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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, 2001
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
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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 1, 2001 was
approximately $4.7 million.
The number of shares outstanding of the Registrant's common stock, $.24
par value, was 11,944,963 at June 1, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on September 10, 2001, 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
financial statement purposes, the Company's Software Business is reported as a
discontinued operation. Since selling its Software Business, Company operations
have focused on Equipment Maintenance Services.
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, a turnkey
system of computer, peripherals and software, 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 implemented a
strategy to diversify into the maintenance of desktop computer equipment. In
1989, nearly 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 throughout North
America for desktop equipment including personal computers, servers and other
equipment which attach to Local Area Networks (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 place service requests and 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. This capability has lead to positive changes in the
national service delivery process and has allowed expansion through partners
without the addition of physical locations.
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 depot
repair service contracts in addition to its traditional equipment maintenance
service contracts.
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
desktop system products. In addition, the Company has established business
relationships with companies such as Amdahl Corporation, Amherst Computer
Products, Avnet, Inc., Entex IT Services, Inc., GE Access, IBM Corporation and
Pioneer-Standard Electronics, Inc. to provide services on a contractual basis.
Since product life cycles for hardware are relatively short, the Company
provides on going 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 on-site maintenance and depot repair services to clients is 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, by its skills in managing a large number of
geographically dispersed service partners and by providing services on a
dependable and cost effective basis to customers with multiple locations
throughout North America.
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MAJOR BUSINESS RELATIONSHIPS
The Company does substantial business with three customers:
Pioneer-Standard Electronics, Inc. ("Pioneer"), IBM Corporation ("IBM") and
Entex IT Services, Inc. Total revenues generated from these customers amounted
to approximately 24% of revenues in fiscal 2001. In Fiscal 2000 an 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. Similar agreements were signed
with Avnet and GE Access in Fiscal 2001. The IBM, Pioneer and Extex business is
through a number of hardware maintenance subcontracts to provide service to
customers of these companies.
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 of
the business to Keystone on May 5, 2000. 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 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.
EMPLOYEES
On March 31, 2001, the Company had 130 full-time employees and 3
part-time employees. 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 officers of the Company as of June 15, 2001:
Henry P. Semmelhack, 64, 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 previously
served as Comptek's Chairman of the Board, Chief Executive Officer and
President.
Richard P. Beyer, 54, is Senior Vice President-Finance, Chief Financial
Officer, Treasurer and a Director of the Company. He joined Comptek in 1974 and
served as its Vice President-Finance and Treasurer prior to assuming those
positions with the Company in 1982.
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David L. Blankenship, 44, 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.
Russell J. Matuszak, 33, joined the Company in July, 2000 as its
Secretary and General Counsel. Previously he was a Partner in the firm Cavanaugh
& Matuszak. He also serves as an adjunct instructor in the Accounting Department
at Canisius College, located in Buffalo, New York.
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:
Hartford, Connecticut Boston, Massachusetts Richmond, Virginia
Atlanta, Georgia New York, New York
Greenbelt, Maryland 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 2001.
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PART II
ITEM 5. MARKET FOR REGISTRANT'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, 2001 and March 31, 2000,
are as follows:
2001 2000
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High Low High Low
---- --- ---- ---
First Quarter 2.25 1.00 4.63 1.25
Second Quarter 1.19 0.88 3.00 1.44
Third Quarter 1.00 0.31 1.81 0.94
Fourth Quarter 0.69 0.44 2.50 0.94
The Company's common stock was held by approximately 365 shareholders of
record as of June 1, 2001.
