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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, 2002
COMMISSION FILE NUMBER 0-14063
BARRISTER GLOBAL SERVICES NETWORK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 16-1176561
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
290 ELLICOTT STREET, BUFFALO, NEW YORK 14203
(Address of principal executive offices, including ZIP code)
Registrant's telephone number, including area code: (716) 845-5010
SECURITIES REGISTERED PURSUANT TO SECTION (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.24 par value American Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates of the
Registrant, based upon the closing price of the Common Stock on June 1, 2002 was
approximately $3.9 million.
The number of shares outstanding of the Registrant's common stock, $.24
par value, was 11,901,326 at June 1, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on September 9, 2002, are incorporated by
reference in Part III.
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 multi-vendor computer equipment.
In 1989, nearly 100% of service revenues came from the maintenance of Barrister
mini-computers and equipment. Today nearly 100% of revenues come from services
provided for multi-vendor computers and peripherals.
2
SERVICES MARKET
The Company provides a variety of IT services throughout North America
for multi-vendor equipment including personal computers, servers, peripherals
and other equipment. Using its staff of hardware technicians and its network of
over 1,200 service companies, the Company provides comprehensive services for
such equipment. The Company maintains nationwide toll-free numbers for customer
service and provides a seven-day, twenty-four hour response 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 services
to its clients. This integrated software system is called the 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 also led 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
Original Equipment Manufacturers (OEMs) products. In addition, the Company has
established business relationships with companies such as Amherst Computer
Products, Avnet Inc., CDW Computer Centers Inc., Fujitsu Technology Solutions,
Inc., IBM Corporation, Retrofit Technologies Inc. and Siemens Business Services,
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 and depot repair services to clients is a highly
competitive business. The principal competitive factors are expertise,
reputation, price and geographic location of staff. The market for IT services
is very large; it encompasses all businesses, is highly price competitive, has
some technological barriers to entry and the equipment serviced has short
product life cycles. The Company competes with numerous organizations which can
provide similar 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 GSN, 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.
3
MAJOR BUSINESS RELATIONSHIPS
The Company does substantial business with three strategic partners: IBM
Corporation ("IBM"), Siemens Business Services, Inc. and Retrofit Technologies
Inc. Total revenues generated from these customers amounted to approximately 36%
of revenues in fiscal 2002. In Fiscal 2002 an agreement was reached with Avnet
Computer to provide nationwide support on Intel-based systems and servers that
Avnet distributes to Value-Added Resellers (VARs), OEMs and end users. A similar
agreement was reached with CDW Computer Centers, Inc. to supply their customers
with Barrister's extended warranty contracts. The IBM, Siemens Business Services
and Retrofit Technology 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 has been 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.
EMPLOYEES
On June 1, 2002, the Company had 119 full-time employees and 3 part-time
employees. None of the Company's employees are 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, 2002:
William O. Bray, 52, joined the Company in January of this year as its,
President, Chief Executive Officer and Director. Previously he served as
President and Chief Operating Officer of Hitachi Innovative Solutions
Corporation, a wholly owned subsidiary of Hitachi, Ltd. Prior to the Hitachi
position he was Vice President, Outsourcing Solutions and Managed Services of
NCR Corporation. Mr. Bray has also held executive management positions with
UNISYS Corporation and COMDISCO, Inc.. He holds a Ph.D. in business
administration from California Coast University and has taught at the University
level.
Richard P. Beyer, 55, 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.
Russell J. Matuszak, 34, 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.
Charles E. Roberts, 53, joined the Company in 1995 as its sales manager
and was named Vice President of National Sales in March 2002. Previously, he was
Vice President of Sales for Eastman Kodak Company, Edicon Systems Division. He
also served in sales management and industry marketing positions during 10 years
at Nortel Networks Ltd. Prior to Nortel, Roberts had a ten year career at
Burroughs Corporation (now Unisys Corporation) where he was responsible for
regional sales and branch operations in Western New York.
