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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 June 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
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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
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Class Outstanding at August 4, 2000
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Common $.24 Par Value 11,945,056 Shares
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BARRISTER GLOBAL SERVICES NETWORK, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Balance Sheets at June 30, 2000
and March 31, 2000......................................... 3
Statements of Operations -
Three Months Ended June 30, 2000
and June 30, 1999.......................................... 4
Statement of Shareholders' Equity -
Three Months Ended June 30, 2000........................... 5
Statements of Cash Flows -
Three Months Ended June 30, 2000
and June 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)
<TABLE>
<CAPTION>
----------------- -----------------
June 30 March 31
2000 2000
----------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents (note 2) $ 1,791 $ 161
Short-term investments (note 2) 3,013 -
Accounts receivable 1,243 934
Service parts inventory 1,674 1,734
Prepaid expenses 36 9
Deferred income taxes 334 1,146
Net current assets of discontinued operations - 775
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Total current assets 8,091 4,759
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EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST 2,600 2,578
Less accumulated depreciation 2,246 2,219
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Net equipment and leasehold improvements 354 359
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OTHER ASSETS 24 25
NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS - 2,413
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$ 8,469 $ 7,556
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable (to a related party) $ - $ 264
Current installments of long-term debt (to a related party) 306 443
Accounts payable 450 1,075
Accrued compensation and benefits 342 678
Customer advances and unearned revenue 665 698
Accrued income taxes 880 55
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Total current liabilities 2,643 3,213
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LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS
(to a related party) 559 791
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock, $.24 par value. 2,852 2,846
Additional paid-in capital 23,013 23,005
Accumulated deficit (20,598) (22,299)
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Total stockholders' equity 5,267 3,552
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$ 8,469 $ 7,556
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</TABLE>
See accompanying notes to financial statements
3
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BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
--------------------------------
June 30 June 30
2000 1999
------------------- -----------------
<S> <C> <C>
REVENUES $ 2,400 $ 1,885
COSTS AND EXPENSES:
Cost of services 1,788 1,580
Selling, general and administrative expenses 750 758
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OPERATING LOSS (138) (453)
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INTEREST EXPENSE (INCOME):
Related party 21 23
Other (37) 9
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Total interest (16) 32
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NET LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (122) (485)
Income tax benefit (note 4) (45) -
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NET LOSS FROM CONTINUING OPERATIONS (77) (485)
DISCONTINUED OPERATIONS (NOTE 3):
Loss from discontinued operations - (107)
Gain on sale of discontinued operations, net
of income taxes of $1,697 1,778 -
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NET EARNINGS (LOSS) $ 1,701 $ (592)
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BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ (.01) $ (.06)
Discontinued operations .15 (.01)
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Total $ .14 $ (.07)
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Weighted average number of common shares outstanding:
Basic and diluted 11,875 8,979
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</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 28,700 common shares - 6 8 - 14
Net earnings - - - 1,701 1,701
----------- ------------ ------------- --------------- ----------
Balance at June 30, 2000 $ $ 2,852 $ 23,013 $ (20,598) $ 5,267
=========== ============ ============= =============== ==========
</TABLE>
Common stock - 11,885,256 and 11,856,556 shares issued and outstanding at June
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>
Three months ended
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June 30 June 30
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,701 $ (592)
Adjustments to reconcile net earnings (loss) to net
cash used by operating activities:
Loss from discontinued operations - 107
Gain on sale of discontinued operations (3,475) -
Deferred income taxes 812 -
Depreciation 31 30
Changes in current assets and liabilities:
Accounts receivable (309) (2)
Service parts inventory 60 115
Prepaid expenses (27) 17
Accounts payable (625) (100)
Accrued compensation and benefits (336) 212
Customer advances and unearned revenues (33) (87)
Accrued income taxes 825 (12)
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Net cash used by operating activities (1,376) (312)
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Cash flows from investing activities:
Additions to equipment and leasehold
Improvements (26) (89)
Proceeds from sale of discontinued operations 6,623 -
Purchases of short-term investments (3,013) -
Other assets 1 6
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Net cash provided (used) by investing activities 3,585 (83)
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Cash flows from financing activities:
Repayment of debt (633) (36)
Proceeds from sale of common stock 14 261
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Net cash provided (used) by financing activities (619) 225
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Net increase (decrease) in cash and equivalents
from continuing operations 1,590 (170)
Net increase in cash from discontinued operations 40 218
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Net increase in cash and equivalents 1,630 48
Cash and equivalents at beginning of period 161 222
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Cash and equivalents at end of period $ 1,791 $ 270
============= =============
Supplemental cash flow information:
Interest paid $ 43 $ 17
============= =============
</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 first quarter results for each year represent operations for
the quarters ended June 30, 2000 and June 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 three month period ended June 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.
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. 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.
The pre-tax net gain on the sale of the software business was
$3,475,000. 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 first quarter
ended June 30, 1999, revenues from discontinued operations were $1,725,000 and a
loss of $107,000 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 $897,000 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 ended
June 30, 1999 from continuing or discontinued operations due to its operating
loss. No deferred taxes were recognized in the first quarter of the prior year
since changes in the deferred tax asset balance 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 $4,643,000 for its first quarter ended June 30,2000. 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
$633,000 of current and long-term debt, $625,000 of accounts payable and
$336,000 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
$4,804,000 at June 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 quarter, should approximate $878,000. 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 June 30, 2000, revenues increased approximately
27.3% from the same quarter in 1999. This increase resulted from growth in
revenues from hardware maintenance contracts and from services provided on a
time and materials basis. Revenues from hardware maintenance contracts grew to
$1,821,000, an increase of 18.5% from the first quarter of the prior year, based
on the capture of new business throughout the quarter. Additional contracts
signed at the end of the quarter should result in further revenue increases in
quarter two. For the comparative first quarters, time and material services
increased by 59% to a total of $547,000. Business generated from two customers
that commenced in the second and fourth quarters of last year plus equipment
installation projects performed in the current quarter were the primary reasons
for this increase.
The cost of services decreased as a percentage of revenues from 83.8%
in the first quarter of the prior year to 74.5% in the first quarter of the
current year. This decrease was principally the result of the increase in
revenues achieved for the comparable quarters and to the control of non-labor
operating expenses.
Selling, general and administrative expenses were 31.3% of revenues for
the first quarter of this year compared to 40.2% for the comparative quarter
last year. The primary reason for this decrease was improved sales productivity,
whereby increased revenues were obtained without a commensurate increase in
selling costs. Also, the general and administrative staff of the Company was
reduced 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 first quarter of the current year
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 ended
June 30, 1999 due to its operating loss. No deferred taxes were recognized in
the first quarter of the prior year since changes in the deferred tax asset
balance were fully offset by changes in the valuation allowance.
9
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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
$897,000 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, the issuance of 182,000
shares as stock bonuses in fiscal 2000 and the exercise of 214,000 warrants and
stock options since the first 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: None
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.
<TABLE>
<S> <C> <C>
Date: August 14, 2000 By: /s/ Henry P. Semmelhack
------------------------------ -------------------------------------
Henry P. Semmelhack
President
and
Chief Executive Officer
Date: August 14, 2000 By: /s/ Richard P. Beyer
------------------------------ --------------------------------------
Richard P. Beyer
Vice President, Finance
(Principal Financial Officer)
</TABLE>
12
