<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ---------
Commission File Number: 33-4934
PHOENIX INFORMATION SYSTEMS CORP.
- - - - - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3337797
- - - - - ----------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
100 Second Avenue South, Suite 1100
St. Petersburg, Florida 33701
- - - - - ---------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (813) 894-8021
--------------
Not Applicable
- - - - - --------------------------------------------------------------------------------
(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
----- -----
As of November 1, 1995, the Registrant had 42,642,398 shares of common stock
issued and outstanding.
<PAGE> 2
PHOENIX INFORMATION SYSTEMS, CORP.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
March 31, 1995 and
September 30, 1995 (Unaudited) 3
Unaudited Consolidated Statements of Operations
Three and Six Months ended
September 30, 1995 and
September 30, 1994 and Inception to
September 30, 1995 4
Unaudited Consolidated Statements of Cash Flows
Six Months ended
September 30, 1995 and
September 30, 1994 and Inception to
September 30, 1995 (Unaudited) 5
Notes to Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-13
PART II. OTHER INFORMATION 14
SIGNATURE PAGE 15
2
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PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
( A development stage company)
CONSOLIDATED BALANCE SHEETS -
-----------------------------
SEPTEMBER 30, 1995 AND MARCH 31, 1995
-------------------------------------
<TABLE>
<CAPTION>
September 30, March 31,
ASSETS 1995 1995
- - - - - ------ ------------- ------------
(Unaudited)
<S> <C> <C>
Current Assets:
- - - - - ---------------
Cash and cash equivalents $ 1,058,666 $ 1,864,581
Prepaids 115,508 17,700
Trade receivable 35,696 7,141
Receivable from related parties 38,973 346,850
----------- -----------
Total current assets 1,248,843 2,236,272
Property and equipment, net 2,075,720 1,646,563
Deposits and other 165,372 39,706
Due from joint venture partner 378,560 174,605
Goodwill, net 446,469 487,202
----------- -----------
Total assets $ 4,314,964 $ 4,584,348
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- - - - - ------------------------------------
Current Liabilities:
- - - - - --------------------
Notes payable $ 271,283 $ 11,522
Accounts payable 1,442,265 1,256,134
Accrued payroll and payroll taxes 92,174 120,592
Accrued interest 833 70,038
Capital lease obligation 5,900 5,900
----------- -----------
Total current liabilities 1,812,455 1,464,186
Notes payable 190,842 -
Payable to related parties 56,738 593,051
Capital lease obligation 5,115 9,391
Accrued compensation expense 196,250 53,750
Total non-current liabilities 448,945 656,192
----------- -----------
Total liabilities 2,261,400 2,120,378
----------- -----------
Commitments and contingencies
Stockholders' Equity:
- - - - - ---------------------
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none issued and outstanding
Common stock, $.01 par value, 75,000,000 shares authorized,
42,592,398 and 39,510,393 shares issued and outstanding
at September 30, 1995 and March 31, 1995, respectively 425,923 395,104
Additional paid-in capital 15,246,370 12,344,644
Losses that have accumulated during the
development stage (13,618,729) (10,275,778)
----------- -----------
Total stockholders' equity 2,053,564 2,463,970
----------- -----------
Total liabilities and stockholders' equity $ 4,314,964 $ 4,584,348
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
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PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
( A development stage company)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
FOR THE THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
---------------------------------------------------------------------
AND CUMULATIVE FOR THE PERIOD FROM INCEPTION OF
-----------------------------------------------
DEVELOPMENT STAGE ACTIVITIES,
-----------------------------
APRIL 1, 1989 TO SEPTEMBER 30, 1995
-----------------------------------
<TABLE>
<CAPTION>
Three Months Six Months Cumulative
Ended September 30 Ended September 30 Since
1995 1994 1995 1994 April 1, 1989
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Start-up and organizational expenses $(2,037,959) $(1,260,274) $(4,005,777) $(2,227,808) $(14,967,587)
Travel commission, net 71,500 17,910 176,350 17,910 312,974
Management fee income - 34,945 - 61,945 138,021
Reservation center revenues 84,722 - 84,722 - 84,722
License fee income 6,000 6,000 12,000 12,000 54,000