4
Kathleen Ryan, 44, joined the Company as Vice President of Marketing in
March 2002. Most recently she was Vice President of Market Planning for NONSTOP
Solutions. Prior to that Ryan served in marketing management positions at IBM
Corporation in the U.S. and Europe, including Program Director of Global
Marketing and Strategy and of Digital Media for the IBM Global Communications
Sector. Previously, she held marketing strategy and product management positions
at Bell Mobility Inc., Teleglobe Communications Company (formerly Teleglobe
Canada) and AT&T Canada (formerly Unitel).
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
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 2002.
5
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, 2002 and March
31, 2001, are as follows:
2002 2001
----------------------- ------------------------
High Low High Low
---- --- ---- ---
First Quarter 0.70 0.37 2.25 1.00
Second Quarter 0.74 0.40 1.19 0.88
Third Quarter 0.52 0.40 1.00 0.31
Fourth Quarter 0.79 0.42 0.69 0.44
The Company's common stock was held by approximately 381 shareholders of
record as of June 1, 2002.
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
------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------------------------------------------------------------------
(In thousands, except per share amounts)
Statement of Operations Data: (1)
Revenues $ 12,845 $ 11,085 $ 8,476 $ 8,590 $ 11,955
Net loss from continuing operations (1,118) (197) (600) (1,161) (730)
Net loss per common share from
continuing operations:
Basic and diluted (.09) (.02) (.06) (.14) (.09)
Balance Sheet Data at Year End: (1)
Working capital 2,436 5,299 1,546 2,296 2,271
Total assets 7,136 8,215 7,556 7,961 6,998
Long-term debt 27 355 791 1,134 1,395
Stockholders' equity 4,284 5,463 3,552 3,812 1,993
(1) 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.
6
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 and
preferred partner authorizations with over 20 manufacturers and technical
expertise covering the products of over 200 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
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 some technological barriers to entry and the
equipment serviced has short product life cycles.
RESULTS OF OPERATIONS
Revenues increased 15.9% for fiscal year 2002 as compared to 2001, as a
result of increases in both hardware maintenance contracts and time and
materials services. Revenues from hardware maintenance contracts grew to $9.5
million, an increase of 13.6% from the prior year. This increase principally
resulted from the capture of a large contract, which started in September of
this fiscal year. Time and materials revenues increased by 21.7% to a total of
$3.2 million for fiscal 2002 when compared to 2001. The principal reasons for
this increase were business generated from a new customer obtained through a
reseller that started in April, 2001 and from services provided on the large
contract that started in September, 2001. The Company continues to pursue new
business from its business partners and from the marketing of the capabilities
of its Global Services Network, which is a web-based service management system.
The 30.8% increase in revenues for fiscal 2001 as compared to 2000
resulted from a 32% increase in contract revenues and a 25.3% increase in
revenues from time and materials services. The increase in contract revenues
principally resulted from the capture of new contracts, primarily through the
Company's reseller channel. The increase in time and materials revenues resulted
from business generated from two customers, one a reseller that contracted with
the Company in fiscal 2000 and substantially increased its business in fiscal
2001, and the other a direct customer who outsourced significant services to the
Company in the second half of fiscal 2001.
The cost of services increased as a percentage of revenues from 76.1% in
fiscal 2001 to 78.7% in the current year. This increase occurred as a result of
the recording in the fourth quarter of the current fiscal year an additional
provision of $532,000 for service parts inventory deemed to be excess to the
Company's needs. This provision resulted from a change in the mix of equipment
being serviced under contract, an analysis of the usage of the service parts
inventory and assessment of the current value of the inventory. The additional
provision amounted to 4.1% of fiscal 2002 revenues. The cost of services
decreased as a percentage of revenues from 84.4% in fiscal 2000 to 76.1% in
fiscal 2001. The principal reasons for this decrease were reduced levels of
expenses associated with the service parts inventory and the ability to leverage
certain fiscal costs. 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
$1,132,000, $611,000 and $900,000 for 2002, 2001 and 2000, respectively.
