<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 quarter ended September 30, 1996
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: 0-26532
- --------------------------------
PHOENIX INFORMATION SYSTEMS CORP.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3337797
- ------------------------------------------------- ----------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
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 October 31, 1996, the Registrant had 46,718,942 shares of common stock
issued and outstanding.
<PAGE> 2
PHOENIX INFORMATION SYSTEMS CORP.
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1996 and
September 30, 1996 (Unaudited) 3
Unaudited Consolidated Statements of Operations
Three Months and Six Months ended
September 30, 1996 and
September 30, 1995 and Inception to
September 30, 1996 4
Unaudited Consolidated Statements of Cash Flows
Six Months ended
September 30, 1996 and
September 30, 1995 and Inception to
September 30, 1996 5 - 6
Notes to Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 9
PART II. OTHER INFORMATION 10 - 11
SIGNATURE PAGE 12
EXHIBIT INDEX 13
</TABLE>
<PAGE> 3
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, 1996 MARCH 31, 1996
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,090,311 $ 2,078,510
Prepaids 194,886 135,474
Trade receivables 184,780 78,622
Receivable from related parties 81,286 65,469
------------ ------------
Total current assets 4,551,263 2,358,075
Property and equipment, net 1,668,701 1,882,549
Deposits and other 130,983 110,360
Due from joint venture partner 567,202 737,662
Goodwill, net 341,671 394,071
------------ ------------
Total assets $ 7,259,820 $ 5,482,717
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 307,488 $ 300,773
Accounts payable 1,590,346 2,688,530
Accrued payroll and payroll taxes 301,517 272,582
Accrued interest 7,416 15,507
------------ ------------
Total current liabilities 2,206,767 3,277,392
Payable to related parties 29,890 1,046,633
Notes payable, less current portion 122,794 173,075
Accrued compensation expense 542,250 332,250
------------ ------------
Total liabilities 2,901,701 4,829,350
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
2,231,250 shares issued and outstanding at September 30, 1996 22,312 --
Common stock, $.01 par value, 75,000,000 shares authorized,
46,376,563 and 45,722,618 shares issued and outstanding
at September 30,1996 and March 31, 1996, respectively 463,765 457,226
Additional paid-in capital 28,884,623 20,176,237
Losses that have accumulated during the development stage (25,012,581) (19,980,096)
------------ ------------
Total stockholders' equity 4,358,119 653,367
------------ ------------
Total liabilities and stockholders' equity $ 7,259,820 $ 5,482,717
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
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, 1996 and 1995
and cumulative for the period from inception of development
stage activities, April 1, 1989, through September 30, 1996
<TABLE>
<CAPTION>
Three Months Six Months Cumulative
Ended September 30, Ended September 30, Since
1996 1995 1996 1995 April 1, 1989
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Start-up and organizational expenses $ (2,993,551) $ (2,037,959) $ (5,575,899) $ (4,005,777) $(27,942,243)
Travel commissions, net 84,722 71,500 198,504 176,350 722,560
Reservation revenues 149,908 84,722 250,900 84,722 610,003
License fee income 6,000 6,000 12,000 12,000 78,000
Interest and dividend income 24,522 4,978 66,562 15,339 116,588
Management fee income -- -- -- -- 138,021
Other revenues 15,448 -- 15,448 -- 15,448
------------ ------------ ------------ ------------ ------------
Net loss before minority interest
in net loss of subsidiary (2,712,951) (1,870,759) (5,032,485) (3,717,366) (26,261,623)
------------ ------------ ------------ ------------ ------------
Minority interest in net loss of subsidiary -- 193,063 -- 374,415 1,249,042
------------ ------------ ------------ ------------ ------------
Net loss $ (2,712,951) $ (1,677,696) $ (5,032,485) $ (3,342,951) $(25,012,581)
============ ============ ============ ============ ============
Net loss per common share
outstanding $ (.06) $ (.04) $ (.11) $ (.08)
============ ============ ============ ============
Weighted average number of common
shares outstanding 46,275,834 40,891,507 46,048,741 40,360,232
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(a development stage company)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended September 30, 1996 and 1995
and cumulative for the period from inception of development
stage activities, April 1, 1989, through September 30, 1996
<TABLE>
<CAPTION>
Six Months
Ended September 30, Cumulative
--------------------------- Since
1996 1995 April 1, 1989
----------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(5,032,485) $ (3,342,951) $(25,012,581)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization expense 551,409 328,225 1,956,016
Compensation paid through issuance of stock 210,000 150,000 790,452
Transaction fee -- -- 1,140,000
Services paid through issuance of stock 193,010 365,620 1,891,317
Rent paid through in-kind contribution 170,460 170,460 681,840
Minority interest in net loss of subsidiary -- (374,415) (1,249,042)
Other -- -- 157,985
----------- ------------ ------------
(3,907,606) (2,703,061) (19,644,013)
Changes in assets and liabilities:
Prepaids, deposits and trade receivables (186,194) (171,096) (445,965)
Accounts payable (1,098,184) 239,132 966,938
Accrued payroll and payroll taxes 28,935 (28,418) 244,940
Accrued interest (8,091) (69,205) 208,301
----------- ------------ ------------
Net cash used in operating activities (5,171,140) (2,732,648) (18,669,799)
----------- ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (285,156) (635,715) (2,509,972)
----------- ------------ ------------
Net cash used in investing activities (285,156) (635,715) (2,509,972)
----------- ------------ ------------
</TABLE>
See accompanying notes.