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
Year Ended March 31
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2001 2000 1999 1998 1997
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(In thousands, except per share amounts)
Statement of Operations Data: (1)
Revenues $ 11,085 $ 8,476 $ 8,590 $ 11,955 $ 9,538
Net loss from continuing operations (197) (600) (1,161) (730) (1,202)
Net loss per common share from
continuing operations:
Basic and diluted (.02) (.06) (.14) (.09) (.15)
Balance Sheet Data at Year End: (1)
Working capital 5,299 1,546 2,296 2,271 2,367
Total assets 8,215 7,556 7,961 6,998 6,630
Long-term debt 355 791 1,134 1,395 1,504
Stockholders' equity 5,463 3,552 3,812 1,993 1,952
(1) All prior years have been restated to reflect discontinued operations
consistent with current 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 ANALYSIS OF FINANCIAL CONDITION 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 contracts with national distributors 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 has allowed 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 constitutes 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
Revenues increased 30.8% for fiscal 2001 as compared to 2000 as a result
of increases in both hardware maintenance contracts and time and materials
services. Revenues from hardware maintenance contracts grew to $8.4 million, an
increase of 32% from the prior year. This increase principally resulted from
the capture of new contracts, primarily through the Company's reseller channel.
Time and materials revenues increased 25.3% in fiscal 2001 when compared to
2000. The primary reason for this increase was business generated from two
customers, one a reseller that contracted with the Company in fiscal 2000 and
the other a direct customer who outsourced significant services to the Company
in the second half of fiscal 2001. The Company believes that its 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 has been
instrumental in obtaining new business. It is expected that additional new
business will result from the marketing of the capabilities of the Global
Services Network. Also, the Company continues to pursue new business through
distributors. Contracts have been signed with three major distributors which
are expected to generate new business in fiscal 2002.
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
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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.
The cost of services decreased as a percentage of revenues from 84.4% in
fiscal 2000 to 76.1% in the current fiscal year. The principal reasons for this
decrease are reduced levels of expenses associated with the service parts
inventory and the ability to leverage certain fixed costs. 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. 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 $611,000, $900,000 and $942,000 for 2001, 2000 and 1999, respectively.
Selling, general and administrative expenses were 29.2% of revenues for
fiscal 2001 compared to 34.5% of revenues in 2000. The principal reason for this
decrease is that the increase in revenues has 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. Prior to the
sale, all corporate related expenses were included in the general and
administrative expenses of the Company since these expenses were not previously
allocated to the Company's two business segments and the amount of reduction in
these expenses, if any, could not be determined. 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.
Interest income was earned in fiscal 2001 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. Since the Company's investments are short-term, the recent drop in
interest rates is expected to lead to lower amounts of interest income in fiscal
2002. Interest expense amounted to 1.7% and 2.1% of revenues for fiscal 2000 and
1999, 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.
No current tax benefit was recorded in fiscal 2000 or 1999 due to the
operating losses incurred. The current tax benefit recorded in 2001 resulted
from the offset of the operating loss against the gain realized on the sale of
the Company's software business in that year. No deferred taxes were recorded in
1999 since changes in the net deferred tax asset were fully offset by changes in
the valuation allowance. The deferred tax benefit recorded in 2000 was based on
the amount of deferred tax assets which were expected to be realized based on a
projection of taxable income in fiscal 2001. The deferred tax expense recorded
in 2001 resulted from the reversal of certain deductible temporary differences
during that year. Based on the consideration of the weight of both positive and
negative evidence as required by Statement of Financial Accounting Standards No.
109, management has determined that it is more likely than not that the deferred
tax assets remaining at March 31, 2001 will not be realized. Therefore, no
additional tax benefits were established in the statements of operations for the
year ended March 31, 2001, since the Company has fully reserved for the tax
effect of net deductible temporary differences and loss carryforwards. These
benefits will be recorded in future periods as they are realized or as their
realization becomes predictable.
DISCONTINUED OPERATIONS
The pre-tax net gain on the sale of the software business was $3,936,000.
This amount is net of a loss of $177,000 incurred from the measurement date of
April 5, 2000 to the closing date. The Company realized net proceeds of
approximately $7,100,000 from the sale. Of the net proceeds realized, a final
payment of $236,000 was received in May, 2001. This amount was included in
accounts receivable at March 31, 2001.
