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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 SEPTEMBER 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
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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 Identification No.)
incorporation or organization)
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 October 31, 1997
Common Stock, $0.01 par value 5,435,418
(No. of Shares)
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PHOENIX INTERNATIONAL LTD., INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Operations for the three
months and nine months ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 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 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES
EXHIBIT INDEX
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHOENIX INTERNATIONAL LTD., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,005,140 $ 3,770,889
Investments -- 2,730,825
Accounts receivable, net of allowance for doubtful accounts of $105,000 and
$15,000 at September 30, 1997 and December 31, 1996, respectively 2,912,982 935,736
Unbilled accounts receivable 3,299,946 1,188,282
Prepaid expenses and other current assets 648,739 548,379
------------ ------------
Total current assets 39,866,807 9,174,111
Property and equipment:
Computer equipment and purchased software 2,009,567 1,088,509
Furniture, office equipment and leasehold improvements 1,031,198 252,047
------------ ------------
3,040,765 1,340,556
Accumulated depreciation and amortization (779,404) (447,128)
------------ ------------
Total property and equipment 2,261,361 893,428
Capitalized software costs, net of accumulated
amortization of $879,683 and $446,572 at September 30, 1997 and
December 31, 1996, respectively 3,124,397 1,985,628
Other assets 1,296,400 30,000
------------ ------------
Total assets $ 46,548,965 $ 12,083,167
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 451,747 $ 384,693
Accrued expenses 1,198,032 922,040
Capital lease, current portion 127,147 --
Deferred revenue 1,031,360 1,002,417
------------ ------------
Total current liabilities 2,808,286 2,309,150
Deferred revenue under economic development grant 95,000 190,000
Capital lease, long term portion 535,230 --
------------ ------------
Total long term liabilities 630,230 190,000
Shareholders' equity:
Common stock, $0.01 par value
50,000,000 and 20,000,000 shares authorized, 5,429,190 and 3,838,910 issued and
outstanding at September 30, 1997 and December 31, 1996, respectively 54,292 38,389
Additional paid-in capital 42,448,807 10,727,255
Stock subscription receivables (14,268) (110,683)
Retained earnings (accumulated deficit) 621,618 (1,070,944)
------------ ------------
Total shareholders' equity 43,110,449 9,584,017
============ ============
Total liabilities and shareholders' equity $ 46,548,965 $ 12,083,167
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
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PHOENIX INTERNATIONAL LTD., INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
License fees and other $ 2,235,353 $ 1,779,341 $ 7,924,796 $ 4,184,753
Implementation, customer and software
support and other service fees 1,119,357 1,105,839 3,849,746 2,583,464
------------ ------------ ------------ ------------
Total revenues 3,354,710 2,885,180 11,774,542 6,768,217
Expenses:
Cost of license fees and other 454,545 194,592 1,129,882 475,862
Cost of implementation, customer
and software support and other service fees 993,981 597,456 2,828,770 1,551,985
Sales and marketing 763,552 385,094 2,021,216 867,735
General and administrative 649,378 449,602 1,977,279 1,286,996
Product development 805,578 511,909 2,161,156 1,174,854
------------ ------------ ------------ ------------
Total expenses 3,667,034 2,138,653 10,118,303 5,357,432
Other income (expense):
Interest income 233,068 87,005 361,545 143,897
Interest expense (15,308) (3,175) (36,745) (19,231)
Other income 109,671 (2,242) 109,671 (2,242)
------------ ------------ ------------ ------------
Income before income taxes 15,107 828,115 2,090,710 1,533,209
Income tax expense 5,136 269,548 303,769 481,666
------------ ------------ ------------ ------------
Net income $ 9,971 $ 558,567 $ 1,786,941 $ 1,051,543
============ ============ ============ ============
Net income per share $ 0.00 $ 0.14 $ 0.39 $ 0.29
============ ============ ============ ============
Weighted average shares outstanding 5,098,173 4,116,868 4,587,845 3,603,617
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements of operations.