7
Selling, general and administrative expenses were 35.2% of revenues for
fiscal 2002 compared to 29.2% of revenues in 2001. This increase primarily
resulted from certain non-recurring expenses incurred in the fourth quarter of
fiscal 2002. In January, 2002, the Company hired Dr. William O. Bray as its
president and chief executive officer to succeed Mr. Henry P. Semmelhack who
held those positions since the Company's incorporation in 1982. Mr. Semmelhack
retired as of March 31, 2002. Consistent with Mr. Semmelhack's employment
contract and his retirement, the Compensation Committee of the Board of
Directors approved a deferred compensation arrangement for past services
rendered. In addition, Mr. David L. Blankenship, former Senior Vice President of
Operations, left the Company at the end of February 2002. The Company agreed to
buy out the remaining term of Mr. Blankenship's employment contract, cancel a
loan and accrued interest outstanding to Mr. Blankenship in return for the stock
held as collateral for the loan, plus pay for certain additional expenses. The
impact of these non-recurring expenses in the fourth quarter of 2002, including
additional salary costs during the transition period to the new CEO, relocation
expenses for Dr. Bray, the present value of the deferred compensation
arrangement with Mr. Semmelhack, and the settlement with Mr. Blankenship were
approximately $753,000, or 5.9% of fiscal 2002 revenues. 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 was achieved without any growth in the general and administrative
costs of the Company. Any increases in these costs were offset by staff
reductions based on the sale of the software business of the Company to Keystone
Solutions U.S., 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 decrease in net interest income in fiscal 2002 as compared to 2001
was primarily a result of lower interest rates, which impacted earnings from the
Company's investments. The interest income earned in fiscal 2001 was based on
income received on the investment of the net proceeds from the sale of the
Company's software business in May, 2000. These proceeds were also used to pay
certain outstanding interest bearing debt of the Company.
No current tax benefit was recorded in fiscal 2000 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. The current tax benefit recorded in
2002 is based on the estimated refund of taxes paid in the prior year by
carrying back the fiscal 2002 operating loss. 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. The deferred tax benefit recorded in
2002 was based on the amount of deferred tax assets which were expected to be
realized from the carryback of future tax expenses from the reversal of certain
deductible temporary differences. 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 remaining deferred tax assets at March 31, 2002 will not be
realized. Therefore, no additional tax benefits were established in the
statement of operations for the year ended March 31, 2002, since the Company has
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 pre-tax net gain from the sale of discontinued operations recognized
in fiscal 2001 of $3,936,000 was based on the sale of the Company's software
business to Keystone on May 5, 2000. The income tax provision associated with
the gain is higher than the statutory rate since goodwill valued at $986,000 for
financial reporting purposes had a zero basis for tax purposes. The provision
included 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.
8
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents, short-term investments and marketable securities
totaled $3,992,000 at March 31, 2002 and $4,357,000 at March 31, 2001. The net
decrease of $365,000 was primarily a result of debt repayments, which amounted
to $445,000. Operating activities provided net cash of $167,000 during fiscal
2002. The net loss was offset by decreases in accounts receivable and service
parts inventory and an increase in accrued compensation and benefits.
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 experienced an increase in accounts receivable
of $971,000, which included the balance remaining in the escrow account from the
sale of the software business of $236,000, which payment was received in May,
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.
The principal cash requirements expected for fiscal 2003 are debt
repayments of $307,000 and additions to equipment and leasehold improvements. On
June 18, 2002, the Company signed a lease agreement to move its headquarters
offices and operations center into a new facility. The Company expects to obtain
financing for any additional capital expenditures in relation to the new
facility. The Company's cash and investments will be sufficient to cover working
capital, capital expenditure requirements, and debt repayments in fiscal 2003.
NEW ACCOUNTING STANDARDS
The Company will adopt SFAS No. 141, "Business Combinations", SFAS No.
