<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.
Or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO
____________, 19_____.
Commission file number : 0-20937
------------------------------
PHOENIX INTERNATIONAL LTD., INC.
(Exact name of registrant as specified in its charter)
Florida 59-3171810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 International Drive, Heathrow, Florida 32746
(Address of principal executive offices)
(407) 548-5100
(Registrant's telephone number including area code)
N/A
(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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 14, 1997
Common Stock, $0.01 par value 5,206,552
(No. of Shares)
================================================================================
1
<PAGE>
PHOENIX INTERNATIONAL LTD., INC.
INDEX TO FORM 10-Q
PAGE
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of June 30,
1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations for
the three months and six months ended June 30, 1997
and 1996 4
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES
EXHIBIT INDEX
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHOENIX INTERNATIONAL LTD., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,079,503 $ 3,770,889
Investments -- 2,730,825
Accounts receivable, net of allowance for doubtful accounts of $65,000 and
$15,000 at June 30, 1997 and December 31, 1996, respectively 2,538,382 935,736
Unbilled accounts receivable 3,269,552 1,188,282
Prepaid expenses and other current assets 587,477 548,379
----------- -----------
Total current assets 9,474,914 9,174,111
Property and equipment:
Computer equipment and purchased software 1,783,837 1,088,509
Furniture, office equipment and leasehold improvements 1,019,039 252,047
----------- -----------
2,802,876 1,340,556
Accumulated depreciation and amortization (610,042) (447,128)
----------- -----------
Total property and equipment 2,192,834 893,428
Capitalized software costs, net of accumulated
amortization of $714,093 and $446,572 at June 30, 1997 and
December 31, 1996, respectively 2,814,925 1,985,628
Other assets 546,400 30,000
----------- -----------
Total assets $15,029,073 $12,083,167
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 396,079 $ 384,693
Accrued expenses 1,055,890 922,040
Note payable 50,000 --
Capital lease, current portion 124,359 --
Deferred revenue 1,172,202 1,002,417
----------- -----------
Total current liabilities 2,798,530 2,309,150
Deferred revenue under economic development grant 190,000 190,000
Capital lease, long term portion 563,088 --
----------- -----------
Total long term liabilities 753,088 190,000
Shareholders' equity:
Common stock, $0.01 par value
50,000,000 and 20,000,000 shares authorized, 3,952,152 and 3,838,910 issued and
outstanding at June 30, 1997 and December 31, 1996, respectively 39,521 38,389
Additional paid-in capital 10,902,821 10,727,255
Stock subscription receivables (76,534) (110,683)
Retained earnings (accumulated deficit) 611,647 (1,070,944)
----------- -----------
Total shareholders' equity 11,477,455 9,584,017
----------- -----------
Total liabilities and shareholders' equity 15,029,073 $12,083,167
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
3
<PAGE>
PHOENIX INTERNATIONAL LTD., INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------- ------------------------------------
1997 1996 1997 1996
------------------ ----------------- ----------------- -----------------
Revenues
<S> <C> <C> <C> <C>
License fees and other $3,421,037 $1,277,805 $5,689,443 $2,405,412
Implementation, customer and software
support and other service fees 1,285,071 823,902 2,730,389 1,477,625
---------- ---------- ---------- ----------
Total revenues 4,706,108 2,101,707 8,419,832 3,883,037
Expenses:
Cost of license fees and other 455,600 150,241 675,337 281,270
Cost of implementation customer and
software support and other service fees 1,003,156 497,333 1,834,789 954,529
Sales and marketing 696,667 213,823 1,257,664 482,641
General and administrative 891,294 479,134 1,327,901 837,394
Product development 802,438 363,878 1,355,578 662,945
---------- ---------- ---------- ----------
Total expenses 3,849,155 1,704,409 6,451,269 3,218,779
Other income (expense):
Interest income 53,689 28,245 128,477 56,892
Interest expense (16,048) (14,975) (21,437) (16,056)
---------- ---------- ---------- ----------
Income before income taxes 894,594 410,568 2,075,603 705,094
Income tax expense 130,920 59,118 298,633 212,118
---------- ---------- ---------- ----------
Net income $ 763,674 $ 351,450 $1,776,970 $ 492,976
========== ========== ========== ==========
Net income per share $ 0.17 $ 0.10 $ 0 .41 $ 0.14
========== ========== ========== ==========
Weighted average shares outstanding 4,378,715 3,385,939 4,332,678 3,346,991
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements of operations.
