-----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, GVFrNHQ2oO5D3ie5yT7i0thuGA4XjgIge5mxD3+QeC1DoJnd4c9nSOz7kB4Eb6h8 0fUrfVHB/x1TP3ZsgwdEpg== 0001047469-98-041291.txt : 19981118 0001047469-98-041291.hdr.sgml : 19981118 ACCESSION NUMBER: 0001047469-98-041291 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98752148 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 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 September 30, 1998 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. 7,395,449 shares as of November 10, 1998. DELPHI INFORMATION SYSTEMS, INC. FORM 10-Q FOR THE QUARTER ENDED September 30, 1998 INDEX Part I - FINANCIAL INFORMATION Page ----- Item 1. Consolidated Financial Statements Consolidated Balance Sheets at September 30, 1998 (unaudited) and March 31, 1998............................. 3 Consolidated Statements of Operations for the Three and Six Months Ended September 30, 1998 and 1997 (unaudited)........ 4 Consolidated Statements of Cash Flows for the Six Months Ended September 30, 1998 and 1997 (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 4. Submission of Matters to a vote of Security Holders.......... 14 Item 5. Other Information............................................ 14 Item 6. Exhibits and Reports on Form 8-K........................... 14 SIGNATURE................................................................. 15 2 DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
(UNAUDITED) SEPTEMBER 30, MARCH 31, 1998 1998 -------------------------- CURRENT ASSETS: Cash $ 992 $ 872 Accounts receivable, net 6,720 4,807 Other current assets 201 163 ------ ------ TOTAL CURRENT ASSETS 7,913 5,842 Property and equipment, net 1,783 2,084 Capitalized and purchased software, net 6,494 6,554 Other assets 311 302 ------ ------ TOTAL ASSETS $16,501 $14,782 ------ ------ ------ ------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 3,126 $ 1,923 Accounts payable and accrued liabilities 2,181 2,078 Accrued payroll and related benefits 457 419 Deferred revenue 3,470 4,381 ------ ------ TOTAL CURRENT LIABILITIES 9,234 8,801 Notes payable-long term 210 210 Other liabilities 161 180 ------ ------ TOTAL LIABILITIES 9,605 9,191 ------ ------ Commitments and contingencies STOCKHOLDERS' EQUITY Preferred stock, $.10 par value, 2,000,000 shares authorized: Seried D, 221 shares issued and outstanding, respectively 49 49 Common stock, $.10 par value: Non-designated, 20,000,000 shares authorized, 7,395,449 outstanding 740 740 Additional paid-in capital 48,717 48,717 Accumulated deficit (42,710) (44,017) Cumulative foreign currency translation adjustment 100 102 ------ ------ TOTAL STOCKHOLDERS' EQUITY 6,896 5,591 ------ ------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,501 $ 14,782 ------ ------ ------ ------
3 DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1998 1997 1998 1997 ------------------- ----------------- REVENUES: Systems $3,107 $ 847 $ 4,411 $ 1,829 Services 3,902 4,550 8,765 9,134 ------ ------- ------- -------- TOTAL REVENUES 7,009 5,397 13,176 10,963 COSTS OF REVENUES: Systems 801 781 1,527 1,558 Services 2,276 2,529 4,218 4,665 ------ ------- ------- -------- TOTAL COST OF REVENUES 3,077 3,310 5,745 6,223 ------ ------- ------- -------- GROSS MARGIN 3,932 2,087 7,431 4,740 OPERATING EXPENSES: Product development 813 1,406 1,560 2,480 Sales and marketing 758 1,124 1,407 1,829 General and administrative 1,375 1,260 2,711 2,002 Amortization of goodwill, customer lists and noncompete agreements -- 69 -- 138 Write off of capitalized and purchased software, goodwill and customer lists -- 2,053 -- 2,053 ------ ------- ------- -------- TOTAL OPERATING EXPENSES 2,946 5,912 5,678 8,502 ------ ------- ------- -------- OPERATING INCOME (LOSS) 986 (3,825) 1,753 (3,762) Minority interest 65 9 220 38 Interest income -- (45) -- (99) Interest expense 112 89 216 155 ------ ------- ------- -------- Income(loss) before income taxes 809 (3,878) 1,317 (3,856) Income tax provision (benefit) 4 (40) 10 (39) ------ ------- ------- -------- Net income (loss) $ 805 $(3,838) $ 1,307 $ (3,817) ------ ------- ------- -------- ------ ------- ------- -------- Basic net income (loss) per common share $ 0.11 $ (0.52) $ 0.18 $ (0.52) ------ ------- ------- -------- ------ ------- ------- -------- Diluted net income (loss) per common share $ 0.11 $ (0.52) $ 0.18 $ (0.52) ------ ------- ------- -------- ------ ------- ------- --------
