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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2000
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Commission File Number 0-14063
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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) (Zip Code)
Registrant's telephone number, including area code (716) 845-5010
--------------
Not Applicable
--------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------- -----------
Class Outstanding at October 27, 2000
----------------------------- --------------------------------------
Common $.24 Par Value 11,944,963 Shares
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BARRISTER GLOBAL SERVICES NETWORK, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
Item 1. Financial Statements
Balance Sheets at September 30, 2000
and March 31, 2000.................................................. 3
Statements of Operations -
Three and Six Months Ended September 30, 2000
and September 30, 1999.............................................. 4
Statement of Stockholders' Equity -
Six Months Ended September 30, 2000................................. 5
Statements of Cash Flows -
Six Months Ended September 30, 2000
and September 30, 1999.............................................. 6
Notes to Financial Statements....................................... 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................ 11
2
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PART I. FINANCIAL INFORMATION
BARRISTER GLOBAL SERVICES NETWORK, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
--------------------------------
September 30 March 31
2000 2000
-------- --------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents (note 2) $ 1,053 $ 161
Short-term investments (note 2) 3,568 --
Accounts receivable 1,406 934
Service parts inventory 1,589 1,734
Prepaid expenses 31 9
Deferred income taxes 320 1,146
Net current assets of discontinued operations -- 775
-------- --------
Total current assets 7,967 4,759
-------- --------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST 2,329 2,578
Less accumulated depreciation 1,802 2,219
-------- --------
Net equipment and leasehold improvements 527 359
-------- --------
OTHER ASSETS 24 25
NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS -- 2,413
-------- --------
$ 8,518 $ 7,556
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable (to a related party) $ -- $ 264
Current installments of long-term debt 371 443
Accounts payable 401 1,075
Accrued compensation and benefits 382 678
Customer advances and unearned revenue 745 698
Accrued income taxes 825 55
-------- --------
Total current liabilities 2,724 3,213
-------- --------
LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS
($468 and $791 to a related party, respectively) 571 791
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Common stock, $.24 par value 2,867 2,846
Additional paid-in capital 23,028 23,005
Accumulated deficit (20,672) (22,299)
-------- --------
Total stockholders' equity 5,223 3,552
-------- --------
$ 8,518 $ 7,556
======== ========
</TABLE>
See accompanying notes to financial statements
5
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BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------ ------------------------
Sept 30 Sept 30 Sept 30 Sept 30
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES $ 2,696 $ 2,105 $ 5,096 $ 3,990
COSTS AND EXPENSES:
Cost of services 2,025 1,593 3,813 3,173
Selling, general and administrative expenses 836 737 1,586 1,495
-------- -------- -------- --------
OPERATING LOSS (165) (225) (303) (678)
-------- -------- -------- --------
INTEREST EXPENSE (INCOME):
Related party 22 22 43 45
Other (80) 11 (117) 20
-------- -------- -------- --------
Total interest (58) 33 (74) 65
-------- -------- -------- --------
NET LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (107) (258) (229) (743)
Income tax benefit (note 4) (38) -- (83) --
-------- -------- -------- --------
NET LOSS FROM CONTINUING OPERATIONS (69) (258) (146) (743)
DISCONTINUED OPERATIONS (NOTE 3):
Gain (loss) from discontinued operations -- 84 -- (23)
Gain (loss) on sale of discontinued operations
net of income taxes of $1,694 (5) 1,773 --
-------- -------- -------- --------
NET EARNINGS (LOSS) $ (74) $ (174) $ 1,627 $ (766)
======== ======== ======== ========
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ (.01) $ (.03) $ (.01) $ (.08)
Discontinued operations (.00) .01 .15 (.00)
-------- -------- -------- --------
Total $ (.01) $ (.02) $ .14 $ (.08)
======== ======== ======== ========
Weighted average number of common shares outstanding:
Basic and diluted 11,924 9,560 11,899 9,270
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
4
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BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Additional
Preferred Common paid-in Accumulated
stock stock capital deficit Total
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 2000 $ -- $ 2,846 $ 23,005 $(22,299) $ 3,552
Sale of 88,500 common shares -- 21 23 -- 44
Net earnings -- -- -- 1,627 1,627
------- -------- -------- -------- --------
Balance at Sept. 30, 2000 $ -- $ 2,867 $ 23,028 $(20,672) $ 5,223
======= ======== ======== ======== ========
</TABLE>
Common stock - 11,944,963 and 11,856,556 shares issued and outstanding at
September 30, 2000 and March 31, 2000 respectively.