Interest and dividend income 4,978 - 15,339 - 39,661
----------- ----------- ----------- ----------- ------------
Net loss before minority interest
in net loss of subsidiary (1,870,759) (1,201,419) (3,717,366) (2,135,953) (14,338,209)
----------- ----------- ----------- ----------- ------------
Minority interest in net loss of
subsidiary 193,063 - 374,415 - 719,480
----------- ----------- ----------- ----------- ------------
Net loss $(1,677,696) $(1,201,419) $(3,342,951) $(2,135,953) $(13,618,729)
=========== =========== =========== =========== ============
Net loss per common share
outstanding, primary $ (.04) $ (.05) $ (.08) $ (.09)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 40,891,507 23,591,662 40,360,232 23,389,053
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
( A development stage company)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
----------------------------------------------------
AND CUMULATIVE FOR THE PERIOD FROM INCEPTION OF DEVELOPMENT STAGE ACTIVITIES,
-----------------------------------------------------------------------------
APRIL 1, 1989 TO SEPTEMBER 30, 1995
-----------------------------------
<TABLE>
<CAPTION>
Six Months Cumulative
Ended September 30 Since
1995 1994 April 1, 1989
------------ ------------ -------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
- - - - - -------------------------------------
Net loss $ (3,342,951) $ (2,135,953) $(13,618,729)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense 328,225 11,790 588,990
Compensation paid through issuance of stock 150,000 125,000 430,452
Services paid through issuance of stock 365,620 143,566 1,228,156
Rent paid through in-kind contribution 170,460 - 340,920
Start-up and organizational costs paid by related party - - 76,395
Fees and services paid through related party - - 46,585
Minority interest in net loss of subsidiary (374,415) - (719,480)
Interest paid through note payable - 28,916
Cash purchased through acquisition of subsidiary - - 6,089
------------ ------------ ------------
(2,703,061) (1,855,597) (11,591,706)
Changes In Assets and Liabilities:
Prepaids, deposits and trade receivable (171,096) 70,952 (170,959)
Accounts payable 239,132 509,636 781,358
Accrued payroll and payroll taxes (28,418) 232,623 35,597
Accrued rent payable to related party - - 37,500
Accrued interest (69,205) 61,920 201,718
------------ ------------ ------------
Net cash used in operating activities (2,732,648) (980,466) (10,706,492)
------------ ------------ ------------
Cash Flows From Investing Activities:
- - - - - -------------------------------------
Purchase of property and equipment (635,715) - (1,731,335)
------------ ------------ ------------
Net cash used in investing activities (635,715) - (1,731,335)
------------ ------------ ------------
Cash Flows From Financing Activities:
- - - - - -------------------------------------
Issuance of common stock 579,425 - 1,771,075
Collection of stock subscription - - 15,000
Stock subscription - 100,000 1,282,000
Common stock issued in forgiveness of debt - - 54,000
Proceeds from notes payable 423,000 - 438,000
Payments on notes payable (134,264) (20,000) (235,670)
Proceeds from related parties 1,782,500 983,223 11,400,356
Payments to related parties (83,937) (27,171) ( 1,190,883)
Elimination of Phoenix retained deficit - - (18,900)
Payments on capital lease obligation (4,276) (4,711) (18,485)
------------ ------------ ------------
Net cash provided by financing activities 2,562,448 1,031,341 13,496,493
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (805,915) 50,875 1,058,666
Cash and cash equivalents, beginning of period 1,864,581 4,380 -
------------ ------------ ------------
Cash and cash equivalents, end of period $ 1,058,666 $ 55,255 $ 1,058,666
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
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PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
(unaudited)
NOTE A
The accompanying consolidated financial statements include the
accounts of Phoenix Information Systems Corp. ("Phoenix Information") and its
subsidiaries, Phoenix Systems Group, Inc. (wholly owned since March 27, 1995),
Phoenix Systems Ltd. (wholly owned since November 11, 1993), Hainan Phoenix
Information Systems, Ltd. (70% owned since November 22, 1993) and American
International Travel Agency, Inc. (wholly owned since September 15, 1994). The
consolidated group of companies are collectively referred to herein as
"Phoenix." All significant intercompany accounts and transactions have been
eliminated.