4 DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED SEPTEMBER 30, 1998 1997 ------------------- CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) $ 1,307 $ (3,817) ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Depreciation and amortization 510 586 Amortization of capitalized and purchased software 1,008 1,150 Amortization of goodwill, customer lists and noncompete agreements - 136 Write off capitalized and purchased software, goodwill and customer lists - 2,053 Foreign currency translation adjustment (2) (4) CHANGES IN ASSETS AND LIABILITIES Accounts receivable, net (1,913) 683 Other current assets (47) 41 Accounts payable and accrued liabilities 103 (1,437) Accrued payroll and related benefits 38 (78) Other liabilities and deferred revenue (930) (1,727) ------ -------- Net cash provided by (used in) operating activities 74 (2,414) ------ -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (209) (350) Expenditures for capitalized and purchased software (948) (206) ------ -------- Net cash used in investing activities (1,157) (556) ------ -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on notes payable 1,203 - Net proceeds from exercise of stock options, private equity equity placement and employee stock purchase plan - 347 ------ -------- Net cash provided by financing activities 1,203 347 ------ -------- Net increase (decrease) in cash 120 (2,623) Cash at the beginning of the year 872 6,596 ------ ------- Cash at the end of the year $ 992 $ 3,973 ------ ------- ------ -------
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, as amended, for the fiscal year ended March 31, 1998. The results of operations for current interim periods are not necessarily indicative of results to be expected for the entire current year. Certain prior period amounts have been reclassified to conform to the current presentation. These changes had no impact on previously reported earnings or stockholder's equity. Note 2. REVERSE STOCK SPLIT As previously reported, on May 6, 1998 the Company's shareholders approved a proposal to amend the Company's Certificate of Incorporation to effect a one-for-five reverse stock split of the Company's outstanding $.10 par value Common Stock and to reduce the number of authorized shares from 75,000,000 to 20,000,000 effective May 8, 1998. All share and per share information in these financial statements has been adjusted accordingly. Note 3. BANK LINE-OF-CREDIT AMENDMENT Effective January 1997, the Company established a $4,000,000 line of credit agreement with a bank, maturing in January 2001, subject to certain conditions. Effective September 30, 1998 the Company entered into an amendment to the agreement whereby the amount of credit available under the line of credit was increased. In accordance with the agreement, as amended, prior to December 31, 1998 the Company may borrow up to two and one-half times average monthly collections (as defined ); from January 1999 through March 1999, two times monthly collections; and subsequently one times collections plus seventy-five percent of eligible receivables (as defined). As of September 30, 1998, borrowings under the line of credit totaled $2,806,000, and $1,025,000 remained available for borrowing. 6 Note 4. 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 six months ended September 30, 1997, 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 Six Months Ended September 30, September 30, ------------------- ------------------ 1998 1997 1998 1997 -------- -------- -------- -------- Net income (loss) $ 805 $(3,838) $1,307 $(3,817) ------- -------- ------ -------- Common stock-weighted average number of shares outstanding 7,395 7,344 7,395 7,314 ------- -------- ------ -------- Common stock equivalents: stock options 18 (a) 24 (a) warrants 0 (a) 0 (a) preferred stock 10 (a) 10 (a) ------- ------ Total equivalents 28 (a) 34 (a) ------- ------ Total shares common stock and equivalents (for diluted EPS) 7,423 7,344 7,429 7,314 ------- -------- ------ -------- Basic EPS $0.11 $(0.52) $0.18 $(0.52) ------- -------- ------ -------- Diluted EPS $0.11 $(0.52) $0.18 $(0.52) ------- -------- ------ --------
(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, as amended, for the fiscal year ended March 31, 1998. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES During the six months ended September 30, 1998 operating activities provided cash of $74,000. This was primarily due to net income of $1,307,000, non-cash expenses for depreciation and amortization of $1,518,000, and an increase in accounts payable and accruals of $141,000 partially offset by an increase accounts receivable of $1,913,000, and a decrease in deferred revenue and other liabilities of $930,000. During the six month period cashflows from investing activities resulted in a use of cash of $1,157,000 due to expenditures of $948,000 for capitalized and purchased software and other capital expenditures of $209,000. Cashflows from investing activities for the same period provided $1,203,000 resulting from bank borrowings. 