142, "Goodwill and Other Intangible Assets" and SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" on April 1, 2002. SFAS No. 141
requires that the purchase method be used for all business combinations
initiated after June 30, 2001. SFAS No. 142 changes the accounting for goodwill
and intangible assets with indefinite lives from an amortization method to an
impairment approach. SFAS No. 144 establishes a single accounting model for
long-lived assets to be disposed of by sale and it expands the presentation of
discontinued operations to include more disposal transactions. The
pronouncements are not expected to have an impact on the financial statements.
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" 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 had 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.
9
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 $3,000 in
additional interest expense for the fiscal year ended March 31, 2002.
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, 2002 and 2001.......................................................... 12
Statements of Operations for the years ended March 31, 2002, 2001 and 2000............................ 13
Statements of Stockholders' Equity for the years ended March 31, 2002, 2001 and 2000.................. 14
Statements of Cash Flows for the years ended March 31, 2002, 2001, and 2000........................... 15
Notes to Financial Statements......................................................................... 16
Financial Statement Schedule II - Valuation and Qualifying Accounts................................... 27
10
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Barrister Global Services Network, Inc.
Buffalo, New York
We have audited the accompanying balance sheets of Barrister Global Services
Network, Inc. (the "Company") as of March 31, 2002 and 2001, and the related
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended March 31, 2002. Our audits 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 audits. The
financial statements of the Company for the year 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 audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Barrister Global Services Network, Inc. as
of March 31, 2002 and 2001, and the results of its operations and its cash flows
for each of the two years in the period ended March 31, 2002 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, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Buffalo, New York
May 24, 2002
(June 18th as to Note 8)
11
BARRISTER GLOBAL SERVICES NETWORK, INC.
BALANCE SHEETS
(In thousands, except share data)
March 31
--------------------------
2002 2001
--------------------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 1,222 $ 1,104
Short term investments 1,040 3,253
Accounts receivable, less allowance for doubtful accounts of
$125 in 2002 and $160 in 2001 1,289 1,905
Service parts inventory 933 1,410
Prepaid expenses 23 24
Income taxes 487 -
-------- --------
Total current assets 4,994 7,696
-------- --------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST:
Computer and other equipment 1,042 1,493
Furniture and fixtures 546 643
Leasehold improvements 247 248
-------- --------
1,835 2,384
Less accumulated depreciation 1,448 1,890
-------- --------
Net equipment and leasehold improvements 387 494
-------- --------
MARKETABLE SECURITIES 1,730 -
OTHER ASSETS 25 25
-------- --------
$ 7,136 $ 8,215
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt
($266 in 2002 and $379 in 2001 to a related party) $ 307 $ 424
Accounts payable 761 609
Accrued compensation and benefits 677 484
Customer advances and unearned revenue 661 732
Other accrued expenses 152 148
-------- --------
Total current liabilities 2,558 2,397
-------- --------
DEFERRED COMPENSATION 267 -
LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS
($274 in 2001 to a related party) 27 355
COMMITMENTS AND CONTINGENCIES (Notes 8 and 11)
STOCKHOLDERS' EQUITY:
Preferred stock, authorized 2,000,000 shares - -
Common stock, $.24 par value. Authorized 20,000,000 shares;
11,944,963 shares issued 2,867 2,867
Additional paid-in capital 23,028 23,028
Accumulated deficit (21,550) (20,432)
Treasury stock at cost, 100,000 shares (61) -
-------- --------
Total stockholders' equity 4,284 5,463
-------- --------
$ 7,136 $ 8,215
======== ========
See accompanying notes to financial statements.