4
<PAGE>
PHOENIX INTERNATIONAL LTD., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------
1997 1996
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,776,970 $ 492,976
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 523,538 227,700
Provision for doubtful accounts 50,000 --
Deferred taxes -- 152,999
Changes in operating assets and liabilities:
Accounts receivable (1,652,646) (257,188)
Unbilled accounts receivable (2,081,270) (39,885)
Interest receivable, related party -- (52,070)
Prepaid expenses and other current assets (39,098) (205,091)
Accounts payable 11,386 188,378
Accrued expenses 130,508 126,715
Deferred revenue 169,785 (727,771)
----------- ---------
Net cash used in operating activities (1,110,827) (93,237)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (919,951) (79,939)
Sale of short term investments 2,730,825 --
Changes in other assets (466,400) --
Capitalized software costs (1,096,818) (562,861)
----------- ---------
Net cash provided by (used in) investing activities 247,656 (642,800)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital lease payments (39,062) --
Proceeds from short term debt -- 247,031
Net proceeds from issuance of common stock 176,698 202,890
Cash payments for stock subscription receivable 34,149 --
----------- ---------
Net cash provided by financing activities 171,785 449,921
Decrease in cash and cash equivalents (691,386) (286,116)
Cash and cash equivalents at beginning of the period 3,770,889 425,931
----------- ---------
Cash and cash equivalents at end of the period $ 3,079,503 $ 139,815
=========== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements of cash flows.
5
<PAGE>
PHOENIX INTERNATIONAL LTD., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include all adjustments, consisting only of normal recurring accruals, which the
Company considers necessary for a fair presentation of the financial position
and the results of operations for the interim periods presented. The condensed
consolidated financial statements have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures usually found in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
"Selected Financial and Operating Data" included in the Company's annual report
on Form 10-K for the year ended December 31, 1996.
2. NET INCOME PER SHARE
Net income per share is based on the weighted average number of common
shares outstanding and dilutive common stock equivalents outstanding, using the
treasury stock method, during the periods presented. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, common stock issued for
consideration below the public offering price and stock options issued with
exercise prices below the public offering price during the twelve-month period
preceding the initial filing and through the effective date of the Registration
Statement have been included in the calculation of weighted average shares
outstanding, using the treasury stock method, as if they were outstanding for
all periods presented through June 30, 1996. Also see footnote 5 "New
Accounting Pronouncements" below.
3. CERTAIN TRANSACTIONS
In March 1997, the Company entered into a Stock Purchase Agreement with
Dyad whereby the Company purchased a minimal equity interest in Dyad Corporation
("Dyad"). Dyad is developing automated loan and mortgage and financial services
delivery products. Pursuant to the Company's agreement with Dyad, the Company
has an option for one year to increase its equity interest in Dyad to no more
than 10% of the outstanding shares of Dyad. In addition, the Company and Dyad
entered into a License and Distribution Agreement (the "License Agreement")
whereby the Company obtained certain rights to market, sell and license Dyad's
products. The Company has paid Dyad license fees which are classified as
prepaid royalties against future sales of Dyad products. A shareholder and
director of the Company is a shareholder and director of Dyad. The Company's
Chief Executive Officer is also a director of Dyad.
6
<PAGE>
4. CAPITALIZED SOFTWARE COSTS
The Company capitalizes certain software development costs in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed." These
costs include costs incurred internally after technological feasibility has been
established to develop and enhance computer software products and include
certain purchased software costs. Capitalized software costs include purchased
software costs of $311,000 and $0 at June 30, 1997 and December 31, 1996,
respectively.
5. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997 the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings per Share", which will change
the current method of computing earnings per share. The new standard requires
presentation of "basic earnings per share" and "diluted earnings per share"
amounts, as defined therein. "Basic earnings per share" is computed by dividing
net income by weighted average shares outstanding and does not include
potentially dilutive securities. "Diluted earnings per share" is computed by
dividing net income by weighted average shares outstanding, including
potentially dilutive securities using the treasury stock method based on the
average stock price for the period. SFAS No. 128 will be effective for the
Company's quarter and year ending December 31, 1997, and, upon effectiveness,
all prior-period earnings per share data presented shall be restated to conform
with the provisions of the new pronouncement. Application of the pronouncement
earlier than the Company's quarter ending December 31, 1997 is not permitted.
Pro forma basic and diluted earnings per share for the three months and six
months ended June 30, 1996 and 1997 calculated under the provisions of SFAS No.