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. BANK LINE-OF-CREDIT - Effective January 1997, the Company established a $4,000,000 line of credit agreement with a bank, maturing in January 2001, subject to certain conditions. Effective September 30, 1998 the Company entered into an amendment to the agreement whereby the amount of credit available under the line of credit was increased. In accordance with the agreement, as amended, prior to December 31, 1998 the Company may borrow up to two and one-half times average monthly collections (as defined ); from January 1999 through March 1999, two times monthly collections; and subsequently one times collections plus seventy-five percent of eligible receivables (as defined). As of September 30, 1998, borrowings under the line of credit totaled $2,806,000, and $1,025,000 remained available for borrowing. REVERSE STOCK SPLIT - As previously reported, on May 6, 1998, the Company's stockholders approved a proposal to amend the Company's Certificate of Incorporation to effect a one-for-five reverse stock split of the Company's outstanding $.10 par value Common Stock and to reduce the number of authorized shares from 75,000,000 to 20,000,000 effective May 8, 1998. 8 The principal reason for the reverse stock split was to increase the trading price per share of the Common Stock in order to comply with the revised standards for continued listing on the Nasdaq SmallCap Market, which went into effect on February 23, 1998. The new Nasdaq listing requirements instituted, among other things, a $1.00 minimum per share bid price for listed companies. There is no assurance, however, that the reverse stock split will enable the Company's common stock to trade above the $1.00 minimum bid price or that the Company will otherwise be able to maintain its listing on the Nasdaq SmallCap Market. NEW ACCOUNTING STANDARDS - As previously reported, in October 1997, the AICPA issued Statement of Position (SOP) 97-2, "Software Revenue Recognition", which supersedes SOP 91-1. The Company adopted, as required, SOP 97-2 for software transactions entered into beginning April 1, 1998. SOP 97-2 generally requires revenue earned on software arrangements involving multiple elements (i.e., software products, upgrades/enhancements, postcontract customer support, installation, training, etc.) to be allocated to each element based on relative fair values of the elements. The fair value of an element must be based on evidence which is specific to the vendor. The revenue allocated to software products (including specified upgrades/enhancements) generally is recognized upon delivery of the products. The revenue allocated to postcontract customer support generally is recognized ratably over the term of the support and revenue allocated to service elements (such as training and installation) generally is recognized as the services are performed. If a vendor does not have evidence of the fair value of all elements in a multiple-element arrangement, all revenue from the arrangement is deferred until such evidence exists or all elements are delivered. In March 1998, the AICPA issued SOP 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition". SOP 98-4 defers for one year the application of certain passages in SOP 97-2 which limit what is considered evidence of fair value of various elements of multiple element arrangements. The AICPA has publicly indicated its intent to further consider the matter and, if appropriate, issue an SOP by December 31, 1998. EURO CONVERSION - Effective January 1, 1999, eleven of the fifteen member countries of the European Union (the "participating countries") have agreed to adopt a new common legal currency (the "euro"). The participating countries are scheduled to establish fixed conversion rates between their existing sovereign currencies (the "legacy currencies") and the euro. Following the introduction of the euro, the legacy currencies are scheduled to remain legal tender in the participating countries as denominations of the euro between January 1, 1999 and January 1, 2002 (the "transition period"). During the transition period transactions may be settled using either the euro or the participating country's legacy currency on a "no compulsion, no prohibition" basis. Conversion rates will no longer be computed directly from one legacy currency to another but rather will utilize a "triangulation" method specified by European Union regulations whereby payments made in a legacy currency are converted to the euro and subsequently converted to the recipient's desired legacy currency. Beginning January 1, 2002, the participating countries will issue new euro-denominated bills and coins for use in cash transactions. No later than July 1, 2002, the participating countries will withdraw all bills and coins denominated in legacy currencies such that legacy currencies will no longer be legal tender for any transactions, completing the euro conversion. The Company currently has no bank accounts denominated in any legacy currency and has not entered into any material transactions denominated in any legacy currency. The Company is currently in the process of producing enhancements to certain software products marketed in Europe to accommodate the euro conversion process (the "euro module"). The cost of the euro module is not material and will be provided at minimal cost to existing customers. Management believes the euro