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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2002
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Commission File Number 0-14063
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BARRISTER GLOBAL SERVICES NETWORK, INC.
(Exact name of Registrant as specified in its charter)
Delaware 16-1176561
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
290 Ellicott Street, Buffalo, New York 14203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 845-5010
--------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
Class Outstanding at July 31, 2002
- ---------------------------------- -----------------------------------
Common $.24 Par Value 11,901,326 Shares
BARRISTER GLOBAL SERVICES NETWORK, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
Item 1. Financial Statements
Balance Sheets at June 30, 2002
and March 31, 2002............................................. 3
Statements of Operations -
Three Months Ended June 30, 2002
and June 30, 2001.............................................. 4
Statement of Stockholders' Equity -
Three Months Ended June 30, 2002............................... 5
Statements of Cash Flows -
Three Months Ended June 30, 2002
and June 30, 2001.............................................. 6
Notes to Financial Statements.................................. 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................... 11
2
PART I. FINANCIAL INFORMATION
BARRISTER GLOBAL SERVICES NETWORK, INC.
BALANCE SHEETS
(In thousands)
June 30 March 31
------- --------
ASSETS 2002 2002*
----- ----
(unaudited)
CURRENT ASSETS:
Cash and equivalents $ 1,225 $ 1,222
Short-term investments 741 1,040
Accounts receivable 1,256 1,289
Service parts inventory 834 933
Prepaid expenses 62 23
Income taxes 572 487
-------- --------
Total current assets 4,690 4,994
-------- --------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST 1,859 1,835
Less accumulated depreciation 1,485 1,448
-------- --------
Net equipment and leasehold improvements 374 387
-------- --------
MARKETABLE SECURITIES 1,284 1,730
OTHER ASSETS 56 25
-------- --------
$ 6,404 $ 7,136
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt $ 207 $ 307
($163 and $266 to a related party, respectively)
Accounts payable 589 761
Accrued compensation and benefits 500 677
Customer advances and unearned revenue 643 661
Other accrued expenses 53 152
-------- --------
Total current liabilities 1,992 2,558
-------- --------
DEFERRED COMPENSATION 243 267
LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS 15 27
STOCKHOLDERS' EQUITY :
Preferred stock - -
Common stock, $.24 par value 2,867 2,867
Additional paid-in capital 23,025 23,028
Accumulated deficit (21,711) (21,550)
Treasury stock at cost (27) (61)
-------- --------
Total stockholders' equity 4,154 4,284
-------- --------
$ 6,404 $ 7,136
======== ========
See accompanying notes to financial statements.
* March 31, 2002 balances were derived from audited financial statements.
3
BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except share data)
Three months ended
--------------------------
June 30 June 30
2002 2001
--------- --------
REVENUES $ 3,113 $ 3,043
COSTS AND EXPENSES:
Cost of services 2,453 2,272
Selling, general and administrative expenses 933 889
-------- --------
OPERATING LOSS (273) (118)
-------- --------
INTEREST EXPENSE (INCOME):
Related party 4 12
Other (31) (62)
-------- --------
Total interest (27) (50)
-------- --------
NET LOSS BEFORE INCOME TAXES (246) (68)
Income tax benefit (85) (25)
NET LOSS $ (161) $ (43)
======== ========
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE: $ (.01) $ .00
======== ========
Weighted average number of common shares outstanding:
Basic and diluted 11,866 11,945
======== ========
See accompanying notes to financial statements.
4
BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
(In thousands, except share data)
Additional
Common paid-in Accumulated Treasury
stock capital deficit stock Total
-------- -------- -------- -------- --------
Balance at March 31, 2002 $ 2,867 $ 23,028 $(21,550) $ (61) $ 4,284
Sale of 56,363 treasury shares - (3) - 34 31
Net loss - - (161) - (161)
-------- -------- -------- -------- --------
Balance at June 30, 2002 $ 2,867 $ 23,025 $(21,711) $ (27) $ 4,154
======== ======== ======== ======== ========
Common stock - 11,901,326 and 11,844,963 shares outstanding at June 30, 2002 and
March 31, 2002 respectively.
