-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rkgk4SaOJs6GNvbUjAEIy7flJbf0nRGi5DBe75xl4FGc8bJKjU0vbbpbP28pgjz1 YwEeUCmqks5s3v3D80Qo8A== 0001047469-98-004481.txt : 19980211 0001047469-98-004481.hdr.sgml : 19980211 ACCESSION NUMBER: 0001047469-98-004481 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980210 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELPHI INFORMATION SYSTEMS INC /DE/ CENTRAL INDEX KEY: 0000814549 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 770021975 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15946 FILM NUMBER: 98527573 BUSINESS ADDRESS: STREET 1: 3501 ALGONQUIN RD STREET 2: STE 500 CITY: ROLLING MEADOWS STATE: IL ZIP: 60008 BUSINESS PHONE: 7085063100 MAIL ADDRESS: STREET 1: 3501ALGOUQUIN ROAD CITY: ROLLING MEADOWS STATE: IL ZIP: 60008 10-Q 1 FORM 10-Q 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, 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. (1) Yes /x/ No / / (2) 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. 36,922,296 shares as of ----------------------- January 31, 1998. - ----------------- DELPHI INFORMATION SYSTEMS, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1997 INDEX Part I - FINANCIAL INFORMATION Page Item 1. Consolidated Financial Statements Consolidated Balance Sheets at December 31, 1997 and March 31, 1997 (unaudited) . . . . . . . . . . . . . . . 3 Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 1997 and 1996 (unaudited). . . . . 4 Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 1997 and 1996 (unaudited) . . . . . . . . 5 Notes to Consolidated Financial Statements (unaudited). . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . 8 PART II - OTHER INFORMATION Item 5. Executive Appointment . . . . . . . . . . . . . . . . . . . 14 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 15 SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 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, 1997 1997 ------------ ---------- CURRENT ASSETS: Cash $2,642 $6,596 Accounts receivable, net 3,826 5,241 Inventories 11 16 Prepaid expenses and other assets 93 111 ------- -------- TOTAL CURRENT ASSETS 6,572 11,964 Property and equipment, net 1,865 2,242 Capitalized and purchased software, net 5,795 7,301 Goodwill and customer lists, net 0 906 Other assets 127 164 ------- -------- TOTAL ASSETS $14,359 $22,577 ------- -------- ------- -------- LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $2,641 $4,667 Accrued payroll and related benefits 377 620 Deferred revenue 4,466 7,205 ------- -------- TOTAL CURRENT LIABILITIES 7,484 12,492 Notes payable 1,600 1,600 Other liabilities 33 37 ------- -------- TOTAL LIABILITIES 9,117 14,129 ------- -------- Commitments and contingent liabilities 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 36,922,296 and 36,351,168 shares issued and outstanding, respectively 3,692 3,635 Additional paid-in capital 45,714 45,259 Accumulated deficit (44,319) (40,611) Cumulative foreign currency translation adjustment 106 116 ------- -------- TOTAL STOCKHOLDERS' EQUITY 5,242 8,448 ------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,359 $22,577 ------- -------- ------- --------
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, ------------------- ------------------ 1997 1996 1997 1996 ------ ------- ------- -------- REVENUES: Systems $668 $821 $2,497 $4,830 Services 5,005 5,277 14,139 16,680 ------ ------- ------- -------- TOTAL REVENUES 5,673 6,098 16,636 21,510 ------ ------- ------- -------- COSTS OF REVENUES: Systems 573 876 2,131 5,262 Services 2,390 2,379 7,093 9,441 ------ ------- ------- -------- TOTAL COSTS OF REVENUES 2,963 3,255 9,224 14,703 ------ ------- ------- -------- GROSS MARGIN: Systems 95 (55) 366 (432) Services 2,615 2,898 7,046 7,239 ------ ------- ------- -------- TOTAL GROSS MARGIN 2,710 2,843 7,412 6,807 ------ ------- ------- -------- OPERATING EXPENSES: Product development 541 994 3,021 3,596 Sales and marketing 853 675 2,682 3,822 General and administrative 1,122 983 3,126 3,747 Amortization of goodwill, customer lists and noncompete agreements 0 143 136 336 Restructuring charge 0 0 0 1,297 Write off of capitalized and purchased software, goodwill and customer lists 0 0 2,053 0 ------ ------- ------- -------- TOTAL OPERATING EXPENSES 2,516 2,795 11,018 12,798 ------ ------- ------- -------- OPERATING INCOME/(LOSS) 194 48 (3,606) (5,991) OTHER EXPENSES: Interest income (20) (2) (119) (76) Interest expense 107 13 262 60 ------ ------- ------- -------- INCOME/(LOSS) BEFORE INCOME TAXES 107 37 (3,749) (5,975) Income tax provision (2) 0 (41) 28 ------ ------- ------- -------- NET INCOME/(LOSS) $109 $37 ($3,708) ($6,003) ------ ------- ------- -------- ------ ------- ------- -------- BASIC EARNINGS (LOSS) PER COMMON SHARE $0.00 $0.00 ($0.10) ($0.20) ------ ------- ------- -------- ------ ------- ------- -------- DILUTED EARNINGS (LOSS) PER COMMON SHARE $0.00 $0.00 ($0.10) ($0.20) ------ ------- ------- -------- ------ ------- ------- --------