Phoenix Information was incorporated in Delaware on April 4, 1986, for
the purpose of seeking potential business opportunities through the acquisition
of an existing business. Prior to the acquisition, Phoenix was a shell company
with no material assets, liabilities or operations.
Phoenix Systems Group, Inc. ("PSG") was incorporated on June 25, 1987
under the laws of the State of Delaware and commenced development-stage
operations on April 1, 1989 to become involved in the growth of both business
and leisure travel to the People's Republic of China ("China"), and to
participate in the emerging developments of associated travel infrastructure
within China, including transportation, lodging, funds transfer, and data
communications.
Phoenix Systems Ltd. ("PSL"), a Bermuda corporation and wholly-owned
subsidiary of the Company, was formed in 1993 to establish foreign computerized
reservation systems ("CRS") joint ventures. PSL formed its first CRS joint
venture company with China Hainan Airlines ("Hainan Airlines"). Phoenix expects
to enter into additional joint venture opportunities in China and other
countries. PSL has the responsibility, outside of China, to market all Phoenix
products, including the exclusive marketing rights to market the Chinese
airline seats and hotel rooms.
American International Travel Agency, Inc. ("American") was
incorporated in 1977 in the State of Florida to provide retail leisure travel
services, but has expanded its customer base to include commercial travel
services. On September 15, 1994, Phoenix consummated the acquisition of all
the capital stock of American in exchange for 25,000 shares of common stock in
Phoenix. The acquisition was accounted for under the purchase method.
6
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NOTE B
The financial information reflects all normal recurring adjustments
which, in the opinion of management, are deemed necessary for a fair
presentation of the results for the interim periods. The results for the
interim periods are not necessarily indicative of the results to be expected
for the year.
NOTE C
The attached summarized financial information does not include all
disclosures required to be included in a complete set of financial statements
prepared in conformity with generally accepted principles. The Form 10-K, for
the fiscal year ended March 31, 1995 should be read in conjunction with the
data herein.
7
<PAGE> 8
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION,
RECENT DEVELOPMENTS, AND RESULTS OF OPERATIONS
INTRODUCTORY STATEMENT
Phoenix Information Systems Corp. ("Phoenix" or the "Company") is a
development-stage information processing, marketing and sales company that has
developed an integrated airline and hotel travel reservation system. Phoenix
has installed and plans to be the first company to operate an advanced
computerized reservation system ("CRS") for the domestic airlines, hotels and
travel agencies in the People s Republic of China ("China"). Phoenix plans to
provide state-of-the-art, travel-related information services to China through
its joint venture with China Hainan Airlines ("Hainan Airlines"), named Hainan
Phoenix Information Systems, Ltd. ("Hainan-Phoenix" or the "Joint Venture").
The Company owns 70% of Hainan-Phoenix through its wholly-owned subsidiary,
Phoenix Systems Ltd., a Bermuda corporation ("PSL"). Phoenix has not generated
any significant revenues, earnings or history of operations from inception
through September 30, 1995. Consequently, Phoenix's continued existence has
depended, and continues to depend, upon its ability to raise capital.
RESULTS OF OPERATIONS
Phoenix has not generated any significant revenues, earnings or
history of operations from inception through September 30, 1995. During the
six months ended September 30, 1995 and the years ended March 31, 1995, 1994,
and 1993, the Company sustained net losses of $3,342,951, $4,841,824,
$2,567,932, and $1,640,852, respectively. These losses may continue for a
presently undetermined time.