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PHOENIX INTERNATIONAL LTD., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,786,941 $ 1,051,543
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 765,387 373,271
Satisfaction of payable to vendor -- (100,000)
Provision for doubtful accounts 90,000 --
Deferred taxes -- 348,324
Changes in operating assets and liabilities:
Accounts receivable (2,067,246) (343,383)
Unbilled accounts receivable (2,111,664) (134,152)
Interest receivable, related party -- 105,001
Prepaid expenses and other current assets (100,360) (152,008)
Accounts payable 67,054 (20,258)
Accrued expenses 275,992 357,890
Deferred revenue (66,057) (2,155,311)
------------ ------------
Net cash used in operating activities (1,359,953) (669,083)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,063,085) (420,398)
Sale of short term investments 2,730,825 (2,694,575)
Purchases of other assets (1,266,400) --
Capitalized software costs (1,571,880) (851,803)
------------ ------------
Net cash used in investing activities (1,170,540) (3,966,776)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital lease payments (69,126) --
Proceeds from short term debt -- 247,031
Net proceeds from issuance of common stock 31,737,455 6,577,204
Payment on short-term debt -- (322,234)
Cash payments for stock subscription receivable 96,415 1,320,995
------------ ------------
Net cash provided by financing activities 31,764,744 7,822,996
Net increase in cash and cash equivalents 29,234,251 3,187,137
Cash and cash equivalents at beginning of the period 3,770,889 425,931
------------ ------------
Cash and cash equivalents at end of the period $ 33,005,140 $ 3,613,068
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements of cash flows.
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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 Consolidated Financial and Operating Data" included in the Company's
registration statement on Form S-1 (File No. 333-31415).
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 initial public offering price and stock options issued
with exercise prices below the initial public offering price during the
twelve-month period preceding the initial filing and through the effective date
of the July 1, 1996 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 Corporation ("Dyad") whereby the Company purchased a minimal equity
interest in Dyad. Dyad is developing automated loan and mortgage and financial
services delivery products. Pursuant to the Company's agreement with Dyad, the
Company, in September 1997, exercised an option 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 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.
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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 September 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 nine
months ended September 30, 1996 and 1997 calculated under the provisions of SFAS
No. 128 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per share $0.00 $0.15 $0.43 $0.32
Diluted earnings per share $0.00 $0.14 $0.39 $0.29
</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 76,760 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
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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.
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. STOCK OFFERING
In August 1997, the Company completed a public offering of its common
stock. The Company issued 1,474,000 shares, including the underwriter's
over-allotment option, at a price of $23.50 per share. The proceeds to the
Company from the offering, net of underwriting discounts and offering expenses,
were approximately $31.5 million.
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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 herein 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, declared effective by the Securities and Exchange
Commission on August 13, 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 in the United States on middle market financial
institutions and internationally on those retail-oriented institutions located
within Africa, Asia-Pacific, Europe, Latin America/Caribbean and the Middle East
that have up to 300 branches and/or one million accounts ("Tier 2 Banks").
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, 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, 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.
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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 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.
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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 Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues
License fees and other 66.6 % 61.7 % 67.3 % 61.8 %
Implementation, customer and software
support and other service fees 33.4 % 38.3 % 32.7 % 38.2 %
----- ----- ----- -----
Total revenues 100.0 % 100.0 % 100.0 % 100.0 %
Expenses
Cost of license fees and other 13.5 % 6.7 % 9.6 % 7.0 %
Cost of implementation, customer and
software support and other service fees 29.6 % 20.7 % 24.0 % 23.0 %
Sales and marketing 22.8 % 13.4 % 17.2 % 12.8 %
General and administrative 19.4 % 15.6 % 16.7 % 19.0 %
Product development 24.0 % 17.7 % 18.4 % 17.4 %
----- ----- ----- -----
Total expenses 109.3 % 74.1 % 85.9 % 79.2 %
Other income (expense)
Interest income 6.9 % 3.0 % 3.1 % 2.1 %
Interest expense (0.4)% (0.1)% (0.3)% (0.3)%
Other income 3.3 % (0.1)% 0.9 % --
Income before taxes 0.5 % 28.7 % 17.8 % 22.6 %
Income tax expense 0.2 % 9.3 % 2.6 % 7.1 %
----- ----- ----- -----
Net income 0.3 % 19.4 % 15.2 % 15.5 %
===== ===== ===== =====
</TABLE>
Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996
Revenues. Total revenues increased 16.3% to $3.4 million in the quarter
ended September 30, 1997 from $2.9 million for the quarter ended September 30,
1996. International sales accounted for approximately 48% and 54% of total
revenues in the quarters ended September 30, 1997 and September 30, 1996,
respectively. License fees and other revenues increased 25.6% to $2.2 million
from $1.8 million principally due to an increased product line. Implementation,
customer and software support and other service fees increased 1.2% to $1.1
million in the quarter ended September 30, 1997 from $1.1 million in the quarter
ended September 30, 1996. In the quarter ended September 30, 1997,
implementation and other service fees decreased but were offset by increased
support fees when compared to the same period in 1996.
Expenses. The Company's operating expenses increased 71.5% to $3.7
million in the quarter ended September 30, 1997 from $2.1 million in the quarter
ended September 30, 1996.
