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 June 30, 1996
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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: 847-506-3100
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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. 29,831,234 SHARES AS OF
JULY 31, 1996.
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 June 30, 1996
and March 31,1996................................... 3
Consolidated Statements of Operations for the Three
Months Ended June 30, 1996 and 1995................. 4
Consolidated Statements of Cash Flows for the Three
Months Ended June 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................. 10
SIGNATURE....................................................... 11
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)
June 30, March 31,
1996 1996
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Current assets:
Cash $4,070 $920
Accounts receivable, net 6,111 8,079
Inventories 538 592
Prepaid expenses and other assets 263 365
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TOTAL CURRENT ASSETS 10,982 9,956
Property and equipment, net 2,739 2,869
Capitalized and purchased software, net 6,136 6,252
Goodwill and customer lists, net 1,113 1,182
Other assets 113 130
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TOTAL ASSETS $21,083 $20,389
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LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $0 $3,030
Accounts payable and accrued liabilities 5,715 6,823
Accrued payroll and related benefits 883 1,439
Deferred revenue 8,330 10,031
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TOTAL CURRENT LIABILITIES 14,928 21,323
Notes payable - long term 0 1,500
Excess lease liability 659 824
Other liabilities 72 88
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TOTAL LIABILITIES 15,659 23,735
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Commitments and contingent liabilities
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value,
2,000,000 shares authorized
Series C, 0 and 36,268 shares issued and
outstanding, respectively 0 3,570
Series D, 221 and 16,356 shares issued and
outstanding, respectively 49 3,655
Common stock, $.10 par value,
Non-designated, 50,000,000 shares authorized
29,831,234 and 10,307,700 shares issued and
outstanding, respectively 2,983 1,031
Additional paid-in capital 39,148 23,019
Accumulated deficit (36,864) (34,727)
Cumulative foreign currency translation
adjustment 108 106
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TOTAL STOCKHOLDERS' EQUITY 5,424 (3,346)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,083 $20,389
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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
June 30,
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1996 1995
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REVENUES:
Systems $1,935 $4,726
Services 6,234 7,295
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TOTAL REVENUES 8,169 12,021
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COSTS OF REVENUES:
Systems 2,045 3,166
Services 3,772 4,499
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TOTAL COSTS OF REVENUES 5,817 7,665
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GROSS MARGIN:
Systems (110) 1,560
Services 2,462 2,796
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TOTAL GROSS MARGIN 2,352 4,356
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OPERATING EXPENSES:
Product development 1,248 1,268
Sales and marketing 1,609 1,706
General and administrative 1,505 1,644
Amortization of goodwill, customer
lists and other intangibles 98 377
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TOTAL OPERATING EXPENSES 4,460 4,995
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OPERATING LOSS (2,108) (639)
OTHER EXPENSES:
Interest (income) expense, net (6) 141
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LOSS BEFORE INCOME TAXES (2,102) (780)
Income tax provision 35 31
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NET LOSS ($2,137) ($811)
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NET LOSS PER COMMON SHARE ($0.08) ($0.10)
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Shares used in computing per share data 25,674 8,231
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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)
Three Months Ended
June 30
1996 1995
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Cash flows from operating activities:
Net loss ($2,137) ($811)
Adjustment to reconcile net loss to net cash (used in) provided
by operating activities:
Depreciation and amortization 352 387
Amortization of capitalized and purchased software 549 414
Amortization of goodwill and customer lists and other intangibles 98 377
Retirement of property and equipment 14 0
Foreign currency translation adjustment 2 (12)
Excess lease liability (165) (153)
Changes in assets & liabilities:
Accounts receivable, net 1,968 97
Inventories 54 93
Prepaid expenses and other assets 107 (79)
Accounts payable and accrued liabilities (1,108) (612)
Accrued payroll and related benefits (556) (431)
Other liabilities and deferred revenue (1,734) (168)
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Net cash (used in) operating activities (2,556) (898)
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Cash flows from investing activities:
Capital expenditures (236) (97)
Expenditures for capitalized and purchased software (433) (337)
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Net cash (used in) investing activities (669) (434)
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Cash flows from financing activities:
Borrowings of note payable 0 1,200
Payments of note payable (3,030) (300)
Proceeds from exercise of stock options 44 10
Proceeds from private equity placement 9,361 0
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Net cash provided by financing activities 6,375 910
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Net increase (decrease) in cash 3,150 (422)
Cash at the beginning of the period $920 $877
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Cash at the end of the period $4,070 $455
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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
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
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, 1996.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1996 was a negative $3,946,000, an improvement of
$7,421,000 from March 31, 1996. The significant improvement in working capital
was primarily due to the private equity placement noted below, partially offset
by a decrease of $1,717,000 in other liabilites and deferred revenue.
A major component of the Company's negative net working capital position
consists of deferred revenues of $8,330,000 at June 30, 1996, primarily
representing prepaid maintenance fees from customers that are recognized ratably
over the 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 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 are immediately detachable and separately transferable.
The private equity placement provided net proceeds of approximately $9,361,000
to the Company. The proceeds have been and will be used for 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 addition, the Company may use proceeds to make
strategic investments in complementary businesses.
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.
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DELPHI INFORMATION SYSTEMS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company has experienced losses in each of its last two years and in the
first quarter 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. 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.
THREE MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
Revenues for the first quarter ended June 30, 1996 were $8,169,000, representing
an 32% decrease compared to the first quarter of the prior year. The Company
recorded a net loss of $2,137,000 or $0.08 per share in the first quarter,
compared to a net loss of $811,000, or $0.10 per share in the first quarter of
the prior year.
Systems revenues of $1,935,000 for the first quarter of the current year reflect
a decrease of 59% compared to the first quarter of the prior year. This
decrease was primarily the result of decreased sales of system upgrades to
existing customers and decreased hardware revenues. Service revenues in the
first quarter of the current year decreased $1,061,000 or approximately 15%,
compared to the first quarter of the prior year, primarily due to decreased
support, consulting, and custom programming revenues.
Costs of revenues as a percentage of revenues were 71% in the current quarter,
compared to the 64% in the first quarter of the prior year. The increase was
primarily due to an increase in cost of system sales expressed as a percentage
of revenues. The increase is primarily due to amortization of capitalized and
purchased software expressed as a percentage of a declining revenue amount.
Product development expenses for the three months ended June 30, 1996, decreased
$20,000 or 2% compared to the comparable period in the prior fiscal year.
Sales and marketing expenses for the quarter ended June 30, 1996 decreased
$97,000, or approximately 6%, from the comparable quarter in the prior year.
The decrease is primarily due to reduced compensation and related expenses.
General and administrative expenses for the quarter ended June 30, 1996
decreased $139,000, or 9%, from the first quarter of the prior year. The
decrease is due to lower head count and overall spending reductions compared to
the prior 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 for the
quarter ended June 30, 1996 decreased $279,000, or 74%, from the first 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 becoming fully amortized in the
current year.
Interest expense in the quarter ended June 30, 1996 decreased $147,000, or
104%, compared to the first quarter of the prior year. The decrease is due to
interest income from short-term investments in the current quarter, partially
offset by interest expense related to the line of credit.
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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
June 30,
1996 1995
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Primary earnings (loss) per share:
Net (loss) income for
calculation of primary
earnings per share ($2,137) ($811)
Weighted average number of
shares outstanding (1) 25,674 8,231
Primary (loss) earnings
per share (2) ($0.08) ($0.10)
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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.
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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: August 9, 1996 By /s/ James Harsch
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James Harsch
Vice President Administration
Chief Financial Officer
(Duly authorized officer and chief
financial officer)
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