For the quarter ended September 30, 1995, the Company had start-up and
organizational expenses of $2,037,959 compared to $1,260,274 for the comparable
period in 1994. Of the expenses during the quarter ended September 30, 1995,
approximately $724,307 was attributable to salaries, contract labor, stock
compensation and payroll taxes and benefits; approximately $812,648 to
consulting, legal, and accounting fees; approximately $159,197 to rent;
approximately $135,815 to travel and lodging; and the balance to miscellaneous
items, such as utilities, office and computer supplies, equipment leases and
postage.
The higher start-up and organizational expense reflects principally
the addition of marketing employees and consulting services, and the incurrence
of marketing related expenses as the Company's focus shifts from product
development to generation of customers and sales. While the Company has
concentrated its sales efforts in China, Russia and India, the Company has also
focused on small domestic carriers that could utilize the Company's reservation
system. On May 5, 1995, Phoenix entered into an Agreement with Eastwind
Airlines, Inc. ("Eastwind") to provide Eastwind (a new ticketless carrier with
service between Greensboro,
8
<PAGE> 9
Boston and Trenton) with a complete reservation system to manage all sales,
airport and operations functions. In addition, Phoenix has established a
reservation center which processes all Eastwind reservations as of July 16,
1995. Eastwind is based at Trenton-Mercer County Airport in Trenton, New
Jersey, operating Boeing 737 aircraft, configured with 122 seats. This is the
first U.S. carrier to use the PHOENIX-AIR reservation system. Phoenix is
actively pursuing other small carriers throughout North America to provide a
complete, low cost solution for their reservation needs. The Company generated
revenues of $84,722 from the Eastwind arrangement for the quarter ended
September 30, 1995.
Travel commissions during the quarter ended September 30, 1995 of
$71,500 are attributable to the Company's consolidated travel agency
subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital Deficit; Financial Instability
As of September 30, 1995, Phoenix had stockholders' equity of
$2,053,564, an accumulated deficit of $13,618,729 and a working capital deficit
of $563,612. Phoenix has not generated any significant revenues, earnings or
history of operations from inception through September 30, 1995. Consequently,
Phoenix's continued existence has depended, and continues to depend, upon its
ability to raise funds through debt or equity issues.
Certain Financing Transactions
On December 9, 1994, the Company entered into a Convertible Note
Purchase Agreement (the "Note Agreement") with S-C Phoenix Partners, a New York
general partnership ("S-C"), comprised of affiliates of Quantum Industrial
Holdings, Ltd., George Soros and Pernendu Chatterjee. The Note Agreement
provides for the sale of up to an aggregate of $10,000,000 of the Company s
convertible notes ("Notes") in five "tranches" pursuant to the terms of the
Note Agreement. The Notes bear interest at short-term LIBOR plus 2%, are due
on the earlier of December 8, 1999, or thirteen months from demand, and are
secured under a Security Agreement by the Company s airline and hotel
reservation system applications software. The Notes are required to be offered
by the Company to S-C upon the Company achieving certain performance and
operational targets or events as specified in the Note Agreement. S-C is under
no obligation to purchase the additional Notes. The Notes will automatically
convert into shares of Common Stock upon the earlier of the NASDAQ listing of
the Company s shares, its achieving targeted operating revenues as described in
the Note Agreement, or six months from the sale of $10,000,000 of the Notes to
the Partnership. Under certain circumstances, the Notes may be converted at
the option of S-C. The conversion rate on the initial Notes is $0.50 per
share, and the conversion rates of subsequent Notes range from $0.60 to $1.50
per share. The Company has the right to repurchase the Notes and shares into
which they are converted under certain circumstances.
9
<PAGE> 10
In addition, as a condition to the consummation of the Note Agreement
transaction, Robert P. Gordon sold to S-C 1,360,000 shares of Common Stock at a
price of $0.90 per share, pursuant to a Stock Purchase Agreement simultaneously
entered into between such parties.
