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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, 2003
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.)
186 EXCHANGE STREET, BUFFALO, NEW YORK 14204
(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. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [ ] No [X].
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, 2003
was approximately $3.0 million.
The number of shares outstanding of the Registrant's common stock, $.24
par value, was 11,901,326 at June 1, 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 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 186 Exchange Street, Buffalo, New
York 14204, telephone 716-845-5010. The Company's web address is
www.barrister.com.
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 sale of the Company's Software Business is
reported as a discontinued operation. Since selling its Software Business,
Company operations have focused on Equipment Maintenance Services.
In July, 2002, the Company acquired Advantage Innovation, Inc.
("Advantage") of New Orleans, a technical services company performing services
nationwide in both commercial and consumer markets.
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.
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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 15,000 technicians, the Company provides comprehensive services for such
equipment. Services range from full service contracts for hardware maintenance
to managed help desk to per incident hardware repair and technology deployment
projects. We serve customers in commercial and consumer markets through direct
and indirect channels, and partner with major manufacturers, service companies,
resellers, distributors, warranty service providers and insurance companies to
deliver services to their customers. 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 Web Services
Manager ("WSM") 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, WSM 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 WSM, by which it manages equipment
maintenance services using the Internet, by its skills in managing a large
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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.
MAJOR BUSINESS RELATIONSHIPS
During fiscal 2003, the Company did substantial business with four
strategic partners: IBM Corporation ("IBM"), National Electronics Warranty,
Siemens Business Services, Inc. and Retrofit Technologies Inc. Total revenues
generated from these customers amounted to approximately 30% of revenues in
fiscal 2003. In fiscal 2002 an agreement was reached with CDW Computer Centers,
Inc. to supply their customers with Barrister's extended warranty contracts. A
similar 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. 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, 2003, the Company had 97 full-time employees and 7 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.
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 186 Exchange
Street. The Company also leases offices in Atlanta, Georgia, Greenbelt,
Maryland, and New Orleans, Louisiana, which are used for sales and servicing
activities.
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 2003.
4
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, 2003 and March
31, 2002, are as follows:
2003 2002
------------ ------------
High Low High Low
---- ---- ---- ----
First Quarter 0.61 0.45 0.70 0.37
Second Quarter 0.52 0.35 0.74 0.40
Third Quarter 0.55 0.35 0.52 0.40
Fourth Quarter 0.46 0.28 0.79 0.42
The Company's common stock was held by approximately 394 shareholders of record
as of June 1, 2003.
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. 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
---------------------------------------------------
2003 2002 2001 2000 1999
---------------------------------------------------
(In thousands, except per share amounts)
Statement of Operations Data: (1)
Revenues $13,335 $12,845 $11,085 $8,476 $ 8,590
Loss from continuing operations (423) (1,118) (197) (600) (1,161)
Net loss per common share from
continuing operations:
Basic and diluted (.04) (.09) (.02) (.06) (.14)
Balance Sheet Data at Year End: (1)
Working capital 1,510 2,436 5,299 1,546 2,296
Total assets 8,067 7,136 8,215 7,556 7,961
Long-term debt 835 27 355 791 1,134
Stockholders' equity 3,824 4,284 5,463 3,552 3,812
(1) Years ended March 31, 2000 and 1999 have been restated to reflect
discontinued operations consistent with current presentation. The discontinued
operation is more fully discussed in Note 3 to the financial statements.
5
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 Web
Services Manager, 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 3.8% for fiscal year 2003 as compared to 2002, as a
result of increases in services provided on a time and materials basis which
offset reductions in revenues from hardware maintenance contracts. Time and
materials revenues increased by 62.7% to a total of $5.2 million for fiscal 2003
when compared to 2002. The principal reason for this increase was revenues
generated from the business acquired on July 15, 2002 from Advantage Innovation,
Inc. ("Advantage"). Revenues from hardware maintenance contracts decreased to
$8.0 million, a decrease of 15.8% from the prior year. This reduction primarily
resulted from the non-renewal of a large contract by a customer of one of our
long-term business partners at the end of the second quarter and the movement of
other contracts to time and materials service.
The 15.9% increase in revenues for fiscal 2002 as compared to 2001
resulted from a 13.6% increase in contract revenues and a 21.7% increase in
revenues from time and materials services. The increase in contract revenues
principally resulted from the capture of a large contract in September, 2001,
which was not renewed as noted above. The increase in time and materials
revenues resulted from business generated from a new customer obtained through a
reseller and from services provided on the large contract that started in
September.
Cost of services was 76.5% of revenues in fiscal 2003. In the prior
fiscal year, cost of services was 78.7% of revenues which included the recording
in the fourth quarter of an additional provision of $532,000 for service parts
inventory deemed to be excess to the Company's needs. Excluding this provision,
cost of services was 74.6% of revenues in the prior year. When compared to this
number, the increase in the cost of services as a percentage of revenues for the
current year resulted from higher costs for parts and shipping used to service
calls and from costs associated with the move of the Company's Buffalo facility
in the fourth quarter. The cost of services increased as a percentage of
revenues from 76.1% in fiscal 2001 to 78.7% in fiscal 2002. This increase
occurred as a result of recording the additional provision for service parts
inventory deemed excessive as noted above. 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 changes were $480,000, $1,132,000 and $611,000 for 2003, 2002 and 2001,
respectively.
Selling, general and administrative expenses were 30.5% of revenues in
fiscal 2003. In the prior fiscal year, selling, general and administrative
expenses were 35.2% of revenues which included the recording in the fourth
quarter of certain non-recurring expenses of $753,000. These expenses consisted
of
6
additional salary costs during the transition period to our new CEO, relocation
expenses for our new CEO, the present value of a deferred compensation
arrangement with our former CEO, and a settlement agreement reached with a
former Vice President regarding his employment contract. Excluding these
non-recurring expenses, selling, general and administrative expenses were 29.3%
of revenues in the prior year. When compared to this number, the increase in
selling, general and administrative expenses as a percentage of revenues for the
current year primarily resulted from increased investment in selling and
marketing resources, costs associated with the move of the Company's Buffalo
facility in the fourth quarter, and higher general and administrative expenses
associated with the acquisition of Advantage, including amortization expenses of
the intangible assets acquired in the transaction. Selling, general and
administrative expenses were 35.2% of revenues for fiscal 2002 compared to 29.2%
of revenues in 2001. As noted above, this increase resulted from certain
non-recurring expenses incurred in the fourth quarter of fiscal 2002.
