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, 1997
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. 36,713,668 shares as of
July 31, 1997.
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 June 30, 1997
and March 31, 1997............................................ 3
Consolidated Statements of Operations for the Three
Months Ended June 30, 1997 and 1996........................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 1997 and 1996.................................. 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........................... 9
SIGNATURE............................................................ 10
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,
1997 1997
----------- -----------
CURRENT ASSETS:
Cash $5,613 $6,596
Accounts receivable, net 3,811 5,241
Inventories 15 16
Prepaid expenses and other current assets 115 111
----------- -----------
TOTAL CURRENT ASSETS 9,554 11,964
Property and equipment, net 2,111 2,242
Capitalized and purchased software, net 5,868 6,175
Goodwill and customer lists, net 1,900 2,032
Other assets 173 164
----------- -----------
TOTAL ASSETS $19,606 $22,577
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $1,600 $1,600
Accounts payable and accrued expenses 3,177 4,667
Accrued payroll and related benefits 313 620
Deferred revenue 5,705 7,205
----------- -----------
TOTAL CURRENT LIABILITIES 10,795 14,092
Other liabilities 47 37
----------- -----------
TOTAL LIABILITIES 10,842 14,129
----------- -----------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value,
2,000,000 shares authorized
Series D, 221 shares issued and outstanding 49 49
Common stock, $.10 par value,
Non-designated, 75,000,000 shares authorized
36,667,168 and 36,351,168 shares issued and
outstanding, respectively 3,667 3,635
Additional paid-in capital 45,519 45,259
Accumulated deficit (40,590) (40,611)
Cumulative foreign currency translation adjustment 119 116
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,764 8,448
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,606 $22,577
=========== ===========
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,
-------------------
1997 1996
-------- --------
REVENUES:
Systems $982 $1,935
Services 4,584 6,234
-------- --------
TOTAL REVENUES 5,566 8,169
-------- --------
COSTS OF REVENUES:
Systems 714 2,045
Services 2,165 3,772
-------- --------
TOTAL COSTS OF REVENUES 2,879 5,817
-------- --------
GROSS MARGINS:
Systems 268 (110)
Services 2,419 2,462
-------- --------
TOTAL GROSS MARGIN 2,687 2,352
-------- --------
OPERATING EXPENSES:
Product development 1,074 1,248
Sales and marketing 705 1,609
General and administrative 742 1,505
Amortization of goodwill, customer
lists and other intangibles 132 98
-------- --------
TOTAL OPERATING EXPENSES 2,653 4,460
-------- --------
OPERATING INCOME (LOSS) 34 (2,108)
OTHER EXPENSES:
Interest income (54) (38)
Interest expense 66 32
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES 22 (2,102)
Income tax provision 1 35
-------- --------
NET INCOME (LOSS) $21 ($2,137)
======== ========
NET EARNINGS (LOSS) PER COMMON SHARE $0.00 ($0.08)
======== ========
Shares used in computing per share data 37,055 25,674
-------- --------
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
1997 1996
------ ------
Cash flows from operating activities:
Net income (loss) $21 ($2,137)
Adjustment to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 291 352
Amortization of capitalized and purchased software 513 549
Amortization of goodwill and customer and
noncompete agreements 132 98
Retirement of property and equipment 0 14
Foreign currency translation adjustment 3 2
Excess lease liability 0 (165)
Changes in assets & liabilities:
Accounts receivable, net 1,430 1,968
Inventories 2 54
Prepaid expenses and other assets (14) 107
Accounts payable and accrued expenses (1,490) (1,108)
Accrued payroll and related benefits (307) (556)
Other liabilities and deferred revenue (1,490) (1,734)
-------- --------
Net cash used in operating activities (909) (2,556)
-------- --------
Cash flows from investing activities:
Capital expenditures (160) (236)
Expenditures for capitalized and purchased software (206) (433)
-------- --------
Net cash used in investing activities (366) (669)
-------- --------
Cash flows from financing activities:
Borrowings of note payable 0 0
Payments of note payable 0 (3,030)
Proceeds from exercise of stock options 296 44
Proceeds from private equity placement (4) 9,361
-------- --------
Net cash provided by financing activities 292 6,375
-------- --------
Net increase (decrease) in cash (983) 3,150
Cash at the beginning of the period $6,596 $920
-------- --------
Cash at the end of the period $5,613 $4,070
======== ========
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, 1997.
The results of operations for current interim periods are not necessarily
indicative of results to be expected for the entire current year.
