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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 | December 31, 1999 | |
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Commission File Number | 0-14063 | |
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BARRISTER INFORMATION SYSTEMS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation of organization) |
16-1176561 (I.R.S. Employer Identification No.) |
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465 Main Street, Buffalo, New York (Address of principal executive offices) |
14203 (Zip Code) |
Registrants telephone number, including area code | (716) 845-5010 | |
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Not Applicable
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
Outstanding at January 31, 2000 | ||
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BARRISTER INFORMATION SYSTEMS CORPORATION
INDEX
Page | |||||
Number | |||||
PART I. Financial Information | |||||
Item 1. Financial Statements | |||||
Condensed Balance Sheets at December 31, 1999 and March 31, 1999 | 3 | ||||
Condensed Statements of Operations - | |||||
Three Months Ended December 31, 1999 and December 25, 1998 | 4 | ||||
Condensed Statements of Operations - | |||||
Nine Months Ended December 31, 1999 and December 25, 1998 | 5 | ||||
Statement of Shareholders Equity - | |||||
Nine Months Ended December 31, 1999 | 6 | ||||
Condensed Statements of Cash Flows - | |||||
Nine Months Ended December 31, 1999 and December 25, 1998 | 7 | ||||
Notes to Condensed Financial Statements | 8 | ||||
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations | 10 | ||||
PART II. Other Information | |||||
Item 6. Exhibits and Reports on Form 8-K | 14 |
2
PART I. FINANCIAL INFORMATION
BARRISTER INFORMATION SYSTEMS CORPORATION
Condensed Balance Sheets
(In Thousands)
December 31, | March 31 | |||||||||||
1999 | 1999 | |||||||||||
(unaudited) | ||||||||||||
ASSETS | ||||||||||||
Cash | $ | 157 | $ | 222 | ||||||||
Accounts receivable | 2,802 | 3,090 | ||||||||||
Service parts inventory | 2,037 | 2,341 | ||||||||||
Prepaid expenses | 26 | 50 | ||||||||||
Total current assets | 5,022 | 5,703 | ||||||||||
Equipment and leasehold improvements, at cost | 3,713 | 4,138 | ||||||||||
Less accumulated depreciation | 3,099 | 3,555 | ||||||||||
Net equipment and leasehold Improvements | 614 | 583 | ||||||||||
Software production costs | 1,233 | 1,007 | ||||||||||
Goodwill | 1,029 | 1,158 | ||||||||||
Other assets | 159 | 255 | ||||||||||
$ | 8,057 | $ | 8,706 | |||||||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||||||
Note payable to a related party | $ | 192 | $ | | ||||||||
Current installments of long term debt | 467 | 390 | ||||||||||
Accounts payable | 1,413 | 1,108 | ||||||||||
Accrued compensation and benefits | 658 | 832 | ||||||||||
Customer advances and unearned revenue | 842 | 1,026 | ||||||||||
Other liabilities | 58 | 51 | ||||||||||
Total current liabilities | 3,630 | 3,407 | ||||||||||
Long-term debt, excluding current installments ($722 in December and $930 in March to a related party) |
1,223 | 1,487 | ||||||||||
Shareholders equity: | ||||||||||||
Preferred stock | | 1,250 | ||||||||||
Common stock ($.24 par value) | 2,831 | 2,134 | ||||||||||
Additional paid-in capital | 22,964 | 21,964 | ||||||||||
Accumulated deficit | (22,591 | ) | (21,536 | ) | ||||||||
Total shareholders equity | 3,204 | 3,812 | ||||||||||
$ | 8,057 | $ | 8,706 | |||||||||
See accompanying notes to condensed financial statements.