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 1997 1996 --------- -------- Cash flows from operating activities: Net loss ($3,708) ($6,003) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization 826 966 Amortization of capitalized and purchased software 1,601 1,636 Amortization of goodwill and customer lists 136 348 Write off of capitalized and purchased software, goodwill and customer lists 2,053 0 Retirement of property and equipment 0 14 Foreign currency translation adjustment (10) 7 Excess lease liability 0 (482) Changes in assets & liabilities: Accounts receivable, net 1,415 2,906 Inventories 5 514 Prepaid expenses and other assets 55 112 Accounts payable and accrued expenses (2,026) 1,253 Accrued payroll and related benefits (243) (620) Other liabilities and deferred revenue (2,743) (3,263) --------- -------- Net cash used in operating activities (2,639) (2,612) --------- -------- Cash flows from investing activities: Capital expenditures (449) (479) Expenditures for capitalized and purchased software (1,378) (1,357) Acquisition of Complete Broking Systems 0 (784) --------- -------- Net cash used in investing activities (1,827) (2,620) --------- -------- Cash flows from financing activities: Payments on note payable 0 (3,030) Proceeds from exercise of stock options 518 52 Net proceeds from private equity placement (17) 9,361 Proceeds from employee stock purchase plan 11 27 --------- -------- Net cash provided by financing activities 512 6,410 --------- -------- Net increase (decrease) in cash (3,954) 1,178 Cash at the beginning of the period $6,596 $920 --------- ------- Cash at the end of the period $2,642 $2,098 --------- ------- --------- -------
The accompanying notes are an integral part of these consolidated financial statements. 5 DELPHI INFORMATION SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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. Note 2. NOTE PAYABLE As previously reported, the Company had established a $4,000,000 line of credit agreement with a bank subject to certain conditions. The agreement provided for minimum monthly interest at the bank's prime lending rate plus two and one-half percent (2.5%) on the greater of the actual amount outstanding or $1,600,000. The agreement included certain covenants including the maintenance of a minimum net worth of $2,000,000 and restrictions upon certain activities by the Company without the approval of the bank including the incurrence of senior debt, certain mergers or acquisitions, and the payment of dividends. During December 1997, the Company executed an amendment to the line of credit agreement. The amendment extends the maturity date of the agreement two years to January 31, 2001, alters the provisions of the early termination fee, and modifies the criteria for determining the amount available under the line. In accordance with the amendment, prior to June 1, 1998 the Company may borrow up to one and one-half times average monthly collections (as defined) and subsequently may borrow up to seventy-five percent of eligible receivables. As of December 31, 1997, borrowings under the line of credit totaled $1,600,000, and $651,000 remained available for borrowing. As discussed above, the line of credit agreement provides for minimum monthly interest on the greater of the balance outstanding or $1,600,000. In order to minimize interest expense net of interest income, the Company has drawn on the line of credit and invested the proceeds in short term marketable securities. The securities are unrestricted and may be utilized by the Company at any time. At December 31, 1997, total marketable securities of $1,805,000 are included in cash. 6 Note 3. EARNINGS (LOSS) PER SHARE In February, 1997 the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share", which modifies the standards for computing earnings per share. As required, the Company adopted SFAS No. 128 as of December 15, 1997. SFAS No. 128 replaces the presentation of primary and (where applicable) fully diluted earnings per share ("EPS") with basic and (where applicable) diluted EPS. Basic EPS is equal to net income divided by the weighted average number of shares of common stock outstanding for the period. Diluted EPS recognizes the dilutive effect of common stock equivalents and is equal to net income divided by the sum of the weighted average number of shares of common stock outstanding and common stock equivalents. Consistent with previous standards, SFAS No. 128 prohibits inclusion of the impact of common stock equivalents in the calculation of EPS when inclusion results in antidilution. For the three months and nine months ended December 31, 1996, primary and fully diluted EPS, as previously reported, are equal to basic and diluted EPS respectively. The computation of earnings per share (in thousands except per share data) follows:
Three Months Ended Nine Months Ended December 31, December 31, -------------------- --------------------- 1997 1996 1997 1996 ------- ------- --------- -------- Net income (loss) $ 109 $ 37 $(3,708) $(6,003) ------- ------- --------- -------- Common stock-weighted average number of shares outstanding 36,847 30,698 36,662 29,370 ------- ------- --------- -------- Common stock equivalents: stock options 198 143 (a) (a) warrants 88 0 (a) (a) preferred stock 50 50 (a) (a) ------- ------- Total equivalents 336 193 (a) (a) ------- ------- Total shares common stock and equivalents (for diluted EPS) 37,183 30,891 36,662 29,370 ------- ------- --------- -------- Basic EPS $ 0.00 $ 0.00 $ ( 0.10) $ ( 0.20) ------- ------- --------- -------- Diluted EPS $ 0.00 $ 0.00 $ ( 0.10) $ ( 0.20) ------- ------- --------- --------