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, 1997.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1997 was a negative $1,241,000, an improvement of
$887,000 from March 31, 1997. The improvement in working capital was primarily
due to decreased deferred revenue of $1,500,000 partially due to cancellations
of software support contracts as a result of a price increase effective
April 1, 1997; reduced accounts payable and accrued expenses of $1,490,000;
partially offset by a reduction in accounts receivable of $1,430,000 due to
cancellations; and a decrease of $983,000 in cash.
A major component of the Company's negative net working capital position
consists of deferred revenues of $5,705,000 at June 30, 1997, primarily
representing prepaid software 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.
As of June 30, 1997, the borrowings under the Company's bank line of credit
totaled $1,600,000. Borrowings under the line of credit are limited to 75% of
eligible accounts receivable. At June 30, 1997, $717,000 remained available
for borrowing.
THREE MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
Revenues for the quarter ended June 30, 1997 were $5,566,000, representing a
32% decrease compared to the quarter ended June 30, 1996. The Company achieved
net income of $21,000 or $0.00 per share in the first quarter, compared to a
net loss of $2,137,000, or $0.08 per share in the first quarter of the prior
year.
Systems revenues of $982,000 for the first quarter of the current year reflect
a decrease of 49% 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 the Company's exit from the hardware business in the
second quarter of the prior year. Service revenues were $4,584,000 in the
first quarter of the current year, representing a decrease of approximately
27% compared to the first quarter of the prior year, primarily due to
decreased support revenue of $1,506,000 due to customer cancellations.
7
DELPHI INFORMATION SYSTEMS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Costs of revenues as a percentage of revenues were 52% in the current
quarter, compared to 71% in the first quarter of the prior year. Costs of
systems revenues were 73% of systems revenues in the current quarter,
compared to 106% for the first quarter of the prior year. The decrease was
primarily due to reduced costs related to the exit from the hardware
business, which was a low margin business, in the second quarter of the prior
year. Costs of services revenues as a percentage of service revenues were
47%, compared to 61% for the first quarter of the prior year. The decrease
is primarily due to 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 June 30, 1997,
decreased $174,000 or 14%, compared to the first quarter of the prior fiscal
year. The decrease is primarily due to reduced expenditures for the
Company's legacy products which the Company believes are mature products
which do not require significant additional product development.
Sales and marketing expenses for the quarter ended June 30, 1997 decreased
$904,000, or approximately 56%, from the comparable quarter in the prior
year. The decrease is primarily due to a reduced sales force and related
expenses.
General and administrative expenses for the quarter ended June 30, 1997
decreased $763,000, or 51%, from the first quarter of the prior year. The
decrease is due to lower headcount and overall spending reductions related to
the consolidation of facilities and operations compared to the prior year.
Amortization of goodwill, customer lists and noncompete agreements for the
quarter ended June 30, 1997 increased $34,000, or 35%, from the first quarter
of the prior year. The increase is primarily due to the increase in goodwill
related to the acquisition of Complete Broking Systems in the second quarter
of the prior fiscal year.
Interest income for the quarter ended June 30, 1997 was $54,000, a increase
of $16,000 compared the first quarter of the prior year. The increase is due
to interest income from short-term investments in the current quarter.
Interest expense for the three months ended June 30, 1997 increased $34,000,
or 106%, from the first quarter of the prior year. The increase is due to
interest expense related to the line of credit which was established in the
fourth quarter of the prior year.
The statements contained in this section and elsewhere in this Quarterly
Report on Form 10-Q that are not historical facts are forward-looking
statements subject to the safe harbor created by the Private Securities
Litigation Reform Act of 1995. A number of important factors could cause the
Company's actual results to differ materially from those expressed
in any forward-looking statements made by, or on behalf, of the Company,
including factors previously discussed in the Company's prior filings with
the Securities and Exchange Commission.
8
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,
1997 1996
------ ------
Primary earnings (loss) per share:
Net income (loss) for calculation of
primary earnings per share $21 ($2,137)
-------- --------
Weighted average number of
shares outstanding 36,418 25,674
Dilutive effect of outstanding stock options and
stock warrants (1) 637 0
Weighted average number of shares, as adjusted, for
calculation of primary earnings per share 37,055 25,674
-------- --------
Primary earnings (loss) per share (2) $0.00 ($0.08)
(1) Common stock equivalent shares have not been considered in the
calculations for the three month period ended June 30, 1996 because
they would be anti-dilutive.
(2) Primary and fully diluted earnings per share are the same for all
periods presented.
(b.) Reports
None.
9
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 12, 1997 By /s/ John W. Trustman
_______________________ ____________________
John W. Trustman
President and Chief Executive Officer
(Duly authorized officer and chief
executive officer)
10