module will be completed in a timely manner allowing for the continued marketing and sale of the Company's products to customers requiring euro conversion capabilities. In the event the completion of the euro module is delayed the Company's revenues may be adversely impacted as well as the Company's stature in the marketplace. YEAR 2000 COMPLIANCE -The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. Any of the Company's internal use computer programs and its software products that are date sensitive may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, the inability to process transactions or engage in normal business activities. Based on a preliminary and on-going assessment, the Company has determined that it will be required to replace most of its internal-use financial and operational systems software and to modify certain existing products that it markets to customers, so that the software will function properly with respect to dates in the year 2000 and thereafter. The Company presently believes that with the conversion to new internal-use software and with the planned modifications to its products, the Year 2000 issue will not pose significant operational problems for the Company and/or its customers. However, if such conversions and modifications are not made, or not made on a timely basis, the Year 2000 issue could have a material effect on the Company and customers utilizing certain products. The Company has warranted that certain products are Year 9 2000 compliant and that certain products will be made Year 2000 compliant. The Company has been and is currently providing to customers upgrade alternatives to non-Year 2000 compliant-versions of the Company's products to its customers. The Company has outlined and continues to develop a multi-faceted, comprehensive plan to address the Year 2000 issue and its potential effect on the Company's business. This plan considers (a) Company-owned or licensed software for internal use; (b) third-party- provided software services used for internal use; (c) Company proprietary software marketed to customers; (d) third-party software embedded in the Company's proprietary software marketed to customers; and (e) third-party software marketed to customers. Additionally, the plan will address alternatives and contingencies to address the possibility of situations whereby certain aspects of the Company's Year 2000 efforts are delayed or otherwise unsuccessful. Internal-Use Software - The Company plans to address and resolve the Year 2000 issue with respect to internal financial and operational systems, such as general ledger, order management, accounts payable, billing, accounts receivable, fixed assets, time reporting and project management, by replacing substantially all of such internal-use systems with vendor-certified, Year 2000-compliant software systems that offer enhanced features and functionality relative to the Company's existing internal-use software systems. The Company has completed the evaluation of several Year 2000-compliant system alternatives. The Company currently expects to commence implementation of the replacement internal-use systems before the end of 1998 and to have such systems operational by mid-1999. The out-of-pocket software, hardware and personnel cost estimates associated with these replacement systems and requisite modifications to the Company's network infrastructure range from $250,000 to $750,000, all of which the Company intends to finance over a twenty-four to thirty-six month period with a third-party leasing company. The Company does not, however, have a firm financing commitment from any third-party leasing company with respect to these internal-use replacement systems at this time. Approximately 50% of the Company's expenses are payroll-related expenses. The Company relies on a third party for most of its payroll processing services. This third-party payroll processing company has verbally represented to the Company that the software used in its payroll processing services is Year 2000 compliant. The Company has recently requested, but has not yet received, written certification from this payroll processing vendor that the software used in its payroll processing services is in fact Year 2000 compliant. The Company further intends to request, but has not yet requested, from certain vendors of lesser significant products and services to the Company a written certification regarding Year 2000 compliance. Software Marketed to Customers - The Company has used and intends to continue using both internal and external resources to re-program, replace and test its proprietary software products for Year 2000 compliance. The Company anticipates completing the Year 2000 project as soon as practical, but in any event before any anticipated impact. The total cost of this Year 2000 project is estimated to be approximately $150,000 of which approximately $25,000 has been spent to date. This project has been and will be