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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.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced a net increase in cash and short term investments
from continuing operations of $4,196,000 during fiscal 2001. An additional net
increase in cash of $27,000 was realized from discontinued operations. Proceeds
from the sale of the Company's software business on May 5, 2000 less associated
expenses amounted to $7,097,000. Certain of the proceeds were used to repay
$871,000 of current and long-term debt, $466,000 of accounts payable, $194,000
of accrued compensation and benefits and $425,000 of income taxes. In addition,
the Company has experienced an increase in accounts receivable of $971,000,
which includes the balance remaining in the escrow account of $236,000, which
payment was received in May, 2001. As a result, the Company's cash and
short-term investments increased from $161,000 at March 31, 2000 to $4,357,000
at March 31, 2001.
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.
The principal cash requirements expected for fiscal 2002 are additions to
equipment and leasehold improvements which are expected to increase over amounts
spent in prior years if an anticipated move of the Company's headquarters takes
place. The Company has entered into a lease agreement to move in the second half
of fiscal 2002. The agreement is subject to a number of contingencies which
could result in a delay of the move or the Company seeking alternative sites.
Debt repayments for fiscal 2002 should approximate $424,000. The Company's cash
and short term investments will be sufficient to cover working capital, capital
expenditure requirements and debt repayments in fiscal 2002.
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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, did not 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 $8,000 in
additional interest expense for the fiscal year ended March 31, 2001.
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
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE PAGE
Independent Auditors' Report .................................................................... 11
Balance Sheets as of March 31, 2001 and 2000..................................................... 12
Statements of Operations for the years ended March 31, 2001, 2000 and 1999....................... 13
Statements of Stockholders' Equity for the years ended March 31, 2001, 2000 and 1999............. 14
Statements of Cash Flows for the years ended March 31, 2001, 2000, and 1999...................... 15
Notes to Financial Statements.................................................................... 16
Financial Statement Schedule II - Valuation and Qualifying Accounts.............................. 28
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INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Barrister Global Services Network, Inc.
Buffalo, New York
We have audited the accompanying balance sheet of Barrister Global Services
Network, Inc. (the "Company") as of March 31, 2001, and the related statements
of operations, stockholders' equity, and cash flows for the year then ended.
Our audit also included the financial statement schedule listed in the Index at
Item 14 (d). These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement schedule
based on our audit. The financial statements of the Company for the two years
ended March 31, 2000 were audited by other auditors whose report, dated June
26, 2000, expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Barrister Global Services Network, Inc. as
of March 31, 2001, and the results of their operations and their cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Buffalo, New York
May 18, 2001
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BARRISTER GLOBAL SERVICES NETWORK, INC.
BALANCE SHEETS
(In thousands, except share data)
March 31
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2001 2000
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ASSETS
CURRENT ASSETS:
Cash and equivalents $ 1,104 $ 161
Short term investments 3,253 -
Accounts receivable, less allowance for doubtful accounts of
$160 in 2001 and $250 in 2000 1,905 934
Service parts inventory 1,410 1,734
Prepaid expenses 24 9
Deferred income taxes - 1,146
Net current assets of discontinued operations - 775
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Total current assets 7,696 4,759
