<PAGE>
UNITED STATES
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 quarterly period ended September 30, 1995
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15946
DELPHI INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0021975
- ------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3501 ALGONQUIN ROAD
ROLLING MEADOWS, IL 60008
- ------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 708-506-3100
------------
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. 8,664,859 SHARES AS OF
OCTOBER 31, 1995.
<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
DELPHI INFORMATION SYSTEMS, INC.
INDEX
Part I - FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 1995
and March 31, 1995 . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the Three and Six
Months Ended September 30, 1995 and 1994 . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Six Months
Ended September 30, 1995 and 1994. . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 11
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2
<PAGE>
PART 1. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Financial Statements
DELPHI INFORMATION SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, March 31,
1995 1995
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash $801 $877
Accounts receivable, net 7,992 7,639
Inventories 857 983
Prepaid expenses and other assets 1,250 1,424
--------- ---------
TOTAL CURRENT ASSETS 10,900 10,923
Property and equipment, net 3,157 3,630
Software development, net 4,518 4,389
Goodwill and customer lists, net 4,867 5,284
Purchased software, net 2,125 2,484
Other assets 577 837
--------- ---------
TOTAL ASSETS $26,144 $27,547
--------- ---------
--------- ---------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $3,436 $2,486
--------- ---------
Accounts payable and accrued liabilities 4,793 6,402
Accrued payroll and related benefits 1,118 1,441
Deferred revenue 7,665 6,332
--------- ---------
TOTAL CURRENT LIABILITIES 17,012 16,661
Notes payable - long term 1,500 1,500
Subordinated note payable 0 2,750
Excess lease liability 1,144 1,445
Other liabilities 144 638
--------- ---------
TOTAL LIABILITIES 19,800 22,994
--------- ---------
Commitments and contingent liabilities:
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value,
2,000,000 shares authorized
Series B, 9,205 shares issued and outstanding 780 780
Series C, 36,268 shares issued and outstanding 3,570 3,570
Series D, 16,356 shares issued and outstanding 3,655 3,655
Series E, 63,426 and 0 shares issued and
outstanding, respectively 3,125 --
Common stock, $.10 par value,
Non-designated, 50,000,000 shares authorized
8,664,427 and 7,979,173 shares issued and
outstanding, respectively 866 798
Additional paid-in capital 19,277 18,507
Accumulated deficit (25,042) (22,894)
Cumulative foreign currency translation adjustment 113 137
--------- ---------
Total stockholders' equity 6,344 4,553
--------- ---------
Total liabilities and stockholders' equity $26,144 $27,547
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- -------------------------
1995 1994 1995 1994
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Systems $3,845 $5,954 $8,309 $11,270
Services 7,426 8,128 14,983 15,854
--------- ---------- --------- ---------
TOTAL REVENUES 11,271 14,082 23,292 27,124
--------- ---------- --------- ---------
COSTS OF REVENUES:
Systems 3,061 3,966 6,227 7,805
Services 4,375 4,440 8,874 9,094
--------- ---------- --------- ---------
TOTAL COSTS OF REVENUE 7,436 8,406 15,101 16,899
--------- ---------- --------- ---------
GROSS MARGIN:
Systems 784 1,988 2,082 3,465
Services 3,051 3,688 6,109 6,760
--------- ---------- --------- ---------
TOTAL GROSS MARGIN 3,835 5,676 8,191 10,225
--------- ---------- --------- ---------
OPERATING EXPENSES:
Product development 1,164 1,310 2,432 3,028
Sales and marketing 1,719 1,766 3,425 3,574
General and administrative 1,717 1,734 3,361 3,768
Amortization of goodwill, customer
lists and noncompete agreements 377 419 754 817
--------- ---------- --------- ---------
TOTAL OPERATING EXPENSES 4,977 5,229 9,972 11,187
--------- ---------- --------- ---------
OPERATING (LOSS) INCOME (1,142) 447 (1,781) (962)
OTHER EXPENSES:
Interest expense, net 169 234 310 442
--------- ---------- --------- ---------
(LOSS) INCOME BEFORE INCOME TAXES (1,311) 213 (2,091) (1,404)
Income tax provision 26 30 57 60
