UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
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. 7,979,173 shares as of
January 31, 1995.
FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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DELPHI INFORMATION SYSTEMS, INC.
INDEX
Part I - FINANCIAL INFORMATION PAGE
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 1994
and March 31,1994 . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the Three and Nine
Months Ended December 31, 1994 and 1993 . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Nine Months
Ended December 31, 1994 and 1993 . . . . . . . . . . . . . . 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
PART 1. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Financial Statements
DELPHI INFORMATION SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
ASSETS
(Unaudited)
December 31, March 31,
1994 1994
------------ ---------
CURRENT ASSETS:
Cash $983 $1,657
Accounts receivable, net 7,629 9,702
Inventories 1,068 1,008
Prepaid expenses and other assets 1,468 1,781
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TOTAL CURRENT ASSETS 11,148 14,148
Property and equipment, net 3,894 4,484
Software development, net 4,380 3,951
Goodwill and customer lists, net 5,492 5,914
Purchased software 1,994 2,693
Other assets 320 757
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TOTAL ASSETS $27,228 $31,947
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LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $3,736 $4,029
Accounts payable and accrued liabilities 6,742 7,652
Accrued payroll and related 815 1,489
Deferred revenue 5,065 5,944
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TOTAL CURRENT LIABILITIES 16,358 19,114
Convertible promissory notes 1,500 1,375
Subordinated note payable 2,750 2,750
Excess lease liability 1,601 2,083
Other liabilities 292 394
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TOTAL LIABILITIES 22,501 25,716
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Commitments and contingent liabilities:
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value,
2,000,000 shares authorized
Series A, 0 and 16,577 shares issued and outstanding
respectively -- 3,703
Series B, 9,205 and 61,950 shares issued and outstanding, 780 5,250
respectively
Series C, 36,268 shares issued and outstanding 3,570 3,570
Series D, 16,356 and 0 shares issued and outstanding,
respectively 3,655 --
Common stock, $.10 par value,
Non-designated, 12,000,000 shares authorized
7,979,173 and 7,011,415 shares issued and
outstanding, respectively 798 701
Additional paid-in capital 18,507 14,085
Accumulated deficit (22,723) (21,213)
Cumulative foreign currency translation adjustment 140 135
---------- --------
4,727 6,231
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,228 $31,947
---------- --------
---------- --------
The accompanying notes are an integral part of these consolidated
financial statements.
3
DELPHI INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
December 31, December 31,
1994 1993 1994 1993
--------- ---------- --------- ---------
REVENUES:
Systems $5,127 $6,269 $16,397 $19,378
Services 8,138 6,389 23,992 19,365
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TOTAL REVENUES 13,265 12,658 40,389 38,743
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COSTS OF REVENUES:
Systems 3,191 4,636 10,997 14,770
Services 4,411 3,993 13,505 11,857
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TOTAL COSTS OF REVENUES 7,602 8,629 24,502 26,627
------- -------- -------- --------
GROSS MARGIN 5,663 4,029 15,887 12,116
OPERATING EXPENSES:
Product development 1,103 970 4,131 2,561
Sales and marketing 1,754 1,870 5,328 6,125
General and administrative 2,160 1,442 5,928 4,432
Amortization of goodwill, customer
lists and noncompete agreements 408 333 1,224 940
Restructuring charge 0 4,206 0 4,206
------- -------- -------- --------
TOTAL OPERATING EXPENSES 5,425 8,821 16,611 18,264
------- -------- -------- --------
OPERATING INCOME (LOSS) 238 (4,792) (724) (6,148)
OTHER EXPENSES:
Interest expense, net 251 205 693 429
------- -------- -------- --------
LOSS BEFORE INCOME TAXES (13) (4,997) (1,417) (6,577)
Income tax provision 33 -- 93 --
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NET LOSS ($46) ($4,997) ($1,510) ($6,577)
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------- -------- -------- --------
INCOME (LOSS) PER COMMON SHARE ($0.01) ($0.75) ($0.21) ($1.00)
------- -------- -------- --------
------- -------- -------- --------
Shares used in computing per share data 7,200 6,631 7,086 6,564
------- -------- -------- --------
The accompanying notes are an integral part of these consolidated
financial statements.