3
BARRISTER INFORMATION SYSTEMS CORPORATION
Condensed Statements of Operations
(unaudited)
(In thousands, except per share data)
Three months ended | ||||||||||||||
Dec. 31 | Dec. 25 | Dec. 25 | ||||||||||||
1999 | 1998 | 1998 | ||||||||||||
(as restated) | (as originally | |||||||||||||
reported) | ||||||||||||||
Revenues: | ||||||||||||||
Product sales | $ | 291 | $ | 629 | $ | 629 | ||||||||
Services | 3,672 | 2,947 | 2,983 | |||||||||||
Total revenues | 3,963 | 3,576 | 3,612 | |||||||||||
Costs and expenses: | ||||||||||||||
Cost of product sales | | 117 | 117 | |||||||||||
Cost of services | 2,893 | 2,382 | 2,418 | |||||||||||
Total cost of revenues | 2,893 | 2,499 | 2,535 | |||||||||||
Selling, general and administrative expenses | 980 | 865 | 869 | |||||||||||
Product development and engineering | 342 | 141 | 156 | |||||||||||
Total costs and expenses | 4,215 | 3,505 | 3,560 | |||||||||||
Operating earnings (loss) | (252 | ) | 71 | 52 | ||||||||||
Interest expense: | ||||||||||||||
Related party | 26 | 34 | 34 | |||||||||||
Other | 11 | 12 | 13 | |||||||||||
Total interest | 37 | 46 | 47 | |||||||||||
Net earnings (loss) | $ | (289 | ) | $ | 25 | $ | 5 | |||||||
Net earnings (loss) per common share Basic and diluted |
$ | (0.02 | ) | $ | 0.00 | $ | 0.00 | |||||||
Weighted average number of
common shares outstanding: |
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Basic | 11,702 | 8,226 | 8,226 | |||||||||||
Diluted | 11,702 | 8,418 | 8,418 | |||||||||||
See accompanying notes to condensed financial statements.
4
BARRISTER INFORMATION SYSTEMS CORPORATION
Condensed Statements of Operations
(unaudited)
(In thousands, except per share data)
Nine months ended | |||||||||||||||||||
Dec. 31 | Dec. 25 | Dec. 25 | |||||||||||||||||
1999 | 1998 | 1998 | |||||||||||||||||
(as restated) | (as originally | ||||||||||||||||||
reported) | |||||||||||||||||||
Revenues: | |||||||||||||||||||
Product sales | $ | 878 | $ | 1,385 | $ | 1,576 | |||||||||||||
Services | 10,545 | 9,527 | 9,594 | ||||||||||||||||
Total revenues | 11,423 | 10,912 | 11,170 | ||||||||||||||||
Costs and expenses: | |||||||||||||||||||
Cost of product sales | 63 | 294 | 324 | ||||||||||||||||
Cost of services | 8,269 | 7,304 | 7,407 | ||||||||||||||||
Total cost of revenues | 8,332 | 7,598 | 7,731 | ||||||||||||||||
Selling, general and administrative expenses | 3,131 | 2,586 | 2,625 | ||||||||||||||||
Product development and engineering | 913 | 441 | 456 | ||||||||||||||||
Total costs and expenses | 12,376 | 10,625 | 10,812 | ||||||||||||||||
Operating earnings (loss) | (953 | ) | 287 | 358 | |||||||||||||||
Interest expense: | |||||||||||||||||||
Related party | 71 | 112 | 112 | ||||||||||||||||
Other | 31 | 33 | 34 | ||||||||||||||||
Total interest | 102 | 145 | 146 | ||||||||||||||||
Net earnings (loss) | $ | (1,055 | ) | $ | 142 | $ | 212 | ||||||||||||
Net earnings (loss) per common share basic and diluted |
$ | (0.10 | ) | $ | 0.02 | $ | 0.03 | ||||||||||||
Weighted average number of
common shares outstanding: |
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Basic | 10,080 | 8,224 | 8,224 | ||||||||||||||||
Diluted | 10,080 | 8,364 | 8,445 | ||||||||||||||||
See accompanying notes to condensed financial statements.
5
BARRISTER INFORMATION SYSTEMS CORPORATION
Statement of Shareholders Equity
Nine months ended December 31, 1999
(unaudited)
(In thousands)
Additional | ||||||||||||||||||||
Preferred | Common | paid-in | Accumulated | |||||||||||||||||
stock | stock | capital | deficit | Total | ||||||||||||||||
Balance at March 31, 1999 | $ | 1,250 | $ | 2,134 | $ | 21,964 | $ | (21,536 | ) | $ | 3,812 | |||||||||
Sale of 405,920 common shares, net | | 97 | 350 | | 447 | |||||||||||||||
Conversion of preferred stock into 2,500,000 common shares | (1,250 | ) | 600 | 650 | | | ||||||||||||||
Net loss | | | | (1,055 | ) | (1,055 | ) | |||||||||||||
Balance at December 31, 1999 | $ | | $ | 2,831 | $ | 22,964 | $ | (22,591 | ) | $ | 3,204 | |||||||||
Common stock 11,797,156 and 8,891,236 shares issued and outstanding at December 31, 1999 and March 31, 1999 respectively.
See accompanying notes to condensed financial statements.
