<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, 1996
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: 847-506-3100
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. 30,713,168 SHARES AS OF
OCTOBER 31, 1996.
<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, 1996
and March 31, 1996..................................... 3
Consolidated Statements of Operations for the Three and Six
Months Ended September 30, 1996 and 1995............... 4
Consolidated Statements of Cash Flows for the Six Months
Ended September 30, 1996 and 1995...................... 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,
1996 1996
------------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $1,555 $920
Accounts receivable, net 6,247 8,079
Inventories 87 592
Prepaid expenses and other assets 2.02 365
------------ ----------
TOTAL CURRENT ASSETS 8,091 9,956
Property and equipment, net 2,697 2,869
Capitalized and purchased software, net 6,446 6,252
Goodwill and customer lists, net 2,425 1,182
Other assets 110 130
------------ ----------
TOTAL ASSETS $19,769 $20,389
------------ ----------
------------ ----------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $0 $3,030
Accounts payable and accrued liabilities 7,534 6,823
Accrued payroll and related benefits 1,209 1,439
Deferred revenue 7,886 10,031
------------ ----------
TOTAL CURRENT LIABILITIES 16,629 21,323
Notes payable - long term 0 1,500
Excess lease liability 498 824
Other liabilities 61 88
------------ ----------
TOTAL LIABILITIES 17,188 23,735
------------ ----------
Commitments and contingent liabilities:
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value,
2,000,000 shares authorized
Series C, 0 and 36,265 shares issued and outstanding 0 3,570
Series D, 221 and 16,356 shares issued and outstanding 49 3,655
Common stock, $.10 par value, Non-designated, 50,000,000 shares authorized
30,663,168 and 10,307,700 shares issued and outstanding, respectively 3,066 1,031
Additional paid-in capital 40,125 23,019
Accumulated deficit (40,767) (34,727)
Cumulative foreign currency translation adjustment 108 106
------------ ----------
TOTAL STOCKHOLDERS' EQUITY 2,581 (3,346)
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,769 $20,389
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------- ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES:
Systems $2,074 $3,845 $4,009 $8,309
Services 5,169 7,426 11,403 14,983
------ ------ ------ -----
TOTAL REVENUES 7,243 11,271 15,412 23,292
------ ------ ------ -----
COSTS OF REVENUES:
Systems 2,341 3,061 4,386 6,227
Services 3,290 4,375 7,062 8,874
------ ------ ------ -----
TOTAL COSTS OF REVENUES 5,631 7,436 11,448 15,101
------ ------ ------ -----
GROSS MARGIN:
Systems (267) 784 (377) 2,082
Services 1,879 3,051 4,341 6,109
------ ------ ------ -----
TOTAL GROSS MARGIN 1,612 3,835 3,964 8,191
------ ------ ------ -----
OPERATING EXPENSES:
Product development 1,354 1,164 2,602 2,432
Sales and marketing 1,538 1,719 3,147 3,425
General and administrative 1,259 1,717 2,794 3,361
Amortization of goodwill, customer
lists and noncompete agreements 95 377 163 754
Restructuring charge 1,297 0 1,297 0
------ ------ ------ -----
TOTAL OPERATING EXPENSES 5,543 4,977 10,003 9,972
------ ------ ------ -----
OPERATING LOSS (3,931) (1,142) (6,039) (1,781)
OTHER EXPENSES:
Interest expense (income) (21) 169 (27) 310
------ ------ ------ -----
LOSS BEFORE INCOME TAXES (3,910) (1,311) (6,012) (2,091)
Income tax provision (7) 26 28 57
------ ------ ------ -----
NET LOSS ($3,903) ($1,337) ($6,040) ($2,148)
------ ------ ------ -----
------ ------ ------ -----
NET LOSS PER COMMON SHARE ($0.13) ($0.16) ($0.21) ($0.26)
------ ------ ------ -----
------ ------ ------ -----
Shares used in computing per share data 30,374 8,551 29,347 8,334
------ ------ ------ -----
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
September 30
1996 1995
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($6,040) ($2,148)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 660 709
Amortization of capitalized and purchased software 1,096 893
Amortization of goodwill and customer lists 163 754
Retirement of property and equipment 14 0
Foreign currency translation adjustment 2 (24)
