<PAGE> 1
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, 1999.
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)
<TABLE>
<S> <C>
Florida 59-3171810
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
500 International Parkway, 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 13, 1999
Common Stock, $0.01 par value 8,526,768
-----------------
(No. of Shares)
1
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PHOENIX INTERNATIONAL LTD., INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of
Operations for the Three Months and Six
Months ended June 30, 1999 and 1998
4
Condensed Consolidated Statements of Cash Flows for the Six
Months ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements
6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES
EXHIBIT INDEX
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHOENIX INTERNATIONAL LTD., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,148,184 $ 3,795,962
Investments, available for sale -- 5,995,640
Accounts receivable, net of allowance for doubtful accounts of $593,350 and
$473,350 at June 30, 1999 and December 31, 1998, respectively 11,583,371 8,158,104
Unbilled accounts receivable 4,911,125 7,497,682
Deferred tax asset 5,365,185 3,737,198
Prepaid expenses and other current assets 1,442,186 420,903
------------ ------------
Total current assets 25,450,051 29,605,489
Long term investments, available for sale 16,569,024 16,533,770
Property and equipment:
Computer equipment and purchased software 4,592,235 4,245,907
Furniture, office equipment and leasehold improvements 2,400,227 2,307,329
------------ ------------
6,992,462 6,553,236
Accumulated depreciation and amortization (3,079,600) (2,224,508)
------------ ------------
Property and equipment, net 3,912,862 4,328,728
Capitalized software costs, net of accumulated
amortization of $3,293,369 and $2,282,480 at June 30, 1999 and
December 31, 1998, respectively 11,328,576 7,155,436
Other assets 1,879,150 1,879,150
------------ ------------
Total assets $ 59,139,663 $ 59,502,573
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,699,433 $ 599,660
Accrued expenses 3,011,704 2,124,268
Capital lease, current portion 148,491 142,051
Deferred revenue 3,408,621 2,649,364
------------ ------------
Total current liabilities 8,268,249 5,515,343
Deferred tax liability 2,678,842 2,817,939
Capital lease, long term portion 280,151 357,299
------------ ------------
Total long term liabilities 2,958,993 3,175,238
------------ ------------
Total liabilities 11,227,242 8,690,581
Shareholders' equity:
Common stock, $0.01 par value:
50,000,000 shares authorized, 8,526,768 and 8,498,633 issued and
outstanding at June 30, 1999 and December 31, 1998, respectively 85,268 84,986
Additional paid-in capital 46,330,896 46,191,279
Unrealized gain (loss) on investments available for sale (net of tax effect) (20,319) 238,005
Retained earnings 1,516,576 4,297,722
------------ ------------
Total shareholders' equity 47,912,421 50,811,992
------------ ------------
Total liabilities and shareholders' equity $ 59,139,663 $ 59,502,573
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
3
<PAGE> 4
PHOENIX INTERNATIONAL LTD., INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
1999 1998 1999 1998
---------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues:
License fees and other $ 2,501,963 $ 3,679,940 $ 4,813,408 $ 6,711,150
Implementation, customer and software
support and other service fees 3,234,293 1,986,763 6,457,603 3,553,997
----------- ----------- ------------ ------------
Total revenues 5,736,256 5,666,703 11,271,011 10,265,147
Expenses:
Cost of license fees and other 924,948 473,309 1,518,361 1,017,675
Cost of implementation, customer
and software support and other service fees 2,296,025 1,460,840 4,525,867 2,683,364
Sales and marketing 1,027,826 986,624 2,326,499 1,958,249
General and administrative 1,171,989 988,215 2,318,768 2,072,539
Product development 2,868,997 1,396,388 5,425,902 2,553,850
----------- ----------- ------------ ------------
Total expenses 8,289,785 5,305,376 16,115,397 10,285,677
Other income (expense):
Interest income 305,096 406,816 610,539 854,150
Interest expense (10,101) (13,150) (17,915) (27,076)
Other income (loss) (7,704) 10,645 (26,925) 13,130
----------- ----------- ------------ ------------
Income (loss) before income taxes (2,266,238) 765,638 (4,278,687) 819,674
Income tax expense (benefit) (793,184) 267,973 (1,497,541) 286,886
----------- ----------- ------------ ------------
Net income (loss) $(1,473,054) $ 497,665 $ (2,781,146) $ 532,788
=========== =========== ============ ============
Net income (loss) per share - basic $ (0.17) $ 0.06 $ (0.33) $ 0.06
=========== =========== ============ ============
Net income (loss) per share - diluted $ (0.17) $ 0.06 $ (0.33) $ 0.06
=========== =========== ============ ============
Weighted average shares outstanding - basic 8,514,802 8,366,344 8,509,875 8,299,024
=========== =========== ============ ============
Weighted average shares outstanding - diluted 8,514,802 8,928,034 8,509,875 8,826,832
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements of operations.