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EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST:
Computer and other equipment 1,493 1,385
Furniture and fixtures 643 947
Leasehold improvements 248 246
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2,384 2,578
Less accumulated depreciation 1,890 2,219
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Net equipment and leasehold improvements 494 359
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OTHER ASSETS 25 25
NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS - 2,413
--------- --------
$ 8,215 $ 7,556
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to a related party $ - $ 264
Current installments of long-term debt
($379 in 2001 and $314 in 2000 to a related party) 424 443
Accounts payable 609 1,075
Accrued compensation and benefits 484 678
Customer advances and unearned revenue 732 698
Other accrued expenses 148 55
--------- --------
Total current liabilities 2,397 3,213
--------- --------
LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS
($274 in 2001 and $620 in 2000 to a related party) 355 791
COMMITMENTS AND CONTINGENCIES (Notes 8 and 13)
STOCKHOLDERS' EQUITY:
Preferred stock, authorized 2,000,000 shares - -
Common stock, $.24 par value. Authorized 20,000,000 shares;
11,944,963 and 11,856,556 shares issued and outstanding
in 2001 and 2000, respectively 2,867 2,846
Additional paid-in capital 23,028 23,005
Accumulated deficit (20,432) (22,299)
--------- --------
Total stockholders' equity 5,463 3,552
--------- --------
$ 8,215 $ 7,556
========= ========
See accompanying notes to financial statements
12
13
BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended March 31
------------------------------------
2001 2000 1999
------------------------------------
REVENUES $ 11,085 $ 8,476 $ 8,590
COSTS AND EXPENSES:
Cost of services 8,431 7,156 6,977
Selling, general and administrative expenses 3,236 2,924 2,594
-------- -------- --------
OPERATING LOSS (582) (1,604) (981)
-------- -------- --------
INTEREST EXPENSE (INCOME):
Related party 80 97 157
Other (273) 45 23
-------- -------- --------
Total interest (193) 142 180
-------- -------- --------
NET LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (389) (1,746) (1,161)
Income tax benefit (192) (1,146) -
-------- -------- --------
NET LOSS FROM CONTINUING OPERATIONS (197) (600) (1,161)
DISCONTINUED OPERATIONS:
Earnings (loss) from discontinued operations - (163) 1,169
Gain from sale of discontinued operations
net of income taxes of $1,872 2,064 - -
-------- -------- --------
NET EARNINGS (LOSS) $ 1,867 $ (763) $ 8
======== ======== ========
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ (.02) $ (.06) $ (.14)
Discontinued operations .18 (.01) .14
======== ======== --------
Total $ .16 $ (.07) $ -
======== ======== ========
Weighted average number of common shares outstanding:
Basic and diluted 11,922 10,519 8,363
======== ======== ========
See accompanying notes to financial statements.
13
14
BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
Year Ended March 31
--------------------------------------
2001 2000 1999
--------------------------------------
PREFERRED STOCK:
Beginning balance $ - $ 1,250 $ -
Issued 2,500 Series E shares in connection with
acquisition of Icon Technologies, LLC - - 1,250
Conversion into 2,500,000 shares of common stock - (1,250) -
---------- ---------- ---------
Ending balance - - 1,250
---------- ---------- ---------
COMMON STOCK:
Beginning balance 2,846 2,134 1,972
Issuance of 88,407 shares, 465,320 shares and 291,991
shares in 2001, 2000, 1999, respectively 21 112 70
Issued 382,883 shares on conversion of debt - - 92
Issued 2,500,000 shares on conversion of
preferred stock - 600 -
---------- ---------- ---------
Ending balance 2,867 2,846 2,134
---------- ---------- ---------
ADDITIONAL PAID-IN CAPITAL:
Beginning balance 23,005 21,964 21,565
Issuance of common shares 23 391 158
Issuance of shares on conversion of debt - - 241
Conversion of preferred stock - 650 -
---------- ---------- ---------
Ending balance 23,028 23,005 21,964
---------- ---------- ---------
ACCUMULATED DEFICIT:
Beginning balance (22,299) (21,536) (21,544)
Net income (loss) 1,867 (763) 8
---------- ---------- ---------
Ending balance (20,432) (22,299) (21,536)
---------- ---------- ---------
TOTAL STOCKHOLDERS' EQUITY $ 5,463 $ 3,552 $ 3,812
========== ========== =========
See accompanying notes to financial statements.