The decrease in interest income in fiscal 2003 as compared to 2002
resulted from lower interest rates, which impacted earnings from the Company's
investments and from a reduction in the amount invested, primarily from the
initial payment of $1,200,000 to acquire the stock of Advantage. Total other
income for fiscal 2003 resulted from the receipt of 14,159 shares of Principal
common stock in the first quarter in connection with the demutualization of
Principal. The decrease in 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 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 benefits recorded in 2002 and
2003 are based on the estimated refunds of taxes paid in 2001 by carrying back
the fiscal 2003 and 2002 operating losses. 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. The deferred tax expense recorded in 2003 is based on the
Company's ability to realize current tax benefits from the deferred tax assets
recognized in the prior 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 a portion of the deferred tax assets at March 31, 2003 will not be
realized. As a result, the Company has reserved for the tax effect of net
deductible temporary differences and the net operating loss carryforward. 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents, short-term investments and marketable securities
totaled $2,785,000 at March 31, 2003 and $3,992,000 at March 31, 2002. The net
decrease of $1,207,000 was primarily a result of cash used for the initial
payment to acquire the stock of Advantage, which net of cash received amounted
to $713,000, net cash used by operating activities of $283,000, debt repayments
of $348,000 and additions to equipment and leasehold improvements of $511,000.
The decrease was partially offset by the receipt of common shares of Principal
Financial Group, Inc. valued at $428,000 and lease financing of $281,000. The
net cash used by operating activities was principally a result of reductions in
accrued compensation and benefits. Certain of these reductions were based on the
use of a portion of the cash acquired from
7
Advantage to pay a portion of the accrued compensation recorded on their books
at the date of the acquisition.
The Company experienced a net decrease in cash, short-term investments
and marketable securities of $365,000 during 2002. The net decrease 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 principal cash requirements expected for fiscal 2004 are a payment
of $1,250,000 due in July, 2003 associated with the acquisition of Advantage,
payments on leases of $150,000 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
2004.
AMEX LISTING
In June of 2002, the Company announced that it was informed by the American
Stock Exchange (AMEX) that it had fallen below certain of the AMEX's continued
listing standards. The Company submitted a plan to AMEX that would return the
Company to profitability by March 31, 2003, which it has failed to meet. If the
Company is delisted, trading of our common stock may be conducted in the
over-the-counter market on the "pink sheets" or, if available, the NASD's
"Electronic Bulletin Board". In either of these cases, investors could find it
more difficult to buy or sell, or to obtain accurate quotations as to the value
of our common stock. Also the trading price per share of our common stock likely
would be reduced as a result. Discussions have been entered into with AMEX
regarding the continuation of its listing, however, the outcome is undetermined
at this time.
CRITICAL ACCOUNTING POLICIES
The Company prepares its financial statements in conformity with
generally accepted accounting principles, which requires management to make
certain estimates and apply judgment. Estimates are based on historical
experience and on various other assumptions or conditions that are believed to
be reasonable under the circumstances. Actual results could differ from
estimates under different assumptions or conditions.
Critical accounting policies are defined as those that are reflective
of significant judgments and uncertainties and may result in materially
different results under different assumptions or conditions. The Company
believes that the following critical accounting policies involve significant
judgments and estimates used in the preparation of its financial statements.
ALLOWANCE FOR DOUBTFUL ACCOUNTS - The Company makes estimates of the
collectibility of its accounts receivable. Estimates are based on the aging of
accounts receivable balances and historical write-off experience. Any change in
the assumptions used in analyzing the collectibility of accounts may result in
additional allowance for doubtful accounts being recognized in the period in
which the change occurs.
8
ALLOWANCE FOR INVENTORY OBSOLESCENCE - The Company's policy for valuation of
service parts inventory includes the estimate of a reserve for obsolete or
excess inventory. This requires an estimate of future demand for service parts
based on prior usage to support our contracts and anticipated future demand. If
the demand is less than anticipated, additional inventory reserves would be
recorded, which would have a negative impact on operating margins.
VALUATION OF GOODWILL AND INTANGIBLES - The Company's recent business
acquisition resulted in goodwill and other intangible assets, which affect the
amount of future period amortization expense and possible impairment expense
that could be incurred. The Company reviews goodwill and intangible assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable, and also reviews
goodwill annually in accordance with Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets." If an event occurs
which would cause the Company to revise its estimates and assumptions used in
analyzing the value of goodwill or other intangibles, such revision could result
in an impairment change that could have a material impact on its financial
results.
NEW ACCOUNTING STANDARDS
The Company adopted 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 adoption of
SFAS No. 141 and No. 144 did not have any effect on the financial statements.
Goodwill and other intangible assets subject to SFAS No. 142 were approximately
$2,360,000 as of March 31, 2003 attributed to the purchase of Advantage on July
15, 2002. No goodwill existed prior to the acquisition of Advantage.
In December 2002, SFAS No. 148, "Accounting for Stock-Based
Compensation - Transaction and Disclosure," was issued. SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition SFAS No. 148
requires expanded and more prominent disclosure in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method on reported results. SFAS No. 148 had
no impact on the financial statements, since the Company applies the recognition
and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued
to Employees" and related interpretations. (See note 7)
Other recently issued statements by the Financial Accounting Standards
Board ("FASB") that are applicable to the Company have little or no immediate
effect and will have an effect in the future only in the event the Company
enters into transactions governed by those statements. Those statements included
SFAS No. 143, "Accounting for Asset Retirement Obligations"; SFAS No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13 (leases), and Technical Corrections"; and SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities".
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 short term investments. Due to the short duration of the
Company's investment portfolio, a 10% change in interest rates is not expected
to have a material effect on the Company's near term financial condition.
9
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, 2003 and 2002................................................. 12
Statements of Operations for the years ended March 31, 2003, 2002 and 2001................... 13
Statements of Stockholders' Equity and Comprehensive Income for the years
ended March 31, 2003, 2002 and 2001...................................................... 14
Statements of Cash Flows for the years ended March 31, 2003, 2002, and 2001.................. 15
Notes to Financial Statements................................................................ 16
Financial Statement Schedule II - Valuation and Qualifying Accounts.......................... 37
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, 2003 and 2002, and the related
statements of operations, stockholders' equity and comprehensive income, and
cash flows for each of the three years in the period ended March 31, 2003. Our
audits also included the financial statement schedule listed in the Index at
Item 15. 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.
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, 2003 and 2002, and the results of its operations and its cash flows
for each of the three years in the period ended March 31, 2003 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
June 3, 2003
11
BARRISTER GLOBAL SERVICES NETWORK, INC.