--------- ---------- --------- ---------
NET (LOSS) INCOME ($1,337) $183 ($2,148) ($1,464)
--------- ---------- --------- ---------
--------- ---------- --------- ---------
NET (LOSS) INCOME PER COMMON SHARE ($0.16) $0.01 ($0.26) ($0.21)
--------- ---------- --------- ---------
--------- ---------- --------- ---------
Shares used in computing per share data 8,551 12,482 8,334 7,028
--------- ---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
September 30
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,148) ($1,464)
Adjustment to reconcile net loss to net cash (used in) provided
by operating activities:
Depreciation and amortization 708 772
Amortization of capitalized software
development costs 594 629
Amortization of goodwill and customer lists 417 407
Amortization of purchased software 299 216
Amortization of noncompete and other intangibles 338 409
Retirement of property and equipment 0 38
Foreign currency translation adjustment (24) (22)
Excess lease liability (301) (322)
Changes in assets & liabilities:
Accounts receivable, net (353) 2,833
Inventories 126 (109)
Prepaid expenses and other assets 96 94
Accounts payable and accrued liabilities (1,233) (1,151)
Accrued payroll and related (322) (404)
Other liabilities and deferred liabilities 1,303 (1,023)
Goodwill and customer lists 0 (23)
---------- ----------
Net cash (used in) provided by operating activities (500) 880
---------- ----------
Cash flows from investing activities:
Capital expenditures (237) (543)
Expenditures for capitalized software development (722) (651)
Purchased software 0 (27)
---------- ----------
Net cash used in investing activities (959) (1,221)
---------- ----------
Cash flows from financing activities:
Borrowings of note payable 1,250 1,856
Payments of note payable (300) (2,000)
Proceeds from issuance of convertible
promissory notes 0 125
Proceeds from exercise of stock options 433 0
Net cash (used in) provided by financing activities 1,383 (19)
---------- ----------
Net decrease in cash (76) (360)
Cash at the beginning of the period $877 $1,657
---------- ----------
Cash at the end of the period $801 $1,297
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. BASIS OF PRESENTATION
The financial statements are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair presentation of the results of the
interim periods.
These financial statements should be read in conjunction with the financial
statements, and accompanying notes thereto, included in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1995.
The results of operations for current interim periods are not necessarily
indicative of results to be expected for the entire current year.
Certain reclassifications have been made to prior year accounts to be
consistent with current year classifications.
6
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the unaudited
financial data and the notes thereto included in Item 1 of this Quarterly Report
and the financial statements and notes thereto, and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1995 was a negative $6,112,000, or a $374,000
decrease from the prior year end date of March 31, 1995. The significant
changes in working capital were an increase of $950,000 in borrowings; a
decrease of $1,609,000 in accounts payable and accrued liabilities, primarily
due to a reduction in accounts payable for the hardware component of system
sales; a decrease of $323,000 in accrued payroll and related benefits due to
reduced headcount; and an increase of $1,333,000 in deferred revenue.
A major component of the Company's negative net working capital position
consists of deferred revenues of $7,665,000 at September 30, 1995. Deferred
revenue primarily represents prepaid maintenance fees from customers which are
recognized ratably over the maintenance agreement terms. The increase is
primarily due to a change in maintenance billings from monthly to quarterly and
annual billing cycles. This liability is satisfied through normal ongoing
operations of the Company's service organization and generally does not require
a payment to a third party.
The Company would have been in non-compliance with one of the covenants of the
Company's bank line of credit as a result of the results of operations for the
quarter ended September 30, 1995. However, the bank has modified the loan
agreement covenants, and the company is in compliance with the modified
covenants.