Excess lease liability (326) (301)
Changes in assets & liabilities:
Accounts receivable, net 2,105 (353)
Inventories 505 126
Prepaid expenses and other assets 168 96
Accounts payable and accrued liabilities 555 (1,233)
Accrued payroll and related (237) (322)
Other liabilities and deferred liabilities (2,282) 1,303
--------- ----------
Net cash used in by operating activities (3,617) (500)
--------- ----------
Cash flows from investing activities:
Capital expenditures (422) (237)
Expenditures for capitalized and purchased software (944) (722)
Acquisition of Complete Broking Systems (784) 0
--------- ----------
Net cash used in investing activities (2,150) (959)
--------- ----------
Cash flows from financing activities:
Borrowings on note payable 0 1,250
Payments on note payable (3,030) (300)
Proceeds from exercise of stock options 44 0
Proceeds from private equity placement 9,361 0
Proceeds from employee stock purchase plan 27 433
--------- ----------
Net cash provided by financing activities 6,402 1,383
--------- ----------
Net decrease in cash 635 (76)
Cash at the beginning of the period $920 $877
--------- ----------
Cash at the end of the period $1,555 $801
--------- ----------
--------- ----------
</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
These 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, 1996.
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 statements 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, 1996.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1996 was a negative $8,538,000, an improvement
of $2,829,000 from March 31, 1996. The significant improvement in working
capital was primarily the result of an increase in cash and the elimination of
notes payable due to the private equity placement, and the reduction of deferred
revenue due to the Company's exit from the hardware business in the second
quarter of the current year. Working capital at June 30, 1996 was a negative
$3,946,000, therefore a decrease of $4,592,000 in the second quarter of the
current fiscal year. This decrease is primarily due to a decrease in cash of
$2,515,000, and an increase in accounts payable and accrued liabilities of
$1,819,000 related to accrued restructuring charges.
A major component of the Company's negative net working capital position
consists of deferred revenues of $7,886,000 at September 30, 1996, primarily
representing prepaid software maintenance fees from customers that are
recognized ratably over the software maintenance agreement terms. 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.
In July 1996 the Company acquired Complete Broking Systems (CBS), Auckland, New
Zealand, an established supplier of software for the insurance broker industry
throughout Asia Pacific and Europe. The acquisition was accounted for as a
purchase and the purchase price included cash and common stock.
In May 1996, the Company completed a private equity placement providing gross
proceeds of $10,700,000 to the Company. Under terms of the placement, the
Company issued 10,700,000 units at a price of $1.00 per unit. Each unit
consisted of one share of common stock and a redeemable warrant to purchase one
share of common stock at an exercise price of $1.50 per share, subject to
certain anti-dilution adjustments. The shares and redeemable warrants
comprising the units were immediately detachable and separately transferable.
The private equity placement provided net proceeds of approximately $9,361,000
to the Company. The proceeds were used for the acquisition of CBS, product
research and development, to strengthen the Company's sales and marketing
organization, to reduce debt, to strengthen working capital, and to continue the
consolidation of the Company's operations.
DELPHI INFORMATION SYSTEMS, INC.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In conjunction with the equity placement, the Company converted its outstanding
Series C Preferred Stock, 16,135 of the 16,356 outstanding shares of Series D
Preferred stock, and its Series E Preferred Stock into 3,626,800, 3,649,734, and
1,421,060 shares of common stock, respectively. In addition $1,500,000 in
outstanding promissory notes were converted into 1,500,000 units, identical to
those described above.