(a) Common stock equivalents excluded to prevent antidilution. 7 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, 1997. FINANCIAL CONDITION ------------------- LIQUIDITY AND CAPITAL RESOURCES Working capital at December 31, 1997 was a negative $912,000, or a decrease of $384,000 from March 31, 1997. The decrease in working capital is primarily attributable to a decrease in cash of $3,954,000 and a reduction in accounts receivable of $1,415,000; partially offset by a decrease in deferred revenue of $2,739,000 and a reduction in accounts payable and accrued expenses of $2,026,000. A major component of the Company's negative net working capital position consists of deferred revenues of $4,466,000 at December 31, 1997, 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. During the three months ended December 31, 1997 operating activities resulted in the use of cash of $225,000. This was primarily due to decreases in accounts payable and accrued expenses, accrued payroll and related benefits, and deferred revenue and other liabilities of $1,770,000 partially offset by net income of $109,000, non-cash expenses for depreciation and amortization of $691,000, and a decrease in accounts receivable of $732,000. During the three month period cashflows from investing activities resulted in a use of cash of $1,271,000 due to expenditures of $1,172,000 for capitalized and purchased software and other capital expenditures of $99,000. Cashflows from investing activities for the same period provided $165,000 primarily from proceeds from the exercise of stock options. During the nine months ended December 31, 1997 operating activities resulted in the use of cash of $2,639,000. This was due to a net loss of $3,708,000 and decreases in accounts payable and accrued expenses, accrued payroll and related benefits, and deferred revenue and other liabilities of $5,012,000 partially offset by non-cash expenses for depreciation and amortization of $2,563,000, the write off of certain assets of $2,053,000 and a decrease in accounts receivable of $1,415,000. During the nine month period cashflows from investing activities resulted in a use of cash of $1,827,000 due to expenditures of $1,378,000 for capitalized and purchased software and other capital expenditures of $449,000. Cashflows from investing activities for the same period provided $512,000 primarily from proceeds from the exercise of stock options. 8 The Company's sources of liquidity on both a short and long-term basis include cash on hand, the proceeds from the Company's line of credit agreement, and operating activity. Sources of liquidity on a long-term basis may also include the proceeds from the exercise of outstanding stock options and warrants. Management believes that the Company's sources of liquidity in the short and long-term and will be sufficient to meet the Company's operating cash obligations and provide for the completion and market introduction of products currently under development. As previously reported, the Company has a $4,000,000 line of credit agreement with a bank subject to certain conditions. The agreement provides for minimum monthly interest at the bank's prime lending rate plus two and one-half percent (2.5%) on the greater of the actual amount outstanding or $1,600,000. The agreement includes certain covenants including the maintenance of a minimum net worth of $2,000,000 and restrictions upon certain activities by the Company without the approval of the bank including the incurrance of senior debt, certain mergers or acquisitions, and the payment of dividends. During December 1997, the Company executed an amendment to the line of credit agreement. The amendment extends the maturity date of the agreement two years to January 31, 2001, alters the provisions of the early termination fee, and modifies the criteria for determining the amount available under the line. In accordance with the amendment, prior to June 1, 1988 the Company may borrow up to one and one-half times average monthly collections (as defined) and subsequently may borrow up to seventy-five percent of eligible receivables. As of December 31, 1997, borrowings under the line of credit totaled $1,600,000, and $651,000 remained available for borrowing. The line of credit agreement provides for minimum monthly interest on the greater of the balance outstanding or $1,600,000. In order to minimize interest expense net of interest income, the Company has drawn on the line of credit and invested the proceeds in short-term marketable securities. The securities are unrestricted and may be utilized by the Company at any time. At December 31, 1997 marketable securities of $1,805,000 are included in cash. As part of the Company's ongoing efforts to conduct operations more efficiently and improve profitability, during January 1998 the Company implemented a reduction in work force of approximately twenty employees from various functional areas. The employee departures are not expected