BALANCE SHEETS
(In thousands, except share data)
March 31
-----------------------
2003 2002
-----------------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 1,630 $ 1,222
Short term investments 1,155 1,040
Accounts receivable, less allowance for doubtful accounts of
$120 at 2003 and $125 at 2002 1,272 1,289
Service parts inventory 575 933
Prepaid expenses 29 23
Income taxes 82 487
-------- --------
Total current assets 4,743 4,994
-------- --------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST:
Computer and other equipment 1,216 1,042
Furniture and fixtures 360 546
Leasehold improvements 63 247
-------- --------
1,639 1,835
Less accumulated depreciation 799 1,448
-------- --------
Net equipment and leasehold improvements 840 387
-------- --------
MARKETABLE SECURITIES - 1,730
GOODWILL 2,192 -
INTANGIBLE ASSETS 168 -
DEFERRED TAX ASSETS 77 -
OTHER ASSETS 47 25
-------- --------
$ 8,067 $ 7,136
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt
($265 at 2002 to a related party) $ 870 $ 307
Accounts payable 551 761
Accrued compensation and benefits 527 677
Customer advances and unearned revenue 1,230 661
Other accrued expenses 55 152
-------- --------
Total current liabilities 3,233 2,558
-------- --------
DEFERRED COMPENSATION 175 267
LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS 835 27
COMMITMENTS AND CONTINGENCIES - -
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 23,025 23,028
Accumulated deficit (21,973) (21,550)
Treasury stock at cost, 43,637 shares (27) (61)
Note receivable for treasury shares issued (24) -
Accumulated other comprehensive loss (44) -
-------- --------
Total stockholders' equity 3,824 4,284
-------- --------
$ 8,067 $ 7,136
======== ========
See accompanying notes to financial statements.
12
BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended March 31
------------------------------------
2003 2002 2001
------------------------------------
REVENUES $13,335 $ 12,845 $ 11,085
COSTS AND EXPENSES:
Cost of services 10,196 10,108 8,431
Selling, general and administrative expenses 4,063 4,521 3,236
------- -------- --------
OPERATING LOSS (924) (1,784) (582)
------- -------- --------
OTHER EXPENSE (INCOME):
Interest to related party 5 33 80
Other interest income (78) (212) (273)
Common stock received from demutualization (428) - -
------- -------- --------
Total other income (501) (179) (193)
------- -------- --------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (423) (1,605) (389)
Income tax benefit - (487) (192)
------- -------- --------
LOSS FROM CONTINUING OPERATIONS (423) (1,118) (197)
DISCONTINUED OPERATIONS:
Gain from sale of discontinued operations
net of income taxes of $1,872 - - 2,064
------- -------- --------
NET (LOSS) EARNINGS $ (423) $ (1,118) $ 1,867
======= ======== ========
BASIC AND DILUTED (LOSS) EARNINGS PER COMMON SHARE:
Continuing operations $ (.04) $ (.09) $ (.02)
Discontinued operations .00 .00 .18
======= ======== ========
Total $ (.04) $ (.09) $ .16
======= ======== ========
Weighted average number of common shares outstanding:
Basic and diluted 11,892 11,937 11,922
======= ======== ========
See accompanying notes to financial statements.
13
BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(In thousands, except share data)
Year Ended March 31
------------------------------------
2003 2002 2001
------------------------------------
COMMON STOCK:
Beginning balance $ 2,867 $ 2,867 $ 2,846
Issuance of 88,407 shares - - 21
-------- -------- --------
Ending balance 2,867 2,867 2,867
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL:
Beginning balance 23,028 23,028 23,005
Issuance of common shares - - 23
Sale of 56,363 treasury shares (3) - -
-------- -------- --------
Ending balance 23,025 23,028 23,028
-------- -------- --------
ACCUMULATED DEFICIT:
Beginning balance (21,550) (20,432) (22,299)
Net (loss) earnings (423) (1,118) 1,867
-------- -------- --------
Ending balance (21,973) (21,550) (20,432)
-------- -------- --------
TREASURY STOCK:
Beginning balance (61) - -
Acquisition of 100,000 shares - (61) -
Sale of 56,363 treasury shares 34 - -
-------- -------- --------
Ending balance (27) (61) -
-------- -------- --------
OTHER:
Beginning balance - - -
Note receivable for treasury shares issued (24) - -
-------- -------- --------
Ending balance (24) - -
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Beginning balance - - -
Unrealized loss, net of tax (44) - -
-------- -------- --------
Ending balance (44) - -
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY $ 3,824 $ 4,284 $ 5,463
======== ======== ========
COMPREHENSIVE (LOSS) INCOME:
Net (loss) earnings $ (423) $ (1,118) $ 1,867
Unrealized loss, net of tax (44) - -
-------- -------- --------
Comprehensive (loss) income $ (467) $ (1,118) $ 1,867
======== ======== ========
See accompanying notes to financial statements.
14
BARRISTER GLOBAL SERVICES NETWORK, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended March 31
--------------------------------
2003 2002 2001
--------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (423) $(1,118) $ 1,867
Adjustments to reconcile net (loss) earnings to net cash
(used) provided by operating activities:
Depreciation 199 167 159
Amortization 51 - -
Deferred income taxes - (158) 1,146
Gain on sale of discontinued operations - - (3,936)
Common stock received from demutualization (428) - -
Write-off of note receivable 7 50 -
Loss on disposal of equipment - 27 -
Changes in current assets and liabilities of continuing
operations:
Accounts receivable 417 616 (971)
Service parts inventory 358 477 324
Prepaid expenses (2) 1 (15)
Income taxes 328 (329) -
Accounts payable (338) 152 (466)
Accrued compensation and benefits (855) 349 (194)
Customer advances and unearned revenue 539 (71) 34
Other accrued expenses (136) 4 93
------- ------- -------
Net cash (used) provided by operating activities (283) 167 (1,959)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and leasehold improvements (511) (87) (294)
Net proceeds from sale of discontinued operations - - 7,097
Acquisition costs, net of cash received (713) - -
Purchase of investments (1,619) (3,985) (6,753)
Sale or maturity of investments 3,619 4,468 3,500
Other (18) - -
------- ------- -------
Net cash provided by investing activities 758 396 3,550
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 281 - 152
Repayment of note payable - - (264)
Repayment of long-term debt (348) (445) (607)
Proceeds from sale of common stock - - 44
------- ------- -------
Net cash used by financing activities (67) (445) (675)
------- ------- -------
Net increase in cash from continuing operations 408 118 916
Net increase in cash from discontinued operations - - 27
------- ------- -------
NET INCREASE IN CASH AND EQUIVALENTS 408 118 943
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 1,222 1,104 161
------- ------- -------
CASH AND EQUIVALENTS AT END OF YEAR $ 1,630 $ 1,222 $ 1,104
======= ======= =======
Supplemental disclosure of cash flow information (See Note 12)
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. provides a variety of IT services for a broad range of
multi-vendor computer related equipment, including personal
computers and equipment generally attached to LANs, point of
sale terminals and related equipment, and on-site,
mission-critical repair, depot repair and warranty repair
services. 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 North America and include the services previously
provided by Advantage Innovation, Inc., a business acquired by
the Company in July 2002 (See Note 2).
The Company formerly also provided software products,
development and support for Windows-based client/server
software for law and related professional service firms. As
further described in Note 3, 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 accounting principles generally
accepted in the United States of America 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 or available-for-sale securities if sale is imminent.
The held-to-maturity securities are recorded at amortized cost
adjusted for the accretion of discounts or cost plus accrued
interest. The available-for sale securities are carried at
current fair value with the net unrealized gains or losses, if
any, reported as a separate component of stockholders' equity,
net of tax.