The Company has experienced losses in each of its last two years and in both
quarters of the current fiscal year. The Company attributes these losses
primarily to a soft market for insurance agency automation equipment by reason
of the relatively lower profitability of independent agencies during the last
three years as compared with earlier periods, industry-wide consolidation, and
customer dissatisfaction with certain products and their concern regarding the
Company's financial condition. In addition, the Company faces strong
competition from two software developers, and one of these developers has been
competing aggressively through product pricing. The Company has taken steps to
reduce costs, strengthen its management and improve its product offering so as
to be in a position to achieve profitability as market conditions improve, but
no assurances can be given that those steps will be successful and help the
Company achieve profitability. The Company cannot survive continued operating
losses indefinitely, and consequently, may be forced to raise additional funds
or further restructure its business. In all events, the Company would benefit
from additional liquidity and has been exploring numerous commercial lending and
equity raising options.
THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues for the second quarter ended September 30, 1996 were $7,243,000,
representing a 36% decrease compared to the second quarter of the prior year.
The Company recorded a net loss of $3,903,000 or $0.13 per share in the second
quarter, compared to a net loss of $1,337,000, or $0.16 per share in the second
quarter of the prior year.
Systems revenues of $2,074,000 for the second quarter of the current year
reflect a decrease of 46% compared to the second quarter of the prior year.
This decrease was primarily the result of decreased sales of system upgrades to
existing customers and the elimination of hardware sales. Service revenues were
$5,169,000 in the second quarter of the current year, representing a decrease of
$2,257,000 or approximately 30%, compared to the second quarter of the prior
year. The decrease is primarily the result of decreased support directly
related to the Company's exit from the hardware maintenance business.
Costs of revenues as a percentage of revenues were 78% in the current
quarter, compared to the 66% in the second quarter of the prior year. Costs
of systems revenues were 113% of systems revenues in the second quarter of
the current fiscal year, compared to 80% in the second quarter of the prior
fiscal year. The increase expressed in percentage terms was primarily due to
an additional provision for doubtful accounts. Costs of services revenues as
a percentage of services revenues increased to 64% in the second quarter of
the current year, compared to 59% in the second quarter of the prior fiscal
year. The increase in percentage terms
8
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
is primarily due to costs associated with the Company's withdrawal from the
hardware maintenance business.
Product development expenses for the second quarter ended September 30, 1996
were $1,354,000, or an increase of $190,000, compared to the second quarter of
the prior fiscal year. The increase is due to increased consulting expenditures
related to the development of Common Delphi, partially offset by reduced head
count.
Sales and marketing expenses for the quarter ended September 30, 1996 decreased
$181,000, or approximately 11%, from the comparable quarter in the prior year.
The decrease is primarily due to reduced headcount.
General and administrative expenses for the quarter ended September 30, 1996
decreased $458,000, or 27%, from the second quarter of the prior year. The
decrease is due to lower head count and overall spending reductions compared to
the prior year.
Amortization of goodwill, customer lists and noncompete agreements for the
quarter ended September 30, 1996 decreased $282,000, or 75%, from the second
quarter of the prior year. The decrease is primarily due to a reduction in the
carrying value of the intangible assets as a result of a write down of goodwill
and noncompete agreements in the fourth quarter of the prior fiscal year. The
decrease is also the result of some assets having become fully amortized.
The Company incurred a restructuring charge of $1,297,000 in the second quarter
of fiscal 1997. Included in the restructuring charge are accrued severance and,
due to the departure from the hardware business, a write-down of inventory.
Interest income for the quarter ended September 30, 1996 was $21,000, compared
to interest expense of $169,000 for the second quarter of the prior year. The
decrease in net interest is due to interest income from short-term investments
in the current quarter and the deletion of interest expense related to the line
of credit.
SIX MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues for the six months ended September 30, 1996 were $15,412,000, a
decrease of $7,880,000 or 34%, compared to the first half of the prior year.
The decrease primarily was due to reduced system sales in the first half of
fiscal 1997, including reduced hardware sales due to the Company's exit of the
hardware business effective July 1st. The Company recorded a net loss of
$6,040,000 or $0.21 per share for the six months ended September 30, 1996,
compared to a net loss for the comparable period in the prior fiscal year of
$2,148,000 or $0.26 per share.