to adversely affect the Company's strategic initiatives. It is anticipated that the reductions will result in reduced annual operating expenses of approximately $1,200,000. Severance costs of approximately $150,000 have been accrued in the fiscal third quarter ended December 31, 1997. As of January 31, 1998 the Company has approximately 160 employees. Management is pursuing other cost reduction initiatives including reducing the use of high cost consultants in the product development area, the reduction of travel related costs, renegotiation of telecommunication service agreements, and other initiatives focused on improving profitability. The common stock of the Company is traded on the Nasdaq SmallCap Market. There are various requirements for the maintenance of a listing on the Nasdaq SmallCap Market. During August 1997 Nasdaq announced the modification of several requirements for listing effective February 23, 1998. Included in the revised requirements is a minimum bid price of one dollar ($1.00). In the event a listed company's bid price is less than $1.00, the listed company will be allowed ninety days to comply with the minimum bid requirement by achieving the minimum bid price for ten consecutive trading days. During the fiscal quarter ended December 31, 1997 and 9 subsequent thereto the Company's common stock has traded at less than the required minimum bid price of one dollar ($1.00). Management is currently reviewing various alternatives to insure compliance with the minimum bid requirement. In the event the Company is unable to comply with the listing requirements, the Company could be delisted, which may have an adverse affect on existing shareholder liquidity and the Company's ability to raise additional future equity capital, if required. The Company is currently in compliance with all other Nasdaq listing requirements. RESULTS OF OPERATIONS The Company's business plan includes a product strategy centered on a new generation of products, collectively referred to as "Common Delphi", or "cd.solutions" and currently comprised of "cd.one", " cd.connect", and "cd.global", each of which are Delphi trademarks. The current legacy products will be maintained and supported as long as there is adequate economic and strategic justification. As new products are introduced to the market, existing customers utilizing legacy products will be encouraged to migrate to the Company's new generation of products. In November, 1996 the Company introduced cd.one and is currently developing certain conversion enhancements to facilitate conversion from certain legacy products to cd.one. The Company's current product development efforts are primarily focused on the development of cd.connect and the modification of the underlying technology used in the original version of cd.global to address domestic market requirements. THREE MONTH PERIOD ENDED DECEMBER 31, 1997 AND 1996 Total revenues for the third quarter ended December 31, 1997 were $5,818,000, representing a 5% decrease compared to the third quarter of the prior year. Systems revenues of $668,000 for the third quarter of the current fiscal year reflect a decrease of $153,000 compared to the third quarter of the prior year. Current year systems revenues for the third quarter include hardware commissions of $166,000 versus hardware sales of $382,000 in the prior year. Prior year results include no systems revenues from the sale of cd.solutions products versus $92,000 in the current period. Prior year results for the third period include revenues of $70,000 for the sale of certain legacy products which are no longer offered. Included in current year systems revenues are $182,000 of miscellaneous revenues versus $61,000 in the prior year. Systems revenues from the sale of continuing legacy products for the three months ended December 31, 1997 were $225,000 versus prior year sales for the same period of $308,000. Service revenues were $5,005,000 in the third quarter of the current year versus $ 5,277,000 in the prior year for a decrease of $272,000. Service revenues for the current year include $806,000 related to cd.solutions products versus none in the prior year. Service revenues from legacy products were $4,200,000 in the three months ended December 31, 1997 versus $5,277,000 in the same period of the prior year. Total costs of revenues as a percentage of total revenues were 51% in the current quarter, compared to the 53% in the third quarter of the prior year. Costs of systems revenues were 70% 10 in the third quarter of the current fiscal year, compared to 107% in the third quarter of the prior fiscal year. The decrease expressed in percentage terms was primarily due to additional provisions for hardware expenses in the third quarter of the prior year. Costs of service revenues as a percentage of total service revenues increased to 48% in the third quarter of the current year, compared to 45% in the third quarter of the prior fiscal year. Product development expenses for the third quarter ended December 31, 1997 were $541,000, a decrease of $453,000 or 46%, compared to the third quarter of the prior fiscal year. Total product development expenditures for the three months ended December 31, 