128 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Basic earnings per share $0.19 $0.12 $0.46 $0.17
Diluted earnings per share $0.17 $0.10 $0.41 $0.14
</TABLE>
6. PRIORITY SOLUTIONS ACQUISITION
In May 1997, the Company completed the merger of Hampton Resources Limited,
a New Zealand Corporation and its subsidiaries, Priority Solutions Ltd. and
Priority Solutions International, Ltd. (collectively "Priority Solutions") in
exchange for 77,400 shares of Phoenix common stock into Phoenix's wholly-owned
subsidiary, Phoenix International A.P. Limited, a New Zealand corporation
("Phoenix A.P. Limited"). Phoenix A.P. Limited is a Wellington, New Zealand-
based provider of international banking software products which has developed
and markets TradeWind(TM), a trade finance system, and TradeCentre, a global
payments system, and supports customers using TradeMark, a traditional treasury
banking system.
Management believes the Phoenix A.P. Limited acquisition advances the
Company's growth strategies, including maintaining its technological leadership
position, expanding its international distribution, broadening its primary
markets and pursuing complementary acquisitions. In addition, Phoenix A.P.
Limited's senior management, who are experienced in wholesale banking software
solutions for treasury, trade finance and international payments processing,
provide the Company with additional management expertise.
7
<PAGE>
The Phoenix A.P. Limited acquisition has been accounted for as a pooling of
interests. The Company believes that the historical results of operations and
other financial information of Priority Solutions are not material in relation
to the Company's results of operations and other financial information. The
Company has not, therefore, restated its historical financial statements but has
included the results of Phoenix A.P. Limited's ongoing operations in the
Company's financial statements, effective April 1, 1997.
7. AUTHORIZED STOCK
On May 16, 1997, the shareholders of the Company approved an amendment to
the Company's Articles of Incorporation increasing the number of shares of
common stock authorized for issuance to 50,000,000 and an amendment to the
Company's 1995 Stock Option Plan increasing the number of shares reserved for
issuance from 250,000 to 500,000.
8. SUBSEQUENT EVENTS - STOCK OFFERING
On August 13, 1997, the Company's public offering of 1,254,000 shares of
common stock was declared effective by the Securities and Exchange Commission.
The Company currently anticipates that this offering will be completed on or
about August 18, 1997. The net proceeds to the Company from this offering
are expected to be approximately $26.8 million. The number of shares outstanding
at August 14, 1997 presented on the cover page of this report has been adjusted
to include the 1,254,000 shares of common stock to be issued upon completion of
the offering.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion contains forward-looking statements that involve
risks and uncertainties. The words "may," "should," "expect," "anticipate,"
"intend," "plan," "continue," "believe," "seek," "estimate," and similar
expressions used here that do not relate to historical facts are intended to
identify forward-looking statements. Prospective investors are cautioned that
any such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those projected in the forward-looking statements as a result of various
factors, including, among others, (i) heightened competition, including the
intensification of price competition, the entry of new competitors, and new
services by new and existing competitors; (ii) failure to identify, acquire or
profitably manage additional businesses or successfully integrate acquired
businesses, if any, into the Company without substantial costs, delays or other
operational or financial problems; (iii) failure to obtain new customers or
retain existing customers; (iv) inability to carry out marketing and sales
plans; (v) loss of key executives; (vi) general economic and business conditions
which are less favorable than expected; and (vii) unanticipated changes in
industry trends. These and other such factors are discussed in detail in the
Company's filings with the Securities and Exchange Commission, including the
"Risk Factors" section in the Company's Registration Statement (the
"Registration Statement") on Form S-1 (Registration Number 333-31415), as
amended, filed with the Securities and Exchange Commission on July 16, 1997.
OVERVIEW
Phoenix designs, develops, markets and supports highly adaptable,
enterprise-wide client/server application software for the financial services
industry, with a primary focus on middle market financial institutions. Phoenix
was founded in January 1993 and made its initial nondevelopment stage product
shipments in June 1995.
The Company derives its revenues from two primary sources: (i) license fees
for software products and other revenues and commissions from the sale and
delivery of software and hardware products of third party vendors; and (ii) fees
for a full range of services complementing its products, including
implementation, programming services, conversion training and installation
services, interface services for tying the Phoenix System to third-party
applications, customer and software support services, disaster recovery services
and Internet/Intranet consulting services. Fees for the Company's software
products are charged separately from fees for the Company's services and are
recognized upon delivery, when no significant vendor obligations remain and
collection of the resulting receivables is deemed probable. Revenues for
implementation, conversion, installation, training, interface and consulting
services are recognized when the services are performed. Service revenues for
ongoing customer and software support and product updates and disaster recovery
services provide recurring revenues as they are recognized ratably over each
year of the license agreement, the term of which is typically five years.