See accompanying notes to financial statements.
5
BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
Three months ended
------------------------
June 30 June 30
2002 2001
------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (161) $ (43)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 37 41
Changes in current assets and liabilities:
Accounts receivable 33 471
Service parts inventories 99 74
Income taxes (85) (25)
Prepaid expenses (39) (17)
Accounts payable (172) (147)
Accrued compensation and benefits (201) (123)
Customer advances and unearned revenues (18) (195)
Other accrued expenses (99) (88)
------- -------
Net cash used by operating activities (606) (52)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and leasehold
Improvements (24) (36)
Maturity of investments 1,691 2,784
Purchases of investments and marketable securities (946) (1,263)
Other assets (31) (3)
------- -------
Net cash provided by investing activities 690 1,482
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (112) (103)
Proceeds from sale of treasury stock 31 -
------- -------
Net cash used by financing activities (81) (103)
------- -------
NET INCREASE IN CASH AND EQUIVALENTS 3 1,327
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 1,222 1,104
------- -------
CASH AND EQUIVALENTS AT END OF PERIOD $ 1,225 $ 2,431
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 5 $ 16
======= =======
See accompanying notes to financial statements.
6
BARRISTER GLOBAL SERVICES NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
1. Barrister Global Services Network, Inc. provides equipment maintenance
for multi-vendor equipment including personal computers and related equipment
generally attached to LAN's. 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.
In the opinion of Management, the accompanying financial statements
present fairly the financial position, results of operations and cash flows for
the periods shown. The first quarter results for each year represent operations
for the quarters ended June 30, 2002 and June 30, 2001. The financial data
included herein was compiled in accordance with the same accounting policies
applied to the Company's audited annual financial statements. Any adjustments
made were of a normal recurring nature.
The results of operations for the three month period ended June 30,
2002 are not necessarily indicative of the results to be expected for the full
year.
2. Cash and equivalents consist of cash and liquid debt instruments with
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 contain both held-to-maturity securities of $526,000,
based on the Company's ability and intent to hold the securities until maturity
and available-for-sale securities of $215,000, held primarily for sale. The
held-to-maturity securities are recorded at amortized cost adjusted for the
accretion of discounts or cost plus accrued interest. Available-for-sale
securities are carried at fair value, based on quoted market prices. The net
unrealized gains or losses, if any, on these securities are reported as a
separate component of stockholders' equity, net of tax. Short-term investments
generally consist of certificates of deposits and corporate debt instruments.
Marketable securities are classified as held-to-maturity securities and consist
of mortgage-backed securities which are expected to mature in less than two
years.
3. On July 15, 2002, the Company acquired all of the outstanding stock of
Advantage Innovation, Inc. ("Advantage") for $1,200,000 in cash and future
consideration of two contingent payments. The contingent payments are due on the
first and second anniversaries of the closing, in an amount based upon the
amount of earnings before interest, taxes, depreciation and amortization
achieved by Advantage in each of the two years. Advantage was a privately held
technical and computer services firm located in New Orleans, Louisiana and
performing services nationwide generally in the consumer market. The acquisition
will be accounted for by the purchase method of accounting. Since the closing
date occurred after the quarter end, the results of Advantage's operations are
not included in the reported financial statements.
4. The income tax benefit recorded in each of the comparable quarters on
the net loss from operations approximated the statutory tax rate. No additional
tax benefits were established in the statement of operations for the quarter
ended June 30, 2002, since the Company has reserved for the tax effect of net
deductible temporary differences and loss carryforwards.
7
These benefits will be recorded in future periods as they are realized or as
their realization becomes predictable.
