<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 December 31, 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.
30,720,668 shares as of January 31, 1997.
- -----------------------------------------
<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 December 31, 1996
and March 31, 1996............................................. 3
Consolidated Statements of Operations for the Three and Nine
Months Ended December 31, 1996 and 1995........................ 4
Consolidated Statements of Cash Flows for the Nine Months
Ended December 31, 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)
<TABLE>
<CAPTION>
ASSETS
(Unaudited)
December 31 March 31,
1996 1996
----------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash $2,098 $920
Accounts receivable, net 5,446 8,079
Inventories 78 592
Prepaid expenses and other assets 170 365
----------- ---------
TOTAL CURRENT ASSETS 7,792 9,956
Property and equipment, net 2,448 2,869
Capitalized and purchased software, net 6,320 6,252
Goodwill and customer lists, net 2,287 1,182
Other assets 151 130
----------- ---------
TOTAL ASSETS $18,998 $20,389
----------- ---------
----------- ---------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $0 $3,030
Accounts payable and accrued liabilities 8,123 6,823
Accrued payroll and related benefits 826 1,439
Deferred revenue 6,925 10,031
----------- ---------
TOTAL CURRENT LIABILITIES 15,874 21,323
Notes payable - long term 0 1,500
Excess lease liability 342 824
Other liabilities 42 88
----------- ---------
TOTAL LIABILITIES 16,258 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
30,720,668 and 10,307,700 shares issued and outstanding, respectively 3,072 1,031
Additional paid-in capital 40,236 23,019
Accumulated deficit (40,730) (34,727)
Cumulative foreign currency translation adjustment 113 106
----------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 2,740 (3,346)
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $18,998 $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 Nine Months Ended
December 31, December 31,
------------------------ ------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Systems $821 $2,698 $4,830 $11,007
Services 5,277 7,366 16,680 22,349
-------- -------- -------- --------
TOTAL REVENUES 6,098 10,064 21,510 33,356
-------- -------- -------- --------
COSTS OF REVENUES:
Systems 864 2,409 5,250 8,636
Services 2,379 4,074 9,441 12,948
-------- -------- -------- --------
TOTAL COSTS OF REVENUES 3,243 6,483 14,691 21,584
-------- -------- -------- --------
GROSS MARGIN:
Systems (43) 289 (420) 2,371
Services 2,898 3,292 7,239 9,401
-------- -------- -------- --------
TOTAL GROSS MARGIN 2,855 3,581 6,819 11,772
-------- -------- -------- --------
OPERATING EXPENSES:
Product development 994 1,330 3,596 3,762
Sales and marketing 675 1,563 3,822 4,987
General and administrative 983 2,049 3,747 5,410
Amortization of goodwill, customer
lists 155 378 348 1,132
Restructuring charge 0 0 1,297 0
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 2,807 5,320 12,810 15,291
-------- -------- -------- --------
OPERATING INCOME (LOSS) 48 (1,739) (5,991) (3,519)
OTHER EXPENSES:
Interest expense (income) 11 147 (16) 457
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 37 (1,886) (5,975) (3,976)
Income tax provision 0 13 28 70
-------- -------- -------- --------
NET INCOME (LOSS) $37 ($1,899) ($6,003) ($4,046)
-------- -------- -------- --------
-------- -------- -------- --------
NET INCOME (LOSS) PER COMMON SHARE $0.00 ($0.22) ($0.20) ($0.48)
-------- -------- -------- --------
-------- -------- -------- --------
Shares used in computing per share data 30,698 8,698 29,370 8,456
</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>
Nine Months Ended
December 31
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($6,003) ($4,046)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 966 1,046
Amortization of capitalized and purchased software 1,636 1,360
Amortization of goodwill and customer lists 348 1,132
Loss on disposal of property and equipment 14 0
Foreign currency translation adjustment 7 (29)
Excess lease liability (482) (453)
Changes in assets & liabilities:
Accounts receivable, net 2,906 (3)
Inventories 514 235
Prepaid expenses and other assets 112 163
Accounts payable and accrued liabilities 1,253 (1,339)
Accrued payroll and related (620) (612)
Other liabilities and deferred liabilities (3,263) 1,855
-------- --------
Net cash used in operating activities (2,612) (691)
-------- --------
Cash flows from investing activities:
Capital expenditures (479) (329)
Expenditures for capitalized and purchased software (1,357) (1,107)
Acquisition of Complete Broking Systems (784) 0
-------- --------
Net cash used in investing activities (2,620) (1,436)
-------- --------
Cash flows from financing activities:
Borrowings on note payable 0 2,650
Payments on note payable (3,030) (1,100)
Proceeds from exercise of stock options 52 0
Proceeds from private equity placement 9,361 0
Proceeds from employee stock purchase plan 27 433
-------- --------
Net cash provided by financing activities 6,410 1,983
-------- --------
Net increase (decrease) in cash 1,178 (144)
Cash at the beginning of the period $920 $877
-------- --------
Cash at the end of the period $2,098 $733
-------- --------
-------- --------
</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 December 31, 1996 was a negative $8,082,000, an
improvement of $3,285,000 from March 31, 1996. The improvement in working
capital was primarily the result of 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, partially offset by a reduction of accounts receivable and an
increase in accounts payable and accrued liabilities.