4
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PHOENIX INTERNATIONAL LTD., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,781,146) $ 532,788
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,866,021 1,002,976
Provision for doubtful accounts 120,000 186,200
Deferred taxes (1,627,965) 159,270
Changes in operating assets and liabilities:
Accounts receivable (3,545,267) 1,109,049
Unbilled accounts receivable 2,586,557 (1,863,763)
Prepaid expenses and other current assets (1,021,283) (142,061)
Accounts payable 1,099,773 (343,863)
Accrued expenses 887,436 (70,716)
Deferred revenue 759,257 401,955
----------- ------------
Net cash (used in) provided by operating activities (1,656,617) 971,835
Cash flows from investing activities:
Purchases of property and equipment (439,266) (1,523,088)
Sale of investments, available for sale 7,910,710 2,799,300
Purchases of investments, available for sale (2,347,767) (1,844,714)
Capitalized software costs (4,684,029) (2,279,895)
Purchased software (500,000) (300,000)
----------- ------------
Net cash used in investing activities (60,352) (3,148,397)
Cash flows from financing activities:
Payments of capital lease obligations (70,708) (64,780)
Net proceeds from issuance of common stock 139,899 765,374
Cash payments for stock subscription receivable -- 13,360
----------- ------------
Net cash provided by financing activities 69,191 713,954
Net decrease in cash and cash equivalents (1,647,778) (1,462,608)
Cash and cash equivalents at beginning of the period 3,795,962 13,034,491
----------- ------------
Cash and cash equivalents at end of the period $ 2,148,184 $ 11,571,883
=========== ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements of cash flows.
5
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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, "Selected Financial and Operating Data," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Company's annual report on Form 10-K for the year ended
December 31, 1998.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated and presented in accordance
with Statement of Financial Accounting Standards No. 128, Earnings per Share
("SFAS 128"). Basic earnings per share is computed using the average number of
common shares outstanding. Diluted earnings per share is computed on the basis
of the average number of common shares outstanding plus the effect of dilutive
outstanding stock options using the "treasury stock" method based on average
stock price for the period.
The following table sets forth the computation of basic and diluted earnings
per share.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Numerator - net income (loss) available $ (1,473,054) $ 497,665 $ (2,781,146) $ 532,788
============= ========== ============= ==========
to common shareholders
Denominator for basic net income (loss) per
share - weighted average shares outstanding 8,514,802 8,366,344 8,509,875 8,299,024
Effect of dilutive securities -
employee stock options -- 561,690 -- 527,808
------------- ---------- ------------- ----------
Denominator for diluted net income (loss) per share
- - adjusted weighted average
shares outstanding and assumed conversion of
dilutive securities 8,514,802 8,928,034 8,509,875 8,826,832
============= ========== ============= ==========
Net income (loss) per share - basic $ (0.17) $ 0.06 $ (0.33) $ 0.06
============= ========== ============= ==========
Net income (loss) per share - diluted $ (0.17) $ 0.06 $ (0.33) $ 0.06
============= ========== ============= ==========
</TABLE>
Pursuant to SFAS 128 the denominator for basic and diluted net income
per share are identical for the three months and six months ended June 30,
1999, respectively, due to the company's net losses. Under SFAS 128 the
exercise of any outstanding options or warrants in the case of a net loss is
considered antidilutive.
6
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3. CAPITALIZED SOFTWARE COSTS
The Company effected a three-for-two stock split in the form of a 50%
stock dividend, distributed on May 18, 1998 to stockholders of record on May
11, 1998. Accordingly, all share and per share amounts have been adjusted to
reflect this split. 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. 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 to
customers. After general release, capitalized costs are amortized using the
greater of the amount computed using: (a) the ratio that current gross revenues
for a product bear to the total of current and anticipated revenues for that
product or, (b) the straight-line method over the estimated useful life of the
related product (currently five years). Capitalized software costs also include
purchased software costs of $1,261,000 at June 30, 1999 and $761,000 at
December 31, 1998.
4. COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components. Comprehensive income (loss) for the three months and six
months ended June 30, 1999 and 1998 is comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) as reported $ (1,473,054) $ 497,665 $ (2,781,146) $ 532,788
Other comprehensive income:
Unrealized gain (loss) on investments
available for sale (net of tax effect) (136,462) 27,457 (258,323) 27,457
------------ ------------ ------------ ------------
Comprehensive income (loss) $ (1,609,516) $ 525,122 $ (3,039,469) $ 560,245
============ ============ ============ ============
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. These statements appear in a number of places in this report
and include all statements that are not historical statements of fact regarding
the intent, anticipation, belief or current expectations of the Company, its
directors or its officers with respect to, among other things: (i) trends
affecting the Company's financial condition or results of operations; (ii) the
Company's growth strategy and operating strategy (including, but not limited
to, the Company's development and implementation of the Phoenix System and its
other products); (iii) the Company's financing plans; and (iv) the declaration
and payment of dividends. The words "may," "would," "could," "should," "will,"
"expect," "estimate," "anticipate," "believe," "intends," "plans," and similar
expressions and variations thereof are intended to identify forward-looking
statements. Investors are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties,
many of which are beyond the Company's ability to control, and that actual
results may differ materially from those projected in the forward-looking
statements.
Actual results may differ materially from these forward-looking
statements as a result of many factors, including the inability to obtain,
continue and manage growth or execute agreements with new customers; the
inability to execute agreements with significant new customers or complete such
agreements in any time frame and other factors that cause fluctuations in
quarterly operating results; market acceptance of new products and
enhancements; risks related to the Year 2000, including delays by potential
customers in making purchase decisions as a result of concerns over the Year
2000 issues; increased competition; dependence on new products; rapid changes
in technology; and the other factors discussed in this report, the Company's
registration statement on Form S-1 as declared effective on August 13, 1997,
and other filings with the Securities and Exchange Commission, including the
Company's "Risk Factors" section contained therein.
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, and Internet/Intranet
development services.
The Company's quarterly operating results have varied significantly in
the past and may vary significantly in the future. Special factors that have
caused and 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; market acceptance of new and enhanced versions of
the Company's products; increased competition; the impact of publicity about
the Company and the industries in which it operates; changes in operating
expenses, including expenses related to acquisitions; changes in
8
<PAGE> 9
Company strategy; personnel changes; changes in legislation and regulation;
foreign currency exchange rates 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, from
initial review to purchase and the provision of support services, varies
substantially from customer to customer. As a result, the Company believes that
quarter to quarter comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Due to all of the foregoing factors, it is likely that in some future quarters
the Company's operating results will be below the expectations of securities
analysts and investors. In such an event, the price of the Company's common
stock would likely be materially adversely affected.
YEAR 2000 ISSUES
The Company's business and relationships with its customers, marketing
agents, VARs and other parties depend significantly on a number of computer
software programs, internal operating systems and network, telephonic and
Internet connections. If any of these software programs, systems or connections
are not able to recognize, store, transmit and properly process dates before,
on and after January 1, 2000 (the "Year 2000 issue"), significant system
failures or errors may result which could have a material adverse effect on the
business, financial condition and results of operations of the affected
customers, agents, other parties and the Company. In an effort to protect
against possible Year 2000 problems, Phoenix has examined the Year 2000 issue
as it affects three critical areas of its business operations: (1) the Phoenix
System; (2) its internal operating and accounting systems; and (3) its
customers' core processing systems.
Phoenix believes that the Phoenix System already addresses the Year
2000 issue because it was designed to require a four-digit year to be entered
into the date fields of the program and has always stored and processed
information using four-digit years. The Phoenix System employs sophisticated
database and other technologies provided by recognized companies in the
software industry (e.g., Sybase, Microsoft and Centura). Many of these industry
companies have published materials indicating their products are Year 2000
compliant and the Company believes these products are capable of addressing the
Year 2000 issue. The Company has tested the Phoenix System repeatedly using
various dates before, on and after January 1, 2000, including all of the dates
established by the Federal Financial Institutions Examination Council in its
April 10, 1998 statement of guidelines for Year 2000 readiness. Phoenix
discovered no significant Year 2000 problems during such tests. Phoenix plans
to continue testing the Phoenix System periodically using any additional dates
set forth for testing in any future guidelines established for financial
institutions in the United States or by foreign governmental regulatory
agencies. Phoenix has not made any material modification to the coding for the
Phoenix System software and does not anticipate making any such changes to
accommodate the Year 2000 issue.