As of September 30, 1995, borrowings under the Company's bank line of credit
totaled $3,436,000 or 73% of total available borrowings. While the amount
available under the Company's line of credit is sufficient to meet the Company's
short-term needs, the line of credit expires on December 9, 1995. The Company
requires continued access to a credit facility similar to the one the Company
currently has in place, or alternative sources of capital. The Company is
currently pursing renewing or replacing the current line of credit. While
management believes that the Company will be successful in renewing or
replacing the existing line of credit, there can be no assurances that this
will occur. In the event the line of credit cannot be renewed or replaced, it
is likely that any issuance of additional equity would be dilutive to
shareholders.
7
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Revenues for the second quarter ended September 30, 1995 were $11,271,000,
representing a 20% decrease compared to the second quarter of the prior year.
The Company recorded a net loss of $1,337,000 or $0.16 per share in the second
quarter, compared to net income of $183,000 or $0.01 per share in the second
quarter of the prior year.
Systems revenues of $3,845,000 for the second quarter of the current year
reflect a decrease of 35% compared to the second quarter of the prior year.
This decrease was primarily the result of decreased sales of system upgrades to
existing customers. The decrease in system sales is the result of several
factors, including increased competitive pressures, a decline in sales force
productivity due to reorganization of the sales force, and a temporary,
unforeseen complexity in the installation process of certain advanced features
of the Company's latest product releases. These complexities have resulted in
purchase decision delays in the marketplace. While the Company has taken
measures to address these issues, there can be no assurances that the Company
will successfully reverse the sales decline. Service revenues in the second
quarter of the current year decreased $702,000 or approximately 9%, compared to
the second quarter of the prior year. The decrease is primarily due to
decreased training, consulting, and other revenues generated in conjunction with
system sales.
Costs of revenues as a percentage of revenues were 66% in the current quarter,
compared to the 60% in the second quarter of the prior year. Costs of systems
revenues increased to 80% of systems revenues in the second quarter of the
current fiscal year, compared to 67% in the second quarter of the prior fiscal
year. The increase expressed in percentage terms is due to unfavorable
absorption of fixed costs of systems revenues and competitive pressures on
systems pricing. Costs of services revenues increased to 59% of services
revenues in the second quarter of the current fiscal year, compared to 55% of
services revenues in the second quarter of the prior fiscal year. The increase
is primarily due to the short-term non-variability of the largest component of
costs of service revenues, namely direct labor.
Product development expenses for the three months ended September 30, 1995
decreased $146,000 or 11% compared to the second quarter of the prior fiscal
year. The decreased expense is primarily due to decreased spending in the
current quarter.
Sales and marketing expenses for the quarter ended September 30, 1995 decreased
$47,000, or approximately 3%, from the comparable quarter in the prior year.
8
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General and administrative expenses for the quarter ended September 30, 1995
were $1,717,000 compared to the $1,734,000 in the second quarter of the prior
year. Included in the current quarter amount was a charge of $135,000 for the
relocation of certain functions from one of the Company's facilities to another,
resulting in increased efficiencies and elimination of certain duplicate
functions. The reduction in comparable expense is primarily due to a reduction
in headcount and overall spending reductions compared to the prior year.
Interest expense in the quarter ended September 30, 1995 decreased $65,000, or
28%, compared to the second quarter of the prior year, primarily due to the
conversion of the interest-bearing subordinated note payable into Series E
Preferred Stock.
SIX MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
Revenues for the six months ended September 30, 1995 were $23,292,000, a
decrease of $3,832,000 or 14%, compared to the first half of the prior year.
The decrease primarily was due to reduced system sales in the first half of
fiscal 1996. The Company recorded a net loss of $2,148,000 or $0.26 per share,
for the six months ended September 30, 1995, compared to a net loss for the
comparable period in the prior fiscal year of $1,464,000 or $0.21 per share.
Systems revenues for the six months ended September 30, 1995 were $8,309,000, a
decrease of $2,961,000 or 26%, compared to the same period of the prior year.
The decrease is primarily due to decreased sales of system upgrades to existing
customers.