Costs incurred internally to develop a computer software product are
charged to product development expense when incurred until technological
feasibility has been established for the product. Thereafter, all software
production costs are capitalized and recorded at the lower of unamortized cost
or net realizable value. Capitalization ceases upon general release of the
software to customers. After general release, capitalized costs are amortized
using the straight-line method over the estimated useful life of the related
product (currently five years).
The Company's quarterly operating results have varied significantly in the
past and may vary significantly in the future. Factors that may cause the
Company's future operating results to vary include, without limitation: the
size and timing of significant orders; the mix of direct and indirect sales; the
mix and timing of foreign and domestic
9
<PAGE>
sales; the timing of new product announcements and changes in pricing policies
by the Company and its competitors; the timing of the development,
implementation and release of the Company's products and enhancements; changes
in the Company's strategy and operating expenses and general economic factors.
Product revenues are also difficult to forecast because the market for
client/server application software products is rapidly evolving, and the
Company's sales cycle generally covers an extended period but varies
substantially from customer to customer. Due to all of the foregoing factors, it
is likely that in some future quarter the Company's operating results will be
below the expectations of public market analysts and investors. In such an
event, the price of the Company's common stock would likely be materially
adversely affected. Phoenix believes that quarter to quarter comparisons of its
results of operations should not be relied upon as indications of future
performance.
PRIORITY SOLUTIONS ACQUISITION
In May 1997, the Company completed the merger of Hampton Resources Limited,
a New Zealand Corporation and its subsidiaries, Priority Solutions Ltd. and
Priority Solutions International, Ltd. (collectively "Priority Solutions") in
exchange for 77,400 shares of Phoenix common stock into Phoenix's wholly-owned
subsidiary, Phoenix International A.P. Limited, a New Zealand corporation
("Phoenix A.P. Limited"). Phoenix A.P. Limited is a Wellington, New Zealand-
based provider of international banking software products which has developed
and markets TradeWind(TM), a trade finance system, and TradeCentre, a global
payments system, and supports customers using TradeMark, a traditional treasury
banking system.
Management believes the Phoenix A.P. Limited acquisition advances the
Company's growth strategies, including maintaining its technological leadership
position, expanding its international distribution, broadening its primary
markets and pursuing complementary acquisitions. In addition, Phoenix A.P.
Limited's senior management, who are experienced in wholesale banking software
solutions for treasury, trade finance and international payments processing,
provide the Company with additional management expertise.
The Phoenix A.P. Limited acquisition has been accounted for as a pooling of
interests. The Company believes that the historical results of operations and
other financial information of Priority Solutions are not material in relation
to the Company's results of operations and other financial information. The
Company has not, therefore, restated its historical financial statements but has
included the results of Phoenix A.P. Limited's ongoing operations in the
Company's financial statements, effective April 1, 1997.
10
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenues represented
by certain line items in the Company's statement of operations for the periods
indicated.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------- ------------------------------------
1997 1996 1997 1996
----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues
License fees and other 72.7% 60.8% 67.6% 61.9%
Implementation, customer and software
support and other service fees 27.3% 39.2% 32.4% 38.1%
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0%
Expenses
Cost of license fees and other 9.7% 7.1% 8.0% 7.2%
Cost of implementation, customer and
software support and other service
fees 21.3% 23.7% 21.8% 24.6%
Sales and marketing 14.8% 10.2% 14.9% 12.4%
General and administrative 18.9% 22.8% 15.8% 21.6%
Product development 17.1% 17.3% 16.1% 17.1%
----- ----- ----- -----
Total expenses 81.8% 81.1% 76.6% 82.9%
Other income (expense)
Interest income 1.1% 1.3% 1.5% 1.5%
Interest expense (0.3)% (0.7)% (0.3)% (0.4)%
Income before taxes 19.0% 19.5% 24.6% 18.2%
Income tax expense 2.8% 2.8% 3.5% 5.5%
----- ----- ----- -----
Net income 16.2% 16.7% 21.1% 12.7%
===== ===== ===== =====
</TABLE>
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Revenues. Total revenues increased 124% to $4.7 million in the quarter
ended June 30, 1997 from $2.1 million for the quarter ended June 30, 1996.