Concurrent with the execution of the Note Agreement and related
documents on December 9, 1994, the Company sold to S-C the "Tranche A Note" in
the principal amount $3,000,000 yielding net proceeds of $2,846,670. On
February 17, 1995, the Company sold to S-C the "Tranche B Note" in the
principal amount of $1,200,000. The "Tranche B Note" was to be sold when the
Company s PHOENIX-AIR and PHOENIX-HOTEL reservation system (together, the
"CRS") had been installed and test operations had commenced by an airline or
air carrier which had executed an airline service agreement ("Signed Customer")
or on such earlier date as S-C agreed.
On March 15, 1995, the Company and S-C executed a letter agreement
(the "Letter Agreement") pursuant to which the Company sold to S-C a "Tranche C
Note" in the principal amount of $1,000,000 prior to the target date
established in the Note Agreement which originally called for a "Tranche C
Note" in the principal amount of up to $1,200,000. Concurrent with the sale of
the "Tranche C Note" and in accordance with the terms of the Letter Agreement,
the "Tranche A Note" was converted into 6,000,000 shares (at $.50 per share),
the "Tranche B Note" was converted into 2,000,000 shares (at $.60 per share)
and the "Tranche C Note" was converted into 1,666,667 shares (at $.60 per
share).
In connection with the execution of the Note Agreement, the Company
granted S-C three-year warrants ("Initial Warrants") to purchase up to
4,000,000 shares of Common Stock at an exercise price of $3.00 per share.
S-C will also have registration rights, first purchase rights on
subsequent issues by the Company to maintain its percentage ownership of the
Company on a fully diluted basis, and the right to nominate one or more
directors to the Company s Board. Further, if the Company enters into a joint
venture to install and operate its computerized reservation system in India,
then S-C has the right to participate in such joint venture on an equal basis
with the Company and its joint venture partner (i.e., each partner would own
one-third if the Partnership elects to participate fully).
On August 3, 1995, S-C entered into an agreement with the Company,
pursuant to which S-C purchased, and the Company issued, the remaining $200,000
Tranche C Note, a $150,000 Tranche D Note and waived certain conditions to
S-C's purchase thereof. In addition, the conversion terms of such Notes were
modified to permit conversion at any time by S-C and, under certain
circumstances, to require conversion at the election of the Company. The
Company also agreed to issue to S-C warrants to purchase 140,000 shares of the
Company's common stock if, within 90 days from the date of the Agreement, the
CRS has not been installed in China in connection with an airline of comparable
size of Hainan
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Airlines or is not demonstrably operational in all material respects. Such
warrants contain terms substantially the same as the Initial Warrants, except
that the exercise price equals 85% of the lowest average weekly closing price
during the 90 day period following the date of the Agreement.
Finally, the Company agreed to waive its call rights on shares issued
on conversion of the Tranche A, B and C Notes and shares issuable on conversion
of the most recent Tranche C and D Notes, and to accelerate, in part, the
vesting of the exercisability of the Initial Warrants.
On September 18, 1995, S-C entered into an agreement with the Company,
pursuant to which S-C accelerated the purchase of an additional $1,200,000 in
Notes and has simultaneously converted a total of $1,550,000 of Notes into
Common Stock. This latest investment increases S-C's equity purchases of
Phoenix to a total of $6,750,000. In consideration of S-C's accelerated
funding and early conversion, the Company issued to S-C a three-year warrant to
purchase 600,000 shares of its Common Stock at a purchase price of $4.00 per
share (issued on substantially the same terms as the original warrant to
purchase 4 million shares at $3.00 per share in connection with the execution
of the 1994 agreement). The Company further agreed that the original warrant
would become fully exercisable, and also that the number of shares into which
the notes were converted on September 18, 1995 will be subject to upward
adjustment (not to exceed 800,000 shares) if certain targets are not met.
For future Note issuances, the Company may provide written notice
("Offer Notice") to S-C, along with sufficient documentation to verify the
facts stated within, that Phoenix has met the specific tranche requirements.
