<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 December 31, 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 January 31, 1996, the Registrant had 42,649,898 shares of common stock
issued and outstanding.
<PAGE> 2
PHOENIX INFORMATION SYSTEMS, INC.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
March 31, 1995 and
December 31, 1995 (Unaudited) 3
Unaudited Consolidated Statements of Operations
Three and Nine Months ended
December 31, 1995 and
December 31, 1994 and Inception to
December 31, 1995 4
Unaudited Consolidated Statements of Cash Flows
Nine Months ended
December 31, 1995 and
December 31, 1994 and Inception to
December 31, 1995 5
Notes to Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-14
PART II. OTHER INFORMATION 15
SIGNATURE PAGE 16
</TABLE>
2
<PAGE> 3
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(A development stage company)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND MARCH 31, 1995
<TABLE>
<CAPTION>
Assets
- ------ December 31, March 31,
1995 1995
Current Assets: (Unaudited)
- ---------------
<S> <C> <C>
Cash and cash equivalents $ 230,780 $ 1,864,581
Prepaids 90,840 17,700
Trade receivable 75,594 7,141
Receivable from related parties 36,142 346,850
------------------ -------------
Total current assets 433,356 2,236,272
Property and equipment, net 2,141,392 1,646,563
Deposits and other 193,175 39,706
Due from joint venture partner 514,776 174,605
Goodwill, net 420,270 487,202
------------------ -------------
Total assets $ 3,702,969 $ 4,584,348
================== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
- --------------------
Notes payable $ 100,000 $ 11,522
Accounts payable 2,050,300 1,256,134
Accrued payroll and payroll taxes 73,854 120,592
Accrued interest 1,834 70,038
Current portion long term debt 100,080 5,900
------------------ -------------
Total current liabilities 2,326,068 1,464,186
Long term debt, less current portion 199,518 9,391
Payable to related parties 810,209 593,051
Accrued compensation expense 271,250 53,750
------------------ -------------
Total non-current liabilities 1,280,977 656,192
------------------ -------------
Total liabilities 3,607,045 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,
42,649,898 and 39,510,393 shares issued and outstanding
at December 31, 1995 and March 31, 1995, respectively 426,498 395,104
Additional paid-in capital 15,398,544 12,344,644
Losses that have accumulated during the
development stage (15,729,118) (10,275,778)
------------------ -------------
Total stockholders' equity 95,924 2,463,970
------------------ -------------
Total liabilities and stockholders' equity $ 3,702,969 $ 4,584,348
================== =============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(A development stage company)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
AND CUMULATIVE FOR THE PERIOD FROM INCEPTION OF
DEVELOPMENT STAGE ACTIVITIES
APRIL 1, 1989 TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31 Ended December 31
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Start-up and organizational expenses $ (2,598,347) $ (1,270,021) $ (6,604,124) $ (3,497,829)
Travel commission, net 89,560 56,944 265,910 74,854
Management fee income - 23,940 - 85,885
Reservation center revenues 164,672 - 249,394 -
License fee income 6,000 6,000 18,000 18,000
Interest and dividend income 6,279 5,974 21,618 5,974
-------------- ------------- ------------- -------------
Net loss before minority interest
in net loss of subsidiary (2,331,836) (1,177,163) (6,049,202) (3,313,116)
-------------- ------------- ------------- -------------
Minority interest in net loss of
subsidiary 221,446 - 595,861 -
-------------- ------------- ------------- -------------
Net loss $ (2,110,390) $ (1,177,163) $ (5,453,341) $ (3,313,116)
============== ============= ============= =============
Net loss per common share
outstanding, primary $ (0.05) $ (0.05) $ (0.13) $ (0.14)
============== ============= ============= =============
Weighted average number of
common shares outstanding 42,606,773 25,513,053 41,027,365 24,209,916
============== ============= ============= =============
<CAPTION>
Cumulative
Since
April 1, 1989
-------------
<S> <C>
Start-up and organizational expenses $ (17,565,934)
Travel commission, net 402,534
Management fee income 138,021
Reservation center revenues 249,394
License fee income 60,000
Interest and dividend income 45,940
---------------
Net loss before minority interest
in net loss of subsidiary (16,670,045)
---------------
Minority interest in net loss of
subsidiary 940,926
---------------
Net loss $ (15,729,119)
===============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(A development stage company)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
AND CUMULATIVE FOR THE PERIOD FROM INCEPTION OF DEVELOPMENT STAGE ACTIVITIES,
APRIL 1, 1989 TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Nine Months Cumulative
Ended December 31 Since
1995 1994 April 1, 1989
---- ---- -------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
- -------------------------------------
Net loss $ (5,453,341) $ (3,313,116) $ (15,729,119)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense 587,579 17,685 848,344
Compensation paid through issuance of stock 225,000 125,000 505,452
Services paid through issuance of stock 518,370 343,566 1,380,906