Phoenix has also reviewed its internal accounting and operating systems
in the United States and currently believes that these programs and systems are
adequately programmed to address the Year 2000 issue or can be modified or
replaced to address the Year 2000 issue without material costs or delays.
Phoenix is currently conducting tests on the third party products or systems
that Phoenix considers to be critical to its business. The Company has contacted
the providers of material goods and services used in Phoenix's operations and
has received written assurances from several of these providers that their
products and services are capable of addressing the Year 2000 issue. Phoenix
currently expects to complete its Year 2000 examination of its internal
accounting and operating systems by October 1999. The Company has not yet
completed a
9
<PAGE> 10
review of the operating systems used in its international offices in London,
England; Wellington, New Zealand; Singapore and Sydney, Australia and currently
expects that this review will not be complete until October 1999. There can be
no assurances that any or all of these products and services are Year 2000
compliant. However, Phoenix believes that if any Year 2000 issues are
discovered when these international office systems are examined and tested, the
Company will be able to modify or replace these systems without material costs
or delays.
Phoenix believes that if its customers do not successfully address
Year 2000 issues in their operations, the Company's operations may be
interrupted, hindered or delayed. This would have a material adverse effect on
Phoenix's business, financial condition and results of operations. Phoenix has
experienced some difficulties and delays in signing contracts with new
customers which are postponing decisions about purchasing new core processing
systems due to their review of potential Year 2000 issues with their
institutions. Phoenix (with assistance from some of its customers) has
developed a Year 2000 readiness program that is designed to assist its
customers in testing their core processing systems for Year 2000 problems.
Phoenix began testing United States customers in November 1998 and offered
others the opportunity to test their core processing systems at the Phoenix
facilities, using all of the same hardware and third party products employed at
their institutions. To date, 36 Phoenix client banks have taken advantage of
the Company's dedicated Year 2000 test lab. No client utilizing the test
facility identified or reported any Year 2000 problems or errors. Although
Phoenix has reviewed its suppliers, internal operations, and testing results
for the Year 2000 readiness of its products and has not found any significant
operational issues, Year 2000 readiness remains a priority within its
operations. Phoenix has committed to maintain this testing facility and to
continue testing services to its clients through December 1999 and will
continue to address Year 2000 readiness in all of its ongoing business
activities.
The Company believes that many financial institutions, industry
vendors and suppliers, and other third parties are in various stages of
analyzing their software and systems to address Year 2000 issues. It is not
possible, therefore, for the Company to accurately analyze or predict possible
"worst-case scenarios" related to the Year 2000 issue and the potential impact
to the Company's business if any of these parties fail to adequately address
the Year 2000 issue in their business operations. The Company currently
believes that the greatest risk to its business from Year 2000 issues will come
from its customers and third parties whose systems fail as a result of the Year
2000 issue. Phoenix has examined critical power and communications systems
installed at its premises, noting no significant Year 2000 compliance issues.
Phoenix is further modifying its action plans regarding disaster recovery and
business resumption. Phoenix has entered into a five year contract with SunGard
Recovery Services Inc. for disaster recovery and business resumption and
believes that it has taken reasonable precautions to be ready to effectively
conduct business through the Year 2000. It is impossible to estimate the
potential expenses involved or delays which may result from a large-scale
failure of the Company's customer institutions and third parties to resolve
their Year 2000 issues in a timely manner. The Company currently estimates
total expenses relating to testing and remediating the Year 2000 issues will be
approximately $300,000, the majority of which has already been incurred. There
can be no assurance that such expenses, failures or delays will not have a
material adverse effect on the Company's business, financial condition or
results of operations.