International sales accounted for approximately 63% and 41% of total revenues in
the quarters ended June 30, 1997 and June 30, 1996, respectively. License fees
and other revenues increased 168% to $3.4 million from $1.3 million due to an
increased number of customers. Implementation, customer and software support and
other service fees increased 56% to $1.3 million in the quarter ended June 30,
1997 from $824,000 in the quarter ended June 30, 1996, primarily due to
increased programming, support and consulting revenues.
Expenses. The Company's operating expenses increased 126% to $3.8 million
in the quarter ended June 30, 1997 from $1.7 million in the quarter ended
June 30, 1996. Excluding nonrecurring acquisition expenses of $274,000 related
to the Phoenix A.P. Limited acquisition, operating expenses in the quarter
ended June 30, 1997 would have been $3.6 million.
Cost of license fees and other increased 203% to $456,000 from $150,000 in
the quarters ended June 30, 1997 and 1996, respectively, primarily as a result
of increased amortization of capitalized software development costs and third
party software royalties.
Cost of implementation, customer and software support and other service
fees
11
<PAGE>
increased 102% to $1.0 million in the quarter ended June 30, 1997 from $497,000
in the quarter ended June 30, 1996, largely as a result of additional personnel
costs related to increased Phoenix System implementation activity. Cost of
implementation, customer and software support and other service fees consists
primarily of personnel related costs incurred in providing implementation,
conversion and installation services, training and customer support.
Sales and marketing expenses increased 226% to $697,000 in the quarter
ended June 30, 1997 from $214,000 in the quarter ended June 30, 1996 primarily
as a result of additional expenses incurred in connection with increased
staffing and personnel related costs and from the opening of a new sales office
in London, England in December 1996.
General and administrative expenses increased 86% to $891,000 in the
quarter ended June 30, 1997 from $479,000 in the quarter ended June 30, 1996.
The increase was primarily the result of nonrecurring acquisition expenses of
$274,000 related to the acquisition of Phoenix A.P. Limited.
Product development expenses increased 121% to $802,000 in the quarter
ended June 30, 1997 from $364,000 in the quarter ended June 30, 1996. Product
development expenses increased as a result of increased salaries and contract
labor costs.
Other Income (Expense). Interest income was $54,000 and $28,000 in the
quarters ended June 30, 1997 and 1996, respectively. Interest income increased
primarily due to the increase in interest-bearing funds resulting from the
investment of the proceeds from the initial public offering of the Company's
common stock in July 1996. Interest expense was $16,000 from a capital lease
and $15,000 from primarily a bank line of credit loan in the quarters ended
June 30, 1997 and 1996, respectively.
Income Tax Expense. Income tax expense was $131,000 and $59,000 in the
quarters ended June 30, 1997 and 1996, respectively. These income tax expenses
represent withholding taxes which relate to the license of the Company's
products to foreign customers and which are contractually payable by those
customers, and includes alternative minimum tax in the quarter ended June 30,
1997.
Net Income. Net income increased 117% to $764,000 in the quarter ended
June 30, 1997 from $351,000 primarily in the quarter ended June 30, 1996,
primarily as a result of increased revenues. Excluding nonrecurring acquisition
expenses of $274,000 related to the acquisition of Phoenix A.P. Limited, net
income for the quarter ended June 30, 1997 would have been $1.0 million.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues. Total revenues increased 117% to $8.4 million in the six months
ended June 30, 1997 from $3.9 million for the six months ended June 30, 1996.
International sales accounted for approximately 62% and 45% of total revenues in
the six months ended June 30, 1997 and June 30, 1996, respectively. License
fees and other revenues increased 137% to $5.7 million from $2.4 million due to
an increased product line. Implementation, customer and software support and
other service fees increased 85% to $2.7 million in the six months ended
June 30, 1997 from $1.5 million in the six months ended June 30, 1996 due to
increased support and development professional service revenues.
Expenses. The Company's operating expenses increased 100% to $6.5 million
in the six months ended June 30, 1997 from $3.2 million in the six months ended
June 30, 1996, excluding non recurring acquisition expenses of $274,000 related
to the Phoenix A.P. Limited acquisition, operating expenses in the six months
ended June 30, 1996 would have been $6.2 million.