Rent paid through in-kind contribution 255,690 - 426,150
Start-up and organizational costs paid by related party - - 76,395
Fees and services paid through related party - - 46,585
Equity in net loss of Joint Venture - 125,460 -
Minority interest in net loss of subsidiary (595,861) - (940,926)
Interest paid through note payable - - 28,916
Cash purchased through acquisition of subsidiary - - 6,089
-------------- --------------- ----------------
(4,462,563) (2,701,405) (13,351,208)
Changes In Assets and Liabilities:
Prepaids, deposits and trade receivable (258,960) 72,320 (258,823)
Accounts payable 847,166 173,849 1,389,392
Accrued payroll and payroll taxes (46,738) (241,746) 17,277
Accrued rent payable to related party - - 37,500
Accrued interest (68,204) (12,385) 202,719
-------------- --------------- ----------------
Net cash used in operating activities (3,989,299) (2,709,367) (11,963,143)
-------------- --------------- ----------------
Cash Flows From Investing Activities:
- -------------------------------------
Purchase of property and equipment (894,076) (92,475) (1,989,696)
Investments in/advances to Joint Venture - (1,001,518) -
-------------- --------------- ----------------
Net cash used in investing activities (894,076) (1,093,993) (1,989,696)
-------------- --------------- ----------------
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 3,000,000 438,000
Payments on notes payable (200,469) (28,944) (301,875)
Proceeds from related parties 2,454,865 2,584,120 12,072,721
Payments to related parties - (135,921) (1,106,946)
Elimination of Phoenix retained deficit - - (18,900)
Payments on capital lease obligation (7,247) (7,610) (21,456)
-------------- --------------- ----------------
Net cash provided by financing activities 3,249,574 5,511,645 14,183,619
-------------- --------------- ----------------
Increase (decrease) in cash and cash equivalents (1,633,801) 1,708,285 230,780
Cash and cash equivalents, beginning of period 1,864,581 4,380 -
-------------- --------------- ----------------
Cash and cash equivalents, end of period $ 230,780 $ 1,712,665 $ 230,780
============== =============== ================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
PHOENIX INFORMATION SYSTEMS CORP. AND SUBSIDIARIES
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 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 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 principles. The Form 10-K, for
the fiscal year ended March 31, 1995 should be read in conjunction with the
data herein.
6
<PAGE> 7
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 begun to operate its 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").
In 1995, Phoenix commenced operations in the United States and China.
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, and
continues to depend, upon its ability to raise capital.
RESULTS OF OPERATIONS
During the nine months ended December 31, 1995 and the years ended March
31, 1995, 1994, and 1993, the Company sustained net losses of $5,453,341,
$4,841,824, $2,567,932, and $1,640,852, respectively. These losses may continue
for a presently undetermined time.
For the quarter ended December 31, 1995, the Company had start-up and
organizational expenses of $2,598,347 compared to $1,270,021 for the comparable
period in 1994.
The higher start-up and organizational expense reflects principally the
addition of marketing employees and consulting services, and the incurring of
marketing related expenses as the
7
<PAGE> 8
Company's focus shifts from product development to generation of customers and
sales. While Phoenix 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, Boston and Trenton)
with a complete reservation system to manage all sales, airport and operations
functions. In addition, Phoenix has established a reservation center that
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. The Company generated revenues of
$164,672 from the Eastwind arrangement for the quarter ended December 31, 1995.
Travel commissions during the quarter ended December 31, 1995 of $89,560
are attributable to the Company's consolidated travel agency subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital Deficit; Financial Instability
As of December 31, 1995, Phoenix had stockholders' equity of $95,924, an
accumulated deficit of $15,729,118 and a working capital deficit of $1,892,712.
Phoenix has not generated any significant revenues, earnings or history of
operations from inception through December 31, 1995. During the December 1995
quarter, Robert P. Gordon, Chairman of the Board, lent the Company $750,000 as
working capital. The loan is repayable on demand. 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
8
<PAGE> 9
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.
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 "CARS") had
been installed and test operations had commenced by an airline or air carrier
that 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 that 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).
9
<PAGE> 10
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 ventures 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 Airlines or is not demonstrably operational in all material
respects (the 90-day deadline was extended to January 15, 1996 in the
subsequent agreement of September 15, 1995).