12
BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF OPERATIONS
(In thousands, except share data)
Year Ended March 31
--------------------------------------------
2002 2001 2000
--------------------------------------------
REVENUES $ 12,845 $ 11,085 $ 8,476
COSTS AND EXPENSES:
Cost of services 10,108 8,431 7,156
Selling, general and administrative expenses 4,521 3,236 2,924
-------- -------- --------
OPERATING LOSS (1,784) (582) (1,604)
-------- -------- --------
INTEREST EXPENSE (INCOME):
Related party 33 80 97
Other (212) (273) 45
-------- -------- --------
Total interest (179) (193) 142
-------- -------- --------
NET LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (1,605) (389) (1,746)
Income tax benefit (487) (192) (1,146)
-------- -------- --------
LOSS FROM CONTINUING OPERATIONS (1,118) (197) (600)
DISCONTINUED OPERATIONS:
Loss from discontinued operations - - (163)
Gain from sale of discontinued operations
net of income taxes of $1,872 - 2,064 -
-------- -------- --------
NET (LOSS) EARNINGS $ (1,118) $ 1,867 $ (763)
======== ======== ========
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ (.09) $ (.02) $ (.06)
Discontinued operations .00 .18 (.01)
======== ======== ========
Total $ (.09) $ .16 $ (.07)
======== ======== ========
Weighted average number of common shares outstanding:
Basic and diluted 11,937 11,922 10,519
======== ======== ========
See accompanying notes to financial statements.
13
BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
Year Ended March 31
--------------------------------------------
2002 2001 2000
--------------------------------------------
PREFERRED STOCK:
Beginning balance $ - $ - $ 1,250
Conversion into 2,500,000 shares of common stock - - (1,250)
-------- -------- --------
Ending balance - - -
-------- -------- --------
COMMON STOCK:
Beginning balance 2,867 2,846 2,134
Issuance of 88,407 shares, and 465,320 shares
shares in 2001 and 2000, respectively - 21 112
Issued 2,500,000 shares on conversion of
preferred stock - - 600
-------- -------- --------
Ending balance 2,867 2,867 2,846
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL:
Beginning balance 23,028 23,005 21,964
Issuance of common shares - 23 391
Conversion of preferred stock - - 650
-------- -------- --------
Ending balance 23,028 23,028 23,005
-------- -------- --------
ACCUMULATED DEFICIT:
Beginning balance (20,432) (22,299) (21,536)
Net (loss) earnings (1,118) 1,867 (763)
-------- -------- --------
Ending balance (21,550) (20,432) (22,299)
-------- -------- --------
TREASURY STOCK:
Beginning balance - - -
Acquisition of 100,000 shares (61) - -
-------- -------- --------
Ending balance (61) - -
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY $ 4,284 $ 5,463 $ 3,552
======== ======== ========
See accompanying notes to financial statements.
14
BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended March 31
-----------------------------------------
2002 2001 2000
-----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $(1,118) $ 1,867 $ (763)
Adjustments to reconcile net (loss) earnings to net cash
provided (used) by operating activities:
Depreciation 167 159 124
Deferred income taxes (158) 1,146 (1,146)
Loss on discontinued operations - - 163
Gain on sale of discontinued operations - (3,936) -
Write-off of note receivable 50 - -
Loss on disposal of equipment 27 - -
Changes in current assets and liabilities of continuing
operations:
Accounts receivable 616 (971) 327
Service parts inventory 477 324 607
Prepaid expenses 1 (15) 17
Income taxes (329) - -
Other assets - - 7
Accounts payable 152 (466) 14
Accrued compensation and benefits 349 (194) 114
Customer advances and unearned revenue (71) 34 (144)
Other accrued expenses 4 93 4
------- ------- -------
Net cash provided (used) by operating activities 167 (1,959) (676)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and leasehold improvements (87) (294) (154)
Net proceeds from sale of discontinued operations - 7,097 -
Purchase of investments (3,985) (6,753) -
Sale or maturity of investments 4,468 3,500 -
------- ------- -------
Net cash provided (used) by investing activities 396 3,550 (154)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 152 100
Repayment of note payable - (264) -
Repayment of long-term debt (445) (607) (45)
Proceeds from sale of common stock - 44 315
------- ------- -------
Net cash (used) provided by financing activities (445) (675) 370
------- ------- -------
Net increase (decrease) in cash from continuing operations 118 916 (460)
Net increase in cash from discontinued operations - 27 399
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 118 943 (61)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 1,104 161 222
------- ------- -------
CASH AND EQUIVALENTS AT END OF YEAR $ 1,222 $ 1,104 $ 161
======= ======= =======
Supplemental disclosure of cash flow information (Note 10)
See accompanying notes to financial statements.