1997 were $1,712,000, consisting of capitalized purchased software and software development costs of $1,171,000 and product development expense of $541,000. Total product development expenditures for the three months ended December 31, 1996 were $1,407,000, consisting of capitalized purchased software and software development costs of $413,000 and product development expense of $994,000. Sales and marketing expenses for the quarter ended December 31, 1997 were $853,000, representing an increase of $178,000 or 26%, from the comparable quarter in the prior year. The increase is primarily due to the marketing of cd.solutions products. General and administrative expenses for the quarter ended December 31, 1997 were $1,122,000, representing an increase of $139,000 or 14%, from the comparable quarter in the prior year. The increase is primarily due to severance provisions. There was no amortization of goodwill, customer lists and noncompete agreements for the quarter ended December 31, 1997 compared to $143,000 for the third quarter of the prior year. The elimination of amortization expense is the result of the write-off $770,000 of goodwill and customer lists in the second quarter of the current year due to impaired recoverability of the assets. Interest expense for the quarter ended December 31, 1997 was $107,000, an increase of $94,000 compared to the third quarter of the prior year. The increase is due to interest and fees related to the line of credit which was established in the fourth quarter of the prior year. As further described in Note 2 to the financial statements included in Item 1, the line of credit agreement provides for minimum monthly interest on the greater of the outstanding balance or $1,600,000. In order to minimize interest expense net of interest income the Company has drawn $1,600,000 on the line of credit and purchased short-term marketable securities in the same amount. The securities are unrestricted. NINE MONTH PERIOD ENDED DECEMBER 31, 1997 AND 1996 The Company recorded a net loss of $3,708,000 for the nine months ended December 31, 1997, compared to a net loss for the comparable period in the prior fiscal year of $6,003,000. The results for the nine months ended December 31, 1997 include a $2,053,000 write-off of capitalized and purchased software, goodwill, and customer lists. The results for the nine months ended December 31, 1996 include a $1,297,000 restructuring charge. Excluding these two items the net loss for the nine months ended December 31, 1997 declined $3,051,000 or 65%. 11 Total revenues for the nine months ended December 31, 1997 were $16,781,000, a decrease of $4,729,000 or 22%, compared to the nine months ended December 31, 1996. Systems revenues for the nine months ended December 31, 1997 were $2,497,000, a decrease of $2,333,000 or 48% compared to the same period of the prior year. Current year systems revenues include hardware commissions of $621,000 and hardware sales of $187,000 versus $227,000 of commissions and $2,066,000 of hardware sales in the prior year. Prior year results include no systems revenues from the sale of cd.solutions products versus $432,000 in the current period. Prior year results include revenues of $666,000 versus $23,000 in the current year for the sale of certain legacy products which the Company ceased offering during the current year. Included in current year systems revenues are $307,000 of miscellaneous revenues versus $214,000 in the prior year. Systems revenues from the sale of continuing legacy products for the nine months ended December 31, 1997 were $926,000 versus prior year sales for the same period of $1,491,000. Service revenues for the nine month period ended December 31, 1997 were $14,139,000, a decrease of $2,541,000 or 15%, compared to the nine months ended December 31, 1996. Prior year service revenues include hardware support revenues of $1,348,000 versus none in the current year due to the Company's exit from the hardware business in the second quarter in the prior year. Service revenues for the current year include $1,889,000 related to cd.solutions products versus none in the prior year. Service revenues from legacy products were $12,331,000 in the nine months ended December 31, 1997 versus $15,331,000 in the same period of the prior year, a decrease of 20%. Total costs of revenues expressed as a percentage of total revenues were 55% for the nine months ended December 31, 1997, compared to 68% for the same period in the prior year. Costs of systems revenues expressed as a percentage of systems revenues were 81% in the first nine months of fiscal 1998, compared to 109% in the first nine months of fiscal 1997. The decrease expressed in percentage terms is primarily due to an increased provision for doubtful accounts and various expenses incurred in the prior fiscal year related to the Company's exit from the hardware business. Costs of service revenues expressed as a percentage of service revenues were 50% in the first nine months of fiscal 1998, compared to 57% in the first nine months of fiscal 1997. The decrease is primarily driven by the exit from the hardware maintenance business, in the prior fiscal year. Product development expenses for