10
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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 Six Months Ended
June 30, June 30,
------------------------- ----------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
License fees and other 43.6 % 64.9 % 42.7 % 65.4 %
Implementation, customer and software
support and other service fees 56.4 % 35.1 % 57.3 % 34.6 %
----- ----- ----- -----
Total revenues 100.0 % 100.0 % 100.0 % 100.0 %
Expenses:
Cost of license fees and other 16.1 % 8.4 % 13.5 % 9.9 %
Cost of implementation, customer
and software support and other service fees 40.0 % 25.8 % 40.2 % 26.1 %
Sales and marketing 17.9 % 17.4 % 20.6 % 19.1 %
General and administrative 20.4 % 17.4 % 20.6 % 20.2 %
Product development 50.0 % 24.6 % 48.1 % 24.9 %
----- ----- ----- -----
Total expenses 144.4 % 93.6 % 143.0 % 100.2 %
Other income (expense):
Interest income 5.3 % 7.2 % 5.4 % 8.3 %
Interest expense (0.2) % (0.2)% (0.2)% (0.3) %
Other income (loss) (0.1) % 0.2 % (0.2)% 0.1 %
----- ----- ----- -----
Income (loss) before income taxes (39.4)% 13.6 % (38.0)% 7.9 %
Income tax expense (benefit) (13.8)% 4.7 % (13.3)% 2.8 %
----- ----- ----- -----
Net income (loss) (25.6)% 8.9 % (24.7)% 5.1 %
===== ===== ===== =====
</TABLE>
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Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenues. Total revenues increased $69,000, or 1.2%, to $5.7 million
in the three months ended June 30, 1999 from $5.7 million for the three months
ended June 30, 1998. Revenues from license fees decreased $1.2 million, or
32.0%, to $2.5 million for the three months ended June 30, 1999 from $3.7
million in the three months ended June 30, 1998 primarily due to a decrease in
the number of license fee contract signings from U.S. customers and delays in
contract signings from prospective new customers in the U.S. and
internationally. Revenues from implementation, customer and software support,
and other service fees increased $1.2 million, or 62.8%, to $3.2 million in the
three months ended June 30, 1999 from $2.0 million in the three months ended
June 30, 1998 due primarily to an increased number of installations, an
increase in foreign professional service fees and customers under support
agreements.
Expenses. Cost of license fees increased 95.4% to $925,000 in the
three months ended June 30, 1999 from $473,000 in the three months ended June
30, 1998. These costs increased in the 1999 period mainly as a result of higher
amortization of capitalized software development costs.
Cost of implementation, customer and software support and other
service fees increased $835,000, or 57.2%, to $2.3 million in the three months
ended June 30, 1999 from $1.5 million in the three months ended June 30, 1998
primarily as a result of increased staffing, travel and personnel related costs
incurred to support a larger number of installations and customers under
support agreements.
Sales and marketing expenses increased 4.2% to $1.0 million in the
three months ended June 30, 1999 from $986,000 million in the three months
ended June 30, 1998, primarily as a result of additional expenses incurred in
connection with increased staffing, travel, personnel related costs, and the
costs related to the Singapore sales office.
General and administration expenses increased 18.6% to $1.2 million in
the three months ended June 30, 1999, from $1.0 million in the 3 months ended
June 30, 1998, primarily, as the result of increased professional service fees
and personnel related costs.
Product development expenses increased 105.5% to $2.9 million in the
three months ended June 30, 1999 from $1.4 million in the three months ended
June 30, 1998. Product development expenses increased in the 1999 period
primarily as a result of increased personnel related costs to expand and
enhance the Company's product line, including expenses for contract labor costs
incurred at the new Sydney, Australia product development center.
Total Other Income (Expense). Interest income was $305,000 and
$407,000 in the three months ended June 30, 1999 and 1998, respectively.
Interest income decreased in the 1999 period primarily due to a decrease in
interest-bearing funds
Income Tax Expense. The income tax benefit was $793,000 for the three
months ended June 30, 1999 and income tax expense was $268,000 for the three
months ended June 30, 1998. The Company's effective tax rate was 35% for the
three months ended June 30, 1999 and 1998, respectively. The decrease in income
tax expense was the result of the pre-tax operating loss for the three months
ended June 30, 1999.
12
<PAGE> 13
Net Income (Loss). The Company incurred a $1.5 million net loss in the
three months ended June 30, 1999 compared to net income of $498,000 in the
three months ended June 30, 1998, primarily as a result of increases in costs
related to implementation, customer support and product development, relative
to a modest increase in revenues.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenues. Total revenues increased 9.8% to $11.3 million in the six
months ended June 30, 1999 from $10.3 million for the six months ended June 30,
1998. Revenues from license fees decreased $1.9 million, or 28.3%, to $4.8
million for the six months ended June 30, 1999 from $6.7 million in the six
months ended June 30, 1998 primarily due to a decrease in the number of license
fee contract signings from U.S. customers and delays in international contract
signings from prospective new customers in the U.S. and internationally.