6
BARRISTER INFORMATION SYSTEMS CORPORATION
Condensed Statements of Cash Flows
(unaudited)
(In thousands)
Nine months ended | |||||||||||||||||||
Dec. 31 | Dec. 25 | Dec. 25 | |||||||||||||||||
1999 | 1998 | 1998 | |||||||||||||||||
(as restated) | (as originally | ||||||||||||||||||
reported) | |||||||||||||||||||
Cash flows from operating activities: | |||||||||||||||||||
Net income (loss) | $ | (1,055 | ) | $ | 142 | $ | 212 | ||||||||||||
Adjustments to reconcile net income (loss) to net
cash provided by operating activities: |
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Depreciation | 169 | 119 | 119 | ||||||||||||||||
Amortization of software production costs | 310 | 224 | 224 | ||||||||||||||||
Amortization of goodwill | 129 | | | ||||||||||||||||
Changes in current assets and liabilities: | |||||||||||||||||||
Accounts receivable | 296 | 547 | 340 | ||||||||||||||||
Inventories | 304 | 449 | 449 | ||||||||||||||||
Prepaid expenses | 24 | 3 | 3 | ||||||||||||||||
Other assets | | (137 | ) | | |||||||||||||||
Accounts payable | 366 | (280 | ) | (280 | ) | ||||||||||||||
Accrued compensation and benefits | (33 | ) | (81 | ) | (81 | ) | |||||||||||||
Customer advances and unearned revenues | (150 | ) | (704 | ) | (704 | ) | |||||||||||||
Other liabilities | 7 | 91 | 91 | ||||||||||||||||
Net cash provided by operating activities | 367 | 373 | 373 | ||||||||||||||||
Cash flows from investing activities: | |||||||||||||||||||
Additions to equipment and leasehold improvements | (200 | ) | (87 | ) | (87 | ) | |||||||||||||
Additions to software production costs | (536 | ) | (390 | ) | (390 | ) | |||||||||||||
Other assets | 54 | (1 | ) | (1 | ) | ||||||||||||||
Net cash used in investing activities | (682 | ) | (478 | ) | (478 | ) | |||||||||||||
Cash flows from financing activities: | |||||||||||||||||||
Proceeds from long-term debt | 100 | 156 | 156 | ||||||||||||||||
Repayment of debt | (156 | ) | (106 | ) | (106 | ) | |||||||||||||
Proceeds from sale of common stock | 306 | 4 | 4 | ||||||||||||||||
Net cash provided (used) by financing activities | 250 | 54 | 54 | ||||||||||||||||
Net decrease in cash | (65 | ) | (51 | ) | (51 | ) | |||||||||||||
Cash at beginning of period | 222 | 210 | 210 | ||||||||||||||||
Cash at end of period | $ | 157 | $ | 159 | $ | 159 | |||||||||||||
Supplemental disclosure of cash flow information: | |||||||||||||||||||
Interest paid | $ | 39 | $ | 119 | $ | 119 | |||||||||||||
See accompanying notes to condensed financial statements.
7
BARRISTER INFORMATION SYSTEMS CORPORATION
Notes to Condensed Financial Statements
1. In the opinion of Management, the accompanying financial statements present fairly the financial position, results of operations and cash flows for the periods shown. The third quarter results for fiscal year 2000 are represented by the three months ended December 31, 1999. This period is comparable to the third quarter of fiscal 1999 which is represented by the thirteen weeks ended Friday, December 25, 1998. During the fourth quarter of the fiscal year ended March 31, 1999, the Company recorded an adjustment to reverse all the revenue and defer the costs associated with a software sale contract having extended payment terms. Revenue and costs for this contract had originally been reported during the first three quarters of the year ended March 31, 1999. In connection with this reversal the Company has restated its operating results for each of the fiscal 1999 quarters. The effect of this restatement for the third quarter and first nine months is separately set forth herein as applicable. The financial data included herein was compiled in accordance with the same accounting policies applied to the Companys audited annual financial statements. Any adjustments made were of a normal recurring nature.
The results of operations for the nine month period ended December 31, 1999 are not necessarily indicative of the results to be expected for the full year.
2. Reportable segments are comprised as follows: Hardware maintenance services, generally on PC related equipment; Software licensing and software support services, predominantly to the legal industry; and Corporate operations.
Three months ended | Nine months ended | ||||||||||||||||
Dec. 31 1999 | Dec. 25 1998 | Dec. 31 1999 | Dec. 25 1998 | ||||||||||||||
(as restated) | (as restated) | ||||||||||||||||
Hardware Maintenance | |||||||||||||||||
Total revenues | $ | 2,382 | $ | 1,884 | $ | 6,372 | $ | 6,599 | |||||||||
Operating earnings | 165 | 3 | 281 | 626 | |||||||||||||
Software | |||||||||||||||||
Total revenues | 1,591 | 1,692 | 5,061 | 4,313 | |||||||||||||
Operating earnings (loss) | 5 | 437 | (18 | ) | 832 | ||||||||||||
Corporate | |||||||||||||||||
Operating expenses | (412 | ) | (369 | ) | (1,206 | ) | (1,171 | ) |
3. 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%.