From the date of receipt of the Offer Notice, S-C has twenty-five days to
accept the offer for all or any portion of such Notes, and not more than thirty
days until the closing thereof. The remaining "Tranche D Note" in the amount
of $1,150,000, may be sold the date on which (a) Phoenix has generated at least
$1,000,000 in operating revenues, (b) Phoenix has obtained one or more
additional signed customers operating in China with an aggregate of 25 or more
aircraft having a passenger capacity of 100 or more each or the equivalent
daily passenger capacity with smaller aircraft, or (c) such earlier date as S-C
may agree, whichever of (a), (b) or (c) is the earlier to occur. The "Tranche
E Note" in the amount of $2,100,000, may be issued the date on which (a)
Phoenix has generated at least $5,000,000 in operating revenues, (b) Air China
or any one of China Southern, China Northwest, China Northern, China Eastern,
or China Southwest (or any of their respective successors) has become a signed
customer, or (c) such earlier date as S-C may agree, whichever of (a), (b) or
(c) is the earlier to occur.
Robert J. Conrads, a director of the Company, will be issued, as a
finders fee in connection with the services performed in finding and closing
the investment described above, up to 600,000 fully paid and non-assessable
shares of Common Stock. As of the
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date hereof, Mr. Conrads has received 537,800 shares based on $6,750,000 in
Notes issued through September 30, 1995. The remaining 62,200 shares will be
issued, in designated amounts, if and when the sale of the additional
$3,250,000 of convertible Notes are issued.
Pursuant to an amendment to the Note Agreement, the investment of the
remaining $3,250,000 contemplated by the Note Agreement will be made, upon the
occurrence of events specified under Tranche D and E, in the form of
convertible notes until Phoenix lists its Common Stock on Nasdaq. After
listing, further investments would be made by the purchase and simultaneous
conversion of notes into shares of Common Stock at prices ranging from $0.60 to
$1.50 per share.
In consideration of S-C's agreement to purchase the Tranche C Note
prior to the specified target date and conversion of the note to equity,
Phoenix issued to S-C a three-year warrant to purchase 2.5 million shares of
its Common Stock at a purchase price of $2.00 per share. This warrant is fully
exercisable at any time, but otherwise contains substantially the same terms as
the warrant to purchase 4 million shares at $3.00 per share issued in
connection with the execution of the Note Agreement. Phoenix also agreed to
certain modifications to the Registration Rights Agreement entered into with
S-C.
As of November 1, 1995, assuming full funding and conversion of the
$10,000,000 in Notes and exercise of all $19,400,000 in warrants, S-C's
investment will represent approximately 33% of Phoenix's outstanding equity on
a fully diluted basis. While management continues to hold, and has a right to
acquire, in excess of 29% of Phoenix's outstanding equity on a fully diluted
basis, the transactions described above may be deemed to constitute a "change
of control" of Phoenix. Neither Phoenix nor S-C, however, consider the
foregoing as a "change of control." In addition, assuming the existing
25,178,759 in options and warrants granted by the Company to S-C, Phoenix
employees, directors and others are fully vested and exercised, Phoenix's
issued and outstanding common stock would increase to 67,771,157 shares and the
Company would subsequently receive $49,969,195 in proceeds.
Other Matters
On October 17, 1995, Phoenix entered into an employment agreement to
retain Leonard S. Ostfeld, age 53, as Vice President and Chief Financial
Officer. Prior to joining Phoenix, Mr. Ostfeld had been Senior Vice President
of Finance and Administration for Princeton Financial Systems, Inc., a provider
of investment software products. From 1985-1993, Mr. Ostfeld was Vice
President and CFO for AGS Computers, Inc., a $350 million software subsidiary
of NYNEX Corporation. AGS Computers, Inc. was engaged in the business of
providing software consulting services and products. From 1982-1985, Mr.
Ostfeld was Vice President and Controller of CGA Computer, Inc., a $50 million
consulting services and software products company.
