ITEM 1. BUSINESS
GENERAL
Barrister Information Systems Corporation (the "Company") is a national supplier of Windows-based client server software for law firms, accounting firms, consultants and departments of Fortune 1000 companies. In addition, the Company provides equipment maintenance services on a nationwide basis.
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 as Barrister Information Systems Corporation and was spun off to the Comptek shareholders as a separate company. 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.
The Company's headquarters are at 465 Main Street, Buffalo, New York 14203, telephone 716-845-5010. In addition, the Company has a number of sales and services offices throughout the United States.
FORWARD-LOOKING STATEMENT
When used in this report, the words "expects", "believes" and "intends" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events. Readers are also urged to carefully review and consider the various disclosures made by the Company which attempt to advise interested parties of the factors which affect the Company's business in the Company's periodic reports on Form 10K and 10Q filed with the Securities and Exchange Commission.
SOFTWARE MARKET
The Company was the first to offer and install an all Window's-based firm management software for medium to large sized law firms. The Company now sells its Windows-based client server software product, Javelan, and software support services principally to the U.S. law firm market and to law firms in Canada and the Caribbean. Javelan software is used by law firms for firm management and to keep track of the time of attorneys and paralegals to enable them to bill their clients. In addition, the software provides the law firm with other applications such as executive information, collections, general ledger and accounts payable. Javelan is also being sold in the accounting, consulting and corporate markets for organizations seeking time and billing or time and cost allocation capability. The Company currently expects that the majority of sales will come from the legal market.
The markets pursued by the Company are concentrated in major cities throughout the United States. There are numerous competitors which are primarily U.S. companies and the technology barriers to enter the market are low. However, the requirement for sophisticated functionality demands substantial investment to develop products which can compete effectively in these markets. Because of competition and market demands, there is a continuing requirement to enhance the software to remain a viable competitor. Currently, the Company believes that its product is distinguished from its competitors' products by its performance, functionality, product design and
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architecture.
In its software marketing efforts for the legal market, the Company conducts seminars in cities throughout the United States, advertises in professional publications and provides demonstrations at its corporate headquarters, regional offices, client locations and trade shows. The Company also markets the systems to consultants to advise them of the system's features and new product developments and to gain increased market acceptance.
Marketing to the accounting, consulting and corporate segments to date has consisted of follow through on leads and interest shown by prospects attending legal trade shows and reading legal market literature. The Company expects to expand marketing in this area by attending trade shows and group conferences in those markets and by establishing strategic relationships which will enhance sales in those segments.
The Company believes that its existing clients present significant opportunities for sales of additional software and services. Approximately 35% of Javelan contracts to date have come from these clients. It is marketing to and communicating with approximately 130 of its existing clients which have licensed software in the past in order to license Javelan as replacement software. Further, service efforts are directed to ensuring client satisfaction and facilitating additional sales. The Company has sponsored the organization of a national users group, comprised of representatives of clients, who meet with Company personnel to exchange ideas and techniques for the use of the Company's systems, provide training and offer suggestions for product development and enhancements. The Company believes it has the staff with the necessary technical and market knowledge to advance the product, to install the product and train clients in its use and to support the client afterward.
The Company has made a substantial investment in the Javelan product and protects its intellectual property rights by licensing the software by contract. Pricing is based on the size of the system and the functions licensed. Clients pay recurring monthly license fees and, in return, receive telephone support and periodic software enhancements. Investments are expected to continue to enhance the features and functions of the Javelan software package. The choice of features will be driven by clients through bi-annual user group meetings. These investments are expected to increase the sales opportunities in the existing client base and to improve sales in the markets for Javelan.
Historically, software product life cycles have been five to ten years. With the markets moving to Windows and client/server architecture, there may be a lengthening of the cycle. This effect is expected to intensify the investment in features and functions and reduce investments in the underlying technology and architecture of the product, which will be available in the open market.
Sales of Javelan software may occur from time to time and are not predictable. As a result, the Company's performance from quarter to quarter can change dramatically. Performance in a given quarter cannot predict results in subsequent periods.