4
DELPHI INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
December 31
1994 1993
---------- ---------
Cash flows from operating activities:
Net loss ($1,510) ($6,577)
Adjustment to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 1,154 897
Amortization of capitalized software
development costs 878 877
Amortization of goodwill and other 1,224 940
Amortization of purchased software 326 --
Retirement of property and equipment 52 --
Foreign currency translation adjustment 5 21
Write-off of capitalized software development costs -- 1,878
Other -- 127
Changes in assets & liabilities:
Accounts receivable, net 2,073 (339)
Inventories (60) (24)
Prepaid expenses and other assets 137 (48)
Accounts payable and accrued liabilities (910) 1,638
Excess lease liability (482) --
Accrued payroll and related (674) (247)
Other liabilities and deferred liabilities (981) 279
Goodwill and customer lists (188) (165)
-------- ---------
Net cash provided from operating activities 1,044 (743)
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Cash flows from investing activities:
Capital expenditures (616) (663)
Expenditures for capitalized software development (907) (1,914)
Purchased software (27) 65
-------- ---------
Cash used in investing activities (1,550) (2,512)
-------- ---------
Cash flows from financing activities:
Borrowings of note payable 2,257 8,515
Payments of note payable (2,550) (8,546)
Proceeds from issuance of convertible
promissory notes 125 --
Proceeds from exercise of stock options -- 14
Proceeds from issuance of preferred stock -- 3,500
-------- ---------
Net cash (used) provided by financing activities (168) 3,483
-------- ---------
Net (decrease) increase in cash (674) 228
Cash at the beginning of the period $1,657 $1,141
-------- ---------
Cash at the end of the period $983 $1,369
-------- ---------
-------- ---------
The accompanying notes are an integral part of these consolidated
financial statements.
5
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, 1994.
The results of operations for current interim periods are not necessarily
indicative of results to be expected for the entire current year.
On December 16, 1993, the Company acquired Mountain Systems International,
Inc. ("Mountain States") and on December 30, 1993, the Company acquired
Insurnet, Incorporated ("Insurnet") as described in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1994. These
acquisitions have been accounted for by the purchase method of accounting.
The results of operations include the results of Mountain States and
Insurnet since the respective acquisition dates.
The following summarizes proforma results of operations of the Company for
the three and nine months ended December 31, 1993, as though the Mountain
States and Insurnet operations had been combined with the Company at the
beginning of those periods. The proforma results do not reflect any
changes in operations which have occurred or may occur as a result of the
acquisitions.
Three Months Ended Nine Months Ended
December 31, 1993 December 31, 1993
----------------- -----------------
PROFORMA: (Unaudited) (Unaudited)
(In thousands, except per share amounts)
Revenues $ 16,335 $ 49,773
Net loss ($ 5,719) ($8,731)
Average shares outstanding 7,046 6,979
Loss per share ($0.81) ($1.25)
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6
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, 1994.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1994 was a negative $5,210,000, a decline of
$244,000 from the prior year end date of March 31, 1994. The significant
changes in working capital were a decrease of $2,073,000 in accounts receivable
primarily due to improved collection efforts; a decrease of $879,000 in deferred
revenues, primarily due to a seasonal fluctuation associated with the cycle of
certain annual hardware and software maintenance billings; and a decrease of
$910,000 in accounts payable and accrued liabilities primarily due to a decrease
in system sale upgrades.
A major component of the Company's negative net working capital position
consists of deferred revenues of $5,065,000 at December 31, 1994, representing,
for the most part, prepaid maintenance fees from customers which are recognized
ratably over the maintenance agreement terms. This liability is satisfied
through normal on-going operations of the Company's service organization and
generally does not require a payment to a third party.