12
<PAGE>
Cost of license fees and other increased 140% to $675,000 from $281,000 in
the six months ended June 30, 1997 and 1996, respectively as a result of
increased amortization of capitalized software development costs and third party
software royalties.
Cost of implementation, customer and software support and other service
fees increased 92% to $1.8 million in the six months ended June 30, 1997 from
$955,000 in the six months ended June 30, 1996 as a result of additional
personnel costs related to increased Phoenix System implementation activity.
Cost of implementation, customer and software support and other service fees
consists primarily of personnel related costs incurred in providing
implementation, conversion and installation services, training and customer
support.
Sales and marketing expenses increased 161% to $1.3 million in the six
months ended June 30, 1997 from $483,000 in the quarter ended June 30, 1996,
primarily as a result of additional expenses incurred in connection with
increased staffing and personnel related costs and from the opening of a new
sales office in London, England in December 1996.
General and administrative expenses increased 59% to $1.3 million in the
six months ended June 30, 1997 from $837,000 in the six months ended June 30,
1996. The increase was primarily the result of acquisition expenses of $274,000
related to the acquisition of Phoenix A.P. Limited.
Product development expenses increased 105% to $1.4 million in the six
months ended June 30, 1997 from $663,000 in the six months ended June 30, 1996.
Product development expenses increased as a result of increased salaries and
contract labor costs.
Other Income (Expense). Interest income was $128,000 and $57,000 in the
six months ended June 30, 1997 and 1996, respectively. Interest income
increased primarily due to the increase in interest-bearing funds resulting from
the investment of the proceeds from the initial public offering of the Company's
common stock in July 1996. Interest expense was $21,000 from a capital lease
and $16,000 primarily from a bank line of credit loan in the six months ended
June 30, 1997 and 1996, respectively.
Income Tax Expense. Income tax expense was $299,000 and $212,000 in the
six months ended June 30, 1997 and 1996, respectively. These income tax
expenses represent withholding taxes which relate to the license of the
Company's products to foreign customers and which are contractually payable by
those customers, and includes alternative minimum tax in the six months ended
June 30, 1997.
Net Income. Net income increased 260% to $1.8 million in the six months
ended June 30, 1997 from $492,000 in the six months ended June 30, 1996,
primarily as a result of increased revenue. Excluding nonrecurrent acquisition
expenses of $274,000 related to the acquisition of Phoenix A.P. Limited, net
income for the six months ended June 30, 1997 would have been $2.1 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its cash needs through existing cash and investment
balances, interest on investments and, to a lesser extent, through cash flow
from operations, without relying on lines of credit or other borrowings. At
June 30, 1997, cash and cash equivalents were $3.0 million. For the six months
ended June 30, 1997, cash used by operations was $1.1 million. An increase in
accounts receivable of $1.7 million, and an increase in unbilled accounts
receivable of $2.1 million were significant uses of cash in operating
activities. Investing activities provided cash of $248,000, including $2.7
million from the sale of short term investments. Purchases of property and
equipment used
13
<PAGE>
$920,000 of cash. Increases in other assets which include minority investments
in other companies and non-current prepaid royalties (see Note 3 of Notes to the
financial statements) used $466,000 of cash. Increases in capitalized software
costs, including $311,000 of purchased software, used $1.1 million of cash.
Financing activities provided $172,000 of cash, including $177,000 primarily
from the issuance of common stock pursuant to the exercise of stock options. In
addition, the Company entered into a capital lease obligation of $727,000 for
furniture when it moved into its new corporate offices in March 1997.
Working capital was $6.7 million as of June 30, 1997 and excluding deferred
revenue, which represents advance payments for license fees and services,
adjusted working capital was $7.8 million at June 30, 1997.
The Company believes its cash balances, investments and cash flow from
operations, together with the net proceeds of the Offering of its common stock
which (while there can be no assurance) is currently expected to be consummated
on August 19, 1997, will be sufficient to meet its working capital, capital
expenditure and capitalized software development requirements through 1998. Cash
flows from operating activities are dependent on continued advance payments from
customers, and there is no assurance that the Company will continue to receive
these payments from customers or that it will continue to receive these payments
in advance on the same terms as it has in the past. The Company anticipates that
its operating and investing activities may use cash in the future, particularly
from growth in operations and development activities. Consequently, any such
future growth, including acquisitions, may require the Company to obtain
additional equity or debt financing.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property subject to, any
material legal proceedings, other than routine litigation incidental to its
business.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of the Company was held on May 16,
1997 for the following purposes:
1. to elect three Class I directors to serve for three-year terms
2. to consider and act upon the proposal to amend the Company's 1995 Stock
Option Plan, effective as of October 21, 1995, to increase the shares
reserved for issuance thereunder from 250,000 to 500,000
3. to consider and take action on the proposal to amend the Amended and
Restated Articles of Incorporation to increase the authorized number of
shares of common stock authorized for issuance from 20,000,000 to
50,000,000
Only shareholders of record at the close of business on March 24, 1997 were
entitled to vote at the Annual Meeting. Proxies for the meeting were solicited
pursuant to the Florida Business Corporation Act, and there was no solicitation
in opposition to management's solicitations.