15
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 multi-vendor
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.
(d) CASH AND EQUIVALENTS, SHORT TERM INVESTMENTS, AND MARKETABLE
SECURITIES - 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
and marketable securities are classified as held-to-maturity
securities based on the Company's ability and intent to hold the
securities until maturity. The securities 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 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.
16
(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 fiscal 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 adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" 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 had 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.
The Company will adopt SFAS No. 141, "Business Combinations", SFAS
No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" on
April 1, 2002. SFAS No. 141 requires that the purchase method be
used for all business combinations initiated after June 30, 2001.
SFAS No. 142 changes the accounting for goodwill and intangible
assets with indefinite lives from an amortization method to an
impairment approach. SFAS No. 144 establishes a single accounting
model for long-lived assets to be disposed of by sale and it expands
the presentation of discontinued operations to include more disposal
transactions. The pronouncements are not expected to have an impact
on the 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 differed 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 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 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
17
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 was net of a loss of $177,000 incurred from the
measurement date of April 5, 2000 to the closing date.
(3) SHORT TERM INVESTMENTS AND MARKETABLE SECURITIES
Short-term investments and marketable securities are classified as
held-to-maturity securities based on the Company's ability and intent to
hold the securities until maturity. The securities are recorded at
amortized cost adjusted for the accretion of discounts or cost plus
accrued interest.
Short-term investments consist of certificates of deposits and/or
corporate debt instruments. 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.
Marketable securities consist of mortgage-backed securities and/or
corporate debt instruments and are expected to mature in less than two
years.
(4) NOTE PAYABLE AND LONG-TERM DEBT
A summary of long-term debt follows:
March 31
---------------------
2002 2001
---------------------
(In thousands)
Term note with BIS Partners, L.P. (BIS) $ 265 $ 653
Other 69 126
------ ------
Total long term debt 334 779
Less current installments 307 424
------ ------
Long-term debt, excluding current installments $ 27 $ 355
====== ======
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% ( 8.25% at March 31, 2002) and is supported by an
agreement granting a security interest in all equipment, inventories and
receivables. The agreement, among other things, requires the Company to
maintain certain financial ratios, prohibits dividend payments, and
restricts capital expenditures, lease obligations and executive
compensation. The Company was in compliance with all covenants in the
agreement.
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.
Payments on long-term debt are estimated to be due as follows:
Year Ending March 31 Amount (in thousands)
- -------------------- ---------------------
2003 $ 307
2004 27
-----
$ 334
=====
18
(5) STOCK OPTIONS AND WARRANTS
The Company has stock incentive plans to which it has allocated
1,564,000 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:
2002 2001 2000
-----------------------------------------------------------------------------------
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 574 $ 1.10 910 $ 1.05 761 $ 0.88
Granted 595 0.47 115 0.97 428 1.29
Cancelled (187) 0.93 (362) 1.07 (162) 1.04
Exercised - - (89) 0.50 (117) 0.83
--------- ---------- ----------
Outstanding end of year 982 0.75 574 1.10 910 1.05
========= ========== ==========
Exercisable at year end 402 1.09 354 1.02 458 0.83
========= ========== ==========
Reserved for grant, end of year 73 163 102
========= ========== ==========
Weighted average fair value
of options granted during year $ 0.24 $ 0.52 $ 0.71
========= ========== ==========
At March 31, 2002, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $.46 - $1.63 and
6.5 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
option-pricing model with the following assumptions:
2002 2001 2000
-----------------------------------
Risk-free interest rate 4.69% 5.22% 6.46%
Price volatility 41.7% 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 2002, 2001, and 2000 would be increased
by $123,000, $207,000, and $96,000, respectively, resulting in a
$(0.10), $(0.03), and $(0.07) loss per share from continuing operations
for 2002, 2001, and 2000 respectively.
The following warrants are outstanding at March 31, 2002:
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.
19
(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 $25,000 in 2002, $27,000 in 2001
and $37,000 in 2000.