the nine month period ended December 31, 1997 were $3,021,000 a decrease of $575,000 or 16%, compared to the same period of the prior fiscal year. Total product development expenditures for the nine months ended December 31, 1997 were $4,399,000, consisting of capitalized purchased software and software development costs of $1,378,000 and product development expense of $3,021,000. Total product development expenditures for the nine months ended December 31, 1996 were $4,953,000, consisting of capitalized purchased software and capitalized software development costs of $1,357,000 and product development expense of $3,596,000. The decrease in total product development expenditures is primarily due to resource reductions afforded by the conclusion of development activity on legacy products in the prior year. Product development expenditures in the current year have been focused on cd.solutions products. 12 Sales and marketing expenses for the first nine months of fiscal 1998 were $2,682,000, a decrease of $1,140,000, compared to the prior year. The decrease is primarily due to reduced sales commissions, and compensation expense resulting from a shift to a less commissioned direct marketing approach and the Company's exit from the hardware business. In addition, advertising expense decreased approximately $168,000 to $35,000 in the current nine month period as compared to the same period last year. General and administrative expenses for the first nine months of fiscal 1998 were $3,126,000, a decrease of $621,000 as compared to the same period of fiscal 1997. The decrease is primarily attributable to a decreases in compensation expense, recruiting and relocation expense, and facility expenses. Amortization of goodwill, customer lists, and noncompete agreements for the nine months ended December 31, 1997 decreased $200,000 or 60%, compared to the same period of the prior year. The decrease is primarily the result of the write-off of goodwill and customer lists in the second quarter of the current year resulting in no amortization expense in the third quarter of the current year compared to $143,000 in the third quarter of the prior year. The Company's product strategy is to support existing legacy products as long it is economically prudent while simultaneously encouraging customers to migrate to new products as they are introduced. The Company's product strategy and the availability of competitive products are factors in the continuous assessment of the recoverability of the Company's carrying value of its software products. As a result of assessment, during the second quarter of the current year, the recoverability of a portion of the Company's intangible assets related to certain legacy products was deemed impaired based upon projected future net cash flows for those products. Therefore, the Company wrote off $1,283,000 of capitalized and purchased software and $770,000 of goodwill and customer lists in the second quarter of the current year. Interest expense for the nine months ended December 31, 1997 was $262,000, compared to $60,000 for the first nine months of fiscal 1997. The increase is due to interest and fees related to the line of credit which was established in the fourth quarter of the prior year. As further described in Note 2 to the financial statements included in Item 1, the line of credit agreement provides for minimum monthly interest on the greater of the outstanding balance or $1,600,000. In order to minimize interest expense net of interest income the Company has drawn $1,600,000 on the line of credit and purchased marketable securities in the same amount. The securities are unrestricted. ADOPTION OF SFAS NO. 128 - EARNINGS PER SHARE As further described in Note 3 to the Consolidated Financial Statements included herein in Item 1, the Company adopted SFAS No. 128, Earnings Per Share, effective December 15, 1997. SFAS No. 128 modifies the standards for the presentation and computation of EPS. SFAS No. 128 replaces the presentation of primary and (where applicable) fully diluted EPS with basic and (where applicable) diluted EPS. Consistent with previous standards, SFAS No. 128 prohibits inclusion of the impact of common stock equivalents in the calculation of EPS when inclusion results in antidilution. SFAS No. 128 requires the dilutive effect of common stock equivalents be excluded in the calculation of basic 13 EPS and included in the computation of diluted EPS. Under standards prior to SFAS No. 128 the dilutive effect of common stock equivalents was reflected in primary and fully diluted EPS. SFAS No. 128 requires retroactive restatement of prior period financial statements included as an integral part of financial statements for periods ending subsequent to December 15, 1997. Due to the relatively nominal number of dilutive common stock equivalents and nominal earnings in prior periods, management believes that restated basic and diluted EPS in accordance with SFAS No. 128 will not be significantly different than previously reported primary and fully diluted EPS, respectively. Management further believes that given the Company's current capital structure, SFAS No. 128 will not have a significant impact on the Company. This Quarterly Report on Form 10-Q contains various forward-looking statements and information that are based on management's beliefs and assumptions and information currently available to management, including statements regarding future economic performance and financial condition, liquidity and capital resources, acceptance of the Company's products by the market and management's plans and objectives. Such statements are subject to various risks and uncertainties which could cause actual results to vary materially from those stated. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, or projected. Such risks and uncertainties include, but are not limited to, the Company's ability to overcome its recent history of operating losses and declining revenues, its dependence upon raising additional capital if required, the risks associated with potential future acquisitions, the willingness of independent insurance agencies to outsource their computer and other processing needs to third parties, the Company's ability to continue to develop new products to effectively address market needs in an industry characterized by rapid technological change, the Company's dependence on the insurance agency market (and in particular independent agents), the highly competitive and rapidly changing automation systems market, the Company's ability to effectively protect its applications software and other proprietary information and the Company's ability to attract and retain quality management, and software, technical sales and other personnel. Certain of these as well as other risks and uncertainties are described in more detail in the Company's Registration Statement on Form S-3 filed under the Securities Act of 1933, Registration No. 333-12781, and the Company's periodic filings pursuant to the Securities Exchange Act of 1934. The Company undertakes no obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. Part II - OTHER INFORMATION Item 5. EXECUTIVE APPOINTMENT On February 10, 1998, the board of directors of the Company announced the appointment of Max Seybold to the positions of President and Chief Executive Officer replacing John W. Trustman, who left the Company to pursue other opportunities. Seybold previously served the Company as Senior Vice President and Chief Operating Officer. Prior to joining the Company in December 1997, Seybold was President and Chief Executive Officer of Mindware/BPR, Inc., an international consulting firm with approximately 3500 employees. 14 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See exhibit index. (b) Reports on Form 8-K None 15 SIGNATURES 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 9, 1998 By /s/ Reid E. Simpson -------------------------------- Reid E. Simpson Chief Financial Officer and Duly authorized officer 16 EXHIBIT INDEX -------------- EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------- 10.12 Second Amendment to Loan and Security Agreement with Coast Business Credit, a division of Southern Pacific Bank 11 Computation of per share earnings 27 Financial Data Schedule, which is submitted electronically to the Securities and Exchange Commission for information only and not filed. 17 EX-10.12 2 EXHIBIT 10.12 SECOND AMENDMENT TO LOAN & SECURITY Exhibit 10.12 SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT This Second Amendment to Loan and Security Agreement ("Amendment") is entered into as of this 18th day of December, 1997, between Delphi Information Systems, Inc. ("Borrower") and Coast Business Credit, a division of Southern Pacific Bank (formerly known as Southern Pacific Thrift & Loan Association) ("Coast") in reference to that certain Loan and Security Agreement between Borrower and Coast dated January 8, 1997, as amended ("Loan Agreement"). The parties desire that the Loan Agreement be modified as follows: 1. Subparagraph 1(a) of the Schedule to Loan and Security Agreement ("Schedule") is hereby deleted and the following is substituted therefore: "(a) Loans ("the Receivable Loans") in an amount not to exceed one and one-half (1-1/2) times the rolling 12-month moving average of the monthly collections (excluding extraordinary cash receipts), which formula shall remain in effect until May 31, 1998. Thereafter, the Receivable Loan shall be in an amount not to exceed 75% of the amount of Borrower's Eligible Receivables (as defined in Section 8 above) provided that if the average dilution during the then prior nine months exceeded 10%, Coast may, in its sole discretion, reduce the advance rate against Eligible Receivables." 2. Section 4 of the Schedule is hereby modified by deleting the Maturity Date of January 31, 1999 and substituting therefor "January 31, 2001." 