Service revenues for the six month period ended September 30, 1995, were
$14,983,000, a decrease of approximately 5%, compared to the six months ended
September 30, 1994. The decrease is primarily due to decreased training,
consulting, and other revenues generated in conjunction with system sales.
Costs of revenues expressed as a percentage of revenues were 65% in the first
half of fiscal 1996, compared to 62% in the first half of the prior year. Costs
of systems revenues expressed as a percentage of revenues were 75% in the first
half of fiscal 1996, compared to 69% in the first half of fiscal 1995. The
increase expressed in percentage terms is due to unfavorable absorption of fixed
costs of systems revenues and competitive pressures on systems pricing. Costs
of service revenues expressed as a percentage of revenues were 59% in the first
half of fiscal 1996, compared to 57% in the first half of fiscal 1995. The
increase is primarily due to the short term non-variability of the largest
component of costs of service revenues, namely direct labor.
Product development expenditures for the six month period ended September 30,
1995 decreased $596,000 or 20%, compared to the same period of the prior fiscal
year, primarily due to decreased spending.
Sales and marketing expenses in the first half of fiscal 1996 decreased
$149,000, or 4%, compared to the comparable period in the prior year.
9
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General and administrative expenses in the first half of fiscal 1996 decreased
$407,000 or 11%, compared to the same period of fiscal year 1995. The decreased
expense is primarily due to a decrease in headcount and overall spending
reductions compared to the prior year.
Amortization of goodwill, purchased software, customer lists, and noncompete
agreements for the six months ended September 30, 1995 decreased $63,000 or 8%,
compared to the same period of the prior year.
Interest expense for the six months ended September 30, 1995 was $310,000, a 30%
decrease compared to the first half of the prior fiscal year. The decrease in
interest expense is primarily due to the conversion of the interest-bearing
subordinated note payable into Series E Preferred Stock and lower average short-
term borrowings in the first six months of fiscal 1996 compared to the first six
months of fiscal 1995.
10
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
NONE
(a.) EXHIBITS
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary earnings (loss per share:
Net (loss) income for
calculation of primary
earning per share ($1,337) $183 ($2,148) ($1,464)
Weighted average number of
shares outstanding (1) 8,551 12,482 8,334 7,028
Primary (loss) earnings
per share (2) ($0.16) $0.01 ($0.26) ($0.21)
------ ----- ------ ------
------ ----- ------ ------
</TABLE>
(1) Common stock equivalent shares have not been considered in the calculations
for the three months ended September 30, 1995 and the six months ended
September 30, 1995 and 1994, becasue they would be anti-dilutive.
(2) Primary and fully diluted earnings per share are the same for all periods
presented.
(b.) REPORTS
None.
11
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
SIGNATURE
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.
DELPHI INFORMATION SYSTEMS, INC.
Date: November 9, 1995 By /s/ John R. Sprieser
------------------------- -------------------------------
John R. Sprieser
Senior Vice President,
Chief Financial Officer
(Duly authorized officer and
principal financial and
chief accounting officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 09-30-95
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 801
<SECURITIES> 0
<RECEIVABLES> 8,745
<ALLOWANCES> (753)
<INVENTORY> 857
<CURRENT-ASSETS> 10,900
<PP&E> 11,076
<DEPRECIATION> (7,919)
<TOTAL-ASSETS> 26,144
<CURRENT-LIABILITIES> 17,012
<BONDS> 3,436
<COMMON> 866
780
10,350
<OTHER-SE> (4,786)
<TOTAL-LIABILITY-AND-EQUITY> 26,144
<SALES> 23,292
<TOTAL-REVENUES> 23,292
<CGS> 15,101
<TOTAL-COSTS> 15,101
<OTHER-EXPENSES> 9,882
<LOSS-PROVISION> 90
<INTEREST-EXPENSE> 310
<INCOME-PRETAX> (2,091)
<INCOME-TAX> 57
<INCOME-CONTINUING> (2,148)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,148)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
