000 1999
---------------- ---------------
(in thousands)
<S> <C> <C>
Net operating loss carryforwards $ 1,757 $ 1,136
Inventory write downs 171 140
Depreciation 69 77
Vacation pay 49 77
Bad debt allowance 127 90
Software production costs (474) (403)
Other 108 83
------------- -----------
Net deferred tax asset 1,807 1,200
Less valuation allowance 661 1,200
------------- -----------
$ 1,146 $ -
============= ===========
</TABLE>
The Company has $4,625,000 of tax loss carryforwards available through
2020. Included in this amount is $720,000 of pre-ownership change loss
carryforward which can be utilized at the rate of $80,000 per year
through 2009.
22
<PAGE> 23
(7) LEASE COMMITMENTS
The Company conducts its operations from leased facilities and uses
certain equipment primarily under operating lease arrangements. Real
estate taxes, insurance, and maintenance expenses are obligations of
the Company. It is expected that in the normal course of business,
leases that expire will be renewed or replaced. Total rental expense
was $657,000 in 2000, $641,000 in 1999 and $682,000 in 1998 of which
$370,000, $399,000 and $446,000, respectively relate to continuing
operations.
Future minimum rental payments for continuing operations required under
leases that have initial or remaining noncancellable lease terms in
excess of one year are: $193,000 in 2001 and $4,000 in 2002.
(8) BUSINESS ACQUISITION
On January 15, 1999 the Company acquired the assets of Icon Technology
LLC (Icon) in exchange for 2,500 shares of preferred stock which were
converted into 2,500,000 shares of common stock upon shareholder
approval at the Company's 1999 annual meeting. The acquisition was
accounted for as a purchase. Accordingly, assets acquired and
liabilities assumed are recorded at their estimated fair values at the
date of acquisition. The excess of the purchase price over the fair
value of net assets acquired was $1,201,000 and was recorded as
goodwill to be amortized over a period of 7 years. Icon's operations
became part of the Company's software business and were subsequently
sold to Keystone.
(9) MAJOR CUSTOMER
Sales to the Company's largest customer accounted for 11%, 17% and 24%
of total revenues from continuing operations for 2000, 1999, and 1998,
respectively. The Company performs hardware maintenance services for
end users under various subcontracts from this customer. These
subcontracts can be canceled with 30 days notice. In 2000, a second
customer also accounted for approximately 10% of total revenues.
(10) SEGMENT INFORMATION
In 1999 the company adopted SFAS No. 131, disclosures about Segments of
an Enterprise and Related Information, which requires reporting certain
financial information according to the management approach. This
approach requires reporting information regarding operating segments on
the basis used internally by management to evaluate segment
performance. The Statement has been adopted for all periods presented.
The accounting policies of the segments are the same as those described
in note 1. The Company evaluates performance based on operating
profits. The Company's reportable segments are determined based on
product categories and 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.
23
<PAGE> 24
The following provides segment information:
<TABLE>
<CAPTION>
------------------- ---------------- -----------------
2000 1999 1998
------------------- ---------------- -----------------
(in thousands)
HARDWARE MAINTENANCE
<S> <C> <C> <C>
Total revenues $ 8,476 $ 8,590 $ 11,955
Operating earnings (loss) (30) 510 1,083
Identifiable assets 2,965 3,861 4,942
Capital expenditures 141 158 20
Depreciation and amortization 89 65 55
SOFTWARE:
Total revenues 6,456 6,404 5,110
Operating earnings (loss) (163) 1,169 753
Identifiable assets 3,817 4,495 2,128
Capital expenditures 834 648 397
Depreciation and amortization 729 436 307
CORPORATE:
Total expense 1,574 1,491 1,622
Identifiable assets 1,403 350 307
Capital expenditures 7 64 18
Depreciation and amortization 35 34 52
CONSOLIDATED:
Total revenues 14,932 14,994 17,065
Operating earnings (loss) (1,767) 188 214
Identifiable assets 8,185 8,706 7,377
Capital expenditures 982 870 435
Depreciation and amortization 853 535 414
</TABLE>
(11) CONTINGENCIES
The Company is a party to various legal proceedings incidental to its
business. Management believes that none of these legal proceedings will
have a material adverse effect on the Company's financial position,
results of operations or liquidity.
24
<PAGE> 25
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial data for the fiscal
years ended March 31, 2000 and March 31, 1999. Amounts have been restated
to reflect discontinued operations, which are more fully discussed in
note 2 to the financial statements.