(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 - In December 2002, Statement of
Financial Accounting Standards ("SFAS") No. 148, "Accounting
for Stock-Based Compensation - Transaction and Disclosure,"
was issued. SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair
16
value based method of accounting for stock-based employee
compensation. In addition SFAS No. 148 requires expanded and
more prominent disclosure in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect of the method on reported
results. As permitted in those standards the Company has
elected to continue to follow recognition provisions of
Accounting Principles Board Opinion No 25, "Accounting for
Stock Issued to Employees," and related interpretations in
accounting for stock based compensation.
No employee stock based compensation expense was recorded for
the years ended March 31, 2003, 2002, and 2001, since options
have been granted with exercise prices equal to the market
value per share. Had the Company determined compensation cost
based on the fair value of options at grant date, the reported
net loss from continuing operations for 2003, 2002, and 2001
would be increased by $115,000, $123,000 and $207,000,
respectively, resulting in a $(0.05), $(0.10), and $(0.03)
loss per share from continuing operations for 2003, 2002, and
2001, respectively.
The weighted average fair value of options granted for 2003,
2002, and 2001 was $0.23, $0.24, and $0.52, respectively. The
per share weighted average fair values of stock options
granted was computed using the Black Scholes option-pricing
model with the following assumptions:
2003 2002 2001
-----------------------------------
Risk-free interest rate 2.57% 4.69% 5.22%
Price volatility 40.5% 41.7% 42.0%
Dividend yield 0% 0% 0%
Expected term in years 7 7 7
(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 5) 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) NEW ACCOUNTING STANDARDS - The Company adopted 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 adoption
of SFAS No. 141 and No. 144 did not have any effect on the
financial statements. Goodwill and other intangible assets
subject to SFAS No. 142 were approximately $2,360,000 as of
March 31, 2003 attributed to the purchase of Advantage on July
15, 2002. No goodwill existed prior to the acquisition of
Advantage.
Other recently issued statements by the Financial Accounting
Standards Board ("FASB") that are applicable to the Company
have little or no immediate effect and will have an effect in
the future only in the event the Company enters into
transactions governed by those statements. Those statements
included SFAS No. 143, "Accounting for Asset Retirement
Obligations"; SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB
17
Statement No. 13 (leases), and Technical Corrections"; and
SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities".
(2) BUSINESS ACQUISITION
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 due on
the first and second anniversaries of the closing. The Stock
Purchase Agreement with Advantage provided for future contingency
payments based on earnings. The Company had accrued $1,250,000 as
of December 31, 2002 for the first contingency payment which would
have been due on July 31, 2003. In January 2003 the parties to the
Stock Purchase Agreement executed an amendment to the agreement
which removed the previous contingent payment provisions and
replaced them with installment payment provisions due July 31,
2003 and July 31, 2004 for $1,250,000 each, unless certain
conditions are not met in which event each of the payments would
be reduced to $719,000. Consequently the Company accrued an
additional $188,000 in the fourth quarter of fiscal 2003 for a
total of $1,438,000. This amount has been disclosed as a non cash
investing activity in the statement of cash flows (See Note 12).
In the event that all of the contingencies related to the
installment payments are met the Company would accrue up to
$2,500,000. Advantage was a privately held technical and computer
services firm located in New Orleans, Louisiana performing repair
services on personal computers and home appliances for insurance
companies who provide warranties on such equipment. The
acquisition has been accounted for as a purchase and, accordingly,
the operating results of Advantage have been included in the
Company's financial statements since the date of acquisition. The
assets acquired and liabilities assumed were recorded at estimated
fair values based on fair values at the date of acquisition.
Liabilities assumed in this acquisition were $810,000. The excess
of the purchase price over fair value of the net assets acquired
was approximately $2,411,000, of which $219,000 was allocated to
identifiable intangible assets and $2,192,000 has been allocated
to goodwill. The Company had an independent valuation performed
for the intangible assets associated with the acquisition. These
assets are included in other assets on the balance sheet. The pro
forma results for the years ended March 31, 2003 and March 31,
2002, had the acquisition occurred at the beginning of the period,
are as follows: Revenues of $14,371,000 and $16,651,000
respectively; Net loss of $359,000 and $998,000 respectively; and
net loss per common share, basic and diluted of $ .03 and $.08
respectively. The pro forma amounts do not purport to be
indicative of the actual results that would have occurred had the
transaction been consummated on April 1, 2001 or of the future
results of operations which will be obtained as a result of the
consummation of the transaction.
(3) 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. 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 was net of a loss of $177,000 incurred from the
measurement date of April 5, 2000 to the closing date.
18
(4) SHORT TERM INVESTMENTS AND MARKETABLE SECURITIES
In June 2002 the Company received 14,159 shares of Principal
Financial Group, Inc. common stock issued to the Company in
connection with the demutualization of Principal. The shares
issued pertained to the Company's defined benefit pension plan
which had been terminated in 1991. The value of these shares was
recorded in total other income and subsequent changes in the fair
market value of the shares is shown in accumulated other
comprehensive loss, as the asset is considered to be an
available-for-sale security.
Other short-term investments consist of certificates of deposits
and/or corporate debt instruments. These 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 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 these short
term investments approximates its fair value.
Marketable securities consisted of mortgage-backed securities
and/or corporate debt instruments and were expected to mature in
less than two years. All these securities were repaid during
fiscal 2003.
(5) NOTE PAYABLE AND LONG-TERM DEBT
A summary of long-term debt follows:
March 31
--------------------
2003 2002
--------------------
(In thousands)
Term note with BIS Partners, L.P. (BIS) $ - $265
Amount due for acquisition (Note 2) 1,438 -
Other 267 69
------ ----
Total long term debt 1,705 334
Less current installments 870 307
------ ----
Long-term debt, excluding current installments $ 835 $ 27
====== ====
The BIS term note was paid in full during fiscal 2003. BIS was
87.5% owned either directly or beneficially by certain officers
and directors of the Company. These same officers and directors
owned approximately 30% of the Company's common stock.
The amount due for acquisition represents two unconditional
installment payments of $719,000 each, payable on July 31, 2003
and July 31, 2004 respectively under the revised Stock Purchase
Agreement with Advantage as explained in note 2 above.
Payments on long-term debt are estimated to be due as follows:
Year Ending March 31 Amount (in thousands)
- -------------------- ---------------------
2004 $ 870
2005 805
2006 9
2007 11
2008 10
-------
$ 1,705
=======
(6) GOODWILL AND OTHER INTANGIBLES
The acquisition of Advantage resulted in goodwill of $2,192,000
and other intangible assets of $168,000 net of amortization, at
March 31, 2003. As discussed in note 2, in the event the
contingencies related to the installment payments under the
revised purchase agreement are met the
19
Company would accrue up to an additional $1,062,000 in goodwill
for this acquisition in the future. The Company reviews goodwill
and intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of these assets
may not be recoverable. Additionally, goodwill is reviewed
annually for impairment in accordance with SFAS No. 142, "Goodwill
and Other Intangible Assets." If an event occurs which would cause
the Company to revise its estimates and assumptions used in
analyzing the value of goodwill or other intangibles, such
revision could result in an impairment charge that could have a
material impact on its financial results.
