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, 1995
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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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3501 ALGONQUIN ROAD
ROLLING MEADOWS, IL 60008
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 708-506-3100
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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. 8,856,640 shares as of
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February 6, 1996.
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FORM 10-Q
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, 1995
and March 31,1995 . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the Three and Nine
Months Ended December 31, 1995 and 1994 . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Nine Months
Ended December 31, 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
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,
1995 1995
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CURRENT ASSETS:
Cash $733 $877
Accounts receivable, net 7,642 7,639
Inventories 748 983
Prepaid expenses and other assets 1,140 1,424
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TOTAL CURRENT ASSETS 10,263 10,923
Property and equipment, net 2,910 3,630
Software development, net 4,574 4,389
Goodwill and customer lists, net 4,659 5,284
Purchased software, net 1,990 2,484
Other assets 452 837
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TOTAL ASSETS $24,848 $27,547
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LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $4,036 $2,486
Accounts payable and accrued liabilities 4,688 6,402
Accrued payroll and related benefits 829 1,441
Deferred revenue 8,248 6,332
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TOTAL CURRENT LIABILITIES 17,801 16,661
Notes payable - long term 1,500 1,500
Subordinated note payable 0 2,750
Excess lease liability 992 1,445
Other liabilities 112 638
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TOTAL LIABILITIES 20,405 22,994
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Commitments and contingent liabilities:
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value,
2,000,000 shares authorized
Series B, 0 and 9,205 shares issued and outstanding, respectively -- 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
8,856,640 and 7,979,173 shares issued and
outstanding, respectively 886 798
Additional paid-in capital 20,039 18,507
Accumulated deficit (26,941) (22,894)
Cumulative foreign currency translation adjustment 109 137
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TOTAL STOCKHOLDERS' EQUITY 4,443 4,553
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,848 $27,547
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The accompanying notes are an integral part of these consolidated financial
statements.
3
DELPHI INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
December 31, December 31,
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1995 1994 1995 1994
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REVENUES:
Systems $2,698 $5,127 $11,007 $16,397
Services 7,366 8,138 22,349 23,992
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TOTAL REVENUES 10,064 13,265 33,356 40,389
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COSTS OF REVENUES:
Systems 2,409 3,191 8,636 10,997
Services 4,074 4,411 12,948 13,505
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TOTAL COSTS OF REVENUE 6,483 7,602 21,584 24,502
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GROSS MARGIN:
Systems 289 1,936 2,371 5,400
Services 3,292 3,727 9,401 10,487
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TOTAL GROSS MARGIN 3,581 5,663 11,772 15,887
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OPERATING EXPENSES:
Product development 1,330 1,103 3,762 4,131
Sales and marketing 1,563 1,754 4,987 5,328
General and administrative 2,049 2,160 5,410 5,928
Amortization of goodwill, customer
lists and noncompete agreements 378 408 1,132 1,224
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TOTAL OPERATING EXPENSES 5,320 5,425 15,291 16,611
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OPERATING (LOSS) INCOME (1,739) 238 (3,519) (724)
OTHER EXPENSES:
Interest expense, net 147 251 457 693
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(LOSS) INCOME BEFORE INCOME TAXES (1,886) (13) (3,976) (1,417)
Income tax provision 13 33 70 93
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NET (LOSS) INCOME ($1,899) ($46) ($4,046) ($1,510)
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NET (LOSS) INCOME PER COMMON SHARE ($0.22) ($0.01) ($0.48) ($0.21)
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Shares used in computing per share data 8,698 7,200 8,456 7,086
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The accompanying notes are an integral part of these consolidated financial
statements.
