SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2003
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Commission File Number 0-14063
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BARRISTER GLOBAL SERVICES NETWORK, INC.
(Exact name of Registrant as specified in its charter)
Delaware 16-1176561
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
186 Exchange Street, Buffalo, New York 14204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 845-5010
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Not Applicable
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Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Class Outstanding at July 31, 2003
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Common $.24 Par Value 11,901,326 Shares
BARRISTER GLOBAL SERVICES NETWORK, INC.
INDEX
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets at June 30, 2003
and March 31, 2003 ................................................................. 3
Condensed Statements of Operations -
Three Months Ended June 30, 2003
and June 30, 2002....................................................................... 4
Condensed Statement of Stockholders' Equity -
Three Months Ended June 30, 2003 ....................................................... 5
Condensed Statements of Cash Flows -
Three Months Ended June 30, 2003
and June 30, 2002....................................................................... 6
Notes to Unaudited Condensed Financial Statements....................................... 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................................... 9
Item 4. Evaluation of Disclosure Controls and Procedures ......................... 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................ 11
SIGNATURES ............................................................................ 12
2
PART I. FINANCIAL INFORMATION
BARRISTER GLOBAL SERVICES NETWORK, INC.
CONDENSED BALANCE SHEETS
(In thousands)(unaudited)
June 30 March 31
---------- ----------
2003 2003
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 1,526 $ 1,630
Short-term investments 697 1,155
Accounts receivable 1,395 1,272
Service parts inventory 647 575
Prepaid expenses 42 29
Income taxes 82 82
---------- ----------
Total current assets 4,389 4,743
---------- ----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, AT COST 1,675 1,639
Less accumulated depreciation 858 799
---------- ----------
Net equipment and leasehold improvements 817 840
---------- ----------
GOODWILL 2,192 2,192
INTANGIBLE ASSETS 150 168
DEFERRED TAX ASSETS 77 77
OTHER ASSETS 48 47
---------- ----------
$ 7,673 $ 8,067
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt $ 859 $ 870
Accounts payable 506 551
Accrued compensation and benefits 390 527
Customer advances and unearned revenue 1,365 1,230
Other accrued expenses 40 55
---------- ----------
Total current liabilities 3,160 3,233
---------- ----------
DEFERRED 149 175
COMPENSATION 814 835
LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Common stock, $.24 par value, 11,901,326
shares outstanding 2,867 2,867
Additional paid-in capital 23,025 23,025
Accumulated deficit (22,291) (21,973)
Treasury stock at cost, 43,637 shares (27) (27)
Note receivable for treasury shares issued (24) (24)
Accumulated other comprehensive loss -- (44)
---------- ----------
Total stockholders' equity 3,550 3,824
---------- ----------
$ 7,673 $ 8,067
========== ==========
See accompanying notes to condensed financial statements.
3
BARRISTER GLOBAL SERVICES NETWORK, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
Three months ended
------------------------
June 30 June 30
2003 2002
---------- ----------
REVENUES $ 2,897 $ 3,113
COSTS AND EXPENSES:
Cost of services 2,225 2,453
Selling, general and administrative expenses 1,042 933
---------- ----------
OPERATING LOSS (370) (273)
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OTHER EXPENSE (INCOME):
Interest expense to related party -- 4
Other interest income -- (31)
Common stock received from demutualization -- (428)
Gain on sale of Common stock (52) --
---------- ----------
Total other income (52) (455)
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(LOSS) EARNINGS BEFORE INCOME TAXES (318) 182
Income tax expense (benefit) -- 67
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NET (LOSS) EARNINGS $ (318) $ 115
========== ==========
BASIC AND DILUTED (LOSS) EARNINGS PER COMMON SHARE: $ (.03) $ .01
========== ==========
Weighted average number of common shares outstanding:
Basic 11,901 11,866
========== ==========
Diluted 11,901 11,872
========== ==========
See accompanying notes to condensed financial statements.
4
BARRISTER GLOBAL SERVICES NETWORK, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
(In thousands)
Additional Accumulated other Treasury
Common paid-in Accumulated comprehensive stock and
stock capital deficit loss related note Total
-------- ---------- ----------- ----------------- ------------ ------
Balance at March 31, 2003 $ 2,867 $ 23,025 $ (21,973) $ (44) $ (51) $3,824
Reversal of unrealized loss
on sale of securities -- -- -- 44 -- 44
Net loss -- -- (318) -- -- (318)
-------- ---------- ----------- ----------------- ------------ ------
Balance at June 30, 2003 $ 2,867 $ 23,025 $ (22,291) $ -- $ (51) $3,550
======== ========== =========== ================= ============ ======
See accompanying notes to condensed financial statements.