14
15
BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended March 31
---------------------------------
2001 2000 1999
---------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 1,867 $ (763) $ 8
Adjustments to reconcile net earnings (loss) to net cash
used by operating activities:
Depreciation 159 124 99
Deferred income taxes 1,146 (1,146) -
Loss (gain) on discontinued operations - 163 (1,169)
Gain on sale of discontinued operations (3,936) - -
Changes in current assets and liabilities of continuing
operations:
Accounts receivable (971) 327 574
Inventory 324 607 595
Prepaid expenses (15) 17 (4)
Other assets - 7 8
Accounts payable (466) 14 (166)
Accrued compensation and benefits (194) 114 99
Customer advances and unearned revenue 34 (144) (356)
Other accrued expenses 93 4 (4)
------- ------- -------
Net cash used by operating activities (1,959) (676) (316)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and leasehold improvements (294) (154) (222)
Net proceeds from sale of discontinued operations 7,097 - -
Purchase of short-term investments (6,753) - -
Sale or maturity of short-term investments 3,500 - -
------- ------- -------
Net cash provided (used) by investing activities 3,550 (154) (222)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 152 100 63
Repayment of note payable (264) - -
Repayment of long-term debt (607) (45) (158)
Proceeds from sale of common stock 44 315 228
------- ------- -------
Net cash (used) provided by financing activities (675) 370 133
------- ------- -------
Net increase (decrease) in cash from continuing operations 916 (460) (405)
Net increase in cash from discontinued operations 27 399 417
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 943 (61) 12
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 161 222 210
------- ------- -------
CASH AND EQUIVALENTS AT END OF YEAR $ 1,104 $ 161 $ 222
======= ======= =======
Supplemental disclosure of cash flow information (Note 11)
See accompanying notes to financial statements
15
16
BARRISTER GLOBAL SERVICES NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
(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 for desktop
equipment including personal computers 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 was 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 remained after delivery,
revenue was recognized when such obligations were no longer
significant. When services were deemed essential to the
functionality of the software delivered, the
percentage-of-completion method of revenue recognition was
utilized. Sales of third party software and hardware are recorded
upon shipment.
(d) CASH AND EQUIVALENTS AND SHORT TERM INVESTMENTS - Cash and
equivalents consist of cash and liquid debt instruments with
maturity 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 to nine months and are recorded at amortized cost
adjusted for the accretion of discounts or cost plus accrued
interest.
(e) 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.
(f) 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.
(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
16
17
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 5 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 4) 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) ACCOUNTING STANDARDS - The Company implemented SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"
during 2001, which was the first year in which it had investments.
This standard requires that all applicable investments be
classified as trading securities, available-for-sale securities or
held-to-maturity securities.
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, did not have a material impact on the
Company's financial statements.
(2) DISCONTINUED OPERATIONS
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 was 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 was held in escrow by Keystone for the payment of any of
the above claims. During fiscal 2001, $326,000 of the escrow was paid to
Keystone based on agreements reached to finalize claims that occurred.
The Company received payments of $238,000 from the escrow during the year
ended March 31, 2001. The balance of the escrow, which amounted to
$236,000 at March 31, 2001, was recorded as a receivable on the balance
sheet and full payment was received by the Company in May, 2001.
The pre-tax net gain on the sale of the software business was $3,936,000.
This is net of a loss of $177,000 incurred from the measurement date of
April 5, 2000 to the closing date. A summary of the operating results of
discontinued operations are as follows:
17
18
Year Ended March 31
-------------------------------------
2001 2000 1999
-------------------------------------
(In thousands)
Revenues $ - $ 6,456 $ 6,404
Income (loss) from discontinued operations before
income taxes - (163) 1,169
The Company did 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 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
============
(3) SHORT TERM INVESTMENTS
Short term investments are classified as held-to-maturity securities. At
March 31, 2001, the balance consists of certificates of deposit of
$2,853,000 and corporate bonds of $400,000. The securities have a term of
less than one year and are recorded at amortized cost adjusted for the
accretion of discounts or cost plus accrued interest. The carrying value
of the short term investments approximates its fair value.
(4) NOTE PAYABLE AND LONG-TERM DEBT
In fiscal 2000, BIS Partners, L.P. ("BIS") agreed to convert certain past
due amounts into a $264,000 demand note bearing interest at prime plus
3.5%.