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Cost of license fees and other increased 133.6% to $455,000 in the
quarter ended September 30, 1997 from $195,000 in the quarter ended September
30, 1996, 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 increased 66.4% to $994,000 in the quarter ended September 30, 1997 from
$597,000 in the quarter ended September 30, 1996, largely as a result of
additional personnel costs related to increased Phoenix System implementation
activity, and training of third party agents and resellers. 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 98.3% to $764,000 in the quarter
ended September 30, 1997 from $385,000 in the quarter ended September 30, 1996
primarily as a result of additional expenses incurred in connection with
increased staffing, travel and personnel related costs and from the opening of a
new sales office in London, England in December 1996.
General and administrative expenses increased 44.4% to $649,000 in the
quarter ended September 30, 1997 from $450,000 in the quarter ended September
30, 1996 primarily as a result of the addition of personnel and related costs,
increases in the bad debt reserve and other overhead costs.
Product development expenses increased 57.4% to $806,000 in the quarter
ended September 30, 1997 from $512,000 in the quarter ended September 30, 1996.
Product development expenses increased as a result of increased salaries and
contract labor costs.
Other Income (Expense). Interest income was $233,000 and $87,000 in the
quarters ended September 30, 1997 and 1996, respectively. Interest income
increased primarily due to the increase in interest-bearing funds resulting from
the investment of the proceeds that resulted from the public offering of the
Company's common stock in August 1997. Other income was $110,000 in the quarter
ended September 30, 1997, primarily as a result of fulfilling obligations under
an economic development relocation grant and realized foreign exchange gains
from the operations of Phoenix A.P. Limited
Income Tax Expense. Income tax expense was $5,000 and $270,000 in the
quarters ended September 30, 1997 and 1996, respectively. The income tax expense
for the quarter ended September 30, 1996 represents a withholding tax which
relates to the license of the Company's products to foreign customers and which
are contractually payable by those customers.
Net Income. Net income decreased 98.2% to $10,000 in the quarter ended
September 30, 1997 from $559,000 in the quarter ended September 30, 1996,
primarily as a result of operating expenses increasing more rapidly than
revenues.
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Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
Revenues. Total revenues increased 74.0% to $11.8 million in the nine
months ended September 30, 1997 from $6.8 million for the nine months ended
September 30, 1996. International sales accounted for approximately 58% and 49%
of total revenues in the nine months ended September 30, 1997 and September 30,
1996, respectively. License fees and other revenues increased 89.4% to $7.9
million from $4.2 million due to an increased number of customers and an
increased product line. Implementation, customer and software support and other
service fees increased 49.0% to $3.8 million in the nine months ended September
30, 1997 from $2.6 million in the nine months ended September 30, 1996 due to
increased support fees, programming support and consulting revenues.
Expenses. The Company's operating expenses increased 88.9% to $10.1
million in the nine months ended September 30, 1997 from $5.4 million in the
nine months ended September 30, 1996, and excluding non recurring acquisition
expenses of $274,000 related to the Phoenix A.P. Limited acquisition, operating
expenses in the nine months ended September 30, 1996 would have been $9.8
million.
Cost of license fees and other increased 137.4% to $1.1 million in the
nine months ended September 30, 1997 from $476,000 in the nine months ended
September 30, 1996, 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 82.3% to $2.8 million in the nine months ended September 30, 1997
from $1.6 million in the nine months ended September 30, 1996 as a result of
additional personnel costs related to increased Phoenix System implementation
activity and training of third party agents and resellers. 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 132.9% to $2.0 million in the
nine months ended September 30, 1997 from $868,000 in the quarter ended
September 30, 1996, primarily as a result of additional expenses incurred in
connection with increased staffing, travel, commissions and personnel related
costs and from the opening of a new sales office in London, England in December
1996.
General and administrative expenses increased 53.6% to $2.0 million in
the nine months ended September 30, 1997 from $1.3 million in the nine months
ended September 30, 1996. The increase was primarily the result of acquisition
expenses of $274,000 related to the acquisition of Phoenix A.P. Limited,
increases in the bad debt reserve, personnel related costs and other overhead
costs.
Product development expenses increased 84% to $2.2 million in the nine
months ended September 30, 1997 from $1.2 million in the nine months ended
September 30, 1996. Product development expenses increased as a result of
increased salaries and contract labor costs.
Other Income (Expense). Interest income was $362,000 and $144,000 in
the nine months ended September 30, 1997 and 1996, respectively. Interest income
increased primarily
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due to the increase in interest-bearing funds resulting from the investment of
the proceeds that resulted from the public offering of the Company's common
stock in August 1997. Interest expense was $37,000 from a capital lease and
$19,000 primarily from a bank line of credit loan in the nine months ended
September 30, 1997 and 1996, respectively. Other income was $110,000 in the nine
months ended September 30, 1997, primarily as a result of fulfilling obligations
under an economic development grant and realized foreign exchange gains from the
operations of Phoenix A.P. Limited.