A summary of the components of intangible assets (in thousands) as
of March 31, 2003 is as follows:
Life Gross Carrying Accumulated Net Carrying
Description (years) Amount Amortization Amount
----------- ------- -------------- ------------ ------------
Customer list 3 $ 65 $ 15 $ 50
Employment agreements 2 47 17 30
Non-compete agreement 4 107 19 88
------- -------- --------
Total $ 219 $ 51 $ 168
======= ======== ========
Amortization expense for the period ended March 31, 2003 was
$51,000. The estimated amortization expense is $72,000, $56,000,
$33,000 and $7,000 for fiscal years 2004, 2005, 2006 and 2007,
respectively.
(7) STOCK OPTIONS AND WARRANTS
The Company has stock incentive plans to which it has allocated
1,424,000 shares of its authorized common stock as of March 31,
2003. 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:
2003 2002 2001
-------------------------------------------------------------------------
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 982 $ 0.75 574 $ 1.10 910 $ 1.05
Granted 113 0.49 595 0.47 115 0.97
Cancelled (275) 1.10 (187) 0.93 (362) 1.07
Exercised - - - - (89) 0.50
---- ---- ----
Outstanding end of year 820 0.60 982 0.75 574 1.10
==== ==== ====
Exercisable at year end 289 .83 402 1.09 354 1.02
==== ==== ====
Reserved for grant, end of year 95 73 163
==== ==== ====
At March 31, 2003, the range of exercise prices and weighted
average remaining contractual life of outstanding options was
$.44 - $1.63 and 6.3 years, respectively.
20
The following warrants are outstanding at March 31, 2003:
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.
(8) 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
2003, $25,000 in 2002 and $27,000 in 2001.
(9) INCOME TAXES
The composition of income tax expense (benefit) for continuing
operations is as follows:
------------------------------------------
2003 2002 2001
------------------------------------------
(In thousands)
Current:
Federal $ (57) $ (329) $ (215)
State (24) - (25)
----------- ----------- -----------
(81) (329) (240)
----------- ----------- -----------
Deferred:
Federal 57 (134) 43
State 24 (24) 5
----------- ----------- -----------
81 (158) 48
----------- ----------- -----------
$ - $ (487) $ (192)
=========== =========== ===========
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 benefits
recorded in 2002 and 2003 are based on the estimated refunds of
taxes paid in 2001 by carrying back the fiscal 2003 and 2002
operating losses. 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. The
deferred tax expense recorded in 2003 is based on the Company's
ability to realize current tax benefits from the deferred tax
assets recognized in the prior year.
Total income taxes differ from the amount computed by applying the
Federal statutory rate (34%) to the loss from continuing
operations as follows:
---------------------------------------
2003 2002 2001
---------------------------------------
(In thousands)
Income taxes at federal statutory rate $ (144) $ (546) $ (132)
State tax effect (16) (24) (16)
Change in valuation allowance 157 81 (51)
Other 3 2 7
---------- ---------- ----------
$ - $ (487) $ (192)
========== ========== ==========
21
The components of deferred tax assets (computed using an expected
effective tax rate) are as follows:
March 31
------------------------------
2003 2002
------------------------------
(In thousands)
Net operating loss carryforward $ 710 $ 244
Tax credit carryforward 77 -
Inventory write downs 95 255
Depreciation - 52
Vacation pay 39 57
Bad debt allowance 46 46
Deferred compensation 100 154
Common stock received from demutualization (163) -
Other 21 41
-------- ---------
Net deferred tax asset 925 849
Less valuation allowance 848 691
-------- ---------
$ 77 $ 158
======== =========
The Company's net operating loss carryforward, totaling
$1,869,000, is composed of the tax loss for the current year, less
the amount carried back for the refund plus pre-ownership change
losses, which can be utilized at the rate of $80,000 per year
through 2009. The tax credit carryforward is based on alternative
minimum taxes incurred.
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 a portion of the deferred tax assets at March
31, 2003 will not be realized. As a result, the Company has
reserved for the tax effect of net deductible temporary
differences and the net operating loss carryforward. 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 3) is higher than the statutory
tax rate since goodwill valued at $986,000 on the books had a zero
basis for tax purposes. The provision includes current taxes of
$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.
(10) 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
$500,000 in 2003, $368,000 in 2002 and $381,000 in 2001.
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.
The Company took possession of the facility on February 1, 2003
with the commencement of rental payments.
Future minimum rental payments for continuing operations required
under leases that have initial or remaining noncancellable lease
terms in excess of one year are: $479,000 in 2004, $436,000 in
2005, $382,000 in 2006, $339,000 in 2007, $344,000 in 2008, and
$1,786,000 for 2009 through 2013.
22
(11) SEGMENT INFORMATION AND MAJOR CUSTOMERS
Since the sale of the software business in fiscal 2001 the Company
operates in a single business segment.
During fiscal 2003 no customer accounted for more that 10% of
revenues. In 2002 sales to the Company's largest three customers
accounted for 36% of total revenues. In 2001 one customer
accounted for 11% of revenues from continuing operations. The
Company performs hardware maintenance services for end users under
various subcontracts from these customers. These subcontracts can
be canceled with 30 days notice.
(12) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
-------------------------------------
2003 2002 2001
-------------------------------------
(In thousands)
Interest paid $ 30 $ 47 $ 108
Income taxes paid - 34 425
Non-cash investing and financing activities:
Acquisition of treasury shares for note receivable - 61 -
Sale of treasury shares for note receivable 31 - -
Amount due for acquisition 1,438 - -
(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.
(14) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial data for the
fiscal years ended March 31, 2003 and March 31, 2002.
---------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
---------------------------------------------------------------
(In thousands)
2003
Revenues $ 3,113 $ 3,893 $ 3,188 $ 3,141 $ 13,335
Gross margin 660 1,063 897 519 3,139
Operating (loss) profit (273) 12 (136) (527) (924)
Net profit (loss) 115(1) 20 (43) (515) (423)
Net profit (loss) per common share,
basic and diluted .01 .00 (.00) (.04) (.04)
2002
Revenues $ 3,043 $ 3,084 $ 3,296 $ 3,422 $ 12,845
Gross margin 771 785 857 324 2,737
Operating loss (118) (148) (100) (1,418)(2) (1,784)
Net loss (43) (65) (33) (977) (1,118)
Net loss per common share, basic
and diluted (.00) (.01) (.00) (.08) (.09)
23
(1) The net profit for the first quarter includes $428,000 of
Principal Financial Group common stock received as other income in
connection with the demutualization of Principal as explained in
note 4.