Revenues from implementation, customer and software support, and other service
fees increased $2.9 million, or 81.7%, to $6.5 million in the six months ended
June 30, 1999 from $3.6 million in the six months ended June 30, 1998 due
primarily to an increased number of installations, an increase in foreign
professional services and customers under support agreements.
Expenses. Cost of license fees increased 49.2% to $1.5 million in the
six months ended June 30, 1999 from $1.0 million in the six months ended June
30, 1998. These costs increased in the 1999 period mainly as a result of higher
amortization of capitalized software development costs.
Cost of implementation, customer and software support and other
service fees increased $1.8 million, or 68.7%, to $4.5 million in the six
months ended June 30, 1999 from $2.7 million in the six months ended June 30,
1998 primarily as a result of increased staffing, travel and personnel related
costs to support a larger number of installations and customers under support
agreements.
Sales and marketing expenses increased 18.8% to $2.3 million in the
six months ended June 30, 1999 from $2.0 million in the six months ended June
30, 1998 primarily as a result of additional expenses incurred in connection
with increased staffing, travel and personnel related costs, and the costs
related to the Singapore sales office.
General and administration expenses increased 11.9% to $2.3 million in
the six months ended June 30, 1999 from $2.1 million in the six months ended
June 30, 1998, primarily, as the result of increased professional service fees,
personnel related costs and provision for doubtful accounts.
Product development expenses increased 112.5% to $5.4 million in the
six months ended June 30, 1999 from $2.6 million in the six months ended June
30, 1998. Product development expenses increased in the 1999 period primarily
as a result of increased personnel related costs to expand and enhance the
Company's product line, including expenses for contract labor costs incurred at
the new Sydney, Australia product development center.
Total Other Income (Expense). Interest income was $610,000 and
$854,000 in the six months ended June 30, 1999 and 1998, respectively. Interest
income decreased in the 1999 period primarily due to a decrease in
interest-bearing funds.
13
<PAGE> 14
Income Tax Expense. The income tax benefit was $1.5 million for the
six months ended June 30, 1999 and income tax expense was $287,000 for the six
months ended June 30, 1998. The Company's effective tax rate was 35% for the
three months ended June 30, 1999 and 1998, respectively. The decrease in income
tax expense was the result of the pre-tax operating loss for the six months
ended June 30, 1999.
Net Income (Loss). The Company incurred a $2.8 million net loss in the
six months ended June 30, 1999 compared to net income of $533,000 in the six
months ended June 30, 1998, primarily as a result of increases in costs related
to implementation, customer support and product development relative to a
modest increase in revenues.
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, 1999, cash and cash equivalents were $2.1 million, and long term
investments were $16.6 million. Long term investments consist primarily of U.S.
Treasury securities. For the six months ended June 30, 1999, cash used by
operations was $1.7 million resulting principally from the net loss for the
period and an increase in trade accounts payable of $1.1 million, a decrease in
unbilled accounts receivable of $2.6 million, an increase in accounts
receivable of $3.5 million contributed cash from the Company's operating
activities. Cash used by investing activities was $60,000 for the six months
ended June 30, 1999, including $439,000 for purchases of property and equipment
and $5.2 million for capitalized software development costs and purchased
software. Purchase of long term investments used $2.3 million of cash and the
sale of investments provided $7.9 million in cash for the six months ended June
30, 1999. Financing activities provided $69,000 of cash for the six months
ended June 30, 1999, including $140,000 from the issuance of common stock
pursuant to the exercise of stock options. Capital lease payments represented a
use of cash of $71,000 for the six months ended June 30, 1999. Working capital
was $17.2 million at June 30, 1999.
The Company believes its cash balances, investments and cash flow from
operations will be sufficient to meet its working capital, capital expenditure
and software development requirements through the next twelve months. Cash
flows from operating activities are dependent on continued advance payments
from customers and timely collections of trade accounts receivable, 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
may require the Company to obtain additional equity or debt financing, and
there can be no assurance made that the Company will be able to obtain any such
financing.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ON MARKET RISK
Phoenix does not use derivative financial instruments in its
operations or investments. While the Company has significant international
operations, its contracts are all written for payments to be made in U.S.
Dollars and, therefore, it does not believe it is materially subject to
fluctuations in foreign currency exchange rates. The Company has experienced
foreign exchange losses from the operations of two of its foreign subsidiaries
that the Company believes have been immaterial in amount. However, foreign
exchange risks may result in a
14
<PAGE> 15
material adverse impact on the Company's results of operations in the future.