Proxies and ballots were received from the holders of 3,192,655 shares of
the Company's common stock, representing 82.6% of the outstanding shares of
common stock. The results were as follows:
1. The three individuals nominated to serve as Class I directors were elected
with the number of votes for and withheld as indicated below:
Nominee For Withheld
-------------- --------- --------
Ruann F. Ernst 3,191,905 750
William C. Hess 3,191,905 750
O. Jay Tomson 3,191,905 750
15
<PAGE>
Also, the shareholders approved the following matters with the number of votes
for, against and withheld as indicated below:
<TABLE>
<CAPTION>
For Against Withheld
-------------- -------------- --------------
<S> <C> <C> <C>
2. The proposal to amend the Company's 1995 Stock
Option Plan 2,684,665 206,829 7,850
3. Proposal to amend the Company's Amended and
Restated Articles of Incorporation 3,007,976 173,929 8,350
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
No. Description
- ---- -----------
2.1 Agreement of Merger and Amalgamation Proposal by and among the Company,
Hampton Resources Limited, PSL Acquisition Limited, Brian Lee Thomas and
Elizabeth Carolyn Swanston, dated May 15, 1997 (incorporated by
reference to Exhibit 2.1 of the Company's Current Report on Form 8-K,
filed with the Securities and Exchange Commission on May 29, 1997, File
No. 0-20937).
3.1 Amended and Restated Articles of Incorporation, as amended by the
Articles of Amendment to Amended and Restated Articles of Incorporation
as filed with the Secretary of State of the State of Florida on May 28,
1997 (incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1 (No. 333-31415) filed with the SEC on
July 16, 1997 (the "Registration Statement").
3.2 Amended and Restated Bylaws, effective July 8, 1996, (incorporated by
reference to Exhibit 3.2 of the Company's Form 10-Q, dated August 14,
1996, File No. 0-20937).
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws defining the
rights of the holders of Common Stock of the Company (incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement).
10.1 Second Amendment to Software License Agreement between the Company and
Unisys, dated June 30, 1997 (incorporated by reference to Exhibit 10.27
of the Registration Statement).
10.2 Cooperative Marketing Agreement, dated June 28, 1997, between the
Company and Siemens Nixdorf Informationssysteme AG (incorporated by
reference to Exhibit 10.49 of the Registration Statement).
10.3 Cooperative Marketing Agreement, dated March 31, 1997, between the
Company and ERAS JV (incorporated by reference to Exhibit 10.50 of the
Registration Statement).
10.4 Cooperative Marketing Agreement, dated April 16, 1997, between the
Company and Advanced Financial Systems, Inc. (incorporated by reference
to Exhibit 10.51 of the Registration Statement).
11.1 Statement re: Computation of Earnings Per Share.
27.1 Financial Data Schedule.
b) Reports on Form 8-K
A Form 8-K was filed with the Securities and Exchange Commission on
May 29, 1997 with respect to the Phoenix A.P. Limited acquisition.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
PHOENIX INTERNATIONAL LTD., INC.
/s/ Bahram Yusefzadeh
- ---------------------- ---------------------
Date (August 14, 1997) Bahram Yusefzadeh
Chairman of the Board and Chief Executive Officer
(principal executive officer)
/s/ Clay E. Scarborough
- ---------------------- -----------------------
Date (August 14, 1997) Clay E. Scarborough
Senior Vice President and Chief Financial Officer
(principal financial and accounting officer)
17
<PAGE>
EXHIBIT INDEX
Exhibits
No. Description Page
--- ----------- ----
2.1 Agreement of Merger and Amalgamation Proposal by and among the
Company, Hampton Resources Limited, PSL Acquisition Limited, Brian Lee
Thomas and Elizabeth Carolyn Swanston, dated May 15, 1997
(incorporated by reference to Exhibit 2.1 of the Company's Current
Report on Form 8-K, filed with the Securities and Exchange Commission
on May 29, 1997, File No. 0-20937).