(2) The increase in the fourth quarter operating loss for 2002
resulted from the recording of certain non-recurring expenses
incurred in that quarter of $753,000. These expenses consisted of
additional salary costs during the transition period to our new
CEO, relocation expenses for our new CEO, the present value of a
deferred compensation arrangement with our former CEO, and a
settlement agreement reached with a former Vice President
regarding his employment contract. 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. These
additional non-recurring costs in the fourth quarter amounted to
$1,285,000 or 10% of fiscal 2002 revenues.
24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Item is not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
---- --- --------
Henry P. Semmelhack 66 Chairman of the Board of Directors
William O. Bray 53 President, Chief Executive Officer and Director
Richard P. Beyer 56 Senior Vice President, Chief Financial Officer and Director
John S. Bowers, III 25 Senior Vice President and Chief Operating Officer
Russell J. Matuszak 35 Secretary and General Counsel
Kathleen M. Ryan 45 Vice President of Marketing
Joseph A. Alutto 62 Director
Franklyn S. Barry, Jr. 63 Director
Warren E. Emblidge, Jr. 60 Director
Richard E. McPherson 70 Director
James D. Morgan 66 Director
Henry P. Semmelhack served as the Company's Chairman of the Board of Directors,
Chief Executive Officer and President since its incorporation in 1982. He
retired from the positions of Chief Executive Officer and President in March
2002. Semmelhack was one of the founders of Comptek Research, Inc. and served as
a Director of Comptek prior to its acquisition by Northrup Grumman Corporation
in 2000. Previously, he served as Comptek's Chairman of the Board, Chief
Executive Officer and President. Semmelhack is also a Director of Merchants
Group, Inc. and a member of the Board of Directors for the Service Industry
Association.
William O. Bray joined the Company in January, 2002 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 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.
John S. Bowers, III joined the Company in July, 2002 as its Vice President. In
January, 2003, he was promoted to the position of Senior Vice President and
Chief Operating Officer. Previously, he was CEO and Co-Founder of Advantage
Innovation, Inc.
Russell J. Matuszak 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.
Kathleen Ryan 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,
25
she held marketing strategy and product management positions at Bell Mobility
Inc., Teleglobe Communications Company (formerly Teleglobe Canada) and AT&T
Canada (formerly Unitel).
Joseph A. Alutto is Executive Dean of the Professional Colleges for Ohio State
University, which includes the Max M. Fisher College of business, of which he is
also Dean and Professor of Management. Previously, Dr. Alutto was Dean of the
School of Management for the State University of New York at Buffalo, a position
which he held for 14 years. Dr. Alutto also serves as a member of the Board of
Directors for United Retail Group, Inc. and Nationwide Financial Services Inc.
Franklyn S. Barry, Jr. was President and Chief Executive Officer of Aethlon
Medical, Inc. and of its predecessor Hemex, Inc., both developers of medical
devices, until his retirement in June 2001. Previously, he was President of
Sheridan Companies, a consumer products manufacturer, and President of Ingram
Software, a wholesale distributor of personal computer products. Earlier, Barry
was President of Fisher Price Toys. He has been a Director of Aethlon Medical
since 1999, and of Merchants Mutual Insurance Company since 1981. He was also a
Director of Merchants Insurance Group, Inc. from 1986 to 1994.
Warren E. Emblidge, Jr. has been President of S.J. McCullagh, Inc. an importer,
roaster and distributor of coffee and related products, from 1986 to present. In
1989, Emblidge founded McCullagh Food Services, LLP, a distributor of coffee and
related products for the Canadian marketplace. In 1995, McCullagh International,
Inc. was formed. McCullagh International, Inc. holds a license from the
government of Vietnam, entitling the Company to grow, mill, roast and export
coffees from Vietnam. Previously, Emblidge served in various executive positions
at Goldome FSB/Buffalo Savings Bank, including Executive Vice President of
Goldome Realty Credit Corporation, President of Goldome Corporation and Group
Vice President of Buffalo Savings Bank.
Richard E. McPherson served as Vice President of the Company since its
incorporation in 1982 until 1995 when he retired. He was one of the founders of
Comptek Research, Inc. and served as Vice President of that company prior to
April 1982.
James D. Morgan retired from Logicon Comptek Federal Systems, Inc. in 2002,
where he served as Vice President. He served as Vice President of Product
Engineering of the Company from 1982 to 1990. He was one of the founders of
Comptek Research Inc. and served as a Director of Comptek prior to its
acquisition by Northrup Grumman Corporation in 2000.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Employee directors receive no additional compensation for service on the Board
of Directors or its committees. In fiscal 2003, Directors who are not employees
received an $8,000 annual retainer, payable semiannually plus a fee of $750 for
each Board and committee meeting attended with a $750 maximum per day.
EXECUTIVE COMPENSATION
The following table shows the compensation during each of the Company's last
three fiscal years awarded to, earned by, or paid to the Company's Chief
Executive Officer and the other most highly compensated officers of the Company
whose compensation exceeded $100,000, based on compensation earned during the
fiscal year ended March 31, 2003.
26
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
------------------- ------------
Other Securities
Name and Annual Underlying All Other
Principal Fiscal Compen- Options/ Compen-
Position Year Salary($) Bonus($) sation ($) SARs (#) sation ($)
--------- ------ --------- -------- ---------- ---------- ----------
William O. Bray(1) 2003 250,016 - - - 231
President and Chief 2002 48,080 - - 550,000 80,000(2)
Executive Officer
Richard P. Beyer 2003 104,826 - - 10,000 839
Senior Vice President 2002 99,236 - - - 994
Chief Financial Officer 2001 79,976 50,000(3) - - 391
John S. Bowers, III(4) 2003 89,397 - - 20,000 537
Senior Vice President
Chief Operating Officer
Kathleen M. Ryan (5) 2003 99,769 21,000 - 10,000 65
Vice President
Marketing
Charles E. Roberts(6) 2003 83,197 - 51,427(7) 8,000 1,077
Vice President of 2002 66,539 - 73,221(7) 1,118
National Sales
(1) Dr. Bray became an executive officer of the Company in January 2002.
(2) The amount disclosed was paid in connection with Dr. Bray's relocation
expenses.
(3) A one-time bonus which was paid upon the sale of the Software Division to
Keystone Solutions, US.
(4) Mr. Bowers became an executive officer of the Company in July 2002 upon the
acquisition of Advantage Innovation, Inc.
(5) Ms. Ryan became an executive officer of the Company in March 2002.
(6) Mr. Roberts became an executive officer of the Company in March 2002. Prior
thereto, Mr. Roberts served as Director of National Sales for the Company.
Mr. Roberts ceased to be an executive officer of the Company and his
employment with the Company terminated on November 12, 2002.
(7) The amount disclosed is compensation earned pursuant to a sales incentive
plan.
The amounts reported in the compensation table above do not include expenditures
made by the Company for insurance benefits. These benefits did not exceed the
lesser of $50,000 or 10% of the compensation reported in the table above.
27
STOCK OPTION GRANTS IN FISCAL 2003
The following table contains information relating to stock options granted to
the named executive officers in fiscal 2003.