5. The Company adopted Statement of Financial Accounting Standards
("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 did not have an impact on the
financial statements.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
For the quarter ended June 30, 2002, revenues increased approximately
2.3% from the same quarter in 2001. This increase resulted from growth in
services provided on a time and materials basis which increased by 7.8% for the
comparative first quarters, from $745,000 to $803,000. The principal reason for
this increase were services provided on a large contract which started in
September of 2001. Revenues from hardware maintenance contracts remained at $2.3
million for the comparative first quarters.
The cost of services increased as a percentage of revenues from 74.7%
in the first quarter of the prior year to 78.8% in the first quarter of the
current year. The principal reason for this increase was higher call volumes
provided on a large contract which started in September of 2001. This resulted
in higher expenses being incurred for outsourced services and parts-related
costs to service this contract.
Selling, general and administrative expenses were 30.0% of revenues for
the first quarter of this year compared to 29.2% for the comparative quarter
last year. The principal reason for this increase was the investment in
marketing functions, which was based on planned expenditures in this area.
Selling, general and administrative expenses increased by 4.9% for the
comparative first quarters.
The decrease in net interest income for the comparative first quarters
resulted from lower interest rates and a reduction in amounts invested.
The income tax benefit recorded in each of the comparable quarters on
the net loss from operations approximated the statutory tax rate. No additional
tax benefits were established in the statements of operations for the quarter
ended June 30, 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.
FINANCIAL CONDITION
- -------------------
Cash and equivalents, short-term investments and marketable securities
totaled $3,250,000 at June 30, 2002 and $3,992,000 at March 31, 2002. The net
decrease of $742,000 was primarily a result of net cash used by operating
activities of $606,000, debt repayments of $112,000 and additions to equipment
and leasehold improvements of $24,000.
On July 15, 2002, the Company acquired the stock of Advantage
Innovation, Inc. for an initial cash payment of $1,200,000. Additional payments
are due on the first and second anniversaries of the closing, contingent upon
the amount of earnings before interest, taxes, depreciation and amortization
achieved by Advantage in each of the two years. Advantage has developed an
outsourcing model to deliver services on a more cost effective basis. The
Company expects to use Advantage to deliver certain of its services, thereby
reducing its costs and allowing it to be more competitive in capturing new
business and retaining existing contracts that are driven by price.
9
On June 18, 2002, the Company signed an operating lease agreement to
move its headquarters offices and operations center into a new facility. This
move is expected to occur toward the end of the third quarter. The Company
expects to obtain financing for any significant capital expenditures in relation
to the new facility.
In addition to the initial cash payment made to Advantage, the
principal cash requirements expected for fiscal 2003 are debt repayments of
$307,000 and additions to equipment and leasehold improvements. The Company's
cash and investments will be sufficient to cover working capital, capital
expenditure requirements and debt repayments in fiscal 2003.
FORWARD-LOOKING STATEMENT
- -------------------------
When used in this report, the words "expects", "believes" and "intends"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof. The company undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrences of unanticipated events. Readers are also
urged to carefully review and consider the various disclosures made by the
Company which attempt to advise interested parties of the factors which affect
the Company's business in the Company's periodic reports on Form 10K and 10Q
filed with the Securities and Exchange Commission.
10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 99 Certification of President and Chief
Executive Officer and Senior Vice President, Finance
(Principal Financial Officer) to 18 U. S. C. section
1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley act of 2002
(b) Reports on Form 8-K:
Reports were filed on July 22, 2002 and August 13, 2002 regarding the
acquisition of the stock of Advantage Innovation, Inc.
11
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARRISTER GLOBAL SERVICES NETWORK, INC.
Date: August 14, 2002 By: /s/ William O. Bray
------------------------------ ---------------------------------------------------
William O. Bray
President
and
Chief Executive Officer
Date: August 14, 2002 By: /s/ Richard P. Beyer
------------------------------ ---------------------------------------------------
Richard P. Beyer
Vice President, Finance
(Principal Financial Officer)
12