<TABLE>
<CAPTION>
------------- ------------ ------------- ------------ ------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
2000
Revenues $ 1,885 $ 2,106 $ 2,382 $ 2,103 $ 8,476
Operating loss (453) (225) (247) (679) (1,604)
Net earnings (loss) from continuing
operations (485) (258) (284) 427 (600)
Net earnings (loss) per common share
from continuing operations, basic and
diluted (0.05) (0.03) (0.02) 0.03 (0.06)
1999
Revenues $ 2,444 $ 2,271 $ 1,884 $ 1,991 $ 8,590
Operating loss (121) (57) (366) (437) (981)
Net loss from continuing operations (171) (106) (412) (472) (1,161)
Net loss per common share from
continuing operations, basic and diluted (.02) (.01) (.05) (.05) (.14)
</TABLE>
25
<PAGE> 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For Item 10, the names and ages of our executive officers as of June 16,
2000, and the position(s) each of them has held during the past five years, are
included in Part I of this Form 10-K as permitted by General Instruction G(3).
All other information required by Item 10, and the information required by Items
11, 12 and 13, is incorporated by reference to the definitive proxy statement
for our Annual Meeting of Stockholders to be held on September 12, 2000 which
will be filed with the Securities and Exchange Commission within 120 days after
March 31, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORMS 8-K
(a) Documents filed as part of this Report:
The financial statements and financial statement schedule and independent
auditor's report have been filed as part of this Annual Report on Form
10-K as indicated in the Index to Financial Statements and Financial
Statement Schedule included in Part II, Item 8.
(b) Reports on Form 8-K:
None
26
<PAGE> 27
(c) Exhibits:
The exhibits identified below are filed herewith or incorporated herein
by reference to the documents indicated in parentheses:
Exhibit No. Description
----------- -----------
2 Asset Purchase Agreement by and among Keystone
Solutions US, Inc., Keystone Software PLC and
Barrister Information Systems Corporation
(Attached as an appendix to the company's definite
Proxy Statement in connection with the special
meeting of stockholders held on May 5, 2000).
3.1 Certificate of Incorporation (Exhibit to the
Company's definitive Proxy Statement dated August
29, 1997).
3.2 Amendment of Certificate of Incorporation
(Attached as an appendix to the Company's
definitive Proxy Statement in connection with the
special meeting of stockholders held on May 5,
2000).
3.3 Bylaws (Exhibit to the Company's definitive Proxy
Statement dated August 29, 1997).
10.1 1989 Stock Incentive Plan, as amended (Exhibit to
the Company's Report on Form 10-Q for the quarter
ended September 30, 1994).
10.2 1999 Stock Incentive Plan (Attached as an appendix
to the company's definitive Proxy Statement dated
August 2, 1999).
10.3 Retirement Savings Plan and Trust (Exhibit to the
Company's Registration Statement (No. 33-6250)
dated June 25, 1986).
10.4 Loan Agreement between Registrant and BIS
Partners, L.P., dated March 31, 1992 (Exhibit to
the Company's Report on Form 10-Q for the quarter
ended September 30, 1994).
23* KPMG LLP consent regarding form S-8.
27* Financial Data Schedule
-------------------------
* Filed herewith
(d) Financial Statement Schedule
The financial statement schedule has been filed as part of this Annual
Report on Form 10-K as indicated in the index to Financial Statements and
Financial Statement Schedule included in Part II, Item 8.
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 GLOBAL SERVICES NETWORK, INC.
DATE: June 28, 2000 By: /s/ Henry P. Semmelhack
-----------------------
Henry P. Semmelhack, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Henry P. Semmelhack President, Chief Executive Officer and June 28, 2000
------------------------------ Chairman of the Board of Directors
Henry P. Semmelhack
/s/ Richard P. Beyer Vice President and Chief Financial Officer June 28, 2000
------------------------------
Richard P. Beyer
/s/ Franklyn S. Barry, Jr. Director June 28, 2000
------------------------------
Franklyn S. Barry, Jr.
/s/ Warren E. Emblidge, Jr. Director June 28, 2000
------------------------------
Warren E. Emblidge, Jr.
/s/ Richard E. Mcpherson Director June 28, 2000
------------------------------
Richard E. McPherson
/s/ James D. Morgan Director June 28, 2000
------------------------------
James D. Morgan
</TABLE>
28
<PAGE> 29
BARRISTER GLOBAL SERVICES NETWORK, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Balance at Additions Write-Offs Balance
beginning charged to costs charged to at end
Description of period and expenses allowance of period
----------- ---------- ---------------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended March 31, 1998 $ 87 $ 61 $ - $ 148
---------- ---------- ---------- --------
Year ended March 31, 1999 $ 148 $ (3) $ - $ 145
---------- ---------- ---------- --------
-
Year ended March 31, 2000 $ 145 $ 105 $ - $ 250
---------- ---------- ---------- --------
-
Allowance for inventory obsolescence: (1)
Year ended March 31, 1998 $ 881 $ 900 $ 1,056 $ 725
---------- ---------- ---------- --------
Year ended March 31, 1999 $ 725 $ 942 $ 1,317 $ 350
---------- ---------- ---------- --------
Year ended March 31, 2000 $ 350 $ 900 $ 800 $ 450
---------- ---------- ---------- --------
</TABLE>
(1) The allowance is included in inventory in the balance sheets
29