(7) INCOME TAXES
The composition of income tax expense (benefit) for continuing
operations is as follows:
-----------------------------------------
2002 2001 2000
-----------------------------------------
(In thousands)
Current:
Federal $ (329) $ (215) $ -
State - (25) -
------- ------- -------
(329) (240) -
------- ------- -------
Deferred:
Federal (134) 43 (1,025)
State (24) 5 (121)
------- ------- -------
(158) 48 (1,146)
------- ------- -------
$ (487) $ (192) $(1,146)
======= ======= =======
No current tax benefit was recorded in fiscal 2000 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. The current tax benefit
recorded in 2002 is based on the estimated refund of taxes paid in the
prior year by carrying back the fiscal 2002 operating loss. 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. The deferred tax benefit recorded in 2002 is based on
the amount of deferred tax assets which are expected to be realized from
the carryback of future tax expenses from the reversal of certain
deductible temporary differences.
Total income taxes differ from the amount computed by applying the
Federal statutory rate (34%) to the loss from continuing operations as
follows:
------------------------------------------
2002 2001 2000
------------------------------------------
(In thousands)
Income taxes at federal statutory rate $ (546) $ (132) $ (594)
State tax effect (24) (16) (70)
Change in valuation allowance 81 (51) (539)
Other 2 7 57
------- ------- -------
$ (487) $ (192) $(1,146)
======= ======= =======
20
The components of deferred tax assets (computed using an expected
effective tax rate) are as follows:
March 31
---------------------
2002 2001
---------------------
(In thousands)
Net operating loss carryforward $ 244 $ 244
Inventory write downs 255 152
Depreciation 52 55
Vacation pay 57 60
Bad debt allowance 46 61
Deferred compensation 154 -
Other 41 38
------ ------
Net deferred tax asset 849 610
Less valuation allowance 691 610
------ ------
$ 158 $ -
====== ======
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 SFAS No. 109, management has determined that it
is more likely than not that a portion of the deferred tax assets
remaining at March 31, 2002 will not be realized. Therefore, only
certain realizable tax benefits were established in the statements of
operations for the year ended March 31, 2002, since the Company has
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 due to its operating loss.
(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 $368,000 in 2002, $381,000 in 2001 and
$370,000 in 2000.
On June 18, 2002 the Company entered into a 10 year operating lease
agreement for the construction and occupancy of a new corporate
operations center and headquarters in Buffalo, New York. Anticipated
commencement date for rental payments is late fall 2002. The expected
rental payments on the new facility effective December 1, 2002 are
included in the following future minimum rental payments.
21
Future minimum rental payments for continuing operations required under
leases that have initial or remaining noncancellable lease terms in
excess of one year are: $363,000 in 2003, $449,000 in 2004, $390,000 in
2005, $378,000 in 2006, $339,000 in 2007, and $2,079,000 for 2008
through 2013.
(9) SEGMENT INFORMATION AND MAJOR CUSTOMERS
Since the sale of the software business in fiscal 2001 the Company
operates in a single business segment.
Sales to the Company's largest three customers accounted for 36% of
total revenues from continuing operations for 2002. In 2001 one customer
accounted for 11% of revenues from continuing operations, while in 2000
two customers accounted for 21% 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, 2002. The Company performs
hardware maintenance services for end users under various subcontracts
from these customers. These subcontracts can be canceled with 30 days
notice.
(10) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
--------------------------------------
2002 2001 2000
--------------------------------------
(In thousands)
Interest paid $ 47 $ 108 $ 132
Income taxes paid 34 425 -
Non-cash investing and financing activities:
Current liabilities paid in common stock - - 188
Acquisition of treasury shares in exchange for note 61 - -
receivable
(11) CONTINGENCIES
The Company is a party to various legal proceedings incidental to its
business. Management believes that none of these legal proceedings will
have a material adverse effect on the Company's financial position,
results of operations or liquidity.
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial data for the fiscal
years ended March 31, 2002 and March 31, 2001. Amounts for 2001 have
been restated to exclude discontinued operations, which are more fully
discussed in Note 2 to the financial statements.