Systems revenues for the six months ended September 30, 1996 were $4,009,000, a
decrease of $4,300,000 or 52% compared to the same period of the prior year.
The decrease is primarily due to decreased sales of system upgrades to existing
customers and decrease hardware revenues in the second quarter as a result of
the Company's exit from the hardware business.
9
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Service revenues for the six month period ended September 30, 1996 were
$11,403,000, a decrease of $3,580,000 or 24%, compared to the six months ended
September 30, 1995. The decrease is primarily due to decreased support,
consulting, and education revenues generated in conjunction with system sales.
Costs of revenues expressed as a percentage of revenues were 74% in the first
half of fiscal 1997, compared to 65% in the first half of the prior year. Costs
of systems revenues expressed as a percentage of revenues were 109% in the first
half of fiscal 1997, compared to 75% in the first half of fiscal 1996. The
increase expressed in percentage terms is primarily due to an additional
provision for doubtful accounts related to the departure from the hardware
business. Costs of service revenues expressed as a percentage of revenues were
62% in the first half of fiscal 1997, compared to 59% in the first half of
fiscal 1996. The increase is primarily due to costs related to the exit from
the hardware maintenance business not offset by hardware maintenance revenue.
Product development expenditures for the six month period ended September 30,
1996 increased $170,000 or 7%, compared to the same period of the prior fiscal
year, primarily due to increased consulting expenditures for the development of
Common Delphi.
Sales and marketing expenses in the first half of fiscal 1997 decreased
$278,000, or 8%, compared to the comparable period in the prior year. The
decrease is primarily due to reduced head count.
General and administrative expenses in the first half of fiscal 1997 decreased
$597,000 or 18%, compared to the same period of fiscal 1996. 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, 1996 decreased $561,000 or
74%, compared to the same period of the prior year. The decrease is
primarily the result of the write down of goodwill stated above.
The Company incurred a restructuring charge of $1,297,000 in the second quarter
of fiscal 1997. The charge provided for severance payments due to the reduction
of headcount announced in August, 1996, and a provision for obsolete material
resulting from the Company's exit from the hardware business.
Interest income for the six months ended September 30, 1996 was $27,000,
compared to interest expenses of $310,000 in the first half of the prior fiscal
year. The decrease in net interest is primarily due to the deletion of the line
of credit, the conversion of the interest-bearing subordinated note payable
into common stock, and investment income.
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,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary loss per share:
Net loss for calculation of
primary earnings per share ($3,903) ($1,337) ($6,040) ($2,148)
Weighted average number of
shares outstanding (1) 30,374 8,551 29,347 8,334
Primary loss per share (2) ($0.13) ($0.16) ($0.21) ($0.26)
----- ----- ----- -----
</TABLE>
(1) Common stock equivalent shares have not been considered in the
calculations for the three months ended September 30, 1996 and the six
months ended September 30, 1996 and 1995, because 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 15, 1996 By /s/ James Harsch
----------------------------------
James Harsch
Vice President Administration
Chief Financial Officer
(Duly authorized officer and chief
financial officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,555
<SECURITIES> 0
<RECEIVABLES> 7,704
<ALLOWANCES> (1,457)
<INVENTORY> 87
<CURRENT-ASSETS> 8,091
<PP&E> 8,199
<DEPRECIATION> (5,502)
<TOTAL-ASSETS> 19,769
<CURRENT-LIABILITIES> 16,629
<BONDS> 0
0
49
<COMMON> 3,066
<OTHER-SE> 534
<TOTAL-LIABILITY-AND-EQUITY> 19,769
<SALES> 15,412
<TOTAL-REVENUES> 15,412
<CGS> 11,448
<TOTAL-COSTS> 11,448
<OTHER-EXPENSES> 9,383
<LOSS-PROVISION> 620
<INTEREST-EXPENSE> (27)
<INCOME-PRETAX> (6,012)
<INCOME-TAX> 28
<INCOME-CONTINUING> (6,040)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,040)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