5
BARRISTER GLOBAL SERVICES NETWORK, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
Three months ended
------------------------
June 30 June 30
2003 2002
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (318) $ 115
Adjustments to reconcile net (loss) earnings to net
cash used by operating activities:
Depreciation 59 37
Amortization 18 --
Common stock received from demutualization -- (428)
Changes in current assets and liabilities:
Accounts receivable (123) 64
Service parts inventories (72) 99
Deferred and refundable income taxes -- 67
Prepaid expenses (13) (39)
Accounts payable (45) (172)
Accrued compensation and benefits (135) (201)
Customer advances and unearned revenues 135 (18)
Other accrued expenses (15) (99)
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Net cash used by operating activities (537) (575)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and leasehold
improvements (36) (24)
Maturity of investments 502 1,691
Purchases of investments and marketable securities -- (946)
Other assets (1) (31)
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Net cash provided by investing activities 465 690
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (32) (112)
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Net cash used by financing activities (32) (112)
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NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (104) 3
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 1,630 1,222
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CASH AND EQUIVALENTS AT END OF PERIOD $ 1,526 $ 1,225
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 6 $ 5
Non-cash financing activity:
Sale of treasury shares in exchange for note receivable $ -- $ 31
See accompanying notes to condensed financial statements.
6
BARRISTER GLOBAL SERVICES NETWORK, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. Barrister Global Services Network, Inc. (the "Company") provides a variety of
IT services for a broad range of multi-vendor computer related equipment
including personal computers and equipment generally attached to local area
networks, 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 the United States.
The accompanying unaudited condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information required by GAAP for complete financial
statement presentation. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of financial position, results of operations, and cash flows have
been included. Operating results for the period ended June 30, 2003 are not
necessarily indicative of the results to be expected for other interim periods
or the full year. These financial statements should be read in conjunction with
the financial statements and accompanying notes contained in the Company's Form
10-K for the fiscal year ended March 31, 2003. This report represents the
Company's first time filing Form 10-QSB, previously the Company had been filing
under Form 10-Q.
2. Cash and equivalents consist of cash and liquid debt instruments with
maturity of three months or less from the date of purchase. Cash and equivalents
are stated at cost plus accrued interest, which approximates market value.
Short-term investments at June 30, 2003 contain held-to-maturity securities,
based on the Company's ability and intent to hold the securities until maturity.
The held-to-maturity securities are recorded at amortized cost adjusted for the
accretion of discounts or cost plus accrued interest. At March 31, 2003,
short-term investments also included shares of Principal Financial Group, Inc.
("Principal") common stock received in the demutualization of Principal,
classified as available for sale securities with net unrealized gains or losses,
if any, reported as a separate component of stockholders' equity, net of tax.
The Company sold the Principal common stock during the quarter ended June 30,
2003 for a gain of $52,000.
3. On July 15, 2002, the Company acquired all of the outstanding stock of
Advantage Innovation, Inc. ("Advantage") for $1,200,000 in cash and future
consideration of two contingent payments due on the first and second
anniversaries of the closing. The Stock Purchase Agreement was amended in
January 2003 to remove the previous contingent payment provision and replace
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 by $531,000 to $719,000. Consequently the Company
has accrued for a total of $1,438,000 at June 30, 2003. In the event that all of
the contingencies related to the installment payments are met the Company would
accrue up to $2,500,000. Subsequent to these Financial Statements, on July 31,
2003 the first of the two installments payments was made in the amount of
$1,250,000 of which $719,000 is included in short term debt on the balance
sheets and $531,000 became additional Goodwill on July 31, 2003. 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
7
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 initial 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 pro forma
results for the quarter ended June 30, 2002, had the acquisition occurred at the
beginning of the period, are as follows: Revenues of $4,009,000; net earnings of
$171,000; and net earnings per common share, basic and diluted of $.01. 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, 2002 or of the
future results of operations which will be obtained as a result of the
consummation of the transaction.
4. The Company has adopted Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure". This
standard provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
Additionally, the standard also requires prominent disclosures in the Company's
financial statements about the method of accounting used for stock-based
employee compensation, and the effect of the method used when reporting
financial results.
5. In June 2002 the Company received 14,159 shares of Principal 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 for the quarter ended June 30, 2002. The shares were subsequently sold in
June 2003 for a net gain of $52,000. Changes in the fair market value of the
shares during the holding period were shown in accumulated other comprehensive
income or loss, as the asset was considered to be an available-for-sale
security.
6. The weighted average common shares used in the computation of basic and
diluted earnings per share were as follows:
June 30 June 30
2003 2002
------- -------
Basic:
Weighted average number of shares outstanding 11,901 11,866
Diluted:
Dilutive effect of stock options -- 6
------- -------
Total weighted average dilutive shares outstanding 11,901 11,872
======= =======
7. No employee stock based compensation expense was reported for the quarters
ended June 30, 2003 or June 30, 2002, since any options are granted with
exercise prices equal to the market value per share. Had the Company determined
compensation cost based on the fair value of the options at grant date, the
reported net loss of June 30, 2003 would be increased to $(330,000) or $(.03)
per share and the reported earnings for June 30, 2002 would be decreased to
$86,000 or $.01 per share.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the quarter ended June 30, 2003, revenues decreased approximately
6.9% from the same quarter in 2002. Revenues from hardware maintenance contracts
decreased 27.3% for the quarter to $1,660,000 from $2,282,000 for the first
quarter of the prior year. This reduction primarily resulted from the
non-renewal of a large contract by a customer of one of our long-time business
partners as of September 30, 2002. This decrease was partially offset from
growth in services provided on a time and materials basis which increased by
54.0% for the comparative first quarters, from $803,000 to $1,237,000. The
principal reason for this increase was revenues generated from the business
acquired on July 15, 2002 from Advantage Innovation, Inc. ("Advantage").