22
------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------------------------------------------------------------------------
(In thousands)
2002
Revenues $ 3,043 $ 3,084 $ 3,296 $ 3,422 $ 12,845
Operating loss (118) (148) (100) (1,418)(1) (1,784)
Net loss from continuing operations (43) (65) (33) (977) (1,118)
Net loss per common share from
continuing operations, basic and diluted (.00) (.01) (.00) (.08) (.09)
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)
(1) The increase in the fourth quarter operating loss for 2002 resulted from
certain non-recurring expenses incurred in that quarter. In January, 2002, the
Company hired Dr. William O. Bray as its president and chief executive officer
to succeed Mr. Henry P. Semmelhack who held those positions since the Company's
incorporation in 1982. Mr. Semmelhack retired as of March 31, 2002. Consistent
with Mr. Semmelhack's employment contract and his retirement, the Compensation
Committee of the Board of Directors approved a deferred compensation arrangement
for past services rendered. In addition, Mr. David L. Blankenship, former Senior
Vice President of Operations, left the Company at the end of February. The
Company agreed to buy out the remaining term of Mr. Blankenship's employment
contract, cancel a loan and accrued interest outstanding to Mr. Blankenship in
return for the stock held as collateral for the loan, plus pay for certain
additional expenses. The impact of these non-recurring expenses in the fourth
quarter, including additional salary costs during the transition period to the
new CEO, relocation expenses for Dr. Bray, the value of the deferred
compensation arrangement with Mr. Semmelhack, and the settlement with Mr.
Blankenship were approximately $753,000. In addition a provision of $532,000 for
service parts inventory deemed to be excess to the Company's needs was recorded
in the fourth quarter of 2002. This provision resulted from a change in the mix
of equipment being serviced under contract, an analysis of the usage of the
service parts inventory and assessment of the current value of the inventory.
These additional non-recurring costs in the fourth quarter amounted to
$1,285,000 or 10% of fiscal 2002 revenues.
23
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 fiscal
year 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 year ended March 31,
2000 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,
2002, 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 9, 2002 which
will be filed with the Securities and Exchange Commission within 120 days after
March 31, 2002.
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 auditors' 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
24
(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 year)
* 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.
25
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 24, 2002 By: /s/ William O. Bray
--------------------
William O. Bray, 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 Chairman of the Board of Directors June 24, 2002
- -----------------------
Henry P. Semmelhack
/s/ William O. Bray President, and Chief Executive Officer June 24, 2002
- -------------------
William O. Bray
/s/ Richard P. Beyer Senior Vice President and Chief Financial Officer June 24, 2002
- --------------------
Richard P. Beyer
/s/ Joseph A. Alutto Director June 24, 2002
- ---------------------
Joseph A. Alutto
/s/ Franklyn S. Barry, Jr. Director June 24, 2002
- --------------------------
Franklyn S. Barry, Jr.
/s/ Warren E. Emblidge, Jr. Director June 24, 2002
- ---------------------------
Warren E. Emblidge, Jr.
/s/ Richard E. McPherson Director June 24, 2002
- ------------------------
Richard E. McPherson
/s/ James D. Morgan Director June 24, 2002
- -------------------
James D. Morgan
26
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, 2000 $ 145 $ 105 $ - $ 250
-------- -------- -------- --------
Year ended March 31, 2001 $ 250 $ 25 $ 115 $ 160
-------- -------- -------- --------
Year ended March 31, 2002 $ 160 $ - $ 35 $ 125
-------- -------- -------- --------
Allowance for inventory obsolescence: (1)
Year ended March 31, 2000 $ 350 $ 900 $ 800 $ 450
-------- -------- -------- --------
Year ended March 31, 2001 $ 450 $ 611 $ 661 $ 400
-------- -------- -------- --------
Year ended March 31, 2002 $ 400 $ 1,132 $ 862 $ 670
-------- -------- -------- --------
(1) The allowance is included in inventory in the balance sheets
27