In the current fiscal year BIS Partners L.P. (BIS) converted $192,000 in past due amounts from the Company into a demand note bearing interest at prime plus 3.5%. BIS also modified certain financial covenants in the term loan agreement. Further, BIS has agreed that it will not accelerate repayment of the term loan over the next twelve months.
4. For the nine month period ended December 31, 1999, 180,000 warrants were exercised at a price of $1.36 per share. 70,000 warrants remain outstanding at this price. None of the 450,000 warrants at an exercise price of $1.93 were exercised in the period.
Per the Companys 1989 stock incentive plan 59,000 options were granted, 104,593 options were exercised and 67,000 options were cancelled during the first nine months of the current year. A portion of the options exercised were paid for by employees with the delivery of common shares outstanding resulting in a reduction of 13,343 shares. At December 31, 1999, 648,335 options were outstanding of which 448,666 options were exercisable at that date.
The Companys 1999 stock incentive plan was approved by the shareholders in September 1999 and has 600,000 shares allocated to it. As of December 31, 1999, 337,000 options were granted, 30,000 options were cancelled, and 307,000 options were outstanding, none of which were exercisable at that date. In addition, 134,670 shares were issued under the plan as stock bonuses in payment for accrued incentives. This transaction was accounted for as a non-cash activity as of December 31, 1999.
5. On January 15, 1999 the Company acquired the assets of Icon Technology LLC (Icon) in exchange for 2,500 shares of preferred stock. The acquisition was accounted for as a purchase. The operating results of Icon are included in the statement of operations for the three and nine month periods ended December 31, 1999. The pro forma results for the three and nine month periods ended December 25, 1998, had the acquisition occurred at the beginning of the period, are as follows: Revenues of $3,868,000 and $11,719,000 respectively; Net earnings (loss) of ($41,000) and $129,000 respectively; and Net earnings per common share, basic and diluted of ($0.00) and $0.01 respectively.
8
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition
The Company experienced a net decrease in cash of $65,000 for the first nine months of fiscal 2000. Cash used in investing activities of $682,000 and net repayment of debt of $56,000 were partially offset by proceeds from common stock sales of $306,000 and net cash provided by operating activities of $367,000. As a result, the Companys cash balance decreased from $222,000 at March 31, 1999 to $157,000 at December 31, 1999.
The principal cash requirements for fiscal 2000 continue to be investments in capitalized software estimated at $700,000 to $800,000, additions to equipment and leasehold improvements estimated at $350,000 to $450,000 and debt repayments. Scheduled debt repayments for fiscal 2000, excluding payments due BIS Partners, L.P., are approximately $210,000. The Companys agreement with BIS Partners calls for monthly payments of principal and interest of $24,000 per month. Through December 1999, BIS Partners agreed to convert $192,000 in past due amounts from the Company into demand notes bearing interest at prime plus 3.5%. All other scheduled debt repayments are current. The principal sources of cash for fiscal 2000 are $306,000 from the exercise of warrants and stock options, $100,000 in new five year term loans from regional development agencies and the expectation of positive cash from operating activities which is supported by approximately $800,000 in non cash expenses for depreciation and amortization. Another potential source of cash could be the exercise of additional warrants. In addition, certain planned capital additions in the fourth quarter of the year are expected to be obtained through lease financing. The Company continues to invest in enhancements to the LegalHouse product and in JavelanX, the newest version of Javelan which operates on a firms wide area network or over the Internet. These investments are expected to produce higher product sales in future quarters. In addition, the Companys hardware maintenance business is expected to achieve significant new business from the recently announced agreement with Pioneer-Standard Electronics, Inc., an international distributor of computer systems and electronic components, with revenues of $2.3 billion. The Company will be providing service and support on Intel-based systems and servers sold by Pioneer and its network of resellers on a nationwide basis. The deployment of the Companys Global Services Network was instrumental to obtaining this agreement with Pioneer.
If the Company is unsuccessful in increasing its revenues and generating a profit, or in obtaining lease financing for certain capital additions, there can be no assurance that it will be able to generate positive cash from operations or that sufficient cash will be available to meet its required needs and obligations. BIS Partners, L.P. has continued to support the Companys cash requirements by agreeing to convert certain principal and interest payments due under their term loan agreement with the Company into demand loans. No assurance can be provided that BIS Partners will be willing to continue to provide such support in the future.