In December, 1994, the holders of 52,745 shares of the Company's Series B
Preferred Stock converted that stock into 879,083 shares of Common Stock; 9,205
shares of Series B Preferred Stock remain outstanding, convertible into 153,417
shares of Common Stock.
During May 1994, the holders of the Company's Series A Preferred Stock exchanged
that stock for an equal number of shares of the Company's Series D Preferred
Stock, except for 221 shares, which were converted into 24,995 shares of Common
Stock. The terms of the Series D Preferred Stock are substantially similar to
those of the Series A Preferred Stock but do not require the conversion of the
Series D Preferred Stock into common stock at a specified date. The Series A
Preferred Stock would have, by its terms, converted to common stock on May 24,
1994, in the absence of the exchange.
On December 16, 1994, the bank that provides the Company's line of credit
agreement agreed to a one-year renewal of the $5,000,000 agreement. Permitted
borrowings under the agreement vary as a percentage of qualified accounts
receivable. The line carries an annual interest rate at the bank's prime
lending rate plus 3.5 percent, and contains certain restrictive covenants,
including achievement by the Company of specified balance sheet ratios and
operating results.
7
DELPHI INFORMATION SYSTEMS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition, the Company will issue to the bank a five-year warrant option to
purchase 375,000 shares of common stock, at a price of $3.50 per share. As of
December 31, 1994, borrowings under the line totaled $3,486,000 or 70% of
available amount.
THREE MONTH PERIODS ENDED DECEMBER 31, 1994 AND 1993
Revenues for the third quarter ended December 31, 1994 were $13,265,000,
representing a 5% increase compared to the third quarter of the prior year.
Revenues increased compared to the third quarter of the prior year due to the
Mountain States and Insurnet acquisitions, partially offset by a decline in
revenues from the remainder of the Company's operations. The Company recorded a
net loss of $46,000 or $0.01 per share in the third quarter, compared to a loss
of $4,997,000, or $0.75 per share in the third quarter of the prior year. The
results for the third quarter of the prior year include a restructuring charge
of $4,206,000.
Systems revenues of $5,127,000 for the third quarter of the current year reflect
a decrease of 18% compared to the third quarter of the prior year. This
decrease was primarily the result of decreased sales of system upgrades to
existing customers, partially offset by increased system sales resulting from
the Mountain States and Insurnet acquisitions. Service revenues in the third
quarter of the current year increased $1,749,000 or approximately 27%, compared
to the second quarter of the prior year. The increase is primarily due to an
increase in maintenance revenue for hardware and software caused by additions
resulting from the Mountain States and Insurnet acquisitions and an increase in
software-only sales.
Costs of revenues as a percentage of revenues were 57% in the current quarter,
compared to 68% in the third quarter of the prior year. Costs of revenues
expressed as a percentage of revenues decreased primarily due to an increase in
higher margin services revenues, and an improvement in systems sales gross
margins due to an improvement in the mix of product sales.
Product development expenses for the three months ended December 31, 1994,
increased $133,000 or 14% compared to the comparable period in the prior fiscal
year. The increased expense is primarily due to increased head count and
associated expenses in connection with the Insurnet and Mountain States
acquisitions.
Sales and marketing expenses for the quarter ended December 31, 1994 decreased
$116,000, or approximately 6%, from the comparable quarter in the prior year.
The decrease is due to a marginal reduction in spending compared to the prior
year due to the curtailment of various marketing programs.
General and administrative expenses for the quarter ended December 31, 1994
increased $718,000, or 50%, from the third quarter of the prior year. The
increase was primarily a result of the additional expense resulting from the
Mountain States and Insurnet acquisitions, and $337,000 for severance on certain
Company officers in the third quarter of the current fiscal year.