Phoenix's short term and long term investments are deposited principally in a
single financial institution with significant assets and consist of U.S.
Treasury bills and notes with maturities of less than three years. Phoenix does
not consider the interest rate risk for these investments to be material. The
Company does not have any material credit facilities and, therefore, the
Company does not have a significant risk due to potential fluctuations in
interest rates for loans at this time. Changes in interest rates could decrease
the Company's interest income and could make it more costly to borrow money in
the future and may impede Phoenix's future acquisition and growth strategies if
management determines that the costs associated with borrowing funds are too
high to implement these strategies.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 14, 1999, the Company filed a civil complaint in the U.S.
District Court for the Middle District of Florida, Orlando Division (Case No.
99-888-CV-22-C) against a former employee of the Company. The Complaint alleges
that the former employee is responsible for a number of messages posted on the
Company's Yahoo! chat board which contain false, defamatory and negative
statements made against the Company and members of its management team, and
that he has made improper disclosures of confidential information and trade
secrets of the Company in violation of contract and applicable law. The Company
filed the action for defamation, tortious interference with contractual
relations and advantageous business relations, breach of contract and violation
of the Company's trade secret rights. The Company is seeking injunctive relief
against, and compensatory and punitive damages from, the defendant.
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
7, 1999 for the following purposes:
1. To elect three Class III directors to serve for three-year terms.
2. To transact any other business properly brought before the
meeting.
Only shareholders of record at the close of business on March 15, 1999
were entitled to vote at the Annual Meeting. Proxies for the meeting were
solicited pursuant to the Florida Business Corporation Act, and there was not
solicitation in opposition to management's solicitations.
Proxies and ballots were received from the holders of 6,707,078 shares
of the Company's common stock, representing 78.9% of the 8,504,989 outstanding
shares of common stock entitled to vote.
The results were as follows:
1. The three individuals nominated to serve as Class III directors
were elected with the number of votes for and withheld as
indicated below:
<TABLE>
<CAPTION>
Nominee For Withheld
------- --- --------
<S> <C> <C>
Bahram Yusefzadeh 6,686,978 20,100
Raju M. Shivdasani 6,686,978 20,100
Ronald E. Fenton 6,686,978 20,100
</TABLE>
16
<PAGE> 17
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
-- -----------
<S> <C>
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 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) as
declared effective by the SEC on August 13, 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 Registration
Statement).
27.1 Financial Data Schedule for the six months ended June 30, 1999 (for
SEC use only).
b) Reports on Form 8-K
None.
</TABLE>
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934,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
-------------------------------------------------
August 13, 1999 Bahram Yusefzadeh
Chairman of the Board and Chief Executive Officer
(principal executive officer)
/s/ Theodore C. Burns
-------------------------------------------------
August 13, 1999 Theodore C. Burns
Senior Vice President and Chief Financial Officer
(principal financial and accounting officer)
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
-- ----------- ----
<S> <C> <C>
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 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) as
declared effective by the SEC on August 13, 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 Registration
Statement).
27.1 Financial Data Schedule for the six months ended June 30, 1999 (for SEC use only).
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF PHOENIX INTERNATIONAL, LTD., INC. FROM FORM 10-Q FOR THE SIX
MONTHS ENDED JUNE 30, 1999 (FOR SEC USE ONLY) AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,148,184
<SECURITIES> 16,569,024
<RECEIVABLES> 17,087,846
<ALLOWANCES> (593,350)
<INVENTORY> 0
<CURRENT-ASSETS> 25,450,051
<PP&E> 6,992,462
<DEPRECIATION> (3,079,600)
<TOTAL-ASSETS> 59,139,663
<CURRENT-LIABILITIES> 8,268,249
<BONDS> 0
0
0
<COMMON> 85,268
<OTHER-SE> 47,827,153
<TOTAL-LIABILITY-AND-EQUITY> 59,139,663
<SALES> 0
<TOTAL-REVENUES> 11,271,011
<CGS> 0
<TOTAL-COSTS> 6,044,228
<OTHER-EXPENSES> 10,071,169
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (17,915)
<INCOME-PRETAX> (4,278,687)
<INCOME-TAX> (1,497,541)
<INCOME-CONTINUING> (2,781,146)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,781,146)
<EPS-BASIC> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