A major component of the Company's negative net working capital position
consists of deferred revenues of $6,925,000 at December 31, 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 January 1997, the Company completed a private equity placement providing
gross proceeds of $5,630,500 to the Company. Under terms of the placement, the
Company issued 5,630,500 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 $5,600,500
to the Company. Proceeds from the placement will be used for product research
and development, to continue the consolidation of Delphi's operations, for
investments in complimentary businesses, to increase sales and professional
service personnel, and for general working capital.
In January 1997, the Company established a $4,000,000 credit line with Coast
Business Credit, Los Angeles, California. The line will provide working
capital to fund the Company's growth opportunities and to continue
consolidation of operations. Generally, under the credit line the Company is
able to borrow up to 75% of eligible accounts receivable, which would have
entitled the Company to borrow $1,750,000 as of January 31, 1997. The Company
also can borrow up to $400,000 for capital expenditures. The credit line
bears interest at prime plus 2 1/2%.
7
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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.
THREE MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1995
Revenues for the third quarter ended December 31, 1996 were $6,098,000,
representing a 39% decrease compared to the third quarter of the prior year. The
Company recorded net income of $37,000 or $0.00 per share in the third quarter,
compared to a net loss of $1,899,000, or $0.22 per share in the third quarter of
the prior year.
Systems revenues of $821,000 for the third quarter of the current year reflect a
decrease of 70% compared to the third 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
$5,277,000 in the third quarter of the current year, representing a decrease of
$2,089,000 or approximately 28%, compared to the third quarter of the prior
year. The decrease is primarily the result of decreased installation, custom
programming, and support revenues generated in conjunction with system sales,
partially offset by increased education and conversion revenues.
Costs of revenues as a percentage of revenues were 53% in the current quarter,
compared to the 64% in the third quarter of the prior year. Costs of systems
revenues were 105% of systems revenues in the third quarter of the current
fiscal year, compared to 89% in the third quarter of the prior fiscal year. The
increase expressed in percentage terms was primarily due to an additional
provision for commissions expense. Costs of services revenues as a percentage
of
8
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
services revenues decreased to 45% in the third quarter of the current year,
compared to 55% in the third quarter of the prior fiscal year. The decrease in
percentage terms is primarily due the decrease of the largest component of cost
of services revenue, direct labor, due to the reduction of headcount.
Product development expenses for the three months ended December 31, 1996 were
$994,000, or a decrease of $336,000 or 25%, compared to the third quarter of the
prior fiscal year. The decreased expense is primarily due to decreased
expenditures for the use of outside consultants.
Sales and marketing expenses for the quarter ended December 31, 1996 were
$675,000, or a decrease of approximately 57%, from the comparable quarter in
the prior year. The decrease is primarily due to a new consolidated marketing
approach focused on Common Delphi, and a reduction in trade show
participation.
General and administrative expenses for the quarter ended December 31, 1996
decreased $1,066,000, or 52%, from the third quarter of the prior year. The
decrease is primarily due to the reduction of senior staff and reduced spending
compared to the prior year.
Amortization of goodwill, customer lists and noncompete agreements for the
quarter ended December 31, 1996 decreased $223,000, or 59%, from the third
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.
Interest expense for the quarter ended December 31, 1996 was $11,000, compared
to $147,000 for the third quarter of the prior year. The decrease is primarily
due to interest income from short-term investments in the current quarter and
the elimination of interest expense related to the line of credit.