8
DELPHI INFORMATION SYSTEMS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Amortization of goodwill, customer lists and noncompete agreements in the
quarter ended December 31, 1994 increased $185,000, or 55%, compared to the
comparable quarter of the prior year, due to the Mountain States and Insurnet
acquisitions.
Interest expense in the quarter ended December 31, 1994 increased $46,000, or
22%, compared to the third quarter of the prior year due to increased borrowings
at higher average rates than the comparable period in the prior fiscal year.
NINE MONTH PERIODS ENDED DECEMBER 31, 1994 AND 1993
Revenues for the nine months ended December 31, 1994, were $40,389,000, an
increase of $1,646,000 or 4%, compared to the comparable period of the prior
year. The increase was due to the Mountain States and Insurnet acquisitions,
primarily offset by decreased sales of system upgrades to existing customers,
particularly to the Company's national brokerage customers, to which a single
large sale was recorded in the second quarter of the prior year.
Systems revenues for the nine months ended December 31, 1994, were $16,397,000,
a decrease of $2,981,000 or 15%, compared to the same period of the prior year.
The decrease is primarily due to lower sales of system upgrades to the Company's
existing customers, as mentioned above, partially offset by increased revenues
resulting from the Mountain States and Insurnet acquisitions.
Service revenues for the nine month period ended December 31, 1994, were
$23,992,000, an increase of $4,627,000, or 24%, compared to the nine months
ended December 31, 1993. The increase is due substantially to increased
maintenance revenue as a result of the Mountain States and Insurnet
acquisitions, as well as increased software-only product sales.
Costs of revenues expressed as a percentage of revenues were 61% for the nine
months ended December 31, 1994, compared to 69% in the comparable period of the
prior year. Costs of revenue expressed as a percentage of revenues decreased
primarily due to an increase in higher margin service revenues, as well as
increased margins in both systems and service revenues.
Product development expense for the nine months ended December 31, 1994,
increased by $1,570,000 or 61%, compared to the comparable period in the prior
fiscal year. The increased expense is primarily due to the Insurnet and
Mountain States acquisitions.
Sales and marketing expenses in the first nine months of the current fiscal year
decreased $797,000 or approximately 13%, compared to the same period of the
prior fiscal year. The decrease is generally due to the reduced spending levels
with respect to marketing efforts compared to the prior year, as well as a one-
time charge associated with the elimination and consolidation of certain
expenses in the third quarter of the prior year.
9
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 nine months of fiscal 1995
increased $1,496,000 or 34%, compared to the same period of prior fiscal year
1994. The increased expense is primarily a result of additional expense
resulting from the Mountain States and Insurnet acquisitions, as well as a
charge of $337,000 for severance on certain Company officers in the third
quarter of the current fiscal year.
Amortization of goodwill, customer lists and noncompete agreements for the nine
months ended December 31, 1994, increased $610,000 or 65%, compared to the same
period of the prior year due to the Mountain States and Insurnet acquisitions.
Interest expense for the nine months ended December 31, 1994, was $693,000, a
62% increase compared to the comparable period of the prior fiscal year. The
increase in interest expense is due to increased long-term borrowings and higher
interest rates on short-term borrowings.
10
DELPHI INFORMATION SYSTEMS, INC.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) EXHIBITS
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
1994 1993 1994 1993
---- ---- ---- ----
Primary earnings (loss) per share:
Net income (loss) for
calculation of primary
earnings per share ($46) ($4,997) ($1,510) ($6,577)
Weighted average number of
shares outstanding(1) 7,200 6,631 7,086 6,564
Primary earnings (loss)
per share(2) ($0.01) ($0.75) ($0.21) ($1.00)
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<FN>
(1) Common stock equivalent shares have not been considered in the calculations
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
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: May 30, 1995 By /s/ John R. Sprieser
--------------------------- -------------------------------------
John R. Sprieser
Sr. Vice President and Chief
Financial Officer
(Duly authorized officer and chief
accounting officer)
12