The cost of services decreased as a percentage of revenues from 78.8%
in the first quarter of the prior year to 76.8% in the first quarter of the
current year. This improvement primarily resulted from a lower cost of
contracted service providers supplied by the business acquired from Advantage
and used to service calls in the current quarter on a Company wide basis.
Selling, general and administrative expenses were 36.0% of revenues for
the first quarter of this year compared to 30.0% for the comparative quarter
last year. The principal reasons for this increase was expenditures for outside
consultants currently assisting the Company in strategic decisions, the
increased rent expense of the Company's new headquarters and operations center,
higher depreciation expenses related to assets acquired in the prior year, and
amortization expense from the intangible assets acquired from the Advantage
purchase in July of 2002. Additionally some portion of the general and
administrative expenses are relatively fixed and become an increased percentage
on the lower revenue attained.
The decrease in net interest income for the comparative first quarters
resulted from lower interest rates and a reduction in amount invested. For the
quarter ended June 30, 2003 other income resulted from a gain recognized on the
sale of 14,159 shares of Principal Financial Group, Inc. common stock received
in June 2002 in connection with the demutualization of Principal. Total other
income for the quarter ended June 30, 2002 primarily resulted from the receipt
of those shares.
No additional tax benefits were established in the statements of
operations for the quarter ended June 30, 2003, since the Company has fully
reserved for the tax effect of net deductible temporary differences and loss
carryforwards. These benefits will be recorded in future periods as they are
realized or as their realization becomes predictable. Income taxes recorded in
the prior year first quarter approximated the statutory tax rate.
FINANCIAL CONDITION
Cash and equivalents, short-term investments and marketable securities
totaled $2,223,000 at June 30, 2003 and $2,785,000 at March 31, 2003. The net
decrease of $562,000 was primarily a result of net cash used by operating
activities of $537,000
On July 15, 2002, the Company acquired the stock of Advantage
Innovation, Inc. for an initial cash payment of $1,200,000, with two additional
and conditional payments on the first and second anniversaries of the closing.
The Agreement provides for installment payment
9
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. The first of these payments ($1,250,000) was subsequently
made on July 31, 2003.
In addition to the July 31, 2003 cash payment made to Advantage, the
principal cash requirements expected for fiscal 2004 are debt repayments of
$151,000 and normal 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 only if the
Company is successful in increasing its revenues or decreasing its costs, or in
obtaining additional financing. There can be no assurance that it will be able
to generate positive cash from operations or that sufficient cash will be
available to meet its required needs and obligations.
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
Exchange's continued listing standards. The Company submitted a plan to AMEX
that would return the Company to profitability by March 31, 2003, which it
failed to meet. In addition, the Company has not been able to regain compliance
with the exchange's continued listing standards through the quarter ended June
30, 2003. The Company expects to receive de-listing notice in the near future.
If the Company is delisted, trading of our common stock may be conducted in the
over-the-counter market on the "pink sheets" or, possibly, 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.
NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure".
This standard provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. Additionally, the standard also requires prominent disclosures in
the Company's financial statements about the method of accounting used for
stock-based employee compensation, and the effect of the method used when
reporting financial results.
FORWARD-LOOKING STATEMENT
When used in this report, the words "expects", "believes" and "intends"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof. The company undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrences of unanticipated events. Readers are also
urged to carefully review and consider the various disclosures made by the
Company which attempt to advise interested parties of the factors which affect
the Company's business in the Company's periodic reports on Form 10-K and 10-QSB
filed with the Securities and Exchange Commission.
10
ITEM 4. EVALUATION OF DISCLOSURE 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 quarterly 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.
(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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 31 - Section 302 Certifications
Exhibit 32 - Section 906 Certifications "Furnished"
(b) Reports on Form 8-K:
Report filed on June 27, 2003 regarding press release, dated June 27,
2003 announcing the Company's financial results for March 31, 2003.
11
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARRISTER GLOBAL SERVICES NETWORK, INC.
Date: August 13, 2003 By: /s/ William O. Bray
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William O. Bray
President
and
Chief Executive Officer
Date: August 13, 2003 By: /s/ Thomas Wrinn
------------------------------ -----------------------------------
Thomas Wrinn
Controller
(Acting Chief Financial Officer)
12