5
<PAGE> 6
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(a development stage company)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended September 30, 1996 and 1995
and cumulative for the period from inception of development
stage activities, April 1, 1989, through September 30, 1996
<TABLE>
<CAPTION>
Six Months
Ended September 30, Cumulative
--------------------------- Since
1996 1995 April 1, 1989
----------- ------------ -------------
<S> <C> <C> <C>
Cash flows from financing activities:
Issuance of common and preferred stock $ 8,675,000 $ 579,425 $ 10,533,095
Stock subscriptions -- -- 1,297,000
Proceeds from notes payable -- 423,000 538,000
Payments on notes payable (39,579) (134,264) (365,755)
Proceeds from related parties -- 1,782,500 15,529,818
Payments to related parties (1,032,560) (83,937) (2,139,506)
Payments on capital lease obligation (3,989) (4,276) 8,205
Payments of preferred stock dividends (130,775) -- (130,775)
----------- ----------- ------------
Net cash provided by financing activities 7,468,097 2,562,448 25,270,082
----------- ----------- ------------
Increase (decrease) in cash and cash equivalents 2,011,801 (805,915) 4,090,311
Cash and cash equivalents, beginning of period 2,078,510 1,864,581 --
----------- ----------- ------------
Cash and cash equivalents, end of period $ 4,090,311 $ 1,058,666 $ 4,090,311
=========== =========== ============
</TABLE>
See accompanying notes.
6
<PAGE> 7
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(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 is collectively referred to herein as
"Phoenix". All significant intercompany accounts and transactions have been
eliminated.
NOTE B
The financial information reflects all normal recurring adjustments that,
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 accounting principles. The Form
10-K, for the fiscal year ended March 31, 1996 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 AND RESULTS OF OPERATIONS.
INTRODUCTORY STATEMENT
Phoenix Information Systems Corp. ("Phoenix" or the "Company") is a
development-stage information systems and services company that has developed
airline and hotel travel reservation systems.
In fiscal 1996, Phoenix commenced operations in the United States, China
and Russia. Efforts are under way to enlist additional airlines, hotels and
other travel service providers. While Phoenix has now commenced operations, the
Company has only a brief operating history and has yet to generate significant
revenues or earnings. Consequently, Phoenix's continued existence has depended,
primarily, upon its ability to raise capital.
In China, Phoenix has installed and begun to operate its advanced
computerized travel reservation system for domestic airlines. Phoenix provides
state-of-the-art, travel-related information services to China through its 70%
owned joint venture with China Hainan Airlines.
RESULTS OF OPERATIONS
During the six months ended September 30, 1996, and the fiscal years
ended March 31, 1996, 1995 and 1994, the Company sustained net losses of
$5,032,485, $9,704,318, $4,841,824 and $2,567,932, respectively. These losses
may continue for a presently undetermined time.
Reservation revenues reflect a full quarters results for the quarter
ended September 30, 1996 while reservation revenues started in the quarter
ended September 30, 1995.
While Phoenix has concentrated its sales efforts in China, Russia and
other countries, the Company has also focused on small domestic carriers that
could utilize the Company's reservation system. In fiscal 1995, Phoenix entered
into an Agreement with Eastwind Airlines, Inc. ("Eastwind") to provide Eastwind
with a complete reservation system to manage all sales, airport and operations
functions. In addition, Phoenix implemented a reservation center that processes
all Eastwind reservations as of the second quarter of fiscal 1996. Furthermore,
in May 1996, the Company commenced commercial operations with Laker Airlines.