funded over the next year through existing cash resources and through future operating cash flows. The Company also plans to determine the extent to which the Company's software products are vulnerable to the failure of third party products to be Year 2000 compliant. Generally, software products provided by third parties that are marketed directly or indirectly by the Company to its customers are developed by leading software suppliers with Year 2000 programs in process. There can be no guarantee, however, that third-party software products marketed by the Company will be rendered Year 2000-compliant on a timely basis. The Company intends to 10 continually monitor and evaluate Year 2000 compliance through internal testing and by obtaining written certification of Year 2000 compliance from the vendors. If necessary, the Company will consider alternative vendors to ensure Year 2000 compliance for third-party software products marketed to its customers. While the Company is not heavily reliant on non-IT equipment with embedded technology, the Company will assess and evaluate such equipment as a part of its Year 2000 efforts. The requirements and timetable for the correction of Year 2000 issues are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that may cause material differences include, but are not limited to, the availability of trained personnel, the ability to locate and collect all relevant computer codes and similar uncertainties. 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. THREE MONTH PERIOD ENDED SEPTEMBER 30 , 1998 AND 1997 The Company's revenues are derived from the licensing and sale of systems comprised of third party and internally developed software ("Systems") and from professional services, maintenance services, and support services ("Services"). Professional services include consulting, implementation, training, project management, and custom software development provided to the Company's customers with installed systems and those in the process of installing systems. Total revenues, consisting of Systems revenue and Services revenue, for the quarter ended September 30, 1998 were $7,009,000, representing a 30% increase compared to the same quarter of the prior year. Systems revenues of $3,107,000 for the quarter reflect an increase of $2,260,000 compared to the same quarter of the prior year. The increase is primarily attributable to an increase in revenues from the sale of cd.solutions products. Service revenues for the quarter were $3,902,000 in the current year versus $4,550,000 in the prior year. The decrease is primarily due to a decrease in support revenues and training revenues. Costs of systems revenues were $801,000 in the quarter ended September 30, 1998 compared to $781,000 in the same quarter of the prior year. Exclusive of amortization of capitalized and purchased software expense, costs of systems revenues were $227,000 in the current quarter as compared to $144,000 for the same period last year. 11 Costs of service revenues as a percentage of total service revenues increased slightly to 58% in the second quarter of the current year, compared to 56% in the second quarter of the prior fiscal year. Product development expenses for the quarter ended September 30, 1998 were $813,000, a decrease of $593,000 from the same quarter of the prior year. Total product development expenditures for the three months ended September 30, 1998 were $1,161,000, consisting of capitalized purchased software and software development costs of $348,000 and product development expense of $813,000. Total product development expenditures for the three months ended September 30, 1997 were $1,406,000, consisting of no capitalized purchased software and software development costs and product development expense of $1,406,000. The decrease is due to the introduction of various products to the market in the current year which were in development in the prior year. Sales and marketing expenses for the quarter ended September 30, 1998 were $758,000, representing a decrease of $366,000 or 33%, from the comparable quarter in the prior year. The decrease is primarily attributable to a reduction in personnel costs. General and administrative expenses for the quarter ended September 30, 1998 were $1,375,000, versus $1,260,000 in the comparable quarter in the prior year. The increase is primarily due to increased personnel costs. There was no amortization of goodwill, customer lists and noncompete agreements for the quarter ended September 30, 1998 compared to $69,000 for the same quarter of the prior year. The elimination of amortization expense is the result of the write-off of remaining goodwill and customer lists in the second quarter of fiscal year ended March 31, 1998 due to impaired recoverability. Interest expense net of interest income for the quarter ended September 30, 1998 was $112,000, an increase of $68,000 compared to the same quarter of the prior year. The increase is due to