4
DELPHI INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
December 31
1995 1994
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Cash flows from operating activities:
Net loss ($4,046) ($1,510)
Adjustment to reconcile net loss to net cash (used in) provided
by operating activities:
Depreciation and amortization 1,046 1,154
Amortization of capitalized software
development costs 923 878
Amortization of goodwill and customer lists 625 611
Amortization of purchased software 437 326
Amortization of noncompete and other intangibles 507 613
Retirement of property and equipment 0 52
Foreign currency translation adjustment (29) 5
Excess lease liability (453) (482)
Changes in assets & liabilities:
Accounts receivable, net (3) 2,073
Inventories 235 (60)
Prepaid expenses and other assets 163 137
Accounts payable and accrued liabilities (1,339) (910)
Accrued payroll and related (612) (674)
Other liabilities and deferred liabilities 1,855 (981)
Goodwill and customer lists 0 (188)
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Net cash (used in) provided by operating activities (691) 1,044
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Cash flows from investing activities:
Capital expenditures (329) (643)
Expenditures for capitalized software development (1,107) (907)
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Net cash used in investing activities (1,436) (1,550)
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Cash flows from financing activities:
Borrowings of note payable 2,650 2,257
Payments of note payable (1,100) (2,550)
Proceeds from issuance of convertible
promissory notes 0 125
Proceeds from exercise of stock options 433 0
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Net cash (used in) provided by financing activities 1,983 (168)
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Net decrease in cash (144) (674)
Cash at the beginning of the period $877 $1,657
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Cash at the end of the period $733 $983
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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, 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
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 December 31, 1995 was a negative $7,538,000, or a $1,800,000
decrease from the prior year end date of March 31, 1995. The significant
changes in working capital were an increase of $1,550,000 in borrowings; a
decrease of $1,714,000 in accounts payable and accrued liabilities, primarily
due to a reduction in accounts payable for the hardware component of system
sales; a decrease of $612,000 in accrued payroll and related benefits due to
reduced headcount; and an increase of $1,916,000 in deferred revenue.
A major component of the Company's negative net working capital position
consists of deferred revenues of $8,248,000 at December 31, 1995. Deferred
revenues 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
payments to third parties.
Effective December 5, 1995, the Company's bank extended the Company's $5 million
secured revolving credit facility through April 5, 1996, with terms, conditions
and pricing substantially similar to the Company's maturing credit facility. The
extension included modified loan agreement covenants, which the Company was in
compliance with at December 31, 1995. As of December 31, 1995, borrowings under
the Company's bank line of credit totaled $4,036,000 or 90% of total available
borrowings.
The Company has developed a plan under which management believes the Company
will achieve positive cash flow and profitability from operations. The plan
requires continued access to a credit facility similar to the one the Company
currently has in place, and some level of increased sales of systems and system
upgrades and additional capital. The Company is currently pursuing alternative
sources of capital to replace and/or supplement the existing line of credit.
These alternative sources may include an additional credit agreement and
issuance of substantial additional equity. Any issuance of additional equity
would be dilutive to shareholders. While management believes that the Company
will be successful in increasing sales and acquiring the required additional
capital, there can be no assurances that this will occur, or that the Company
will have sufficient cash in the near-term should the Company not be successful
in acquiring the required additional capital.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's plan includes investments in and development of the Company's
product, sales, and marketing efforts, the extent and timing of such investment
dependent upon future financing. Consequently, depending upon the amount of
additional capital, if any, available for future investment as a result of the
Company's current efforts at raising capital, and the successful implementation
and execution of the Company's new plan, the future recoverability of the
Company's intangible assets could be impaired in a future period, resulting in a
charge to earnings in the appropriate future period which could have a material
adverse impact upon the Company's future earnings.
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
Revenues for the third quarter ended December 31, 1995 were $10,064,000,
representing a 24% decrease compared to the third quarter of the prior year. The
Company recorded a net loss of $1,899,000 or $0.22 per share in the third
quarter, compared to a net loss of $46,000 or $0.01 per share in the third
quarter of the prior year.
Systems revenues of $2,698,000 for the third quarter of the current year reflect
a decrease of 47% compared to the third 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 third
quarter of the current year decreased $772,000 or approximately 9%, compared to
the third 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 64% in the current quarter,
compared to the 57% in the third quarter of the prior year. Costs of systems
revenues increased to 89% of systems revenues in the third quarter of the
current fiscal year, compared to 62% in the third 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 55% of services
revenues in the third quarter of the current fiscal year, compared to 54% of
services revenues in the third quarter of the prior fiscal year. The increase
is primarily due to short term non-variability of the largest component of costs
of service revenues, namely direct labor.