The Company provides its systems and services under various hardware purchase contracts, software license agreements, systems installation and training agreements and hardware and software service contracts. Law office personnel, often inexperienced in computer programming or operations, are trained by the Company to use its systems. The Company's systems are capable of communicating with computers and personal computers of other manufacturers.
PRODUCTS
The principal product of the Company is Javelan, a state-of-the-art software package, which can operate on either Windows 3.1, Windows 95 or NT Workstation and provides the functions necessary for law firm
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management using desktop computing and client server architecture. Javelan software operates on the law firm's local area network (LAN) and uses PC work stations on the LAN for data processing. A server using Microsoft SQL-Server 6.5 contains the law firm's data base and supports the work stations. Javelan was introduced to the market in November 1992 through an extensive series of seminars. In December 1994, the Company announced that Javelan would operate with Microsoft NT and SQL-Server 6.0. Currently, Javelan is delivered with NT and SQL-Server 6.5. During the year a version of Javelan, called Javelan Select, a product aimed at smaller firms was released. Javelan and Javelan Select are expected to contribute significantly to the Company's revenues in the future.
In the past, the Company has developed or purchased several products which it currently supports:
EAGLE Law firm management software which operates on IBM AS-400 computers.
TIME MANAGER Time and billing, accounting and accounts payable software which operates on DOS for smaller firms.
CFMS Law firm management software which operates on Barrister manufactured mini-computers.
In addition to software which the Company has developed, the Company resells software which functions compatibly with its products. Further, the Company resells equipment such as database servers to clients who license Javelan software. From time to time, the Company sells personal computers and printers in support of clients.
It is anticipated that most minicomputer, AS-400 and DOS-based clients will migrate to systems using Windows and local area networks (LANs). The Company's Javelan product, the first Window's based management system for law firms, is being offered to these clients.
BACKLOG
Because the Company typically ships products within a relatively short period of time after a contract is signed, the backlog varies, is not meaningful at any date and is not indicative of intermediate or long-term future sales.
SOFTWARE DEVELOPMENT
The markets for the Company's software products are characterized by rapid technical changes which have required and will continue to require the Company to engage in ongoing development, and evaluations, the future costs of which are expected to be significant. Before taking into account amounts capitalized as software production costs, the Company incurred $842,000, $700,000 and $693,000 of product development and engineering expenses in fiscal 1998, 1997, and 1996, respectively. For fiscal 1999, the Company expects its level of spending in this area to remain approximately the same as the prior year.
INVENTORY
Customers generally require rapid delivery and orders are usually filled within 30 days. Most of the systems the Company provides use equipment and software developed by third parties, which is generally available and in many cases shipped directly by the vendors. Software developed by the Company does not require large amounts of inventory. Consequently, the Company does not keep significant amounts of product inventory in order to meet customer requirements. The Company does not generally provide rights of return or extended payment terms
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to customers.
SOFTWARE COMPETITION
The business of providing software and services to law offices is highly competitive. The Company believes that the principal competitive factors affecting a law office's choice of data processing systems are product quality, performance and reliability, compatibility with industry standards, the ability to provide ongoing, long-term customer service and support, hardware and software features, ease of use, upgrading capabilities, customer training, system flexibility, company financial stability, name recognition of product and company. Price, while important, is not the dominant factor in client's buying decisions.
The Company competes with more than ten companies who are developers of specialized software for law offices, many of which are substantially larger and have substantially greater name recognition and financial, marketing, technical and personnel resources than the Company.
SERVICES MARKET
The Company provides equipment maintenance services nationwide for PCs and other equipment which attach to LANs. Using its staff of hardware technicians and LAN specialists, the Company provides comprehensive maintenance services for such equipment. In addition, the Company occasionally uses third parties as subcontractors to provide maintenance services in certain geographical locations. The Company provides a nationwide toll-free number for customer service and provides a seven-day, twenty-four hour maintenance capability.