increased borrowings and decreased short term investments. SIX MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND 1997 Total revenue for the six months ended September 30, 1998 totaled $13,176,000, compared to $10,963,000 for the same period a year ago. For the six months ended September 30, 1998, total revenue is comprised of Systems revenue of $4,411,000 and Services revenue of $8,765,000. For the same period of the prior year, Systems revenue and Services revenue totaled $1,829,000 and $9,134,000, respectively. Systems revenue increased by $2,582,000 primarily due to higher sales of the cd.solutions products. Services revenue decreased by $369,000 due to declining support revenue associated with legacy products partially offset by increases in consulting revenue. Costs of Systems revenue were $1,527,000 for the six months ended September 30, 1998 compared to $1,558,000 for the same period a year ago. Costs of Systems revenue includes amortization of capitalized and purchased software of $1,008,000 for the six months ended September 30, 1998 and $1,150,000 for the six month period ended September 30, 1997. 12 Costs of Services revenue as a percentage of Services revenue were 48% for the six months ended September 30, 1998, a slight reduction from 51% for the same period a year ago. Product development expenses for the six months ended September 30, 1998 were $1,560,000, a decrease of $920,000 from the same period in the prior year. Total product development expenditures for the six months ended September 30, 1998 were $2,508,000, consisting of capitalized purchased software and software development costs of $948,000 and product development expense of $1,560,000. Total product development expenditures for the six months ended September 30, 1997 were $2,686,000, consisting of capitalized purchased software and software development costs of $206,000 and product development expense of $2,480,000. Sales and Marketing expense totaled $1,407,000 and $1,829,000 for the six months ended September 30, 1998 and 1997, respectively. The $422,000 decrease is primarily due to lower payroll expense and lower overall spending on sales and marketing. General and Administrative expense increased $709,000 to $2,711,000 for the six months ended September 30, 1998 compared to $2,002,000 for the same period in the prior year. The increase is primarily due to increased payroll and legal expenses. Interest expense net of interest income for the six months ended September 30, 1998 totaled $216,000 compared to $56,000 for the same period a year ago. The increase is due to increased borrowings and decreased short term investments. This Quarterly Report on Form 10-Q contains various forward-looking statements and information that are based on management's beliefs as well as assumptions made by 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. 13 Part II - OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Stockholders, held on September 10, 1998, the following members were elected to the Company's Board of Directors, each by the respective vote indicated to the right of such nominee's name:
Authority Broker Nominee For Withheld Abstentions Non-Votes - ------- --- --------- ----------- --------- Yuval Almog 6,015,305 6,626 0 0 William R. Baumel 6,015,305 6,626 0 0 Larry G. Gerdes 6,015,339 6,592 0 0 W. Max Seybold 6,015,339 6,592 0 0
In addition to the election of the Company's Board of Directors, the Stockholders adopted the Company's 1998 Non-Employee Stock Option Plan, under which the Company's non-employee directors, Messrs. Almog, Baumel and Gerdes, received, in aggregate, options to acquire 22,800 shares of common stock. Of the 22,800 shares of common stock (i) 15,600 shares are exercisable at a price per share of $5.00 at any time prior to September 3, 2006; (ii) 3,600 shares are exercisable at a price per share of $5.94 at any time prior to September 3, 2007 and (iii) 3,600 shares are exercisable at a price per share of $2.91 at any time prior to September 9, 2008. Stockholders representing 5,951,659 shares voted for the resolution to adopt the plan, authority was withheld for 57,490 shares, 12,782 shares abstained, and there were no broker non-votes. There were no other matters submitted to a vote of stockholders for the quarterly period ended September 30, 1998. Item 5. OTHER INFORMATION During September 1998, the board of directors of the Company accepted the resignation of Reid E. Simpson, Senior Vice-President and Chief Financial Officer. While the Company is conducting a search for a successor, the board of directors has named the Company's Controller, David J. Vock, acting Chief Financial Officer. As previously reported on March 23, 1998, the Board of Directors of the Company adopted a resolution to change the Company's fiscal year end to the thirty-first day of December effective April 1998. The Company filed Form 10-K for the twelve months ended March 31, 1998 and Form 10-Q for each of the three month periods ended June 30, 1998 and September 30, 1998 and will file Form 10-K for the nine months ended December 31, 1998. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See exhibit index. (b) Reports on Form 8-K None 14 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: November 16, 1998 By /s/ David J. Vock ----------------- David J. Vock Acting Chief Financial Officer and Duly authorized officer 15 EXHIBIT INDEX ---------------------- EXHIBIT NO. DESCRIPTION - ------------------ -------------------------------------------------- 10.14 Fourth Amendment dated September 30, 1998 to Loan and Security Agreement between Company and Coast Business Credit dated January 1997 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. EX-10.14 2 EXHIBIT 10.14 Exhibit 10.14 Fourth Amendment to Loan and Security Agreement FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT This Fourth Amendment to Loan and Security Agreement ("AMENDMENT") is entered into as of this 30th day of September, 1998, between Delphi Information Systems, Inc. ("BORROWER") and Coast Business Credit(R), a division of Southern Pacific Bank ("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. AMENDMENT. Sub paragraph 1(a) of the Schedule to the Loan Agreement ("SCHEDULE") is hereby deleted and the following is substituted therefor: "(a) Loans ("the Receivable Loans") not to exceed the following amounts: (i) from October 1, 1998 though December 31, 1998, two and one-half (2 1/2) times "Monthly Collections," which shall be defined as the rolling 12-month moving average of Borrower's monthly collections (excluding extraordinary cash receipts); (ii) from January 1, 1999 through March 31, 1999, two (2) times Monthly Collections: (iii) from April 1, 1999 and thereafter with respect to recurring collections, one (1) times Monthly Collections and with respect to non-recurring collections, 75% of the amount of Borrower's Eligible Receivables (as defined in Section 8 above)." 2. NOTIFICATIONS. Borrower agrees to notify Coast in writing within two (2) days after the cancellation or termination of any cd.global contract. Borrower agrees to advise Coast in writing at the beginning of each calendar quarter of the status of the cd.global contracts. 3. CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is subject to the condition that Coast shall have received each of the following: a. This Amendment, duly executed and delivered by each party hereto. b. Such other documents, instruments, approvals or opinions as Coast may reasonably request. 4. FACILITY MODIFICATION FEE. In addition to all other fees and charges, Borrower hereby agrees to pay Coast a facility modification fee of $50,000, fully earned and payable on the date hereof. 5. REAFFIRMATION. Except as amended by terms herein, the Loan Agreement remains in full force and effect. If there is any conflict between the terms and provisions of this Amendment and the terms and provisions of the Loan Agreement, the terms and provisions of this Amendment shall govern. 6. COUNTERPARTS. This Amendment may be executed in one or more counterparts. 7. GOVERNING LAW. This Amendment shall be governed by the laws of the State of California. 8. ATTORNEYS' FEES. If any action or proceeding shall be commenced 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 the reimbursement of its costs and reasonable attorneys' fees. EACH OF THE PARTIES HERETO WAIVES THE 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. "Coast" "Borrower" COAST BUSINESS CREDIT, DELPHI INFORMATION SYSTEMS, INC. A DIVISION OF SOUTHERN PACIFIC BANK By: ________________________________ Its: ________________________________ By: _________________________ Its: ________________________ EX-11 3 EXHIBIT 11 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 six months ended September 30, 1998, 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 Six Months Ended September 30, September 30, ------------------- ------------------ 1998 1997 1998 1997 -------- -------- -------- -------- Net income (loss) $ 805 $(3,838) $1,307 $(3,817) ------- -------- ------ -------- Common stock-weighted average number of shares outstanding 7,395 7,344 7,395 7,314 ------- -------- ------ -------- Common stock equivalents: stock options 18 (a) 34 (a) warrants 0 (a) 0 (a) preferred stock 10 (a) 10 (a) ------- ------ Total equivalents 28 (a) 34 (a) ------- -------- ------ Total shares common stock and equivalents (for diluted EPS) 7,423 7,344 7,429 7,314 ------- -------- ------ -------- Basic EPS $0.11 $(0.52) $0.18 $(0.52) ------- -------- ------ -------- Diluted EPS $0.11 $(0.52) $0.18 $(0.52) ------- -------- ------ --------
(a) Common stock equivalents excluded to prevent antidilution. EX-27 4 EX-27
5 6-MOS DEC-31-1998 APR-01-1998 SEP-30-1998 992 0 6,720 0 0 7,913 9,611 7,828 16,501 9,234 0 0 49 740 6,896 16,501 13,176 13,176 5,745 5,745 5,898 0 216 1,317 10 1,307 0 0 0 1,307 0.18 0.18
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