NINE MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1995
Revenues for the nine months ended December 31, 1996 were $21,510,000, a
decrease of $11,846,000 or 36%, compared to the same period of the prior year.
The Company recorded a net loss of $6,003,000 or $0.20 per share for the nine
months ended December 31, 1996, compared to a net loss for the comparable period
in the prior fiscal year of $4,046,000 or $0.48 per share.
Systems revenues for the nine months ended December 31, 1996 were $4,830,000, a
decrease of $6,177,000 or 56% compared to the same period of the prior year.
The decrease is primarily due to reduced sales of system upgrades to existing
customers, including reduced hardware sales due to the Company's exit from the
hardware business effective the second quarter of the current year, partially
offset by hardware commissions revenue as a result of the Company's change in
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 nine month period ended December 31, 1996 were
$16,680,000, a decrease of $5,669,000 or 25%, compared to the nine months ended
December 31, 1995. The decrease is primarily due to decreased installation and
support directly related to the Company's exit from the hardware maintenance
business.
Costs of revenues expressed as a percentage of revenues were 68% in the first
three quarters of fiscal 1997, compared to 65% in the first three quarters of
the prior year. Costs of systems revenues expressed as a percentage of revenues
were 109% in the first three quarters of fiscal 1997, compared to 78% in the
first three quarters of fiscal 1996. The increase expressed in
percentage terms is primarily due to additional provisions for doubtful accounts
and commission expense related to the departure from the hardware business.
Costs of service revenues expressed as a percentage of revenues were 57% in the
first three quarters of fiscal 1997, compared to 58% in the first three quarters
of fiscal 1996.
Product development expenditures for the nine month period ended December 31,
1996 decreased $166,000 or 4%, compared to the same period of the prior fiscal
year, primarily due to decreased consulting expenditures for the development of
Common Delphi.
Sales and marketing expenses in the first three quarters of fiscal 1997 were
$3,822,000, or a decrease of 23% compared to the comparable period in the prior
year. The decrease is primarily due to reduced headcount and reduced spending
levels with respect to marketing efforts compared to the prior year.
General and administrative expenses in the first three quarters of fiscal 1997
decreased $1,663,000 or 31%, 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 nine months ended December 31, 1996 decreased $784,000 or
69%, 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 nine months ended December 31, 1996 was $16,000,
compared to interest expense of $457,000 in the first three quarters of the
prior fiscal year. The decrease in net interest is primarily due to the
reduction in borrowings on 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 2. CHANGES IN SECURITIES
(c) On October 30, 1996, the Company issued 50,000 shares of Common Stock
to Rein & Co. in payment of a recruiting fee due to Rein & Co. The
issuance was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
Item 6. EXHIBITS AND REPORTS OF FORM 8-K
None
- -----
(a.) Exhibits
- -------------------------
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ ------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary loss per share:
Net income (loss) for calculation of
primary earnings per share $37 ($1,899) ($6,003) ($4,046)
Weighted average number of
shares outstanding (1) 30,698 8,698 29,370 8,456
Primary income (loss) per share (2) $0.00 ($0.22) ($0.20) ($0.48)
-------- -------- -------- --------
</TABLE>
(1) Common stock equivalent shares have not been considered in the calculations
for the three months ended December 31, 1996 and the nine months ended
December 31, 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: February 5, 1997 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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 2,098
<SECURITIES> 0
<RECEIVABLES> 6,635
<ALLOWANCES> (1,189)
<INVENTORY> 78
<CURRENT-ASSETS> 7,792
<PP&E> 8,336
<DEPRECIATION> (5,888)
<TOTAL-ASSETS> 18,998
<CURRENT-LIABILITIES> 15,874
<BONDS> 0
3,072
0
<COMMON> 49
<OTHER-SE> (381)
<TOTAL-LIABILITY-AND-EQUITY> 18,998
<SALES> 21,510
<TOTAL-REVENUES> 21,510
<CGS> 14,691
<TOTAL-COSTS> 14,691
<OTHER-EXPENSES> 12,110
<LOSS-PROVISION> 700
<INTEREST-EXPENSE> (16)
<INCOME-PRETAX> (5,975)
<INCOME-TAX> 28
<INCOME-CONTINUING> (6,003)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,003)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