A summary of long-term debt follows:
-------------------------------------
2001 2000
-------------------------------------
(In thousands)
Term note with BIS Partners L.P. $ 653 $ 934
Term note payable to bank - 171
Term notes to Regional Development Agencies - 88
Other 126 41
------------ ------------
Total long term debt 779 1,234
Less current installments 424 443
------------ ------------
Long-term debt, excluding current installments $ 355 $ 791
============ ============
The BIS term note is repayable in equal monthly installments of principal
and interest of $35,000. 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,
18
19
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 and 1999.
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.
The demand note payable to BIS, 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 are estimated to be due as follows:
Year Ending March 31 Amount (in thousands)
-------------------- ---------------------
2002 $ 424
2003 324
2004 31
(5) 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.
A summary of stock option activity follows:
2001 2000 1999
----------------------------------------------------------------------
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
----------------------------------------------------------------------
Outstanding beginning of year 910 $ 1.05 761 $ 0.88 772 $ 0.78
Granted 115 0.97 428 1.29 148 1.14
Cancelled (362) 1.07 (162) 1.04 (86) 0.74
Exercised (89) 0.50 (117) 0.83 (73) 0.52
-------- -------- ---------
Outstanding end of year 574 1.10 910 1.05 761 0.88
======== ======== =========
Exercisable at year end 354 1.05 458 0.83 500 0.74
======== ======== =========
Reserved for grant, end of year 163 102 17
======== ======== =========
Weighted-average fair value
of options granted during year $ 0.52 $ 0.71 $ 0.57
======== ======== =========
At March 31, 2001, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $.50 - $1.63 and
5.9 years, respectively. 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. This transaction was accounted for as a
non-cash activity in 2000. The per share weighted average fair values of
stock options granted was computed using the Black Scholes
19
20
option-pricing model with the following assumptions:
------------------------------
2001 2000 1999
------------------------------
Risk-free interest rate 5.22% 6.46% 5.87%
Price volatility 42.0% 42.0% 42.0%
Dividend yield 0% 0% 0%
Expected term in years 7 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
from continuing operations for 2001, 2000, and 1999 would be increased by
$207,000, $96,000, and $105,000, respectively, resulting in a $(0.03),
$(0.07), and $(0.15) loss per share from continuing operations for 2001,
2000, and 1999 respectively.
The following warrants are outstanding at March 31, 2001:
Number of Shares Exercise Price Expiration Date
---------------- -------------- ---------------
450,000 1.93 August 31, 2005
The 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.
(6) 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 $27,000 in 2001, $37,000 in 2000
and $31,000 in 1999.
(7) INCOME TAXES
The composition of income tax expense (benefit) for continuing operations
is as follows:
---------------- ---------------
2001 2000
---------------- ---------------
(In thousands)
Current:
Federal $ (215) $ -
State (25) -
----------- ------------
(240) -
----------- ------------
Deferred:
Federal 43 (1,025)
State 5 (121)
----------- ------------
48 (1,146)
----------- -----------
$ (192) $ (1,146)
=========== ===========
No current tax benefit was recorded in fiscal 2000 or 1999 due to the
operating losses incurred. The current tax benefit recorded in 2001
resulted from the offset of the operating loss against the gain realized
on the sale of the Company's software business in that year. In addition
no deferred taxes were recorded in 1999 since changes in the net deferred
tax asset were fully offset by
20
21
changes in the valuation allowance. The deferred tax benefit recorded in
2000 was based on the amount of deferred tax assets which were expected
to be realized based on a projection of taxable income in fiscal 2001.
The deferred tax expense recorded in 2001 resulted from the reversal of
taxable temporary differences during that year.