See accompanying notes to financial statements.
5
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BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six months ended
----------------
Sept 30 Sept 30
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,627 $ (766)
Adjustments to reconcile net earnings (loss) to net
cash used by operating activities:
Loss from discontinued operations -- 23
Gain on sale of discontinued operations (3,467) --
Deferred income taxes 826 --
Depreciation 71 57
Changes in current assets and liabilities:
Accounts receivable (472) 84
Inventories 145 188
Prepaid expenses (22) 21
Accounts payable (674) (84)
Accrued compensation and benefits (296) 51
Customer advances and unearned revenues 47 (21)
Other liabilities 770 (5)
------- -------
Net cash used by operating activities (1,445) (452)
------- -------
Cash flows from investing activities:
Additions to equipment and leasehold improvements (239) (95)
Proceeds from sale of discontinued operations 6,623 --
Purchases of short-term investments (3,568) --
Other assets 1 6
------- -------
Net cash provided (used) by investing activities 2,817 (89)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt 152 100
Repayment of debt (708) (148)
Proceeds from sale of common stock 44 306
------- -------
Net cash provided (used) by financing activities (512) 258
------- -------
Net increase (decrease) in cash and equivalents
from continuing operations 860 (283)
Net increase in cash from discontinued operations 32 220
------- -------
Net increase (decrease) in cash and equivalents 892 (63)
Cash and equivalents at beginning of period 161 222
------- -------
Cash and equivalents at end of period $ 1,053 $ 159
======= =======
Supplemental disclosure of cash flow information:
Interest paid $ 64 $ 25
======= =======
</TABLE>
See accompanying notes to financial statements.
6
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BARRISTER GLOBAL SERVICES NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
1. In the opinion of Management, the accompanying financial statements present
fairly the financial position, results of operations and cash flows for the
periods shown. The second quarter results for each year represent operations for
the quarters ended September 30, 2000 and September 30, 1999. The financial data
included herein was compiled in accordance with the same accounting policies
applied to the Company's audited annual financial statements. Any adjustments
made were of a normal recurring nature.
The results of operations for the six month period ended September 30,
2000 are not necessarily indicative of the results to be expected for the full
year.
2. Cash and equivalents consist of cash and liquid debt instruments with
maturities of three months or less from the date of purchase. Cash and
equivalents are stated at cost plus accrued interest, which approximates market
value. Short-term investments are classified as held-to-maturity securities
based on the Company's ability and intent to hold the securities until maturity.
The securities have a term of six months and are recorded at amortized cost
adjusted for the accretion of discounts or cost plus accrued interest.
3. On May 5, 2000, the Company sold 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 was
$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 for the payment of any of the above claims. In November $311,000
of the escrow was paid to Keystone regarding certain of these claims.
Approximately $200,000 of the escrow will be released to the Company in its
third quarter. The balance of the escrow less payment for additional claims, if
any, will be paid in equal amounts over an additional six months.
The pre-tax net gain on the sale of the software business was
$3,467,000. The gain excludes the amount held in escrow. Any amounts received
from the escrow funds will be recorded in the period of receipt. The net gain
less applicable income taxes (see note 4) is shown in the statements of
operations under the caption discontinued operations. For the six month period
ended September 30, 1999, revenues from discontinued operations were $3,470,000
and a loss of $23,000 was incurred.
7
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The software business assets sold and liabilities assumed by Keystone
have been segregated in the March 31, 2000 balance sheet as net assets of
discontinued operations. The components are as follows (in thousands):
Current assets, primarily accounts receivable $ 1,299
Equipment and leasehold improvements, net 217
Software production costs 1,315
Goodwill 986
Current liabilities (427)
Current installments of long term debt (97)
Long-term debt, excluding current installments (105)
-----------
$ 3,188
===========
4. The income tax provision associated with the gain from the sale of
the software business (see note 3) is higher than the statutory tax rate since
goodwill valued at $986,000 on the books had a zero basis for tax purposes. The
provision includes current taxes of $894,000 and deferred taxes of $800,000. The
deferred taxes resulted from the use of tax loss carryforwards from prior years,
the reversal of temporary differences between book and tax on the assets sold
and the temporary difference created by the treatment of the proceeds held in
escrow.
The Company had no current tax expense or benefit in the quarter or six
months ended September 30, 1999 from continuing or discontinued operations due
to its operating loss. No deferred taxes were recognized in the first six months
of the prior year since changes in the net deferred tax asset were fully offset
by changes in the valuation allowance.