3. The Early Termination Fee as set forth in Section 4 of the Schedule is hereby deleted and the following is substituted therefore: EARLY TERMINATION FEE: A fee equal to the greater of: (a)the amount of all interest accrued during the six-month period prior to the effective date of termination; (b)an amount equal to the average monthly interest due and payable based on the greater of the six months' interest immediately preceding the effective date of termination or, if the effective date of termination is less than six months from the initial funding, an amount equal to the average monthly interest multiplied by the number of full or partial months from the effective date of termination to the Maturity Date; or (c)an amount equal to the Minimum Monthly Interest multiplied by the number of full or partial months from the effective date of termination to the Maturity Date. 1 4. If on June 1, 1998, the change in the advance rate against Eligible Receivables as set forth in Section 1(a) of the Schedule and in paragraph 1 of this Amendment result in the then unpaid balance of the Receivable Loans being greater than 75% (or the applicable percentage pursuant to paragraph 1 above) of the Eligible Receivables ("Overloan"), Coast may either declare an Event of Default or, at Coast's sole option, forbear from declaring an Event of Default and continue the Loans under the terms herein on 30-day extensions for an additional extension fee of $20,000 per month payable and earned as of the first day of each calendar month. If the Overloan is cured by Borrower and no other Events of Default have occurred and are continuing, the Extension Fee shall not be charged beginning the first month after the date of the cure. 5. Borrower represents and warrants to Coast that it does not own any copyrights, software or copyrightable material; whether or not such material has been registered at the U.S. Copyright Office, except as set forth on Exhibit "1" hereto. Further, there have been no enhancements, modifications or new versions of any of the material set forth on Exhibit 1 hereto. 6. In addition to all other fees and charges, Borrower hereby agrees to pay Coast a facility modification fee of $80,000, fully earned on the date hereof. Said fee shall be payable $40,000 on the date hereof and $40,000 on May 31, 1998. 7. This Amendment may be executed in one or more counterparts. 8. This Amendment shall be governed by the laws of the State of California. 9. If any action or proceeding shall be commended at any time by any party to this Amendment to enforce, interpret or otherwise concerning the terms herein, the prevailing party in such action shall be entitled to reimbursement of its cost and reasonable attorneys' fees. Each of the parties hereto waive trail by jury in connection with any action described in the preceding sentence. In addition to all other fees and charges, Borrower shall reimburse Coast, upon demand, for all attorneys' fees and costs incurred in connection with the negotiation, documentation and closing of this Amendment. "Lender" "Borrower" COAST BUSINESS CREDIT DELPHI INFORMATION SYSTEMS, INC. By: /s/ Phillip Goessler By: /s/ Reid E. Simpson -------------------------- --------------------------------- Its: Vice President Its: Chief Financial Officer Senior Vice President - Finance and Administration 2 EX-11 3 EX-11 COMPUTATION OF PER SHARE EARNINGS Exhibit 11 Computation of Per Share Earnings In February, 1997 the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share", which modifies the standards for computing earnings per share. As required, the Company adopted SFAS No. 128 as of December 15, 1997. SFAS No. 128 replaces the presentation of primary and (where applicable) fully diluted earnings per share ("EPS") with basic and (where applicable) diluted EPS. Basic EPS is equal to net income divided by the weighted average number of shares of common stock outstanding for the period. Diluted EPS recognizes the dilutive effect of common stock equivalents and is equal to net income divided by the sum of the weighted average number of shares of common stock outstanding and common stock equivalents. Consistent with previous standards, SFAS No. 128 prohibits inclusion of the impact of common stock equivalents in the calculation of EPS when inclusion results in antidilution. For the three months and nine months ended December 31, 1996, primary and fully diluted EPS, as previously reported, are equal to basic and diluted EPS respectively. The computation of earnings per share (in thousands except per share data) follows:
Three Months Ended Nine Months Ended December 31, December 31, --------------------- ---------------------- 1997 1996 1997 1996 ------ ------- -------- -------- Net income (loss) $ 109 $ 37 $(3,708) $(6,003) ------ ------- -------- -------- Common stock-weighted average number of shares outstanding 36,847 30,698 36,662 29,370 ------ ------- -------- -------- Common stock equivalents: stock options 198 143 (a) (a) warrants 88 0 (a) (a) preferred stock 50 50 (a) (a) ------ ------- Total equivalents 336 193 (a) (a) ------ ------- Total shares common stock and equivalents (for diluted EPS) 37,183 30,891 36,662 29,370 ------ ------- -------- -------- Basic EPS $ 0.00 $ 0.00 $ ( 0.10) $ ( 0.20) ------ ------- -------- -------- Diluted EPS $ 0.00 $ 0.00 $ ( 0.10) $ ( 0.20) ------ ------- -------- --------
(a) Common stock equivalents excluded to prevent antidilution. EX-27 4 EXHIBIT 27
5 1,000 9-MOS MAR-31-1998 APR-01-1997 DEC-31-1998 2,642 0 3,826 0 11 6,572 1,865 0 14,359 7,484 0 0 49 3,692 1,501 14,359 0 16,636 9,224 9,224 11,018 0 119 (3,749) (41) (3,708) 0 0 0 (3,708) (.10) (.10)
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