Total income taxes differ from the amount computed by applying the
Federal statutory rate (34%) to loss from continuing operations as
follows:
--------------------
2001 2000
--------------------
(In thousands)
Income taxes at federal statutory rate $ (132) $ (594)
State tax effect (16) (70)
Change in valuation allowance (51) (539)
Other 7 57
------- -------
$ (192) $(1,146)
======= =======
The components of deferred tax assets (computed using an expected
effective tax rate) are as follows:
--------------------
2001 2000
--------------------
(In thousands)
Net operating loss carryforward $ 244 $ 1,757
Inventory write downs 152 171
Depreciation 55 69
Vacation pay 60 49
Bad debt allowance 61 127
Software production costs - (474)
Other 38 108
------- -------
Net deferred tax asset 610 1,807
Less valuation allowance 610 661
------- -------
$ - $ 1,146
======= =======
The Company's net operating loss carryforward, totaling $640,000, relates
to pre-ownership change losses, which can be utilized at the rate of
$80,000 per year through 2009.
Based on the consideration of the weight of both positive and negative
evidence as required by Statement of Financial Accounting Standards No.
109, management has determined that it is more likely than not that the
deferred tax assets remaining at March 31, 2001 will not be realized.
Therefore, no additional tax benefits were established in the statements
of operations for the year ended March 31, 2001, since the Company has
fully reserved for the tax effect of net deductible temporary differences
and loss carryforwards. These benefits will be recorded in future periods
as they are realized or as their realization becomes predictable.
The income tax provision associated with the gain from the sale of the
software business (see Note 2) 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 $774,000 and deferred
taxes of $1,098,000. The deferred taxes resulted from the use of tax loss
carryforwards from prior years and the reversal of temporary differences
between book and tax on the assets sold. The Company had no tax expense
or benefit on the earnings (loss) from discontinued operations for 2000
or 1999 due to its operating losses.
21
22
(8) 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 for
continuing operations was $418,000 in 2001, $370,000 in 2000 and $399,000
in 1999.
Future minimum rental payments for continuing operations required under
leases that have initial or remaining noncancellable lease terms in
excess of one year are: $241,000 in 2002, $135,000 in 2003, $134,000 in
2004, $88,000 in 2005, and $78,000 in 2006.
(9) 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 were
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.
(10) MAJOR CUSTOMERS
Sales to the Company's largest customer accounted for 11% of total
revenues from continuing operations for 2001. In 2000 two customers
accounted for 21% of revenues from continuing operations and in 1999 one
customer accounted for 17% of revenues from continuing operations. No
other customer accounted for more that 10% of total revenue in any of the
three years in the period ended March 31, 2001. The Company performs
hardware maintenance services for end users under various subcontracts
from these customer. These subcontracts can be canceled with 30 days
notice.
(11) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Year Ended March 31
-----------------------------------
2001 2000 1999
-----------------------------------
(In thousands)
Interest paid $ 108 $ 132 $ 185
Income taxes paid 425 - -
Non-cash investing and financing activities:
Current liabilities paid in common stock - 188
Debt converted to common stock by BIS - - 333
Preferred stock issued in connection with acquisition - - 1,250
22
23
(12) 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 were determined based on product
categories and were 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.
Upon the sale of the software business in fiscal 2001, the Company's
operations now consist of only one segment.
The following provides segment information for 2000 and 1999:
--------------------------
2000 1999
--------------------------
(In thousands)
HARDWARE MAINTENANCE:
Total revenues $ 8,476 $ 8,590
Operating earnings (loss) (30) 510
Identifiable assets 2,965 3,861
Capital expenditures 141 158
Depreciation and amortization 89 65
SOFTWARE:
Total revenues 6,456 6,404
Operating earnings (loss) (163) 1,169
Identifiable assets 3,817 4,495
Capital expenditures 834 648
Depreciation and amortization 729 436
CORPORATE:
Total expense 1,574 1,491
Identifiable assets 1,403 350
Capital expenditures 7 64
Depreciation and amortization 35 34
CONSOLIDATED:
Total revenues 14,932 14,994
Operating earnings (loss) (1,767) 188
Identifiable assets 8,185 8,706
Capital expenditures 982 870
Depreciation and amortization 853 535
(13) 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.