Product development expenses for the three months ended December 31, 1995
increased $227,000 or 21% compared to the third quarter of the prior fiscal
year. The increased expense is primarily due to increased expenditures in the
current quarter due to the use of outside consultants related to the research
and development phase of the next generation of the Company's products.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales and marketing expenses for the quarter ended December 31, 1995 decreased
$191,000, or approximately 11%, from the comparable quarter in the prior year,
primarily due to reduced headcount.
General and administrative expenses for the quarter ended December 31, 1995 were
$2,049,000 compared to the $2,160,000 in the third quarter of the prior year.
This decrease is primarily due to a reduction in headcount and overall spending
reductions compared to the prior year. Partially offsetting this decrease is a
charge of approximately $69,000 for severance and related expenses.
Interest expense in the quarter ended December 31, 1995 decreased $104,000, or
41%, compared to the third quarter of the prior year, primarily due to the
conversion of the interest-bearing subordinated note payable into Series E
Preferred Stock.
NINE MONTH PERIODS ENDED DECEMBER 31, 1995 AND 1994
Revenues for the nine months ended December 31, 1995 were $33,356,000, a
decrease of $7,033,000 or 17%, compared to the nine months ended December 31,
1994. The decrease primarily was due to reduced system sales in the first nine
months of fiscal 1996. The Company recorded a net loss of $4,046,000 or $0.48
per share, for the nine months ended December 31, 1995, compared to a net loss
for the comparable period in the prior fiscal year of $1,510,000 or $0.21 per
share.
Systems revenues for the nine months ended December 31, 1995 were $11,007,000, a
decrease of $5,390,000 or 33%, 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 nine month period ended December 31, 1995, were
$22,349,000, a decrease of approximately 7%, compared to the nine months ended
December 31, 1994. The decrease is primarily due to decreased maintenance,
training, and other revenues generated in conjunction with system sales.
Costs of revenues expressed as a percentage of revenues were 65% for the nine
months ended December 31, 1995, compared to 61% for the same period of the prior
year. Costs of systems revenues expressed as a percentage of revenues were 78%
in the first nine months of fiscal 1996, compared to 67% for the nine months
ended December 31, 1994. 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 58% in the first nine months of fiscal 1996,
compared to 56% for the same period in the prior 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 nine month period ended December 31, 1995
decreased $369,000 or 9%, compared to the same period of the prior fiscal year,
primarily due to a higher rate of development costs capitalized. Spending was
relatively flat compared to the prior year.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales and marketing expenses for the nine months ended December 31, 1995
decreased $341,000, or 6%, compared to the comparable period in the prior year.
General and administrative expenses for the first nine months of fiscal 1996
decreased $518,000 or 9%, compared to the same period of fiscal year 1995. The
decreased expense was primarily due to a reduction in headcount and overall
spending reductions compared to the prior year. Offsetting the decrease was a
charge of $135,000 for the relocation of certain functions from one of the
Company's facilities to another, and a charge of $69,000 for severance and
related expenses.
Amortization of goodwill, purchased software, customer lists, and noncompete
agreements for the nine months ended December 31, 1995 decreased $92,000 or 8%,
compared to the same period of the prior year.
Interest expense for the nine months ended December 31, 1995 was $457,000, a 34%
decrease compared to the same period of the prior 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 nine months of fiscal 1996 compared to the first
nine months of fiscal 1995.
10
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)
Three Months Ended Nine Months Ended
December 31, December 31,
1995 1994 1995 1994
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Primary earnings (loss) per share:
Net (loss) income for
calculation of primary
earnings per share ($1,899) ($46) ($4,046) ($1,510)
Weighted average number of
shares outstanding (1) 8,698 7,200 8,456 7,086
Primary (loss) earnings
per share (2) ($0.22) ($0.01) ($0.48) ($0.21)
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(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: February 12, 1996 By /s M. Denis Connaghan
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M. Denis Connaghan
President and Chief Executive Officer
By /s Michael J. Marek
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Michael J. Marek
Corporate Controller and Chief Accounting
Officer
12