3.1 Amended and Restated Articles of Incorporation, as amended by
the Articles of Amendment to Amended and Restated Articles of
Incorporation as filed with the Secretary of State of the State
of Florida on May 28, 1997 (incorporated by reference to
Exhibit 3.1 of the Company's Registration Statement on Form S-1
(No. 333-31415) filed with the SEC on July 16, 1997
(the "Registration Statement")).
3.2 Amended and Restated Bylaws, effective July 8, 1996, (incorporated
by reference to Exhibit 3.2 of the Company's Form 10-Q, dated August
14, 1996, File No. 0-20937).
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws defining
the rights of the holders of Common Stock of the Company
(incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement).
10.1 Second Amendment to Software License Agreement between the Company
and Unisys, dated June 30, 1997 (incorporated by reference to
Exhibit 10.27 of the Registration Statement).
10.2 Cooperative Marketing Agreement, dated June 28, 1997, between the
Company and Siemens Nixdorf Informationssysteme AG (incorporated
by reference to Exhibit 10.49 of the Registration Statement).
10.3 Cooperative Marketing Agreement, dated March 31, 1997, between the
Company and ERAS JV (incorporated by reference to Exhibit 10.50 of
the Registration Statement).
10.4 Cooperative Marketing Agreement, dated April 16, 1997, between the
Company and Advanced Financial Systems, Inc. (incorporated by
reference to Exhibit 10.51 of the Registration Statement).
11.1 Statement re: Computation of Earnings Per Share.
27.1 Financial Data Schedule.
<PAGE>
EXHIBIT 11.1
PHOENIX INTERNATIONAL LTD., INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------ --------------------------------------
1997 1996 1997 1996
----------------- ----------------- ---------------- --------------------
<S> <C> <C> <C> <C>
Net Income $ 763,674 $ 351,450 $1,776,970 $ 492,976
========== ========== ========== ==========
PRIMARY
Weighted average common stock outstanding 3,944,740 3,020,121 3,896,719 2,986,358
Effect of dilutive common stock equivalents
outstanding during the period (1) 433,982 365,818 435,962 245,753
Effect of common stock issued and stock options
granted during the 12-month period preceding
July 1, 1996 (3) -- -- -- 114,880
Total common and common equivalent shares 4,378,722 3,385,939 4,332,681 3,346,991
========== ========== ========== ==========
Primary net income per share $ 0.17 $ 0.10 $ 0.14 $ 0.14
========== ========== ========== ==========
FULLY DILUTED
Weighted average common stock outstanding 3,944,740 3,020,121 3,896,719 2,986,358
Effect of dilutive common stock equivalents
outstanding during the period(2) 446,711 411,638 452,135 294,030
Effect of common stock issued and stock options
granted during the 12-month period preceding
July 1, 1996(3) -- -- -- 114,880
Total common and common equivalent share 4,391,451 3,431,759 4,348,854 3,395,268
========== ========== ========== ==========
Fully diluted net income per share $ 0.17 $ 0.10 $ 0.41 $ 0.14
========== ========== ========== ==========
</TABLE>
- -----------------------------
1. Based on the treasury stock method using average market price.
2. Based on the treasury stock method using the higher of the average or
period-end market price.
3. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common stock issued and stock options granted at prices below the
initial public offering price per share during the 12-month period
immediately preceding the initial filing and through the effective date of
the Registration Statement, using the treasury stock method.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FROM FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 3,079,503
<SECURITIES> 0
<RECEIVABLES> 5,872,934
<ALLOWANCES> (65,000)
<INVENTORY> 0
<CURRENT-ASSETS> 9,474,914
<PP&E> 2,802,876
<DEPRECIATION> (610,042)
<TOTAL-ASSETS> 15,029,073
<CURRENT-LIABILITIES> 2,798,530
<BONDS> 0
0
0
<COMMON> 39,521
<OTHER-SE> 11,437,934
<TOTAL-LIABILITY-AND-EQUITY> 15,029,073
<SALES> 0
<TOTAL-REVENUES> 8,419,832
<CGS> 0
<TOTAL-COSTS> 6,451,269
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (21,437)
<INCOME-PRETAX> 2,075,603
<INCOME-TAX> 298,633
<INCOME-CONTINUING> 1,776,970
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,776,970
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