For the quarter ended September 30, 1996, the Company had start-up and
organizational expenses of $2,993,551 compared to $2,037,959 for the quarter
ended September 30, 1995. The expanding start-up and organizational expenses in
the quarter ended September 30, 1996 as compared to the quarter ended September
30, 1995, reflects principally the addition of marketing and administrative
employees as the Company's focus shifts from product development to generation
of customers and sales.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
Working Capital; Financial Instability
As of September 30, 1996, Phoenix had stockholders' equity of $4,358,119
and working capital of $2,344,496. Phoenix has not generated any significant
revenues, earnings or history of operations from inception through September
30, 1996. In September 1996, Phoenix issued 1,250,000 shares of 6% Series B
Convertible Preferred Stock for a purchase price of $3.20 per share with a
liquidation preference of $4.00 per share. The Company also issued a warrant
to purchase 150,000 shares of common stock at an exercise price of $3.00 per
share. The preferred stock is convertible into common stock at the lesser of
$3.00 or the market price per share (conversion is based on the liquidation
preference price per share). If not converted by the purchaser prior to the
second anniversary of the issuance date, the preferred stock will automatically
be converted into common stock. Furthermore, the Company granted the right of
first refusal with respect to certain additional issuances.
According to the terms of the amended Series A preferred stock offering,
the maximum and minimum conversion prices per share on the Series A preferred
stock of $4.00 and $2.00, respectively were deleted. During the six months
ended September 30, 1996, 268,750 shares of the Company's Series A preferred
stock were converted into 527,528 shares of common stock.
Reference is made to the Company's Form 10-K for the fiscal year ended
March 31, 1996, for a complete description of certain financing transactions
entered into by the Company to meet its operating and investing activities.
9
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings:
Ungerleider v. Robert P. Gordon, Phoenix Information Systems Inc., et al.
On August 7, 1996, the District Court granted Phoenix's motion to dismiss
substantial portions of Plaintiff's claims. The court rejected Plaintiff's
claims of fraudulent inducement to enter into the Settlement Agreement, which
effectively precludes Plaintiff from trying to enforce a finders fee agreement
or any of the options, payments, or other rights which he released as part of
the Settlement Agreement. Plaintiff was given leave to amend his Complaint,
but the court's order required him to do so in a manner consistent with the
court's order, which precludes Plaintiff's claims related to alleged oral
promises made prior to the signing of the Settlement Agreement. On August 22,
1996, Plaintiff filed a Second Amended Complaint, which in its first eight
counts essentially reiterated the claims which the District Court dismissed on
August 7, 1996. Plaintiff also has sued Phoenix for allegedly participating in
repossessing 1.2 million shares of Phoenix stock from Plaintiff and failing to
perform oral promises which Plaintiff contends were part of the Settlement
Agreement. The Defendants have moved to dismiss or strike the Second Amended
Complaint, in part because the allegations contradict the rulings contained in
the District Court's August 7, 1996 order. The case was referred to mediation
for settlement discussions. However, mediation has been postponed because
Plaintiff's counsel moved for and was granted leave to withdraw from the case
as reflected by the court's September 2, 1996 order. Plaintiff has not yet had
new counsel enter an appearance on his behalf.
Reference is made to Item 3 of the Company's Form 10-K, for the fiscal year
ended March 31, 1996, for additional information regarding this proceeding.
Charles Chang and Juliette Chang v. Robert P. Gordon and Phoenix Information
Systems Corp.
The motion of defendants Robert P. Gordon and Phoenix to dismiss the Amended
Complaint in this action has been fully submitted and is awaiting decision. The
Court has stayed discovery in the action pending a decision on the motion to
dismiss.
Reference is made to Item 3 of the Company's Form 10-K for the fiscal year
ended March 31, 1996, for additional information regarding this proceeding.
ITEM 2. Changes in Securities: Reference is made to Part I of Item 2 of
this 10-Q for description of modifications to the terms of the
Series A preferred stock.
ITEM 3. Defaults Upon Senior Securities: None
ITEM 4. Submissions of Matters to a Vote of Security Holders: None
ITEM 5. Other Information: None
10
<PAGE> 11
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
11) Earnings Per Share - See Consolidated Statement of Operations
27) Financial Data Schedule
(b) Reports on Form 8-K - None
11
<PAGE> 12
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 12, 1996 /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
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,090,311
<SECURITIES> 0
<RECEIVABLES> 184,780
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,551,263
<PP&E> 3,280,473
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,259,820
<CURRENT-LIABILITIES> 2,206,767
<BONDS> 0
0
22,312
<COMMON> 463,765
<OTHER-SE> 3,872,042
<TOTAL-LIABILITY-AND-EQUITY> 7,259,820
<SALES> 449,404
<TOTAL-REVENUES> 543,414
<CGS> 0
<TOTAL-COSTS> 5,575,899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,032,485)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,032,485)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> 0
</TABLE>