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<PAGE> 13
On September 28, 1995, the Board granted 400,000 non-qualified stock
options to Robert J. Conrads, a director of the Company, to purchase shares of
Phoenix's Common Stock at an exercise price of $3.60 (equal to a $1.25 discount
from September 27, 1995's closing stock price of $4.85). These options shall
vest in their entirety in nine years and shall expire in ten years. In the
event of accelerated vesting of options, such accelerated options shall expire
at the end of the later of a) three years from the date of grant or b) one year
from the date of vesting. If Mr. Conrads is responsible for the Company
receiving gross proceeds of $80,000,000 in financing, these options shall
accelerate and immediately vest according to the following schedule: 280,000
options for the first $40,000,000 raised; and 120,000 options for the second
$40,000,000 raised, on a prorated basis.
On September 28, 1995, the Board granted 2,000,000 non-qualified stock
options to Chen Feng, a director of the Company, to purchase shares of
Phoenix's Common Stock at an exercise price of $3.60 (equal to a $1.25 discount
from September 27, 1995's closing price of $4.85). These options shall vest in
their entirety in nine years and shall expire in ten years. In the event of
accelerated vesting of options, such accelerated options shall expire at the
end of the later of a) three years from the date of grant or b) one year from
the date of vesting. The conditions upon which acceleration and immediate
vesting shall occur are as follows: 500,000 options for attaining formal
approval of CAAC in regard to the implementation of the Hainan-Phoenix airline
reservation system in China and the cut-over into commercial operation of the
first airline customer in China; 100,000 options each for signing up as
customers, and cutting over into commercial operation, Air China and its five
regional affiliates (China Southern, China Eastern, China Northern, China
Southwest, and China Northwest); 25,000 options each for signing up as
customers, and cutting over into commercial operation, up to twelve other
scheduled air carriers in China; and up to 600,000 options for international
sales of up to 2,500,000 CAAC-affiliate airline seats through PSL in calendar
years 1996, 1997 and 1998, on a prorated basis.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
UNGERLEIDER V. ROBERT P. GORDON, PHOENIX INFORMATION SYSTEMS INC., ET AL.
Reference is made to the Company's Form 10-Q, for the period ended
06/30/95, for a complete description of pending legal proceedings against the
Company.
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:
On May 9, 1991, the Company's Common Stock became quoted in the
Over-The-Counter market in the "Pink Sheets" and on the Electronic Bulletin
Board.
On April 13, 1995 Phoenix submitted an application to have its Common
Stock listed on the Nasdaq Stock Market (the "Nasdaq"). Nasdaq requested
audited financials on the Company, which were submitted to Nasdaq in mid-July.
On September 19, 1995, the Company met with the NASD to discuss the Company's
application. The NASD requested three items from the Company in support of the
application: a statement of projected earnings and revenues for two quarters,
copies of all Soros investment documents and an attorney's letter regarding the
Ungerleider litigation.
On July 31, 1995, the Company filed a Registration Statement on Form
8-A to register its Common Stock under Section 12-G of the Securities Exchange
Act of 1934. On August 2, 1995, the Securities Exchange Commission declared
the Company's Statement effective.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
27) Financial Data Schedule
(b) Reports on Form 8-K - None
14
<PAGE> 15
PHOENIX INFORMATION SYSTEMS CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHOENIX INFORMATION SYSTEMS CORP.
---------------------------------
(Registrant)
Dated: November 13, 1995 /s/ ROBERT P. GORDON
----------------------------------------
Robert P. Gordon, President and
Chief Executive Officer
/s/ LEONARD S. OSTFELD
----------------------------------------
Leonard S. Ostfeld, Vice President
and Chief Financial Officer
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- - - - - ------ ------------------- ----
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,058,666
<SECURITIES> 0
<RECEIVABLES> 35,696
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,248,843
<PP&E> 2,075,720
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,314,964
<CURRENT-LIABILITIES> 1,812,455
<BONDS> 0
<COMMON> 425,923
0
0
<OTHER-SE> 1,627,641
<TOTAL-LIABILITY-AND-EQUITY> 4,314,964
<SALES> 261,072
<TOTAL-REVENUES> 288,411
<CGS> 0
<TOTAL-COSTS> 4,005,777
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,342,951)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,342,951)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> 0
</TABLE>