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 equipment maintenance service contracts outside the legal market and to sell depot repair services. Currently, more than 90% of hardware maintenance revenues are generated outside the legal market.
Sales of services are the result of a direct sales force focused on this market. A variety of service plans are offered which cover Barrister's proprietary equipment to a long list of OEM micro-computer products. In addition, the Company has established business relationships with companies such as IBM Corporation, U.S. Computer, Amherst Computer Products and MRK Technologies, Ltd. to provide services on a contractual basis.
Since product life cycles for hardware are relatively short, the Company provides updated 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 maintenance and repair depot services to clients is also a highly competitive business. The principal competitive factors are price, expertise, reputation and geographic location of staff. The Company competes with numerous organizations which can provide similar maintenance services, many of which are substantially larger, better known and have substantially greater name recognition and financial, marketing, technical and personnel resources than the Company. The Company believes it distinguishes itself by providing services on a dependable and cost effective basis to customers with multiple locations throughout the U.S.
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RELATIONSHIP WITH IBM
The Company has received a number of hardware maintenance subcontracts from IBM. These subcontracts are generally renewable on an annual basis with 30 day cancellation rights. During fiscal 1998, revenues from the subcontracts were approximately 17% of total revenues.
EMPLOYEES
As of June 15, 1998, the Company had 185 full-time employees and 7 part-time employees. None of the Company's employees is represented by a labor union and the Company has had no work stoppages. The Company believes that employee relations are good.
PROTECTION OF PROPRIETARY INFORMATION
The Company believes its proprietary software and hardware technology is adequately protected by trade secret and copyright laws and contracts with its customers, employees and suppliers. The Company has a registered trademark and service mark in the names "BARRISTER" and "JAVELAN" and trademarks in certain other names used in its business. The Company has no patents or patent applications pending.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth as of June 15, 1998, the names and ages of the executive officers of the Company and the positions held by each such person.
MR. BEYER became Vice President-Finance, Treasurer and a Director of the Company in 1982 following its incorporation. He joined Comptek in 1974 and served as its Vice President-Finance and Treasurer.
MR. BLANKENSHIP joined the Company in October, 1997 as its Vice President of Services Operations. Previously, he was President of Mill Street Recycling, Inc., a division of SCS Group, L.C. He also has been involved in companies which he founded, involving construction, mining and trucking.
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MR. DONADIO joined the Company in January, 1991 as its Secretary and General Counsel. Prior to his joining the Company he was a partner at Saperston & Day, P.C. in Buffalo, New York.
MR. PHILLIPS joined the Company in March, 1995 as its Vice President of Sales. Prior to joining the Company, he was a sales and marketing executive with Digital Equipment Corporation.
MS. ROBINSON became a Vice President of the Company in April, 1998 after serving in a number of management positions within the Company in the installation, support and sales/marketing areas. She has been employed by the Company and previously by Comptek since 1977.
MR. SEMMELHACK has served as the Company's Chairman of the Board of Directors, Chief Executive Officer and President since its incorporation in 1982. He was one of the founders of Comptek, and currently serves as a Director of Comptek. Previously, he served as Comptek's Chairman of the Board, Chief Executive Officer and President.
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ITEM 2.
ITEM 2. PROPERTIES
REAL PROPERTY
The Company currently leases all the facilities used in its business. The Company is headquartered in Buffalo, New York and currently leases approximately 57,000 square feet in two separate facilities in Buffalo. Other office locations, which are used for regional sales offices and for servicing activities, are as follows:
San Diego, California Manchester, New Hampshire Denver, Colorado New York, New York Hartford, Connecticut Charlotte, North Carolina Atlanta, Georgia Cleveland, Ohio Chicago, Illinois Arlington, Virginia Boston, Massachusetts
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The Company's equipment and leasehold improvements include: computer equipment, components and tools used in the design, development, testing and maintenance of its systems; office furniture and fixtures; and leasehold improvements undertaken to accommodate computers and other equipment.
ITEM 3.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The item is not applicable.