9
Results of Operations
For the quarter ended December 31, 1999, total revenues increased 10.8% over the same quarter in 1998, with a net loss of $289,000 being incurred compared to net earnings of $25,000 in the third quarter of the prior year. For the nine month period ended December 31, 1999, total revenues increased 4.7% compared with the nine months ended December 25, 1998. The nine month net loss was $1,055,000 compared to net earnings of $142,000 realized in the comparable period for the prior year. The losses incurred were primarily a result of increases in selling, general and administrative expenses, increases in product development and engineering expenses and lower levels of product sales. The results for the first nine months of the current year include the business activities of Icon Technology LLC (Icon) which were acquired in January 1999.
Product sales decreased 53.7% for the comparable third quarters, and 36.6% for the comparable first nine months. Reductions in the sales of Javelan®, the Companys Windows based management software product were partially offset by sales of LegalHouse, the software product acquired from Icon. Margins on product sales improved based on the increased percentage of product sales that were comprised of Company developed software. Product sales can also include certain hardware and third party software products that are sold along with Javelan and LegalHouse sales. The Company continued to heavily invest in its web-based time and expense entry software named JavelanX and in significant enhancements to LegalHouse during the first nine months of the current year. It is expected that these investments and ongoing investments in these two products will produce higher product sales in future quarters.
Services revenues increased 24.6% for the comparable third quarters based on an increase in hardware related time and materials services from a number of installation and hardware upgrade projects and from LegalHouse related services obtained from the acquisition of Icon. The 10.7% increase in services revenues for the comparable nine month period was a result of higher levels of software services from both LegalHouse and Javelan related services. Current expectations are that hardware services will continue to grow based on revenues anticipated from the recent agreement with Pioneer-Standard Electronics, Inc. and through the use of the 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. A decline in software services is expected based on the lower levels of product sales realized in the last nine months since product sales are a principal driver of software services revenues.
The cost of services decreased as a percentage of services revenues from 80.8% to 78.8% for the comparable third quarter. However, these costs increased as a percentage of services revenues from 76.7% to 78.4% for the comparable first nine months. The drop in hardware related service revenues for the comparable nine month periods impacted margins since certain fixed expenses could not be reduced commensurate with the drop in revenues. While software related services revenues increased, margins were impacted by the addition of personnel to improve the management, administration and delivery of the services.
10
Selling, general and administrative expenses were 24.7% of total revenues for the third quarter of this year compared to 24.2% for the comparable quarter last year. For the comparable nine month periods, these expenses grew to 27.4% of total revenues from 23.7% the previous year. The principal reasons for these increases were additional selling expenses in the hardware maintenance business, the establishment of a new position of President of the software business and $129,000 of expenses for the amortization of goodwill.
The amount incurred for product development and engineering expenses, before taking into account amounts capitalized and amortized for software production costs, increased to 10.7% of total revenues in the third quarter of this year from 5.6% of total revenues in the third quarter of last year. For the comparable nine month periods, these expenses were 10.0% of total revenues compared to 5.6% of total revenues last year. These increases were a result of expenses incurred in the development of LegalHouse.
For both the third quarter and the first nine months of the current year, interest expense was 0.9% of total revenues. This was a decrease from 1.3% of total revenues in the prior year, principally as a result of the conversion of $333,000 in debt to common stock by BIS Partners in the fourth quarter of fiscal 1999. In addition, approximately $100,000 of principal payments were repaid to BIS Partners over the course of fiscal 1999.
The increase in the weighted average number of common shares outstanding primarily resulted from 383,000 shares issued for conversion of debt by BIS Partners and 219,000 shares sold for cash in the fourth quarter of fiscal 1999, 180,000 shares issued upon the exercise of a portion of the $1.36 warrants in the first four months of fiscal 2000 and the conversion of all of the preferred stock into 2,500,000 shares of common stock on September 16, 1999 as approved by the shareholders at the Companys annual meeting.
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 Companys business in the Companys periodic reports on Form 10K and 10Q filed with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
Item 6. | Exhibits and Reports on Form 8-K | |
(a) | Exhibit 27: Financial Data Schedule | |
(b) | Reports on Form 8-K: None |
11
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BARRISTER INFORMATION SYSTEMS CORPORATION
Date: | February 10, 2000 | By: | /s/ Henry P. Semmelhack | |||
Henry P. Semmelhack President and Chief Executive Officer |
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Date: | February 10, 2000 | By: | /s/ Richard P. Beyer | |||
Richard P. Beyer Vice President, Finance (Principal Financial Officer) |
12
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