23
24
(14) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial data for the fiscal
years ended March 31, 2001 and March 31, 2000. Amounts have been restated
to reflect discontinued operations, which are more fully discussed in
Note 2 to the financial statements.
------------- ------------ ------------- ------------ ------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------------- ------------ ------------- ------------ ------------
(In thousands)
2001
Revenues $ 2,400 $ 2,696 $ 2,792 $ 3,197 $ 11,085
Operating loss (138) (165) (133) (146) (582)
Net loss from continuing operations (77) (69) (39) (12) (197)
Net loss per common share from
continuing operations, basic and diluted (.01) (.01) (.00) (.00) (.02)
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)
24
25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 11, 2000, the Board of Directors approved the recommendation
by the Audit Committee of the Board of Directors to (i) engage Deloitte & Touche
LLP as the independent accountants for Barrister Global Services Network, Inc.
and (ii) dismiss KPMG LLP as such independent accountants. During the two fiscal
years ended March 31, 2000 and the subsequent interim period through June 30,
2000, (i) there were no disagreements with KPMG LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope of
procedures, which disagreements if not resolved to its satisfaction would have
caused it to make reference in connection with its report to the subject matter
of the disagreement, and (ii) KPMG LLP has not advised the registrant of any
reportable events as defined in paragraph (A) through (D) of Regulation S-K Item
304 (a) (1) (v). The audit reports of KPMG LLP on the financial statements of
Barrister Global Services Network, Inc. as of and for the years ended March 31,
2000 and 1999 did not contain any adverse opinion or disclaimer of opinion, and
was not qualified or modified as to uncertainty, audit scope, or accounting
principles. On October 20, 2000, Deloitte & Touche LLP notified the Company that
it accepted the appointment as the Company's principal accountants.
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 15,
2001, 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 10, 2001 which
will be filed with the Securities and Exchange Commission within 120 days after
March 31, 2001.
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
25
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(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* Deloitte & Touche consent regarding form S-8.
23.1* KPMG LLP consent regarding form S-8.
24* KPMG LLP Independent Auditors Report (prior years)
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.
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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 19, 2001 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:
Signatures Title Date
---------- ----- ----
/s/ Henry P. Semmelhack President, Chief Executive Officer and June 19, 2001
----------------------- Chairman of the Board of Directors
Henry P. Semmelhack
/s/ Richard P. Beyer Senior Vice President and Chief Financial Officer June 19, 2001
--------------------
Richard P. Beyer
/s/ Joseph A. Alutto Director June 19, 2001
---------------------
Joseph A. Alutto
/s/ Franklyn S. Barry, Jr. Director June 19, 2001
--------------------------
Franklyn S. Barry, Jr.
/s/ Warren E. Emblidge, Jr. Director June 19, 2001
---------------------------
Warren E. Emblidge, Jr.
/s/ Richard E. McPherson Director June 19, 2001
------------------------
Richard E. McPherson
/s/ James D. Morgan Director June 19, 2001
-------------------
James D. Morgan
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BARRISTER GLOBAL SERVICES NETWORK, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at Additions Write-offs Balance
beginning charged to costs charged to at end
Description of period and expenses allowance of period
----------- --------- ------------ --------- ---------
Allowance for doubtful accounts:
Year ended March 31, 1999 $ 148 $ (3) $ - $ 145
---------- ---------- ---------- ------------
-
Year ended March 31, 2000 $ 145 $ 105 $ - $ 250
---------- ---------- ---------- ------------
-
Year ended March 31, 2001 $ 250 $ 25 $ 115 $ 160
---------- ---------- -------- ------------
-
Allowance for inventory
obsolescence:(1)
Year ended March 31, 1999 $ 725 $ 942 $ 1,317 $ 350
---------- ---------- ----------- ------------
Year ended March 31, 2000 $ 350 $ 900 $ 800 $ 450
---------- ---------- ----------- ------------
Year ended March 31, 2001 $ 450 $ 611 $ 661 $ 400
---------- ---------- ----------- ------------
(1) The allowance is included in inventory in the balance sheets
28