Potential Realizable Value
of Assumed Annual Rates
of Stock Price Appreciation
For Option Term
---------------
Number % of Total Options
of Shares Granted to All
Underlying Employees Exercise Price Expiration
Name OptionsGranted in Fiscal Year Per Share Date 5% (1) 10% (1)
---- -------------- -------------- --------- ---------- ------ -------
Richard P. Beyer 10,000 8.8% $0.55 4/1/12 $3,459 $ 8,766
John S. Bowers, III 20,000 17.7% $0.44 7/15/12 $5,534 $14,025
Kathleen M. Ryan 10,000 8.8% $0.55 4/1/12 $3,459 $ 8,766
Charles E. Roberts 8,000 7.1% $0.55 7/1/12 $2,767 $ 7,012
(1) The dollar amounts in these columns were calculated using an assumed annual
compounded growth over the term of the option of 5% and 10%, respectively.
Use of this model should not be viewed in any way as a forecast of the
future performance of the Company's stock, which will be determined by
future events and unknown factors. The closing price of the Common Stock on
the American Stock Exchange on March 31, 2003 was $ .33.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
The following table reflects the number of stock options exercised by the named
executive officers in fiscal 2003, the total gain realized upon exercise, the
number of stock options held at the end of the year, and the realizable gain of
the stock options that are "in-the-money." In-the-money stock options are stock
options with exercise prices that are below the year-end stock price because the
stock value increased since the date of the grant.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options/SARs at FY-End (#) at FY-End ($)(1)
-------------------------- ----------------
Shares
Acquired Value
Name On Exercise Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- --------------- ----------- ------------- ----------- -------------
William O. Bray - - 60,000 440,000 - -
Richard P. Beyer - - 78,000 10,000 - -
John S. Bowers, III - - - 20,000 - -
Kathleen Ryan - - - 10,000 - -
Charles E. Roberts(2) - - - - - -
(1) Based on the closing price of the common stock on the American Stock
Exchange on March 31, 2003, or $.33 per share. The exercise price of the
above options exceeds $.33 in all cases.
(2) Mr. Roberts options expired when his employment with the Company ended in
November, 2002.
EMPLOYMENT CONTRACTS
The Company entered into an employment contract with William O. Bray in December
2001, commencing January 7, 2002. The annual salary payable under said contract
is $250,000. Under the agreement the Company is obligated to make certain
prescribed payments in the event the employee is
28
voluntarily or involuntarily terminated. In consideration for these payments,
the officer agrees to protect the Company's intellectual property, its
proprietary information and not to compete.
The Company entered into an employment contract with John S. Bowers, III
effective July 15, 2002 which was subsequently amended in January 2003. The
annual salary payable under said contract is $147,680. Under the agreement the
Company is obligated to make certain prescribed payments in the event the
employee is involuntarily terminated or the Company breaches the agreement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of June 1, 2003 with
respect to the beneficial ownership of the Company's Common Stock by all persons
or groups (as such terms are used in Section 13(d)(3) of the Securities Exchange
Act of 1934) known by the Company to be beneficial owners of more than 5% of its
outstanding common stock.
- -----------------------------------------------------------------
NAME AND ADDRESS NUMBER OF SHARES PERCENT
OF AND NATURE OF OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS(2)
- -----------------------------------------------------------------
Henry P. Semmelhack 1,812,924(3) 14.96
761 Willardshire Blvd.
Orchard Park, NY 14127
- -----------------------------------------------------------------
James D. Morgan 996,752(4) 8.30
224 Allen Way
Incline Village, NV 89451
- -----------------------------------------------------------------
Richard E. McPherson 966,887(5) 8.05
13058 Kirby Road
Akron, NY 14001
- -----------------------------------------------------------------
Thomas W. Jones 680,731 5.72
520 Fairhills Drive
San Rafael, CA 94901
- -----------------------------------------------------------------
(1) The beneficial ownership information presented is based upon information
furnished by each person or contained in filings with the Securities and
Exchange Commission. Pursuant to Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended, beneficial ownership of a security
consists of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the power
to dispose or to direct the disposition) with respect to a security whether
through any contract, arrangement, understanding, relationship or otherwise.
Except as otherwise indicated, the named person has sole voting and
investment power with respect to the Common Stock set forth opposite his
name.
(2) Percentages have been calculated on the basis of 11,901,326 shares of Common
Stock outstanding, plus, as appropriate, shares deemed outstanding pursuant
to Rule 13d-3(d)(1).
29
(3) Includes options to purchase 11,000 shares of Common Stock and warrants to
purchase 180,000 shares of Common Stock. Also includes 196,900 shares of
Common Stock and warrants to purchase 22,500 shares of Common Stock owned by
Mr. Semmelhack's wife. Mr. Semmelhack disclaims any beneficial ownership of
such shares.
(4) Includes options to purchase 13,000 shares of Common Stock and warrants to
purchase 90,000 shares of Common Stock.
(5) Includes options to purchase 13,000 shares of Common Stock and warrants to
purchase 90,000 shares of Common Stock.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of the
Company as of June 1, 2003 by each director, each executive officer who is named
in the Summary Compensation Table, and by all directors and officers as a group.
NUMBER OF SHARES AND
NAME OF BENEFICIAL OWNER NATURE OF BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS(2)
- ------------------------ --------------------------------- -------------------
Joseph A. Alutto 21,000(3) *
Franklyn S. Barry, Jr. 17,000(3) *
Richard P. Beyer 271,070(4) 2.26
William O. Bray 167,563(5) 1.40
John S. Bowers, III 26,000 *
Warren E. Emblidge, Jr. 28,000(3) *
Richard E. McPherson 966,887(6) 8.05
James D. Morgan 996,752(6) 8.30
Kathleen Ryan 2,500(7) *
Henry P. Semmelhack 1,812,924(8) 14.96
All directors and officers
as a group 4,315,029(9) 34.49
* Less than 1%
(1) The beneficial ownership information presented is based upon information
furnished by each person or contained in filings with the Securities and
Exchange Commission. Pursuant to Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended, beneficial ownership of a security
consists of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the power
to dispose or to direct the disposition) with respect to a security whether
through any contract, arrangement, understanding, relationship or otherwise.
Except as otherwise indicated, the named person has sole voting and
investment power with respect to the Common Stock set forth opposite his
name.
(2) Percentages have been calculated on the basis of 11,901,326 shares of Common
Stock outstanding, plus, as appropriate, shares deemed outstanding pursuant
to Rule 13d-3(d)(1).
(3) Includes options to purchase 13,000 shares of Common Stock.
(4) Includes options to purchase 75,500 shares of Common Stock and warrants to
purchase 11,250 shares of Common Stock.
(5) Includes options to purchase 60,000 shares of Common Stock
(6) Includes options to purchase 13,000 shares of Common Stock and warrants to
purchase 90,000 shares of Common Stock.
(7) Amount consists of options to purchase shares of Common Stock.