Income Tax Expense. Income tax expense was $304,000 and $482,000 in the
nine months ended September 30, 1997 and 1996, respectively. These income tax
expenses primarily represent withholding taxes which relate to the license of
the Company's products to foreign customers and which are contractually payable
by those customers.
Net Income. Net income increased 69.9% to $1.8 million in the nine
months ended September 30, 1997 from $1.1 million in the nine months ended
September 30, 1996, primarily as a result of increased revenue. Excluding
nonrecurring acquisition expenses of $274,000 related to the acquisition of
Phoenix A.P. Limited, net income for the nine months ended September 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
September 30, 1997, cash and cash equivalents were $33.0 million. For the nine
months ended September 30, 1997, cash used by operations was $1.4 million. An
increase in accounts receivable of $2.1 million, and an increase in unbilled
accounts receivable of $2.1 million were significant uses of cash in operating
activities as customers have sought extended payment terms. Investing activities
used cash of $1.2 million, including $1.6 million from capitalized software
costs. Purchases of property and equipment used $1.1 million 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 $1.3 million of cash, and increases in the sale of short term investments
provided $2.7 million of cash. Financing activities provided $31.8 million of
cash primarily from the issuance of 1,474,000 shares pursuant to the Company's
offering of its common stock in August 1997. 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 $37.1 million as of
September 30, 1997.
The Company believes its cash balances, investments and cash flow from
operations 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> 15
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
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
No. Description
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 Registration Statement).
11.1 Statement re: Computation of Earnings Per Share.
27.1 Financial Data Schedule (for SEC purposes only).
b) Reports on Form 8-K
None.
15
<PAGE> 16
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.
Date (November 7, 1997) /s/ Bahram Yusefzadeh
- ------------------------ -------------------------------------------------
Bahram Yusefzadeh
Chairman of the Board and Chief Executive Officer
(principal executive officer)
Date (November 7, 1997) /s/ Clay E. Scarborough
- ------------------------ -------------------------------------------------
Clay E. Scarborough
Senior Vice President and Chief Financial Officer
(principal financial and accounting officer)
16
<PAGE> 17
EXHIBIT INDEX
Exhibits
No. Description
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
Registration Statement).
11.1 Statement re: Computation of Earnings Per Share.
27.1 Financial Data Schedule (for SEC purposes only).
17
<PAGE> 1
EXHIBIT 11.1
PHOENIX INTERNATIONAL LTD., INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 9,971 $ 558,567 $1,786,941 $1,051,543
========== ========== ========== ==========
PRIMARY
Weighted average common stock outstanding 4,633,725 3,774,103 4,142,388 3,248,940
Effect of dilutive common stock equivalents 464,448 342,765 445,457 278,090
outstanding during the period(1)
Effect of common stock issued and stock options
granted during the 12-month period preceding
July 1, 1996(3) -- -- -- 76,587
Total common and common equivalent shares 5,098,173 4,116,868 4,587,845 3,603,617
========== ========== ========== ==========
Primary net income per share $ 0.00 $ 0.14 $ 0.39 $ 0.29
========== ========== ========== ==========
FULLY DILUTED
Weighted average common stock outstanding 4,633,725 3,774,103 4,142,388 3,248,940
Effect of dilutive common stock equivalents 465,302 392,020 456,524 326,693
outstanding during the period(2)
Effect of common stock issued and stock options
granted during the 12-month period preceding
July 1, 1996(3) -- -- -- 76,587
---------- ---------- ---------- ----------
Total common and common equivalent shares 5,099,027 4,166,123 4,598,912 3,652,220
========== ========== ========== ==========
Fully diluted net income per share $ 0.00 $ 0.14 $ 0.39 $ 0.29
========== ========== ========== ==========
</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.
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FROM FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 33,005,140
<SECURITIES> 0
<RECEIVABLES> 6,317,928
<ALLOWANCES> (105,000)
<INVENTORY> 0
<CURRENT-ASSETS> 39,866,807
<PP&E> 3,040,765
<DEPRECIATION> (779,404)
<TOTAL-ASSETS> 46,548,965
<CURRENT-LIABILITIES> 2,808,286
<BONDS> 0
0
0
<COMMON> 54,292
<OTHER-SE> 43,056,157
<TOTAL-LIABILITY-AND-EQUITY> 46,548,965
<SALES> 0
<TOTAL-REVENUES> 11,774,542
<CGS> 0
<TOTAL-COSTS> 10,118,303
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (36,745)
<INCOME-PRETAX> 2,090,710
<INCOME-TAX> 303,769
<INCOME-CONTINUING> 1,786,941
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,786,941
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