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PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this item is incorporated by reference to the Company's 1998 Annual Report under the caption "Stock Market and Dividend Information".
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is incorporated by reference to the Company's 1998 Annual Report under the caption "Selected Financial Data".
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information required by this item is incorporated by reference to the Company's 1998 Annual Report under the caption "Management's Discussion and Analysis".
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is incorporated by reference to the Company's 1998 Annual Report under the caption "Quarterly Financial Data" and under the captions as listed in Item 14(a)(1) of this report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The Item is not applicable.
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PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information under the caption "ELECTION OF DIRECTORS" in the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A of the 1934 Act in connection with the 1998 annual meeting of shareholders of the Company (the "Proxy Statement") is incorporated herein by reference. Also see Part I of this Report, under the caption "Executive Officers of the Registrant" for additional information relating to the Company's executive officers.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information under the caption "COMPENSATION AND RELATED MATTERS" in the Company's Proxy Statement is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the caption "PRINCIPAL SHAREHOLDERS" in the Company's Proxy Statement is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS.
The information under the sub-caption "Certain Transactions" in the Company's Proxy Statement is incorporated herein by reference.
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PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following are filed as a part of this Report:
(1) FINANCIAL STATEMENTS. The following Financial Statements of Barrister Information Systems Corporation are incorporated by reference to the Company's 1998 Annual Report:
Balance Sheets - March 31, 1998 and March 31, 1997 Statements of Operations - Years ended March 31, 1998, 1997 and 1996 Statements of Shareholders' Equity - Years ended March 31, 1998, 1997 and 1996 Statements of Cash Flows - Years ended March 31, 1998, 1997 and 1996 Notes to Financial Statements Independent Auditors' Report
(2) FINANCIAL STATEMENT SCHEDULE. The following financial statement schedule of Barrister Information Systems Corporation for the three years ended March 31, 1998 is being filed with this Report. Schedules not listed below have been omitted because they are not applicable or are not required under the instructions or the information is included in the "Notes to Financial Statements" of the Company's 1998 Annual Report.
The Independent Auditors' Report on the Financial Statement Schedule appears on page 13 of this report.
(3) EXHIBITS. See Exhibit Index filed herewith on page 15 of this Report.
(b) Reports on Form 8-K: None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BARRISTER INFORMATION SYSTEMS CORPORATION
DATE: June 26, 1998 BY: /s/ Henry P. Semmelhack ------------- ------------------------------- Henry P. Semmelhack, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
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INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES --------------------------------
Board of Directors Barrister Information Systems Corporation:
Under date of June 22, 1998, we reported on the balance sheets of Barrister Information Systems Corporation as of March 31, 1998 and 1997, and the related statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended March 31, 1998, as contained in the 1998 annual report to shareholders. These financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year ended March 31, 1998. In connection with our audits of the aforementioned financial statements, we also have audited the related financial statement schedule as listed in item 14(a)(2) of this the annual report on Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
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.
KPMG Peat Marwick LLP
Buffalo, New York June 22, 1998
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Schedule II
BARRISTER INFORMATION SYSTEMS CORPORATION
Valuation and Qualifying Accounts (In thousands)
- -------- (1) The allowance is included in inventory in the balance sheets.
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INDEX TO EXHIBITS
- ----------------------------------
* Each exhibit marked with an asterisk is a previously unfiled document under Category 19 of Regulation S-K, Item 601.
(a) Designates Exhibit annexed to the Registration Statement filed by the Company with the Securities and Exchange Commission on June 25, 1986 (Registration No. 33-6250), and which is incorporated herein by reference.
(b) Designates Exhibit annexed to the Company's Report on Form 10-Q for the quarter ended July 1, 1988.
(c) Designates Exhibit annexed to the Company's Report on Form 10-K for the year ended March 31, 1992.
(d) Designates Exhibit annexed to the Company's Report on Form 10-Q for the quarter ended September 30, 1994.
(e) Designates Exhibits annexed to the Company's Proxy Statement dated August 29, 1997.
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