8
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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 increase in cash and short-term
investments of $4,460,000 for the first six months of fiscal 2001. Proceeds from
the sale of the Company's software business on May 5, 2000, less associated
expenses, amounted to $6,623,000. Certain of the proceeds were used to repay
$711,000 of current and long-term debt, $674,000 of accounts payable and
$296,000 of accrued compensation and benefits. As a result, the Company's cash
and short term investments increased from $161,000 at March 31, 2000 to
$4,621,000 at September 30, 2000. 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 the
repayments made during the first six months, should approximate $876,000. The
Company's cash and short term investments will be sufficient to cover working
capital, capital expenditure requirements and debt repayments in fiscal 2001.
RESULTS OF OPERATIONS
For the quarter ended September 30, 2000, revenues increased 28.0% from
the same quarter in 1999. For the six month period ended September 30, 2000,
revenues increased 27.7% compared with the first six months of the prior year.
These increases resulted from growth in revenues from hardware maintenance
contracts and from services provided on a time and materials basis. For the
comparative second quarters, revenues from hardware maintenance contracts grew
to $2,073,000, an increase of 27.6% and for the comparative first six months
these revenues grew to $3,894,000, an increase of 23.2%. These increases
principally resulted from the capture of new contracts, primarily through the
Company's reseller channel. Time and material revenues increased by 30.1% to a
total of $623,000 for the comparable second quarters and by 42.2% to a total of
$1,170,000 for the comparative six month periods. Business generated from two
customers that commenced in the second and fourth quarters of last year was the
primary reason for these increases.
The cost of services decreased as a percentage of revenues from 75.6%
in the second quarter of the prior year to 75.1% in the second quarter of the
current year. For the comparable first six months, these expenses decreased as a
percentage of revenues from 79.5% to 74.8%. The principal reason for these
decreases is reduced levels of expense associated with the service parts
inventory.
Selling, general and administrative expenses were 31.0% of revenues for
the second quarter of this year compared to 35.0% of revenues for the comparable
quarter last year. For the comparable six month periods, these expenses were
31.1% of revenues compared to 37.5% of revenues in the previous year. The
primary reason for these decreases is that the increases in revenues have been
achieved without any growth in the general and administrative costs of the
company. Any increases in these costs have been offset by staff reductions based
on the sale of the software business of the Company to Keystone Solutions US,
Inc. in May 2000.
Interest income was earned in the second quarter and first six months
of the current year
9
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based on income received on the investment of the net proceeds from the sale of
the software business. These proceeds were also used to pay certain outstanding
interest bearing debt of the Company.
The Company had no current tax expense or benefit in the quarter or six
months ended September 30, 1999 due to its operating loss. No deferred taxes
were recognized in the first six months of the prior year since changes in the
next deferred tax asset were fully offset by changes in the valuation allowance.
The pre-tax net gain on discontinued operations is based on the sale of
the Company's software business to Keystone on May 5, 2000. The income tax
provision associated with the gain from the sale of the software business is
higher than the statutory tax rate since goodwill valued at $986,000 on the
books had a zero basis for tax purposes. The provision includes current taxes of
$894,000 and deferred taxes of $800,000. The deferred taxes resulted from the
use of tax loss carryforwards from prior years, the reversal of temporary
differences between book and tax on the assets sold and the temporary difference
created by the treatment of the proceeds held in escrow.
The increase in the weighted average number of common shares
outstanding resulted from the conversion of all of the preferred stock into
2,500,000 shares of common stock in September, 1999, and the issuance of 283,000
shares as stock bonuses or upon the exercise of stock options since the second
quarter of the prior year.
FORWARD-LOOKING STATEMENT
When used in this report, the words "expects", "believes" and "intends"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof. The company undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrences of unanticipated events. Readers are also
urged to carefully review and consider the various disclosures made by the
Company which attempt to advise interested parties of the factors which affect
the Company's business in the Company's periodic reports on Form 10K and 10Q
filed with the Securities and Exchange Commission.
10
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: Change in registrant's certifying
accountants, filed October 20, 2000
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 GLOBAL SERVICES NETWORK, INC.
Date: November 13, 2000 By: /s/ Henry P. Semmelhack
---------------------- --------------------------------
Henry P. Semmelhack
President
and
Chief Executive Officer
Date: November 13, 2000 By: /s/ Richard P. Beyer
---------------------- ---------------------------------
Richard P. Beyer
Vice President, Finance
(Principal Financial Officer)
12