30
(8) Includes options to purchase 11,000 shares of Common Stock and warrants to
purchase 180,000 shares of Common Stock. Also includes 196,900 shares of
Common Stock and warrants to purchase 22,500 shares of Common Stock owned by
Mr. Semmelhack's wife. Mr. Semmelhack disclaims any beneficial ownership of
such shares.
(9) Includes options to purchase 294,033 shares of Common Stock and warrants to
purchase 393,750 shares of Common Stock.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of March 31, 2003 regarding shares
outstanding and available for issuance under the Company's existing equity
compensation plans.
NUMBER OF SHARES REMAINING
NUMBER OF SHARES TO BE ISSUED WEIGHTED-AVERAGE EXERCISE AVAILABLE FOR FUTURE ISSUANCE
UPON EXERCISE OF OUTSTANDING PRICE OF OUTSTANDING (EXCLUDING SHARES REFLECTED IN
PLAN CATEGORY OPTIONS AND WARRANTS OPTIONS AND WARRANTS FIRST COLUMN)
------------- ----------------------------- ------------------------- ------------------------------
Equity compensation plans
approved by security holders 1,270,200 $1.07 94,630
Equity compensation plans not
approved by security holders (1) - - -
--------- ----- ------
Total 1,270,200 $1.07 94,630
========= ===== ======
(1) All of the Company's existing equity compensation plans have been approved
by shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had a term note with BIS Partners, L.P. ("BIS Partners"), a limited
partnership composed of private investors. The term note was secured by Company
assets and receivables. Partners in BIS Partners included Company directors
Semmelhack, McPherson, Morgan and officer/director Beyer. On March 31, 2002, the
balance of the term note was $262,558. The term note was repaid in full during
fiscal 2003.
On August 31, 1995, BIS Partners forgave $450,000 of the term debt owed by the
Company. At the same time, 450,000 warrants were issued to BIS Partners to
purchase up to 450,000 shares of Common Stock. The price per share for purchase
of the Common Stock upon exercise of the warrant is $1.9375, the closing price
of the Common Stock on August 31, 1995. The warrants expire on August 31, 2005.
No warrants have been exercised.
PART IV
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our chief
executive officer and our chief financial officer, after
evaluating the effectiveness of the Company's "disclosure controls
and procedures" (as defined in the Securities Exchange Act of 1934
Rules 13a-14 and 15d-14) as of a date (the "Evaluation Date")
within 90 days before the filing date of this annual report, have
concluded that as of the Evaluation Date, our disclosure controls
and procedures were adequate and designed to ensure that material
information required to be disclosed in reports that are filed or
submitted under the Securities Exchange Act is recorded,
processed, summarized and reported within the time periods
specified by the SEC's rules and forms.
31
(b) Changes in internal controls. There were no significant changes in
our internal controls or to our knowledge, in other factors that
could significantly affect our disclosure controls and procedures
subsequent to the Evaluation Date.
ITEM 15. 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
(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 the Registrant (Attached as an
appendix to the company's definite Proxy Statement in
connection with the special meeting of stockholders held on
May 5, 2000).
2.1 Stock Purchase Agreement, dated July 15, 2002, by and among
the Registrant and Advantage Innovation, Inc. and the
Shareholders of Advantage Innovation, Inc. (Exhibit to the
Company's Report on Form 8-K dated July 15, 2002)
2.2 Amendment to the Stock Purchase Agreement by and among the
Registrant and Advantage Innovation, Inc. and the Shareholders
of Advantage Innovation, Inc. dated January 31, 2003 (Exhibit
to the Company's Report on Form 10-Q for the quarter ended
December 31, 2002).
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).
32
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).
10.5* Employment Agreement effective as of January 1, 2001 by and
between Henry P. Semmelhack and the Registrant.
10.6* Amendment to Employment Agreement effective as of January 7,
2002 by and between Henry P. Semmelhack and the Registrant.
10.7* Employment Agreement, executed as of December 19, 2001, by and
between William O. Bray and the Registrant.
10.8* Employment Agreement, executed as July 15, 2002, by and
between John S. Bowers and the Registrant.
10.9* Amendment to Employment Agreement effective as of January 15,
2003 by and between John S. Bowers, III and the Registrant.
23* Deloitte & Touche consent regarding form S-8
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
* 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.
33
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, 2003 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, 2003
- -----------------------
Henry P. Semmelhack
/s/ William O. Bray President, and Chief Executive Officer June 24, 2003
- -------------------
William O. Bray
/s/ Richard P. Beyer Senior Vice President and Chief Financial Officer June 24, 2003
- --------------------
Richard P. Beyer
/s/ Joseph A. Alutto Director June 24, 2003
- ---------------------
Joseph A. Alutto
/s/ Franklyn S. Barry, Jr. Director June 24, 2003
- --------------------------
Franklyn S. Barry, Jr.
/s/ Warren E. Emblidge, Jr. Director June 24, 2003
- ---------------------------
Warren E. Emblidge, Jr.
/s/ Richard E. McPherson Director June 24, 2003
- ------------------------
Richard E. McPherson
/s/ James D. Morgan Director June 24, 2003
- -------------------
James D. Morgan
34
CERTIFICATIONS
I, William O. Bray, certify that:
1. I have reviewed this annual report on Form 10K of Barrister Global
Services Network, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which periodic
reports are being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditor and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls;
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: June 24, 2003 By: /s/ William O. Bray
-------------------------------
William O. Bray
President and
Chief Executive Officer
35
CERTIFICATIONS
I, Richard P. Beyer, certify that:
1. I have reviewed this annual report on Form 10K of Barrister Global
Services Network, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which periodic
reports are being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditor and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls;
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: June 24, 2003 By: /s/ Richard P. Beyer
------------------------------
Richard P. Beyer
Senior Vice President, Finance
(Principal Financial Officer)
36
BARRISTER GLOBAL SERVICES NETWORK, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at Additions Write-offs Balance
beginning charged to costs charged at end
Description of period and expenses to allowance of period
----------- --------- ------------ ------------ ---------
Allowance for doubtful accounts:
Year ended March 31, 2001 $ 250 $ 25 $ 115 $ 160
----------- ----------- ------------ -------------
Year ended March 31, 2002 $ 160 $ - $ 35 $ 125
----------- ----------- ------------ -------------
Year ended March 31, 2003 $ 125 $ 47(1) $ 52 $ 120
----------- ----------- ------------ -------------
-
Allowance for inventory
obsolescence: (2)
Year ended March 31, 2001 $ 450 $ 611 $ 661 $ 400
----------- ----------- ------------ -------------
Year ended March 31, 2002 $ 400 $ 1,132 $ 862 $ 670
----------- ----------- ------------ -------------
Year ended March 31, 2002 $ 670 $ 480 $ 900 $ 250
----------- ----------- ------------ -------------
(1) Amount acquired from acquisition of Advantage Innovation Inc. in July 2002
(2) The allowance is included in inventory in the balance sheets
37