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 15, 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 four million shares at $3.00 per share
10
<PAGE> 11
in connection with the execution of the 1994 agreement). The Company further
agreed that the original warrant would become fully exercisable and that the
number of shares into which the notes were converted on September 15, 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, was to 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 date hereof, Mr. Conrads has received
537,800 shares based on $6,750,000 in Notes issued through December 31, 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 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 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
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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 four 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 February 1, 1996 assuming full funding and conversion of the balance
of $3,250,000 in Notes and exercise of all $25,860,000 in warrants, S-C's
investment (totaling 24,459,999 shares) would represent approximately 35% of
Phoenix's outstanding equity on a fully diluted basis. While management
continues to hold and/or has a right to acquire, in excess of 28% 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 27,144,036 in stock, options and warrants
granted by the Company to S-C, Phoenix employees, directors and others become
fully vested and exercised, Phoenix's issued and outstanding common stock would
increase to 69,793,934 shares and the Company would subsequently receive
$56,282,111 in proceeds.
Other Matters
On January 24, 1996, the Company announced that its joint venture,
Hainan-Phoenix, received formal approval from the Civil Aviation Administration
of China ("CAAC") to operate the Joint Venture's computerized reservation
systems for air travel within China. Hainan-Phoenix is the only commercial
entity to receive formal approval to operate a computerized reservation system
in China. The CAAC, like the Federal Aviation Administration in the United
States, is the official regulatory body for the airline industry. The Company
also announced that commercial operations have commenced. To date, the Joint
Venture has installed its reservation terminals in the Chinese cities of
Xiamen, Wuhan, Beijing and Haikou. Hainan-Phoenix is currently taking
reservations for Hainan Airlines flights from Wuhan and Xiamen, and expects to
expand its reservations system to all 17 cities currently being served by
Hainan Airlines - Xiamen, Wuhan, Beijing, Haikou, Ningbo, Shanghai, Nanjing,
Zhangjiang, Shenzhen, Chongqing, Nanchang, Xian, Wenzhou, Guilin, Hangzhou,
Chengdu, Harbin, imminently. The Joint Venture plans to install up to 3,000
terminals throughout China in the coming year.
12
<PAGE> 13
In December 1995, the Company completed an agreement with two Soros managed
investment entities to acquire an option to purchase a 50% interest in American
Aviation Limited ("American Aviation"), a company formed to purchase 25% or
more of the equity in Hainan Airlines. In late November 1995, the Chinese
government announced that it had approved the acquisition by American Aviation
of 25% of the common stock of Hainan Airlines for an investment of $25,000,000.
On December 22, 1995, American Aviation completed the acquisition of 25% of
Hainan Airlines.
Hainan Airlines, the only publicly held airline in China, is one of the
fastest growing and most profitable airlines in China--in fact, Hainan was
awarded an esteemed designation from the CAAC as the best airline in China in
1995. Hainan Airlines, which carried more than 870,000 passengers in 1995,
expects to carry over 1.6 million passengers in 1996, and over 2.7 million
passengers by 1998. Based in China's Hainan province, Hainan Airlines
currently operates a fleet of 6 Boeing 737, 2 Metro 23 and 1 Lear 55 aircraft
throughout China.
Under the agreement, Phoenix was granted the option to purchase from S-C
Phoenix Holdings, L.L.C. ("S-C Phoenix") and Quantum Industrial Partners LDC
("Quantum") a 50% interest in American Aviation (the "Option") for the amount
of $15,000,000, exercisable for one year from the date of American Aviation's
purchase of the Hainan shares. As part of the transaction, Phoenix granted to
S-C Phoenix and Quantum a Warrant to purchase two million shares of Phoenix
common stock at the price of $3.23 per share, equal to a 15% discount from an
average share trading price, exercisable until January 22, 1999. In addition,
Phoenix granted to S-C Phoenix and Quantum an option to sell all or part of
American Aviation to Phoenix for shares of Phoenix's common stock, subject to
certain limits, exercisable from December 22, 1997 through December 22, 2000.
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 the September 27, 1995 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
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<PAGE> 14
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 the September 27, 1995 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.
14
<PAGE> 15
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.
The NASDAQ Stock Market has determined that the Company does not meet its
listing requirements. As soon as the Company and its advisors feel that the
Company would qualify for listing, Phoenix will again apply.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
27) Financial Data Schedule
(b) Reports on Form 8-K - None
15
<PAGE> 16
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: February 6, 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
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- -------------- -------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 230,780
<SECURITIES> 0
<RECEIVABLES> 75,594
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 433,356
<PP&E> 2,141,392
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,702,969
<CURRENT-LIABILITIES> 2,326,068
<BONDS> 0
0
0
<COMMON> 426,498
<OTHER-SE> (330,574)
<TOTAL-LIABILITY-AND-EQUITY> 3,702,969
<SALES> 515,304
<TOTAL-REVENUES> 554,922
<CGS> 0
<TOTAL-COSTS> 6,604,124
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,453,341)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,453,341)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
